Fresh Chapter VIA claims allowed only for abated post-search assessments; completed assessments require incriminating material to reopen.

ITAT Hyderabad clarified that fresh claims for deductions under Chapter VIA filed for the first time in a return submitted in response to a post-search notice are permissible only where the relevant assessment was abated at the time of the search; in such cases the return is treated as an original return allowing new claims. By contrast, completed (unabated) assessments cannot be reopened to admit first-time Chapter VIA claims unless incriminating material discovered during the search justifies disturbing the earlier assessment, preserving finality of completed assessments and limiting reassessment to undisclosed income.

---

---

Issues Involved:

1. Whether an assessee can make a claim for deduction under Chapter VIA of the Income Tax Act, 1961, for the first time, in the return of income filed in response to the notice issued under Section 153A of the Act, pursuant to a search conducted under Section 132 of the Act.
2. If yes, under which circumstances such a claim is permissible.

Detailed Analysis:

1. Claim for Deduction under Chapter VIA in Response to Section 153A Notice:

The core issue addressed in this judgment is whether an assessee can make a new claim for deduction under Chapter VIA of the Income Tax Act, 1961, for the first time in a return filed in response to a notice issued under Section 153A, following a search under Section 132. The tribunal examined the provisions of Section 153A, which mandates the assessment or reassessment of total income for six assessment years preceding the year of search. The tribunal noted that Section 153A does not provide for reassessment of completed assessments unless incriminating material is found during the search. The tribunal referred to various judicial precedents, including the Supreme Court's decision in PCIT Vs. Abhisar Buildwell (P.) Ltd., which emphasized that in the absence of incriminating material, the completed assessment cannot be disturbed.

The tribunal concluded that in the case of unabated or completed assessments, the assessee cannot make a fresh claim of deduction for the first time in the return filed in response to a Section 153A notice. This conclusion aligns with the principle that reassessment proceedings under Section 153A are primarily for the benefit of the Revenue, not the assessee, and are intended to bring undisclosed income to tax.

2. Circumstances Permitting Fresh Claims:

The tribunal clarified that fresh claims for deductions under Chapter VIA can only be made in the case of abated assessments. Abated assessments refer to those assessments that were pending as on the date of search. In such cases, the return filed in response to the Section 153A notice is treated as a return filed under Section 139, allowing the assessee to make new claims as if it were the first return of income. This interpretation is consistent with the principle that abated assessments are open for reassessment, allowing both the Revenue and the assessee to make new claims or adjustments.

The tribunal distinguished between abated and unabated assessments, emphasizing that in unabated assessments, no fresh claims can be made unless supported by incriminating material found during the search. This distinction ensures that the integrity of completed assessments is maintained unless there is a valid reason to reopen them based on new evidence.

Conclusion:

The tribunal held that an assessee can make a claim for deduction under Chapter VIA for the first time in the return filed in response to a Section 153A notice only in the case of abated assessments. In unabated or completed assessments, no fresh claims are permissible unless supported by incriminating material found during the search. The tribunal's decision underscores the importance of maintaining the finality of completed assessments and the limited scope for reassessment under Section 153A, which is primarily intended to address undisclosed income. The tribunal directed that the appeals be listed for further hearing on the merits of the deduction claimed under Section 80IA(4) of the Act.

---