Revenue's appeal dismissed in Section 153A assessment - additions under Section 69A require incriminating material from search

ITAT Delhi dismissed Revenue's appeal in Section 153A assessment proceedings. Following Kabul Chawla precedent, the tribunal held that additions under Section 69A for unexplained money are permissible only when based on incriminating material found during search. Since no incriminating material was discovered or referenced in the assessment order for the completed/unabated assessment year, the AO lacked authority to make such additions. The CIT(A)'s findings were upheld.

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Issues Involved:
1. Deletion of addition of Rs. 2,67,32,350/- made by AO on account of unexplained money u/s 69A of the IT Act.
2. Validity of invoking provisions of Sec. 153A(1)(a) of the Act.
3. Reliance on the Valuation Report obtained u/s 142A of the Act.

Summary of Judgment:

Issue 1: Deletion of Addition u/s 69A
- The Revenue contended that the Ld. CIT(A) erred in deleting the addition of Rs. 2,67,32,350/- made by AO on account of unexplained money u/s 69A of the IT Act. The AO had based the addition on a Valuation Report obtained u/s 142A, which indicated that the value of the property was higher than what was shown by the assessee. The Ld. CIT(A) deleted the addition, stating that it was not sustainable as it was made during regular assessment proceedings and not based on incriminating material found during search proceedings.

Issue 2: Validity of Invoking Sec. 153A(1)(a)
- The assessee argued that the AO erred in invoking provisions of Sec. 153A(1)(a) despite no incriminating material being found during the search. The Ld. CIT(A) agreed, relying on the judgment in CIT vs. Kabul Chawla (2016) 380 ITR 573, which held that additions in such cases could only be made based on incriminating material found during the search. The Ld. CIT(A) observed that the addition was based on a Valuation Report obtained post-search and not on any incriminating material.

Issue 3: Reliance on Valuation Report u/s 142A
- The assessee contended that the Valuation Report obtained u/s 142A was erroneous and void-ab-initio as it was based on estimations without reliable comparables. The AO had apportioned 1/3rd of the unexplained amount of Rs. 8,72,47,050/- to the assessee based on this report. The Ld. CIT(A) did not consider this report as valid evidence for making additions, as it was not based on any incriminating material found during the search.

Conclusion:
- The ITAT upheld the Ld. CIT(A)'s decision, dismissing the Revenue's appeals and allowing the assessee's Cross Objections. The ITAT noted that the issue was already settled by the Hon'ble Supreme Court in Abhisar Buildwell Pvt. Ltd. 454 ITR 212, which endorsed the interpretation that additions in Section 153A proceedings are permissible only qua incriminating material found during the search. Since no such material was found, the AO was not entitled to make the additions. The appeals filed by the Revenue were dismissed, and the Cross Objections filed by the assessee were allowed.

Order Pronounced:
- The order was pronounced in open Court on 26th April, 2024.

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