Unexplained cash credit addition under section 153A deleted without incriminating seized material during search

The ITAT Delhi allowed the assessee's appeal against an addition made under section 153A for unexplained cash credit under section 68. The tribunal held that without incriminating seized material found during search, no addition can be made in section 153A assessment. The AO failed to refer any seized material in the assessment order as basis for the addition, making only unsecured loan addition under section 68. The department cannot improve the AO's case by presenting materials not referenced in the original assessment order. Following SC precedent in Abhisar Buildwell case, the tribunal ruled that additions require incriminating material found during search.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(a) Whether an addition of Rs. 21 crore as unexplained cash credit (unsecured loan) can be made under Section 153A of the Income Tax Act when no incriminating material was found during the course of search under Section 132 of the Act.

(b) Whether the addition made by the Assessing Officer (A.O.) in the assessment order under Section 153A r.w. Section 143(3) can be sustained when the assessment for the relevant year was completed prior to the search and no fresh incriminating material was unearthed during the search to reopen the assessment.

(c) The applicability and scope of judicial precedents, including the judgments of the Supreme Court and the Jurisdictional High Court, on the requirement of incriminating material for making additions under Section 153A.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Legality of addition under Section 153A without incriminating material found during search

Relevant legal framework and precedents:

Section 153A of the Income Tax Act deals with assessment or reassessment of income escaping assessment consequent to search or requisition. It allows reopening of assessments where incriminating material is found during the search. The principle established by the Supreme Court in cases such as Abhisar Buildwell Pvt. Ltd. and the Jurisdictional High Court in CIT vs. Kabul Chawla is that no addition can be made under Section 153A if no incriminating material is found during the search and the assessment for the relevant year is already complete on the date of search.

In Abhisar Buildwell Pvt. Ltd., the Supreme Court clarified that for making an addition under Section 153A, incriminating material must be found during the search or from documents seized therein. Similarly, in Kabul Chawla, the High Court held that in the absence of incriminating material, reopening under Section 153A is not permissible.

Court's interpretation and reasoning:

The Tribunal observed that the search and seizure under Section 132 was conducted on 15/11/2017, while the original return for the Assessment Year (AY) 2013-14 was filed and processed earlier, with no pending assessment proceedings on the date of search. The addition of Rs. 21 crore was made by the A.O. on the basis of unexplained unsecured loan credited in the books, without referring to any seized incriminating material as the basis for the addition.

The Tribunal noted that the assessment order did not cite any seized documents or evidence found during the search to justify the addition. Although the Department filed certain annexures containing seized materials, these were not referred to or relied upon in the assessment order. The Tribunal emphasized that the Department cannot improve the case by introducing reliance on seized materials not mentioned in the assessment order.

Further, the Tribunal distinguished the Department's reliance on the Supreme Court judgment in K. Krishnamurthy, which pertained to penalty proceedings under Section 271AAA, not assessment under Section 153A. The facts and legal principles in that case were thus held inapplicable.

The Tribunal also analyzed the Abhisar Buildwell judgment and reiterated its holding that in the absence of incriminating material found during the search, additions under Section 153A cannot be sustained. The same principle was applied to the present facts.

Regarding the judgment in Mukundray K. Shah, the Tribunal observed that the addition there was based on seized incriminating diary entries, which is not the case here.

Key evidence and findings:

- Search under Section 132 conducted on 15/11/2017.

- Return filed and processed prior to search; no pending assessment for AY 2013-14 on date of search.

- Addition of Rs. 21 crore made on account of unsecured loan under Section 68.

- No reference to seized incriminating material in assessment order.

- Annexures containing seized documents were not relied upon by the A.O. in the assessment order.

Application of law to facts:

The Tribunal applied the settled legal principle that Section 153A assessments require incriminating material found during search to justify reopening or additions. Since no such material was found or referred to, the addition was held to be beyond the scope of Section 153A. The completed assessment on the date of search further precluded reopening.

Treatment of competing arguments:

The Department argued that the addition was justified based on adverse evidence and investigations conducted post-search, supported by seized documents. The Tribunal rejected this, emphasizing that the assessment order must explicitly refer to incriminating material found during search, which it did not. The Department's attempt to rely on unrelated judgments and unreferenced seized materials was also rejected.

The Assessee relied on the judgments of the Supreme Court and High Court, which the Tribunal found directly applicable and binding.

Conclusions:

The Tribunal concluded that the addition of Rs. 21 crore was unsustainable in the absence of incriminating material found during the search. The assessment order was rightly quashed by the CIT(A) relying on binding judicial precedents.

3. SIGNIFICANT HOLDINGS

The Tribunal upheld the principle that:

"In the absence of any incriminating seized material found during the course of search, no addition can be made in an assessment made u/s 153A of the Act where, on the date of search, no assessment is pending for the relevant Assessment Year."

It further held that:

"When the Assessing Officer himself has not referred the incriminating seized material in the assessment order in order to make the addition, the Department cannot improve the case before the Tribunal by reading something which is not written in the assessment order."

The Tribunal affirmed the reliance on the ratio laid down in the case of Kabul Chawla as upheld by the Supreme Court in Abhisar Buildwell. The final determination was to dismiss the Revenue's appeal and uphold the deletion of the addition of Rs. 21 crore.

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