Assessment under Section 153A quashed as no incriminating material found during search operations

The ITAT Delhi allowed the assessee's appeal against assessment u/s 153A. The tribunal held that no incriminating material was found during search and seizure operations, following the SC precedent in Abhisar Buildwell case. The AO's invocation of section 68 was deemed improper as there was no dispute regarding sales transactions, goods movement, or corresponding purchases, and stock details were accepted. The CIT(A)'s application of an 8% profit margin was set aside as erroneous, particularly when different profit margins were applied to similar sales without justification. The tribunal found the differential treatment of profit margins unjustified and contrary to established precedent.

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Issues Involved:
1. Validity of notice under Section 153A of the Income Tax Act.
2. Jurisdiction of the Assessing Officer.
3. Addition of income based on undisclosed sources.
4. Issuance of show cause notice for penalty proceedings under Section 271(1)(c).
5. Calculation of profit margin on sales to specific parties.
6. Application of Section 68 of the Income Tax Act.
7. Comparison with preceding assessment year judgments.

Issue-wise Detailed Analysis:

1. Validity of Notice under Section 153A:
The assessee objected to the validity of the notice issued under Section 153A following a search and seizure operation conducted on 20.04.2017. The initial notice was issued on 03.07.2018, and despite objections, a fresh notice was issued on 05.09.2019. The assessee contended that the return already filed should be treated as the return in response to the notice under Section 153A.

2. Jurisdiction of the Assessing Officer:
The assessee challenged the jurisdiction of the Assessing Officer, requesting that the matter be referred to higher income tax authorities under Section 124(2). This request was declined, with the jurisdiction being justified by a centralization order passed under Section 127 by the PCIT (Central), Rajasthan on 17.07.2018.

3. Addition of Income Based on Undisclosed Sources:
The Assessing Officer added Rs. 15,85,66,266/- to the assessee's income based on undisclosed sources, including a commission of Rs. 15,69,963/-. The addition was based on documents and statements obtained during the search operation, including confessions from dummy property partners and directors of dummy concerns managed by Shri Nirmal Kumar Sarda, CA.

4. Issuance of Show Cause Notice for Penalty Proceedings under Section 271(1)(c):
The Assessing Officer issued a show cause notice to the assessee for initiating penalty proceedings under Section 271(1)(c) for concealment of income.

5. Calculation of Profit Margin on Sales to Specific Parties:
The CIT(Appeal) restricted the addition to Rs. 73,17,436/- by calculating the profit margin on sales worth Rs. 9,14,67,947/- to M/s. Bhoomika Enterprises and M/s. Shree Chamunda Enterprises at an 8% rate. The CIT(Appeal) observed that the AO did not provide evidence of cash exchange for these transactions, but the non-existence of business activity at the registered premises could not be ignored.

6. Application of Section 68 of the Income Tax Act:
The Assessing Officer invoked Section 68, which deals with unexplained cash credits. However, the CIT(Appeal) and the Appellate Tribunal found that the movement of goods and corresponding purchases were not disputed, making the invocation of Section 68 inappropriate.

7. Comparison with Preceding Assessment Year Judgments:
The assessee argued that a similar addition was made for the preceding assessment year 2013-14, which was deleted by the Appellate Tribunal on 06.11.2023. The Tribunal found no incriminating material from the assessee's premises and noted that the addition was based on confessional statements unrelated to the assessee. The Tribunal applied the same reasoning to the current assessment year, setting aside the CIT(Appeal)'s order.

Result:
The appeal filed by the assessee (ITA No. 629/DEL/2022) was allowed, and the appeal filed by the Revenue (ITA/845/DEL/2022) was dismissed. The Appellate Tribunal set aside the CIT(Appeal)'s order, concluding that no incriminating material was found during the search and seizure operation, and the application of Section 68 and the different profit margin rate was erroneous.

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