Section 153A proceedings invalid without incriminating material found during search operations under section 132

ITAT Delhi held that proceedings under section 153A were invalid where no incriminating material was found during search and seizure operations under section 132. The AO treated share application money/share premium as unexplained cash credit under section 68 and made disallowances under section 14A read with Rule 8D. However, the additions were based solely on assessment proceedings inquiry, not on any seized material. Following Supreme Court precedent in Abhisar Buildwell, ITAT ruled that unabated assessments under section 153A cannot sustain additions without incriminating material from search operations. The additions were deleted in favour of the assessee.

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Issues:
Validity of proceedings under section 153A of the Income-tax Act, 1961 without incriminating material found during search and seizure operation.

Analysis:
The judgment pertains to appeals and cross-objections arising from two separate orders of the Commissioner of Income-tax (Appeals) for the assessment years 2011-12 and 2012-13. The main issue raised in the cross-objections by the assessee challenges the validity of the proceedings initiated under section 153A of the Income-tax Act, 1961, contending that additions could not have been made without any incriminating material found during the search and seizure operation conducted under section 132 of the Act.

The assessee, a resident corporate entity engaged in real estate development, had filed returns of income for the relevant assessment years. Following a search and seizure operation, proceedings under section 153A were initiated. The Assessing Officer added amounts representing share application money/share premium as unexplained cash credits under section 68 of the Act. Additionally, a disallowance was made under section 14A read with Rule 8 in one of the assessment years.

Upon appeal, the First Appellate Authority deleted the addition made under section 68 of the Act after verifying the genuineness of the transactions. However, the disallowance under section 14A was confirmed. The assessee contended that the additions were made without any incriminating material, citing legal precedents to support the argument.

The Tribunal observed that the additions were based on an inquiry conducted during the assessment proceedings and not on any incriminating material found during the search and seizure operation. Referring to the Supreme Court's decision in a relevant case, the Tribunal held that in the absence of incriminating material, no additions could be made in unabated assessments under section 153A. Consequently, the additions made by the Assessing Officer were directed to be deleted.

As a result of the decision on the main issue, other grounds raised in the cross-objections and appeals became infructuous and were not adjudicated. The cross objections of the assessee were allowed, and the appeals of the Revenue were dismissed.

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