2025 (2) TMI 396 - AT - Income Tax

Tax assessment quashed after no incriminating material found during search under section 153A

Gopal Garg Versus DCIT Central Circle-2 Faridabad, Haryana

ITAT Delhi quashed assessment order under section 153A after finding no incriminating material was discovered during search proceedings. Following Supreme ... Validity of Assessment order u/s 153A - absence of incriminating material found during the search - HELD THAT:- By respectfully following the ratio laid in the case of Abhisar Buildwel [2023 (4) TMI 1056 - SUPREME COURT] considering the fact that no incriminating materials/documents or any other evidence was found or seized during the course of search proceedings which resulted in additions against the Assessee, we find merit in appeal of the Assessee. Accordingly, we quash the assessment order and the order of the Ld. CIT(A). ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this appeal were:Whether the assessment order under Section 153A was valid in the absence of incriminating material found during the search.Whether the additions made by the Assessing Officer (AO) were justified, specifically concerning the purchases from M/s Krishna Industries and the loan from M/s RajatFincap Pvt. Ltd.Whether the proceedings initiated and the assessment framed under Section 153A violated statutory conditions and procedures.Whether the AO's failure to obtain valid prior approval under Section 153D invalidated the order.Whether the rejection of explanations and evidence provided by the assessee regarding the genuineness of transactions was justified.Whether the lack of opportunity for the assessee to cross-examine statements used against them in the assessment was a procedural violation.ISSUE-WISE DETAILED ANALYSIS1. Validity of Assessment under Section 153AThe legal framework under Section 153A allows for assessments or reassessments to be conducted following a search. However, as per the precedent set by the Supreme Court in Abhisar Buildwell, additions cannot be made in the absence of incriminating material found during the search. The Court interpreted that for a completed or unabated assessment, no additions are permissible without such material. The Court found that the statement recorded under Section 132(4) does not constitute incriminating material unless corroborated by other evidence, referencing multiple judicial precedents, including PCIT vs. Best Infrastructure Pvt. Ltd. and CIT vs. Harjeev Aggarwal.In this case, the Court concluded that no incriminating material was found during the search, thus quashing the assessment order and the order of the CIT(A).2. Additions Related to Purchases and LoansThe AO made additions based on transactions with M/s Krishna Industries and M/s RajatFincap Pvt. Ltd. The assessee argued that these additions were made without incriminating evidence and despite maintaining regular books and audited financial statements. The Court noted that the CIT(A) confirmed these additions based on statements and evidence not directly linked to the search findings.For the loan from M/s RajatFincap Pvt. Ltd., the Court noted the lack of independent inquiry by the AO and the reliance on statements recorded without giving the assessee an opportunity to cross-examine, which violated procedural fairness.3. Procedural ViolationsThe assessee contended that the assessment was invalid due to the AO's failure to obtain prior approval under Section 153D. The Court did not explicitly address this issue, as the primary ground of the absence of incriminating material was sufficient to quash the assessment.The Court also considered the procedural fairness regarding the lack of opportunity for the assessee to rebut or cross-examine evidence used against them. This was viewed as a significant procedural shortcoming, reinforcing the decision to quash the assessment.SIGNIFICANT HOLDINGSThe Court held that in the absence of incriminating material found during the search, the assessment under Section 153A could not be sustained. The key principle established is that completed or unabated assessments cannot be disturbed without such material, aligning with the Supreme Court's ruling in Abhisar Buildwell.The Court concluded that the assessment order and the CIT(A)'s order were to be quashed, rendering other grounds of appeal moot. The appeal was partly allowed, emphasizing the necessity of incriminating evidence for valid assessments post-search.