Assessment under Section 153A invalid when no incriminating material found during search operation

The ITAT Kolkata held that the assessment framed under section 153A was invalid. The Tribunal found that the assessee's statement recorded under section 132(4) was improper as no incriminating material was found during the search at his residential premises. The search party exceeded jurisdiction by bringing documents from an unrelated third-party search to confront the assessee. The AO failed to follow section 153C procedures for material relating to other persons. Since no incriminating material was found and no assessment was pending on the search date, the additions were unjustified under the Abhisar Buildwell precedent. The appeal was decided against the revenue.

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Issues Involved:
1. Validity of statement recorded under Section 132(4) of the Income Tax Act.
2. Use of loose sheets recovered in an unconnected earlier search action.
3. Justification of the Assessing Officer in relying on material seized during the search of a third party without adhering to Section 153C.
4. Abated vs Non-abated Assessment.

Summary:

A. Validity of Statement Recorded Under Section 132(4):
The Tribunal examined the provisions of Section 132(4) and concluded that the statement of the assessee, recorded during the search of Badalia Gems Pvt. Ltd., was not valid. The assessee was not found in possession or control of any books of account, documents, or assets representing undisclosed income. Therefore, the statement recorded under Section 132(4) lacked evidentiary value and could not be the basis for additions.

B. Use of Loose Sheets Recovered in an Unconnected Earlier Search Action:
The Tribunal found that the search party exceeded its jurisdiction by bringing documents from a prior search action involving the Kasera Group to confront the assessee. The search party was not authorized to bring external materials to the premises being searched. This action violated the rights of the person being searched and rendered the search vitiated, making any reliance on such documents invalid.

C. Justification of the Assessing Officer in Relying on Material Seized During the Search of a Third Party Without Adhering to Section 153C:
The Tribunal held that the Assessing Officer should have proceeded under Section 153C when dealing with materials found in a third-party search. The failure to initiate proceedings under Section 153C within the prescribed limitation period meant that the material could not be used in subsequent assessments under Section 153A. The Tribunal emphasized that special provisions under Sections 153A, 153C, and 153D prevail over general provisions, and failure to adhere to these provisions invalidated the assessment.

D. Abated vs Non-abated Assessment:
The Tribunal referred to the Supreme Court's decision in "Principal Commissioner of Income-tax, Central vs. Abhisar Buildwell (P.) Ltd." and concluded that no additions could be made in the absence of incriminating material during the search for unabated assessments. Since no assessment was pending on the date of the search, the assessment year under consideration was deemed unabated. Therefore, the Assessing Officer was not justified in making additions without incriminating material.

Conclusion:
The Tribunal quashed the impugned assessment orders, deleted the consequential additions, and allowed the appeals of the assessee. The appeal of the revenue was dismissed.

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