2025 (1) TMI 1719 - AT - Income Tax

Search assessment for non-abated years: can s.153A add income based only on settlement disclosure; addition deleted.

In assessment under s.153A for non-abated years, the dominant issue was whether an addition could be sustained solely on additional income offered by the ... Assessment u/s 153A - Additional income offered in the application filed u/s 254(d) before the Hon’ble Income Tax Settlement Commission (ITSC) in the absence of any incriminating evidence found at time the of search - HELD THAT:- As it is now a settled law that in cases where assessments are not abated, the provisions of Section 153A can be invoked only in respect of the income which is found to have escaped assessment as a result of incriminating material found during the course of search. In fact, the very scheme of sec 153A of the Act itself suggests that it is an assessment in case of search or requisition. Provisions of sec. 153A are also operative notwithstanding anything contained in sec 139, 147,149,151 and 153 of the Act. Thus, the assessments in the present case can be completed only based on the evidences found as a result of search and the past assessments completed cannot be disputed or disturbed unless any evidence is found as a result of search. In view of our above discussion and also taking into consideration the judicial precedents, we are of the view that since no evidences to prove that the additional income was earned were found during the course of search, therefore no addition on account of the same could have been made in the hands of the assessee. Since as per the facts of the present case the disclosure made by the assessee before the settlement proceedings were used as ‘only basis’ to make additions in assessment proceedings in this regard, we have already taken into consideration that during scrutiny assessment no additions were made in the case of the assessee and the return of income was accepted. However the additions were made on the basis of declaration made by the assessee before the Hon’ble ITSC. In the present case which is also of ‘Hisaria Group’, the search was conducted on the business premises of Hisaria Group and subsequent to search action assessee company along with other companies of Hisaria Group filed a petition under section 245C(1) of the Act before Settlement Commission. The assessee has offered additional income on ad-hoc basis to cover up any discrepancies and buy Pease of mind and it was not towards any particular unaccounted income which had escaped assessment or for which any evidence found at the time of search and this offer was made for maintainability of petition before Settlement Commission as stated in clause (i) and clause (ia) of section 245C(1) of the Act. Therefore, after considering the entire facts and circumstance and case of Sangeet kumar Sawarmal Hisaria [2022 (11) TMI 365 - ITAT MUMBAI] which pertains to the same search and exactly on the same issue, therefore, keeping in view the principle of judicial consistency, we are of the view that after search no addition can be made merely on the basis of income offered by the assessee before Settlement Commission. Since no incriminating material was found during the course of search action substantiating that assessee has actually earned undisclosed income. Therefore, just because assessee has offered additional income before Settlement Commission, no addition can be made without basis. Hence, the addition made by the AO and sustained by Ld. CIT(A) are directed to be deleted. Accordingly, ground No. 1 and 2 are allowed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether, for a non-abated assessment year assessed under section 153A, an addition can be sustained in the absence of any incriminating material found during search. (ii) Whether an addition made solely on the basis of additional income offered in an application filed before the Settlement Commission (which was rejected/abated), without any corroborative incriminating material found during search, is legally sustainable in section 153A proceedings. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i) - Scope of additions under section 153A for a non-abated year in absence of incriminating material Legal framework (as discussed by the Court): The Court considered the scheme of section 153A and noted that assessments pending on the date of search abate, but for non-abated years the assessment can be made only on the basis of incriminating material found in the course of search. Interpretation and reasoning: The Court found that the relevant year was a non-abated year because the earlier assessment had already been completed before the search date. It further recorded that no incriminating material was found during the search relating to the impugned addition. On these facts, the Court held that the assessment under section 153A could not disturb the completed assessment by making additions unconnected with any incriminating search material. Conclusions: In a non-abated year, additions under section 153A are not sustainable without incriminating material found during search. Since none was found, the addition could not stand. Issue (ii) - Addition based solely on settlement-application disclosure after rejection/abatement, without incriminating search material Legal framework (as discussed by the Court): The Court examined the Revenue's reliance on section 245HA(3) (use of material produced before the Settlement Commission after abatement/rejection) but evaluated its operation within the constraints applicable to section 153A for non-abated years, as discussed above. Interpretation and reasoning: The Court noted that the additional income was offered before the Settlement Commission on an ad-hoc basis as an estimated disallowance of business expenditure to 'buy peace of mind,' and that the settlement application was rejected. It held that the Assessing Officer had made the addition by using the settlement disclosure as the only basis, without any independent incriminating material or evidence found during the search to establish that such additional income was actually earned or represented undisclosed income. The Court applied the principle, supported by the authorities it relied upon, that mere voluntary disclosure in settlement proceedings-when not corroborated by incriminating material found in search-cannot by itself justify an addition in a non-abated year under section 153A. Conclusions: An addition made solely on the basis of an ad-hoc disclosure in a rejected/abated settlement application, without any incriminating material found during search, is invalid in section 153A proceedings for a non-abated year. The impugned additions were therefore directed to be deleted, and the appeals were allowed (with the same reasoning applied mutatis mutandis to the other years, subject to figure differences).