2024 (12) TMI 44 - HC - Income Tax

Court Upholds Requirement for Direct Link Between Seized Material and Tax Additions; Denies Unsupported Claims.

Pr. Commissioner of Income Tax (Central) -3 Versus M/s. TDI Infrastructure Ltd.

The court dismissed the appeals, affirming the ITAT's interpretation and application of Section 153C of the Income Tax Act. It upheld that additions by ... Assessment u/s 153C - AO’s assumption of jurisdiction u/s 153C - HELD THAT:- A predecessor Bench of this Court in CIT v. Kabul Chawla [2015 (9) TMI 80 - DELHI HIGH COURT] held that if no incriminating material is found during the course of the search in respect of an issue, then no addition in respect of such an issue can be made in the assessment under Sections 153A and 153C of the Act. Issues Involved:1. Whether the ITAT erred in interpreting Section 153C of the Income Tax Act concerning the scope of assessment beyond the documents considered for deriving satisfaction to initiate proceedings.2. Legitimacy of additions made by the Assessing Officer based on documents found during search and survey operations.3. Validity of fresh claims made by the respondent in returns filed under Section 153C.4. Entitlement to deductions under Section 80(IB) of the Income Tax Act.Detailed Analysis:1. Interpretation of Section 153C:The primary issue was whether the ITAT erred in its interpretation of Section 153C, which concerns the initiation of proceedings based on documents seized during a search. The ITAT concluded that the additions made by the Assessing Officer were not based on any incriminating material found during the search or recorded in the satisfaction note. The court upheld this interpretation, referencing the legal precedent that additions should be based on evidence found during the search or other material related to the seized evidence. The court reiterated that the jurisdiction under Section 153C is limited to documents that 'belong' to the assessee, not merely those that 'pertain' or 'relate' to them, as clarified in previous judgments like CIT v. Kabul Chawla and Pr. CIT v. Dreamcity Buildwell (P) Ltd.2. Legitimacy of Additions by Assessing Officer:The court examined the additions made by the Assessing Officer based on documents discovered during search operations. The ITAT found that these additions were not supported by incriminating material directly linking them to the respondent. The court emphasized that, according to established legal principles, completed assessments can only be revisited if supported by new incriminating evidence found during the search. The ITAT's decision to delete additions based on survey documents was upheld, as they were beyond the scope of Section 153C proceedings.3. Validity of Fresh Claims in Returns under Section 153C:The respondent had made fresh claims for brokerage and interest deductions in returns filed under Section 153C, which were disallowed by the Assessing Officer. The court noted that the respondent had consistently followed the Percentage Completion Method for accounting, where such costs were capitalized and not claimed as deductions. The ITAT supported the disallowance of these fresh claims, aligning with the principle that Section 153C proceedings should not entertain new claims not substantiated by search findings.4. Deductions under Section 80(IB):The court addressed the disallowance of deductions under Section 80(IB) due to alleged violations related to the built-up area of residential units. The ITAT allowed proportionate deductions for units with a built-up area of less than 1000 square feet, as stipulated by law. The court upheld this decision, noting that deductions should be granted based on compliance with statutory conditions, and only units exceeding the specified area should be excluded from such benefits.In conclusion, the court dismissed the appeals, affirming the ITAT's interpretation and application of the law concerning Section 153C and related issues. The judgment reinforced the necessity for a direct link between seized material and the additions made in assessments under search-related provisions.