ITAT allows assessee appeal, deletes additions made without incriminating material under Section 153A assessment

The ITAT Delhi ruled in favor of the assessee in a case involving assessment under Section 153A following a search operation. The AO had disallowed an exemption claimed under Section 54F, but the Tribunal found this disallowance was beyond the scope of assessment under Section 153A since no incriminating material was seized during the search that supported this addition. The assessment for AY 2015-16 had not abated on the search date of 22/10/2016 as no assessment was pending. The AO relied on documents obtained during regular assessment proceedings rather than seized materials. Applying the Supreme Court precedent in Abhisar Buildwell, the Tribunal held that additions made without basis in incriminating material found during search are beyond jurisdiction under Section 153A. The assessee's appeal was allowed and the additions were deleted.

---

---

ISSUES:

Whether the Assessing Officer (AO) has jurisdiction under Section 153A of the Income Tax Act, 1961 to disallow exemption claimed under Section 54F in completed assessments without incriminating material found during search.Whether disallowance of exemption under Section 54F can be sustained when the investment claimed relates to property held in capacity of director/shareholder or partner in converted LLPs.Whether conversion of companies owning property into LLPs violates Section 47(xiiib)(f) of the Income Tax Act, 1961, affecting exemption claims under Section 54F.Whether additions made by the AO without reference to incriminating material seized during search can be upheld.Whether an assessee can invoke additional legal grounds not adjudicated by the Commissioner of Income Tax (Appeals) (CIT(A)) before the Income Tax Appellate Tribunal (ITAT) under Rule 27 of the ITAT Rules, 1963.

RULINGS / HOLDINGS:

The AO does not have jurisdiction under Section 153A to make additions in respect of completed/unabated assessments without incriminating material found during the search; disallowance of exemption under Section 54F in such circumstances is "beyond jurisdiction" and unsustainable.The CIT(A) correctly allowed exemption under Section 54F on merits, finding all requirements fulfilled, despite the AO's contrary findings regarding the nature of property holding and investment.The contention that conversion of companies into LLPs violated Section 47(xiiib)(f) was not upheld; no adverse finding was made affecting the exemption under Section 54F on this ground.Additions made by the AO "dehors the incriminating material found during the course of search" cannot be sustained, as held by the Supreme Court and various High Courts.Under Rule 27 of the ITAT Rules, 1963, an assessee can support the order appealed against on any grounds decided against him by the CIT(A), even if not appealed, and the Tribunal may permit raising additional legal grounds not adjudicated by the CIT(A).

RATIONALE:

The Court applied the statutory framework of Section 153A of the Income Tax Act, 1961, which confers jurisdiction on the AO to assess or reassess total income for six assessment years following a search under Section 132, but only if incriminating material is found during the search relating to those years.The second proviso to Section 153A preserves completed/unabated assessments from abatement, limiting the AO's jurisdiction to reassess such years only when incriminating material is discovered during the search.Judicial precedents from the jurisdictional High Court and the Supreme Court, including the principles laid down in CIT v. Kabul Chawla and Pr. CIT v. Meeta Gutgutia, were followed, affirming that additions in completed assessments without incriminating material found during search are impermissible under Section 153A.The Supreme Court's decision in Pr. CIT(A) v. Abhisar Buildwell (P) Ltd. was pivotal, emphasizing that Section 153A is linked to the search and cannot be used to reopen completed assessments absent incriminating material; otherwise, reassessment under Sections 147/148 is the appropriate remedy.The Tribunal recognized the principle that the CIT(A) need not adjudicate all legal grounds if the appeal is decided on merits, and under Rule 27 of the ITAT Rules, the assessee may raise unadjudicated grounds before the Tribunal to support the order appealed against.The Court rejected reliance solely on statements recorded during search without corroborative evidence, consistent with CBDT instructions that additions cannot be based solely on such statements.

---