Section 153A assessments invalid without incriminating material seized during search operations

The ITAT Bangalore ruled on multiple issues regarding assessments under section 153A following search operations. For AY 2013-14 and 2014-15, the ITAT held that assessments under section 153A are invalid without incriminating material seized during search, following the SC decision in Abhisar Buildwell. For AY 2015-16, the assessment was upheld as it was pending when search occurred, with notice under section 143(2) time limit not expired. Additions based solely on loose sheet notings were deleted due to lack of corroborative evidence. Regarding excess jewelry stock, the ITAT ruled it should be taxed as business income rather than under section 115BBE at special rates, as the assessee adequately explained the source as business-related and no separate income source was identified during search.

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Issues Involved:
1. Deletion of additions based on statements recorded during search.
2. Taxation of undisclosed stock and investments under Section 69B and Section 115BBE.
3. Applicability of Section 115BBE at different rates before and after the amendment.
4. Validity of assessments under Section 153A based on incriminating material.

Detailed Analysis:

Issue 1: Deletion of Additions Based on Statements Recorded During Search
Background:
The revenue challenged the deletion of additions for the assessment years 2013-14 to 2015-16, arguing that the additions were based on statements recorded under Section 132(4) of the Income Tax Act during a search.

Findings:
- The Tribunal noted that the statements recorded under Section 132(4) must be corroborated by other evidence.
- The CIT(A) had deleted the additions on the grounds that no incriminating material was found during the search to support the additions.
- The Tribunal upheld the CIT(A)'s decision, emphasizing that additions based solely on statements without corroborative evidence are not sustainable.

Conclusion:
Additions based solely on statements recorded during search without any corroborative evidence cannot be sustained.

Issue 2: Taxation of Undisclosed Stock and Investments Under Section 69B and Section 115BBE
Background:
The revenue contended that the undisclosed stock and investments should be taxed under Section 69B and Section 115BBE at a higher rate, while the assessee argued that these should be treated as business income.

Findings:
- The CIT(A) held that the unaccounted stock found at the business premises and with goldsmiths should be treated as business income under Section 28, not under Section 69B.
- The Tribunal agreed with the CIT(A), noting that the stock was part of the business activity and should be taxed as business income.
- However, the Tribunal disagreed with the CIT(A) on the treatment of stock found at the residence of the partner. It held that this stock should also be treated as business income, not as unexplained investment under Section 69B.

Conclusion:
Undisclosed stock found during search should be treated as business income under Section 28, not as unexplained investment under Section 69B.

Issue 3: Applicability of Section 115BBE at Different Rates Before and After the Amendment
Background:
The assessee argued that the amendments to Section 115BBE, which increased the tax rate to 60%, should not apply retrospectively to the income quantified before the amendment date.

Findings:
- The Tribunal noted that the amendments to Section 115BBE came into effect from 05.12.2016.
- It held that the tax rate applicable should be the one in force at the time the income was quantified, i.e., 30% before the amendment.

Conclusion:
The tax rate applicable under Section 115BBE should be the one in force at the time the income was quantified, not the amended rate.

Issue 4: Validity of Assessments Under Section 153A Based on Incriminating Material
Background:
The revenue argued that the assessments for the years 2013-14 to 2015-16 should be upheld as they were based on incriminating material found during the search.

Findings:
- The Tribunal observed that for completed/unabated assessments, additions can only be made if incriminating material is found during the search.
- It noted that in the present case, no such incriminating material was found for the years in question.
- The Tribunal upheld the CIT(A)'s decision to quash the assessments for these years.

Conclusion:
For completed/unabated assessments, additions under Section 153A can only be made if incriminating material is found during the search.

Final Judgments:
- The appeals of the revenue for the assessment years 2013-14 to 2015-16 were dismissed.
- The appeal of the revenue for the assessment year 2015-16 was also dismissed, and the addition of Rs. 4 Crores was deleted.
- The cross appeals for the assessment year 2017-18 were decided in favor of the assessee, treating the undisclosed stock as business income and applying the lower tax rate of 30% under Section 115BBE as it stood before the amendment.

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