2023 (4) TMI 1445 - AT - Income Tax

Under Section 153A, assessments cannot be reopened without new incriminating material; earlier income must be reinstated

ITAT MUMBAI held that under section 153A the AO cannot disturb completed/unabated assessments for the relevant years where no incriminating material was ... Assessment u/s 153A - validity of additions made by the AO since these assessments fall under the category of “unabated assessments” and no incriminating material relating to these years was found in the course of search - HELD THAT:- We find that there is no dispute with regard to the facts that the Assessment relating to AY 2015-16, fall under the category of “unabated assessments”. There is also no dispute that the department did not unearth any incriminating material relating to the additions of bogus purchases, bogus job works & labour charges, unexplained cash credits of loans and interest on loans and hence the AO, in the absence of any incriminating material relating to the above said additions, could not have made any addition in unabated assessment years. In support of the above said proposition, we rely upon the decision rendered in the case of Continental Corporation (Nhava Sheva) Ltd [2015 (5) TMI 656 - BOMBAY HIGH COURT] and Gurinder Singh Bawa [2015 (10) TMI 1761 - BOMBAY HIGH COURT] wherein held that the unabated assessments (finalized assessments) cannot be touched by resorting to the provisions of sec. 153A of the Act unless some incriminating materials relating to the said assessments, which are contrary to and/or not disclosed during regular assessment proceedings, are found. Whereas the provisions of sec. 153A of the Act provide for issuing of notice u/s 153A of the Act for six assessment years immediately preceding the year of search and thereafter, the AO shall assess or reassess the total income for the above said six years. This section further provides that all pending assessment or re-assessment pending as on the date of search shall abate. Hence the assessments of the assessment years falling within the period of above said six years which are not pending, i.e., which have attained finality shall not abate. Assessments of such assessment years are called “unabated / completed / finalized” assessments. The question as to whether the AO is entitled to interfere with such kinds of unabated/completed/ finalized assessments or not without there being any incriminating material found during the course of search, was examined in the case of All Cargo Logistics Ltd [2012 (7) TMI 222 - ITAT MUMBAI(SB)] wherein it was held that the AO could interfere with the unabated/completed/finalized assessments only if the incriminating materials found during the course of search warrant such interference, meaning thereby, if the search action did not bring out any incriminating material, then the AO cannot disturb the completed assessments and he has to simply reiterate the earlier total income in the present assessment order. Decided against revenue. ISSUES PRESENTED AND CONSIDERED 1. Whether assessments already finalized (unabated/completed assessments) covered by notice under section 153A can be disturbed by the Assessing Officer in absence of any incriminating material found during search/requisition. 2. Whether additions made on account of alleged bogus purchases, bogus job-work and labour/subcontract expenses, unexplained unsecured loans (section 68) and disallowance of interest on such loans can be sustained where no incriminating material connected to those specific additions was seized or unearthed during the search/requisition proceedings. 3. Proper interpretive relationship between section 153A and section 132 (and section 132A) - scope of AO's power to assess/reassess six years and the requirement of nexus to seized material. ISSUE-WISE DETAILED ANALYSIS Issue 1: Power to disturb finalized assessments under section 153A in absence of incriminating material Legal framework: Section 153A mandates issuance of notice and assessment/reassessment for six years preceding the year of search; provisos distinguish pending (abating) proceedings and finalized (non-abating) assessments. Section 132/132A authorizes search/requisition, identifying circumstances (non-production of books, possession of undisclosed property) giving rise to search. Precedent treatment: The Tribunal followed and applied earlier Tribunal Special Bench analysis and the jurisdictional High Court's decisions which hold that finalized assessments cannot be disturbed under section 153A unless incriminating material relevant to those finalized years is found in the course of search/requisition. Coordinate and other High Court decisions with the same proposition were followed. Interpretation and reasoning: The Court construed section 153A in conjunction with section 132(1), holding that assessment under 153A has a vital link to the initiation and conduct of search; where completed assessments have attained finality, they stand unless search unearthed material contrary to reliefs already granted. Literal reading of section 153A and its provisos supports that pending assessments abate but finalized assessments do not automatically lose finality absent incriminating material. The Tribunal observed absence of any mention in seizure records, panchnama or statements of incriminating documents relevant to the questioned