2023 (6) TMI 1484 - AT - Income Tax

Tax Search Operation Reveals No Incriminating Evidence, Tribunal Strikes Down Unsubstantiated Additions Under Rule 27

The ITAT addressed key issues regarding tax assessments post-search operations. The Tribunal held that additions made by the Assessing Officer for AYs ... Assessment u/s 153A - incriminating material found or seized during the search u/s 132 or not? - HELD THAT:- No valid and sustainable addition could have been made in the hands of assessee in absence of any incriminating material as per judgment of Kabul Chawla [2015 (9) TMI 80 - DELHI HIGH COURT] - Decided against revenue. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal were:- Whether additions made by the Assessing Officer for AYs 2010-11 and 2011-12, based on balance sheet and financial accounts without any incriminating material found or seized during the search under section 132 of the Income Tax Act, are sustainable in law.- Whether the Tribunal can admit and adjudicate grounds raised by the assessee under Rule 27 of the ITAT Rules 1963, even if such grounds were not considered or adjudicated by the Commissioner of Income Tax (Appeals).- The applicability of the judgment of the Hon'ble Delhi High Court in CIT vs. Kabul Chawla (380 ITR 573) regarding the bar on making additions in completed/unabated assessments in absence of incriminating material found during search and seizure operations.- The validity of the Assessing Officer's reliance on financial statements and balance sheets to make additions without any fresh incriminating evidence post-search.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Admission of Grounds under Rule 27 of ITAT Rules 1963Relevant Legal Framework and Precedents: Rule 27 of the ITAT Rules 1963 allows the Tribunal to admit additional grounds not considered by the lower appellate authority. The Tribunal relied on precedents including the Hon'ble Bombay High Court judgment in Jehangir H.C Jehangir vs. ITO (2014) 112 DTR 262 and the Hon'ble Gauhati High Court judgment in CIT vs. Sangahmitra Bharali (361 ITR 481).Court's Interpretation and Reasoning: The Tribunal held that the assessee is entitled to raise legal grounds under Rule 27 even if the CIT(A) did not render any view on them. The grounds raised were based on authoritative judgments of the jurisdictional High Court and coordinate benches.Application of Law to Facts: Since the grounds raised by the assessee were grounded on the binding judgment of the Delhi High Court in Kabul Chawla and related precedents, the Tribunal allowed the application and admitted the grounds for adjudication.Conclusion: The Tribunal affirmed the principle that legal grounds not considered by the CIT(A) can be admitted and adjudicated by the Tribunal under Rule 27.Issue 2: Whether additions made without incriminating material found during search in completed/unabated assessments are validRelevant Legal Framework and Precedents: Section 132 of the Income Tax Act empowers search and seizure operations. Post-search assessments can be reopened or additions made if incriminating material is found during the search. The key precedent relied upon is the judgment of the Hon'ble Delhi High Court in CIT vs. Kabul Chawla (2016) 380 ITR 573, which held that in cases where assessments are completed/unabated at the time of search, no additions can be made unless incriminating material is found and seized during the search. This principle was further upheld by the Hon'ble Supreme Court in PCIT vs. Abhisar Buildwell P Ltd. (Civil Appeal No. 6580/2021 dated 24.04.2023).Court's Interpretation and Reasoning: The Tribunal noted that the assessments for AYs 2010-11 and 2011-12 were completed by way of intimation under section 143(1) before the search dated 25.04.2014. The Assessing Officer made additions based solely on financial statements and balance sheet analysis, without any incriminating material seized during the search. The Tribunal emphasized that additions in completed/unabated assessments require the presence of incriminating material discovered during the search, as per the Kabul Chawla ruling.Key Evidence and Findings: The Tribunal observed that the Revenue failed to produce or point out any incriminating material found or seized during the search. The Assessing Officer's additions were based on routine examination of accounts and financials, which is not permissible in the absence of incriminating evidence post-search.Treatment of Competing Arguments: The Revenue contended that the additions were valid and sustainable based on financial documents and statements. However, when pressed, the Revenue could not produce any incriminating material discovered during the search, nor disputed that assessments were completed before the search. The Tribunal found this fatal to the Revenue's case.Application of Law to Facts: Applying the principle in Kabul Chawla, the Tribunal held that additions made without incriminating material in completed/unabated assessments are not sustainable. This led to the deletion of all additions made by the Assessing Officer for both AYs.Conclusion: The Tribunal concluded that the additions were illegal and unsustainable, directing their deletion in line with binding judicial precedents.Issue 3: Adjudication of Revenue's GroundsThe Tribunal noted that since all additions were quashed and deleted based on the assessee's grounds, and no submissions were made by the Revenue on their grounds, the Tribunal declined to adjudicate the Revenue's grounds as they had become infructuous.3. SIGNIFICANT HOLDINGS- 'The assessee by way of application under Rule 27 of ITAT Rules 1963 can raise legal grounds which have not been considered and adjudicated by the ld. CIT(A).'- 'In absence of any incriminating material found and seized during the course of search and seizure operation u/s. 132 of the Act no addition can be made in the hands of assessee in the case of completed/unabated assessment years.'- 'The Assessing Officer made additions on basis of balance sheet and other financial account and statements of assessee without having any incriminating material found and seized during the course of search and seizure operation on the assessee. Therefore no valid and sustainable addition could have been made.'- 'The Revenue failed to produce any incriminating material in support of the additions made by the Assessing Officer for both the assessment years.'- 'Accordingly grounds raised by the assessee in the application under rule 27 of ITAT Rules 1963 deserve to be allowed and the additions made by the Assessing Officer are directed to be deleted.'- The Tribunal's final determination was to allow the assessee's application under Rule 27, admit the grounds based on Kabul Chawla, delete all additions made by the Assessing Officer for AYs 2010-11 and 2011-12, and dispose of the Revenue's appeals as infructuous.