Non-abatement of pending appeal: search-related assessment quashed where disallowances lacked any incriminating seized material.

Pending appellate proceedings do not abate on the date of search where restoration orders are pronounced after the search; accordingly the assessment year remained live. The Tribunal found disallowances in the post-search assessment were not based on any incriminating material seized and applied the non-abatement principle and rules permitting support of orders on alternate grounds and jurisdictional objections before the Tribunal. Operative effect: the assessment framed under search-related provisions was quashed and the revenue appeal rendered infructuous.

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Issues: (i) Whether the assessment framed under section 143(3) read with section 153A of the Income-tax Act, 1961 for Assessment Year 2014-15 was without jurisdiction in the absence of any incriminating material unearthed during search and whether the year was abated on account of prior proceedings restored by the Tribunal.

Analysis: The Tribunal examined the chronology of proceedings, noting that on the date of search the assessee's matter before the Tribunal was an appeal (and not an assessment or reassessment pending), and that the Coordinate Bench's order restoring issues to the file of the AO was pronounced after the date of search. The Tribunal applied the clarification in circular No.7/2003 (para 65.5) and the principles in Abhisar Buildwell (SC) to determine that appeals, revisions or rectification proceedings pending on the date of search do not abate and therefore the impugned assessment year was an unabated year. The Tribunal compared the original scrutiny order and the post-search assessment and found that the disallowances repeated in the 153A assessment did not rely on any incriminating material seized in the search. The Tribunal considered Rule 27 of the ITAT Rules and relevant precedents permitting a respondent to support the order appealed against on grounds decided against it, and authority allowing jurisdictional objections to be raised before the Tribunal even without filing cross-objections where such objections go to the root of the matter.

Conclusion: The challenge to the validity of the assessment under section 153A for want of incriminating material is accepted in favour of the assessee; the assessment framed u/s.143(3) r.w.s.153A is quashed and the Revenue's appeal is dismissed as infructuous.

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