additions, supporting conclusion that no such material existed to justify disturbance. Ratio vs. Obiter: Ratio - For finalized (unabated) assessments, AO cannot reopen or disturb the earlier concluded assessment under section 153A unless incriminating material relating to the specific assessment year/issue is found in the search/requisition proceedings. Obiter - Discussion of legislative purpose and potential hardship does not alter the binding operative rule. Conclusion: The Tribunal held the CIT(A) correctly quashed the assessment for the finalized year(s) because no incriminating material was found; the AO lacked jurisdiction to make additions in unabated assessment years on that basis. Issue 2: Sustenance of specific additions (bogus purchases, job-work & labour expenses, unsecured loans under section 68, and interest disallowance) absent incriminating material Legal framework: Section 68 places onus on assessee to explain unexplained cash credits/loans by proving identity, genuineness and creditworthiness of creditors; general assessment powers under sections 143(3) read with 153A must be exercised with connection to the search/requisition findings when assessing finalized years. Precedent treatment: The Tribunal applied the binding authorities that require nexus between additions and incriminating material discovered during search for interference with finalized assessments. Where no such nexus exists, additions are unsustainable; both Tribunal and High Court jurisprudence cited support deletion of such additions where search yielded no incriminating material relevant to those additions. Interpretation and reasoning: The Tribunal examined the record (panchnama, seized books, statements) and found no reference to incriminating documents connected to the alleged bogus purchases, job-work/labour expenses or unsecured loans. In absence of seized evidence or discovery during search tying the alleged transactions to undisclosed income or undisclosed property, the AO could not validly make the additions in a finalized year. The Tribunal noted that mere failure of assessee to satisfy AO on genuineness does not justify disturbing a completed assessment unless search produced contrary material. Ratio vs. Obiter: Ratio - Additions for bogus purchases, bogus job-work/labour expenses, unexplained loans and related interest disallowance cannot be made in finalized assessment years under section 153A unless incriminating/seized material relating specifically to those additions is found during search/requisition. Obiter - Observations on sufficiency of payment by account payee cheques and evidentiary sufficiency were considered but not the primary basis for quashing. Conclusions: The Tribunal upheld the CIT(A)'s deletion/quashing of the specific additions (bogus purchases, job-work/labour expenses, unsecured loans and interest disallowance) because no incriminating material relating to these items was seized or otherwise established in search proceedings. Issue 3: Scope and nexus requirement between seized material and assessment under section 153A; interplay with precedent Legal framework: Section 153A prescribes mandatory notice and assessment for six prior years when search/requisition occurs; provisos provide for abatement of pending proceedings and revival where annulment occurs. Harmonious reading of section 153A with section 132(1) informs the permissible scope of reassessment of finalized years. Precedent treatment: The Tribunal followed the Special Bench exposition and jurisdictional High Court rulings that delineate (a) assessments pending on date of search abate and are to be recomputed under section 153A; (b) non-abated finalized assessments are to be interfered with under section 153A only on basis of books/documents/undisclosed income discovered in the search or other incriminating material linking to the concluded assessment. Interpretation and reasoning: The Tribunal accepted the textual and purposive approach that the assessment under section 153A must be grounded in material emanating from the search or other post-search data with a nexus to the matters being reopened. The Court rejected the department's contention that section 153A authorises disturbance of finalized assessments without any seized/incriminating nexus, and treated contrary judicial views as distinguished or not authoritative on facts where search produced no incriminating material. Ratio vs. Obiter: Ratio - Assessment under section 153A is integrally linked to the facts unearthed in search/requisition; therefore the AO's power to reassess finalized years is constrained by the requirement of incriminating material connecting the fresh additions to the search. Obiter - Extended commentary on legislative design and comparisons of alternative readings of section 153A. Conclusion: The Tribunal affirmed that the CIT(A)'s reliance on binding precedents interpreting the nexus requirement and the scope of section 153A was correct; the AO's actions were contrary to law in absence of incriminating material. Disposition On application of the legal framework and binding precedents, and on examination of the seizure records and statements which showed no incriminating material relating to the contested additions, the Tribunal held that the CIT(A) correctly quashed the assessments and deletions were warranted; the revenue's appeal was dismissed.