ITAT quashes section 153A assessment orders finding no incriminating material discovered during search operation

The ITAT Mumbai quashed assessment orders passed under section 153A after finding no incriminating material was discovered during the search operation. The AO's observations were deemed routine, based on regular account records and submissions. Following the SC precedent in Abhisar Buildwell (P.) Ltd., the tribunal held that without incriminating material found during search, no additions could be made for unabated assessment years. The case was decided against the revenue department.

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Issues:
- Consideration of statement recorded during search/survey and incriminating document
- Disallowance under section 14A of the Income Tax Act

Analysis:

Issue 1: Consideration of statement recorded during search/survey and incriminating document

The appeals filed by the Revenue challenged the order of the Ld. CIT(A) regarding the assessment orders passed by the Assistant Commissioner of Income Tax, Circle-7(2), Mumbai, under section 143(3) r.w.s. 153A of the Income-tax Act, 1961 for Assessment Years 2016-17 and 2015-16. The primary contention raised by the Revenue was the failure of the Ld. CIT(A) to consider the statement recorded during the search/survey and incriminating document, despite discrepancies in the claim of deduction identified from the books of accounts during the search/survey. The Ld. CIT(A) extensively analyzed the submissions and judicial precedents, ultimately concluding that no incriminating material was found during the search, and hence, the additions made by the Assessing Officer were not sustainable. This decision was supported by the recent Supreme Court ruling in the case of Abhisar Buildwell Pvt. Ltd., emphasizing the necessity of incriminating material for additions under section 153A of the Act.

Issue 2: Disallowance under section 14A of the Income Tax Act

The second issue revolved around the disallowance made under section 14A of the Income Tax Act, 1961, and the applicability of Rule 8D of the IT Rules, 1962. The Assessing Officer had disallowed a certain amount under section 14A and Rule 8D, which was contested by the assessee before the Ld. CIT(A). The Ld. CIT(A) examined the facts and legal provisions, concluding that the disallowance was not warranted as there was no incriminating material found during the search that could justify such disallowance. The Ld. CIT(A) referred to various judicial decisions to support the deletion of the disallowance under section 14A. The decision was further reinforced by the Supreme Court ruling in the case of Abhisar Buildwell Pvt. Ltd., which emphasized the importance of incriminating material for making additions under section 153A of the Act. Consequently, the disallowance under section 14A was deleted by the Ld. CIT(A), and the additions made by the Assessing Officer were set aside.

In conclusion, both issues raised by the Revenue in the appeals were thoroughly analyzed by the Ld. CIT(A) and were decided in favor of the assessee based on the absence of incriminating material found during the search/survey. The decision was in line with judicial precedents and the Supreme Court ruling, leading to the dismissal of the appeals filed by the Revenue.

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