2023 (5) TMI 1459 - HC - Income Tax

No additions under s.68/69C or reassessments under s.153A without new incriminating evidence against completed assessments

Principal Commissioner Of Income Tax (Central), Ahmedabad Versus Kaushik Devjibhai Patel

Where no incriminating material is found, additions under s.68/69C and reassessments invoked via s.153A cannot be made against a completed assessment; the ... Assessment u/s 153A - Addition u/s. 68 - bogus LTCG - addition u/s. 69C made on account of expenses on bogus LTCG - whether no incriminating materials were found with regard to the issue of additions made in the assessment order? HELD THAT:- The decision of Saumya Construction [2016 (7) TMI 911 - GUJARAT HIGH COURT] was also quoted to held that the case of completed assessment/unabated assessment in absence of any incriminating material will not permit making of addition by the AO and that the AO has no jurisdiction to reopen the completed assessment. Finally, the supreme court confirmed the view taken by the Delhi High court in Kabul Chawla [2015 (9) TMI 80 - DELHI HIGH COURT] and of this Court in Saumya Construction (supra laying down the law that no addition can be made in respect of completed assessment in absence of any incriminating material. The supreme court in laying down the proposition considered the object and purpose of insertion of section 153A of the Act. In Abhisar Buildwell P. Ltd. [2023 (4) TMI 1056 - SUPREME COURT], there is no gainsaying that the issue sought to be raised and the substantial questions of law ought to be put forth in that context, are answered. ISSUES PRESENTED AND CONSIDERED 1. Whether, in respect of completed (unabated) assessments, additions under the Income Tax Act can be sustained by the Assessing Officer in absence of incriminating material unearthed during search/requisition under section 132/132A when making assessment under section 153A. 2. Whether deletion of additions made under section 68 (on account of alleged bogus long-term capital gains) and section 69C (expenses thereof) is legally sustainable where no incriminating material was found during search. ISSUE-WISE DETAILED ANALYSIS Issue 1: Scope of AO's jurisdiction under Section 153A in respect of completed (unabated) assessments Legal framework: Section 153A mandates issuance of notice after search under section 132, requires filing returns for six preceding assessment years and authorises the AO to assess/reassess 'total income' for those years; sections 132/132A govern search/requisition and seizure of material. Precedent treatment: The Court followed and applied the ratio of prior authoritative High Court decisions that restrict interference with completed assessments absent incriminating material found in search (referred to as lead decisions). Contrasting High Court authority that favored broader AO powers was recognized but not followed. Interpretation and reasoning: The Court interpreted section 153A as creating two distinct legal effects: abatement/reassessment where assessments were pending and reassessment/interference with completed assessments only to the extent of incriminating material discovered in the search or requisition. The Court reasoned that although section 153A empowers computation of 'total income' for six years, it does not permit arbitrary interference with completed assessments unrelated to search-generated incriminating material. The object and purpose of section 153A were held to support this limiting interpretation. Ratio vs. Obiter: Ratio - Completed assessments cannot be reopened or additions sustained under section 153A in absence of incriminating material seized or discovered in the course of search/requisition. Obiter - Observations on the uniformity of approach among various High Courts and policy considerations underlying section 153A. Conclusion: The AO's jurisdiction under section 153A to alter completed assessments is confined to matters connected with incriminating material found during the search/requisition; absent such material, additions to completed assessments cannot be sustained. Issue 2: Application of the above principle to deletions of additions under sections 68 and 69C (alleged bogus LTCG and related expenses) Legal framework: Section 68 permits addition where unexplained cash credits are not satisfactorily explained; section 69C relates to unexplained expenditure; such additions must be supported by relevant material/evidence in the record, consistent with powers under section 153A where invoked. Precedent treatment: The Court applied the same controlling precedent limiting post-search interference with completed assessments to incriminating material arising from the search; prior decisions of this Court and other High Courts adopting that view were followed. Interpretation and reasoning: The Tribunal and lower appellate authority had deleted additions under sections 68 and 69C on the ground that no incriminating material was found in the searched premises. The Court accepted that reasoning in light of the controlling principle that absent incriminating/seized material there is no jurisdiction to make additions in respect of completed assessments. The concession made by learned counsel for Revenue that the Supreme Court's decision on the scope of section 153A governs the appeal was treated as acknowledging that the deletions conformed to law. Ratio vs. Obiter: Ratio - Deletions of additions under sections 68 and 69C were proper where no incriminating material from search/requisition supported the additions; this follows the general ratio on section 153A's scope. Obiter - Specific factual observations on why particular entries were or were not incriminating in the record of the assessment (fact-specific and not generalized beyond the record). Conclusion: Deletions of additions made under sections 68 and 69C stand sustained where the assessment-altering additions to completed assessments lacked nexus with any incriminating material found during search/requisition; therefore the Tribunal's dismissal of Revenue's appeal was affirmed. Cross-References and Interaction of Issues 1. Issue 2 is an application of the principle established under Issue 1: the legality of specific additions (s.68/s.69C) is contingent on whether incriminating material relating to those additions was found in the search/requisition. 2. The Court's conclusion on both issues was driven by binding precedent establishing the limitation on AO's power under section 153A; divergence in some High Court decisions was noted but not followed. Disposition The Court dismissed the Revenue's appeal, holding that no substantial question of law arises in view of the controlling precedent that absent incriminating material seized in search/requisition, additions to completed assessments under section 153A cannot be sustained; accordingly the deletions under sections 68 and 69C were upheld.