2022 (11) TMI 1565 - AT - Income Tax

Additions under section 153A unsustainable where search uncovers no incriminating material; reassessment and additions deleted

The Asstt. Commissioner of Income Tax (Central) -II Versus M/s. M. Ahuja Project (India) Pvt. Ltd., M. Ahuja Project (India) Pvt. Ltd. Versus DCIT, Central-1, Bhopal, The Asstt. Commissioner of Income Tax (Central) -II Versus Shri Mahendra Ahuja and M/s. M.R. Agriculture Pvt. Ltd., Raipur, Smt. Roma Ahuja Versus DCIT, Central -1, Bhopal

ITAT held that additions under section 153A could not be sustained because no incriminating material was unearthed during the search. Relying on earlier ... Assessment u/s 153A - incriminating material as unearthed during the search or not? - HELD THAT:- Recently, ITAT, Mumbai Bench in the case of Jasmin K. Ajmera [2021 (11) TMI 774 - ITAT MUMBAI] has considered the scope of section 153A of the Act wherein the Tribunal discussed proposition of law laid down in the case of CIT vs. Kabul Chawla[2015 (9) TMI 80 - DELHI HIGH COURT] and Saumya Construction [2016 (7) TMI 911 - GUJARAT HIGH COURT] and finally since no incriminating material was unearthed during the search, no additions could have been made to income already assessed and concluded was of the finding of the Bench. In the absence of incriminating material found during the course of course the addition is not found to be satisfied. ISSUES PRESENTED AND CONSIDERED 1. Whether the prior approval granted by the designated superior authority under the statute for assessments following a search (statutory prior approval requirement) was validly given with independent application of mind, or was a mechanical/blanket approval vitiating the consequent assessment orders. 2. Whether additions made in completed (non-abated/unabated) assessments pursuant to proceedings triggered by a search may be sustained in the absence of incriminating material found or seized during the search - i.e., the permissible scope of assessment under the post-search assessment provision. ISSUE-WISE DETAILED ANALYSIS - ISSUE 1: VALIDITY OF PRIOR APPROVAL UNDER THE STATUTE Legal framework: The statute requires that no assessment below a specified rank shall be finalized in cases arising from search or requisition except with the prior approval of the designated superior authority. The purpose of the prior-approval requirement is supervisory: to ensure that the superior authority independently examines the material/ draft assessment and does not convert the approval into an empty ritual. Precedent treatment: The Court reviewed authoritative pronouncements holding that the prior approval must reflect application of mind and must be based on materials on record; approvals granted perfunctorily, in bulk, on the same day as receipt of draft orders, or on mere presumption/certification by the subordinate officer have been held invalid by coordinate benches and higher courts. Those precedents were followed. Interpretation and reasoning: The Tribunal examined documentary evidence (forwarding memo, approval memo, note sheets, office locations and timing) and found objective indicia of mechanical action: (a) draft assessment orders forwarded shortly before/on the date of approval; (b) approval issued from a distant camp office with no evidence of transmission of records; (c) approval language consisting of blanket endorsement or presumption that the AO had done necessary verification rather than any recorded independent satisfaction; (d) multiple matters covered by a single consolidated approval. These factors, taken cumulatively, established that the superior authority neither had adequate time nor contemporaneous access to the assessment records/seized materials to apply independent judgment. Ratio vs. Obiter: Ratio - where prior approval is a statutory precondition, an approval that does not evidence independent application of mind and is granted as a mere formality, presumptively without perusal of material, is invalid and renders consequent assessment void-ab-initio. Observations comparing procedural practices and administrative manuals were explanatory/obiter but supportive of the ratio. Conclusions: The approval under the statute was quashed as non-est (invalid) because it was granted in a hasty, mechanical, and consolidated manner without demonstrable application of mind or reference to relevant records/seized material. Consequential assessment orders based solely on that approval were held void-ab-initio and annulled. The Tribunal applied and followed coordinate decisions and the guiding principle that the supervisory approval must not be reduced to an empty ritual. ISSUE-WISE DETAILED ANALYSIS - ISSUE 2: SCOPE OF ASSESSMENT IN UNABATED YEARS - REQUIREMENT OF INCRIMINATING SEIZED MATERIAL Legal framework: The post-search assessment provision requires issuance of notices and permits assessment/reassessment for up to six preceding years. The provision emerged to enable assessment in relation to material discovered in search/requisition; its object and heading tie the exercise to the search. The statutory scheme distinguishes between abated (pending) and completed (unabated) assessments. Precedent treatment: The Tribunal analysed a body of judicial authority holding that completed/unabated assessments can be revisited under the post-search provision only on the basis of incriminating material found or seized during the search (nexus requirement). That line of authority was followed; contrary views holding open wider inquiry were considered and distinguished on facts. Interpretation and reasoning: The Tribunal assessed factual record (panchnama, seized documents, remand reports, statements and timing of notices). Key findings: (a) for the assessment years challenged the time for issuing routine notices had expired and those years were therefore completed/unabated; (b) there was no seized incriminating material on the specific issues on which additions were made (e.g., share application money/share premium); (c) statements recorded during or after search were retracted and lacked independent corroboration in seized material; (d) the assessing authority's additions relied on post-search enquiries or materials not established as incriminating in the search of the assessee's premises. On these facts the Tribunal concluded there was no permissible basis to interfere with completed assessments. Ratio vs. Obiter: Ratio - in cases where an assessment year was completed (non-abated) at the time of search, additions in that year made under the post-search procedure are sustainable only if supported by incriminating material found or seized during the search that relates to the additions; uncorroborated statements or after-acquired material not tied to incriminating seized evidence cannot justify additions in unabated years. Observations about investigative powers and administrative practice (e.g., use of summons, enquiries) are explanatory/obiter but do not displace the core ratio. Conclusions: The Tribunal upheld the view that, on the facts, additions in the unabated assessment years could not be sustained because no incriminating material relating to the additions was found/seized during the search and statements relied upon were retracted/un corroborated. Accordingly the impugned additions for the completed assessment years were deleted. Because both the invalidity of prior approval (Issue 1) and absence of incriminating seized material independently warranted quashing, the assessments were annulled on either ground. CROSS-REFERENCES AND CONSEQUENTIAL FINDINGS 1. The Tribunal treated the two issues as alternative and cumulative bases for relief: even if the absence of incriminating material alone suffices to quash additions in unabated years, the invalidity of prior approval independently rendered the assessment orders void. Both holdings reinforce the outcome. 2. The Tribunal relied on administrative guidance and precedents emphasizing that supervisory approval must evidence independent satisfaction based on records/seized materials; where approval contains only presumption or a blanket endorsement, it fails statutory requirement. FINAL CONCLUSIONS 1. Prior approval requirement: supervisory approval given as a routine, contemporaneous, consolidated or presumption-based endorsement without demonstrable perusal of records/seized material and without independent application of mind is invalid; consequential assessments are void-ab-initio. 2. Scope of post-search assessment: for completed/unabated assessment years the Assessing Officer may interfere only when there is incriminating material found/seized during the search that justifies reassessment on the particular issue; absent such material, additions are unsustainable and must be deleted. 3. On the facts, both defects were found: the approval was non-est and incriminating seized material did not support additions for unabated years; therefore the impugned assessments were quashed and appeals allowed for the assessee and dismissed for the Revenue to the extent they challenged those deletions.