Assessment under Section 153A allows total income computation from any material for abated years, not just incriminating evidence

ITAT Hyderabad ruled on assessment u/s 153A following search operations. For abated assessments (AY 2017-18 and 2018-19), AO can assess total income based on any material, not solely incriminating evidence found during search. CIT(A) incorrectly treated assessments as unabated and deleted additions. ITAT set aside CIT(A)'s order, allowing Revenue's appeal. However, additions based on third-party statements without providing opportunity for cross-examination were deleted. Additions for sub-contract payments lacking adverse inference in employee statements were also directed to be deleted.

---

---

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered by the Tribunal were:

1. Whether the CIT(A) erred in deleting the disallowance of depreciation claimed by the assessee for the assessment year 2017-2018 based on the absence of incriminating material found during the search.

2. Whether the assessment for the year 2017-2018 was abated or unabated as on the date of search, and the implications of this status on the additions made by the Assessing Officer.

3. Whether the CIT(A) erred in deleting the disallowance of subcontract payments made by the assessee for the assessment year 2018-2019, based on the absence of incriminating material found during the search.

4. Whether the assessment for the year 2018-2019 was abated or unabated as on the date of search, and the implications of this status on the additions made by the Assessing Officer.

5. Whether the Tribunal should condone the delay in filing cross-objections by the assessee for both assessment years.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Disallowance of Depreciation for A.Y. 2017-2018

- Legal Framework and Precedents: The Tribunal considered Section 153A of the Income Tax Act, which deals with assessments in cases of search or requisition. The decision of the Supreme Court in PCIT vs. Abhisar Buildwell P. Ltd. was pivotal, which held that no additions can be made in respect of unabated assessments without incriminating material found during the search.

- Court's Interpretation and Reasoning: The Tribunal found that the CIT(A) misapplied the Supreme Court's decision by considering the assessment as unabated when it was actually abated as on the date of search.

- Key Evidence and Findings: The search conducted on 02.05.2018 was within the time limit for issuing notice under Section 143(2), making the assessment abated.

- Application of Law to Facts: Since the assessment was abated, the Assessing Officer was justified in making additions based on any material, not limited to incriminating material found during the search.

- Conclusions: The Tribunal set aside the CIT(A)'s order and upheld the disallowance of depreciation.

Issue 2: Disallowance of Subcontract Payments for A.Y. 2018-2019

- Legal Framework and Precedents: Similar to Issue 1, the Tribunal relied on Section 153A and the precedent set by the Supreme Court in PCIT vs. Abhisar Buildwell P. Ltd.

- Court's Interpretation and Reasoning: The Tribunal concluded that the assessment for 2018-2019 was also abated as on the date of search, allowing the Assessing Officer to make additions based on any material.

- Key Evidence and Findings: The Tribunal noted that the search was conducted before the expiry of the notice period under Section 143(2), thus abating the assessment.

- Application of Law to Facts: The Tribunal found that the CIT(A) erred in deleting the disallowance of subcontract payments as the assessment was abated, allowing for broader consideration of materials.

- Conclusions: The Tribunal set aside the CIT(A)'s order and upheld the disallowance of subcontract payments.

Issue 3: Condonation of Delay in Filing Cross-Objections

- Legal Framework and Precedents: The Tribunal considered the principles of 'sufficient reason' and 'reasonable cause' for condonation of delay.

- Court's Interpretation and Reasoning: The Tribunal found the reasons provided by the assessee for the delay to be bona fide and reasonable, falling under 'reasonable cause'.

- Key Evidence and Findings: The assessee's belief that relief from the CIT(A) negated the need for cross-objections and subsequent advice from counsel constituted sufficient reason.

- Conclusions: The Tribunal condoned the delay and admitted the cross-objections for adjudication.

3. SIGNIFICANT HOLDINGS

- The Tribunal held that for abated assessments, the Assessing Officer has the authority to assess or reassess total income based on any material, not limited to incriminating material found during the search.

- The Tribunal emphasized the need for proper application of the Supreme Court's decision in PCIT vs. Abhisar Buildwell P. Ltd., particularly in distinguishing between abated and unabated assessments.

- The Tribunal underscored the importance of providing third-party statements to the assessee for rebuttal to uphold principles of natural justice.

- The Tribunal's decision to condone the delay in filing cross-objections highlighted the importance of reasonable cause and bona fide belief in procedural matters.

---