2025 (8) TMI 1426 - AT - Income Tax

Assessee wins deletion of additions where peak accommodation loan credits not treated as undisclosed income under s.153A/68

Annapurna Infratech Versus DCIT, Central Circle-1, Central Circle-1, Mumbai

Annapurna Infratech Versus DCIT, Central Circle-1, Central Circle-1, Mumbai - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether the Assessing Officer (AO) could assess peak credit of alleged accommodation loans as income in unabated/completed assessment years under section 153A read with section 68 in absence of incriminating material unearthed during search in the hands of the assessee. 2. Whether pre-search or external 'incriminating information' (not seized in the assessee's search records) can be used as 'other material' to justify additions in unabated/completed assessment years under section 153A. 3. (Alternative / academic) Whether income emerging from information gathered in searches of other persons ought to be assessed under section 153C rather than in proceedings under section 153A. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Power to make additions in unabated/completed assessment years under section 153A in absence of incriminating material Legal framework: Section 153A triggers assessment/reassessment for six years on conduct of search under section 132; the AO is required to assess or reassess the 'total income' for those years. The provisos distinguish between abated (pending) and unabated (completed) assessments and the scope of interference in completed assessments is linked to incriminating material discovered in search. Precedent Treatment: The Tribunal follows and applies authoritative High Court analyses approved by the Supreme Court that interpret section 153A to mean that completed/unabated assessments can be reopened or additions made only if incriminating material connected with the particular assessment year is found in the course of search/requisition. The Tribunal also relies on coordinate bench decisions applying identical principles. Interpretation and reasoning: The Court reasons that the purpose of section 153A is to bring undisclosed income detected as a result of search within the tax net and to compute total income for the block years by adding such undisclosed income to previously declared income. Where no incriminating material relating to a specific unabated assessment year is found in the assessee's search records, the AO lacks jurisdiction under section 153A to make fresh additions in that completed year. Suspicion or pre-search information that loans are accommodation entries does not equate to incriminating material; such information only warrants further investigation, not immediate reassessment of completed years under section 153A. Ratio vs. Obiter: Ratio - In unabated/completed assessment years, additions under section 153A can be made only on the basis of incriminating material unearthed in the course of search in the hands of the assessee; absent such material, the AO cannot assess alleged accommodation loans as income in those years. Obiter - Observations on the comparative mechanics of cash-flow telescoping and practical difficulties in proving accommodation entries are explanatory but not essential to the holding. Conclusion: The AO erred in law in assessing the peak credit of alleged accommodation loans as undisclosed income in the unabated assessment years where no incriminating material was found during search in the hands of the assessee; the additions must be deleted. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Admissibility of pre-search or external 'incriminating information' as basis for additions in unabated years Legal framework: Section 153A assessments are triggered by search/requisition and tied to material discovered thereby; the Supreme Court and High Courts have explained that any interference with completed assessments under section 153A presupposes incriminating material discovered in the course of the search. Precedent Treatment: The Tribunal adopts the precedent that while 'other material' and income declared in returns may be used to compute total income once incriminating material is found, mere pre-search intelligence or information not unearthed during the assessee's search does not qualify as incriminating material for reopening completed assessments under section 153A. The Tribunal aligns with prior judicial holdings distinguishing material actually seized/found in the assessee's search from external intelligence. Interpretation and reasoning: The Court distinguishes between (a) incriminating material unearthed during the specific search in the assessee's premises, which empowers the AO to reassess completed years under section 153A, and (b) pre-search information or material recovered from searches of other entities that merely indicate suspicion. The latter does not confer jurisdiction to make additions in unabated years under section 153A and, if actionable, should lead to reassessment under section 147/148 or assessment of connected persons under section 153C as applicable. Ratio vs. Obiter: Ratio - External or pre-search intelligence not unearthed during the assessee's own search cannot be treated as incriminating material to justify additions in unabated/completed assessment years under section 153A. Obiter - Comments on the need to preserve the Revenue's remedy (i.e., reassessment under sections 147/148) where no incriminating material is found are explanatory. Conclusion: The AO's reliance on pre-search/incriminating information not discovered in the assessee's search records does not validate additions in unabated assessment years under section 153A; such information, at best, triggers separate reassessment proceedings or other appropriate proceedings but cannot be the basis for section 153A additions in completed years. ISSUE-WISE DETAILED ANALYSIS - Issue 3 (alternative / academic): Proper forum - section 153A versus section 153C when material originates from searches of other persons Legal framework: Section 153C permits assessment of an assessee when material belonging to or pertaining to that assessee is seized from another person during search; section 153A is tied to searches in the assessee's own premises. The allocation of jurisdiction depends on the origin of the incriminating material. Precedent Treatment: The Tribunal notes binding and persuasive judicial guidance that information or seized material retrieved from searches of other persons, if connected to the assessee, may bring section 153C into play rather than section 153A in the assessee's file. Interpretation and reasoning: The Tribunal observes that where the AO relies primarily on material seized in searches of other entities (and not on incriminating material seized in the assessee's hands), the correct statutory route would be proceedings under section 153C, which specifically addresses assessment of persons whose material is found in others' searches. However, because the Tribunal has already held that no incriminating material existed in the assessee's search records and thereby set aside the additions, the question of invoking section 153C remains academic for the facts of these appeals. Ratio vs. Obiter: Obiter - The point is treated as academic and not necessary for the decision; nevertheless the principle that material seized from other persons may require proceedings under section 153C (if applicable) is noted. Conclusion: The alternative contention that the AO should have proceeded under section 153C is not decided on merits as the primary ground (absence of incriminating material in the assessee's search) disposes of the additions; the observation stands as an academic pointer to statutory remedies when material originates from others' searches. FINAL CONCLUSION The additions of peak credit of loans in the unabated/completed assessment years, made by treating alleged accommodation loans as undisclosed income in absence of incriminating material found during the search in the hands of the assessee, are unsustainable in law and are to be deleted. The AO's reliance on pre-search intelligence or on material not seized in the assessee's own search does not confer jurisdiction under section 153A to reassess completed years; appropriate alternative remedies (reassessment under sections 147/148 or proceedings under section 153C where factually applicable) remain available to the Revenue.