2025 (4) TMI 271 - AT - Income Tax

Section 153A additions under section 69 invalid without incriminating material found during search operations

Shiv Kumar Paliwal Versus DCIT, Central Circle-1, Kanpur.

ITAT Lucknow held that additions under section 69 cannot be made in assessments under section 153A without incriminating material. Following the SC ... Validity of assessment u/s 153A - Addition u/s 69 - HELD THAT:- As relying on Abhisar Buildwell (P.) Ltd [2023 (4) TMI 1056 - SUPREME COURT] which clarified that in the absence of incriminating material, no additions can be made u/s 153A for completed/unabated assessments. Decided in favour of assessee. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this case were:Whether the notice issued and assessment completed under Section 153A of the Income Tax Act, 1961, was valid and lawful.Whether additions made by the Assessing Officer (AO) under Section 69 of the Act were justified in the absence of incriminating material found during the search.Whether the gains from the sale of securities should be treated as unexplained under Section 69 or as long-term capital gains exempt under Section 10(38) of the Act.Whether the estimation of commission income by the AO was arbitrary and without basis.Whether the principles of natural justice were violated due to the lack of cross-examination of the person whose statement was used to deny the exemption benefit.ISSUE-WISE DETAILED ANALYSIS1. Validity of Assessment under Section 153ARelevant Legal Framework and Precedents: Section 153A of the Income Tax Act allows for assessment or reassessment of income in cases where a search is initiated under Section 132. The legal question revolves around whether such assessments can be made in the absence of incriminating material found during the search.Court's Interpretation and Reasoning: The Tribunal relied on the Supreme Court's decision in the case of PCIT Vs. Abhisar Buildwell (P.) Ltd, which clarified that in the absence of incriminating material, no additions can be made under Section 153A for completed/unabated assessments.Key Evidence and Findings: It was determined that no incriminating materials were found during the search conducted under Section 132, which formed the basis for the assessment under Section 153A.Application of Law to Facts: The Tribunal found that since no incriminating material was found, the assessment under Section 153A was not justified.Treatment of Competing Arguments: The Tribunal considered the arguments from both the assessee and the Revenue, ultimately siding with the assessee based on Supreme Court precedent.Conclusions: The assessment under Section 153A was deemed invalid in the absence of incriminating material.2. Additions under Section 69Relevant Legal Framework and Precedents: Section 69 deals with unexplained investments, allowing the AO to treat certain gains as income if not satisfactorily explained. The assessee claimed these gains as long-term capital gains exempt under Section 10(38).Court's Interpretation and Reasoning: The Tribunal noted that the gains were claimed under Section 10(38) and that there was no evidence of these being unexplained investments as per Section 69.Key Evidence and Findings: The assessee provided documentary evidence of the transactions, which were conducted at prevailing market rates on the stock exchange.Application of Law to Facts: The Tribunal applied the principle that in the absence of incriminating material, the gains could not be treated as unexplained under Section 69.Treatment of Competing Arguments: The Tribunal found the Revenue's argument for treating the gains as unexplained under Section 69 unsubstantiated due to lack of evidence.Conclusions: The Tribunal directed the deletion of additions made under Section 69.3. Estimation of Commission IncomeRelevant Legal Framework and Precedents: The estimation of commission income was challenged as being arbitrary and without basis in the absence of material evidence.Court's Interpretation and Reasoning: The Tribunal found that the estimation was not supported by any material found during the search.Key Evidence and Findings: The Tribunal noted the absence of any evidence justifying the commission income estimation.Application of Law to Facts: The Tribunal determined that the estimation was arbitrary and lacked evidentiary support.Treatment of Competing Arguments: The Tribunal rejected the Revenue's position due to lack of supporting evidence for the estimation.Conclusions: The Tribunal directed the deletion of the estimated commission income.4. Violation of Principles of Natural JusticeRelevant Legal Framework and Precedents: The principles of natural justice require that a party be given an opportunity to cross-examine witnesses whose statements are used against them.Court's Interpretation and Reasoning: The Tribunal noted that the denial of cross-examination constituted a violation of natural justice principles.Key Evidence and Findings: The Tribunal found that the assessee was not allowed to cross-examine the person whose statement was used to deny the exemption.Application of Law to Facts: The Tribunal found the assessment process flawed due to this procedural lapse.Treatment of Competing Arguments: The Tribunal sided with the assessee, emphasizing the importance of adhering to natural justice principles.Conclusions: The Tribunal found the process to be procedurally flawed, supporting the assessee's position.SIGNIFICANT HOLDINGSThe Tribunal held that in the absence of incriminating material found during a search, additions under Section 153A cannot be justified, aligning with the Supreme Court's ruling in PCIT Vs. Abhisar Buildwell (P.) Ltd.The Tribunal directed the deletion of additions made under Section 69, as the gains were claimed under Section 10(38) and supported by documentary evidence.The Tribunal found the estimation of commission income to be arbitrary and unsupported by evidence, thus directing its deletion.The Tribunal underscored the importance of adhering to natural justice principles, particularly the right to cross-examine witnesses.The appeal was partly allowed for statistical purposes, with the Tribunal directing the deletion of the contested additions and not expressing an opinion on the merits of the additions due to the procedural issues identified.