2025 (9) TMI 1198 - HC - Income Tax

Additions under section 153A unsustainable where no incriminating material found; AO lacked jurisdiction, additions disallowed

HC held that additions under section 153A could not be sustained where no incriminating material was found in the search for the year under consideration. ... Assessment u/s 153A - incriminating material as found during the course of search regarding unaccounted job work which was routed back into the books of account by the respondent assessee by investment in bogus share capital - HELD THAT:- As decided in Abhisar Buildwell P. Ltd. [2023 (4) TMI 1056 - SUPREME COURT] we are of the opinion that in absence of any incriminating material or any other material available with the Assessing Officer, no addition could have been made as the Assessing Officer could not have assumed the jurisdiction u/s 153A of the Act in absence of any incriminating material during the course of search for the year under consideration which is admittedly an unabated assessment as held by this Court in case of Saumya Construction P. Ltd.(supra) [2016 (7) TMI 911 - GUJARAT HIGH COURT] ISSUES PRESENTED AND CONSIDERED 1. Whether additions under section 153A can be sustained in respect of share capital/share premium treated as unexplained cash credit under section 68 where no incriminating material was found in the search corresponding to the assessment year in question. 2. Whether the scope of assessment/re-assessment under section 153A is confined to income emerging from incriminating material found during search or requisition under sections 132/132A, particularly in cases of unabated (completed) assessments. 3. Whether the decision relied upon by the Tribunal (Saumya Construction line of authority) is applicable, and whether the Apex Court decision in Abhisar Buildwell alters the legal proposition relied upon by the Tribunal in the facts of this case. ISSUE-WISE DETAILED ANALYSIS Issue 1: Sustainability of addition under section 68 without incriminating material found in search Legal framework: Section 68 casts on the assessee the burden of proving identity, creditworthiness and genuineness of sources of unexplained cash credit/shareholders' funds. Section 153A operates to make or restore assessments in cases of search/requisition under sections 132/132A; section 153A links the trigger for such assessments to the search/requisition and contemplates assessment of 'total income' for six years but contains a proviso abating pending assessments. Precedent treatment: The Tribunal applied the Gujarat High Court decision in Saumya Construction (followed). The Revenue relied on Abhisar Buildwell (Apex Court) but the Tribunal and the Court distinguished its applicability on facts. Interpretation and reasoning: The Court accepted the concurrent factual finding that for the assessment year under consideration the assessment had abated and, at the time of search, there was no pending scrutiny for that year; additionally, the assessment order did not indicate any documentary or oral incriminating material seized during search that formed the basis for the addition under section 68. Applying the interpretive scheme of section 153A (including its heading and provisos), the Court reasoned that the exercise of jurisdiction under section 153A is triggered by search/requisition and the purpose is to bring to tax undisclosed income revealed by incriminating material found in the search; consequently, additions not supported by incriminating material found in the search cannot be sustained in the context of an unabated/completed assessment. Ratio vs. Obiter: Ratio - where an assessment year is unabated/completed at the time of search and no incriminating material relating to that year is found in the search, additions under section 153A (including additions treating share capital/premium as unexplained under section 68) cannot be sustained unless supported by incriminating material unearthed in the search; this principle was applied as the decisive ground for deleting the addition. Observations distinguishing Abhisar Buildwell on facts are ancillary but constitute binding application of law to facts. Conclusions: The addition of Rs. 6,65,00,000 treated as unexplained share capital under section 68 was rightly deleted where the Assessing Officer failed to point to any incriminating material seized/recorded in search pertinent to that assessment year; deletion upheld. Issue 2: Scope of assessment under section 153A - confined to incriminating material or broader? Legal framework: Section 153A requires issuance of notice and assessment/reassessment of total income for six assessment years following a search/requisition; the second proviso abates pending assessments for those years. The object of section 153A, read with its heading, is assessment in case of search or requisition and logically must relate to what the search/requisition reveals. Precedent treatment: The Court relied on Saumya Construction and other authorities (including decisions cited by the Tribunal) which hold that additions under section 153A should be based on incriminating material discovered during the search; the Court reviewed Abhisar Buildwell and confined its applicability to situations where incriminating material exists. Interpretation and reasoning: The Court construed section 153A purposively: although section 153A empowers assessment of total income for six years, the triggering search/requisition implies that the Assessing Officer's power to make additions/disallowances should be related to incriminating material found in the search. Where no incriminating material exists, the statutory purpose does not permit fresh additions vis-à-vis an unabated assessment merely because section 153A empowers issuing notices; instead the earlier assessment must be reiterated unless incriminating material furnishes a basis for additional tax. Ratio vs. Obiter: Ratio - in cases of unabated/completed assessments, the Assessing Officer's power under section 153A to make additions/disallowances is constrained by the requirement of incriminating material discovered in the search; absent such material, additions cannot be made. Obiter - broader comments on the ambit of section 153A in scenarios where incriminating material exists (as discussed in Abhisar) are explanatory and not applied to facts without such material. Conclusions: The Tribunal and the Court correctly held that section 153A assessments must be linked to incriminating material from the search; absent such material for the year under consideration, the scope of assessment does not permit fresh additions. Issue 3: Applicability of Saumya Construction and Abhisar Buildwell - followed or distinguished Legal framework: Precedential hierarchy requires Supreme Court authority to be followed unless distinguishable on facts. Saumya Construction (High Court) established that additions under section 153A require incriminating material in unabated assessments; Abhisar (Supreme Court) clarified that where incriminating material is found, the Assessing Officer can assess total income for six years including previously completed assessments. Precedent treatment: The Tribunal and Court followed Saumya Construction as directly controlling on the facts (unabated assessment, no incriminating material). The Revenue's reliance on Abhisar was considered but rejected as inapplicable because Abhisar's operative proposition (permits assessment/reassessment where incriminating material exists even in unabated/completed assessments) presupposes the existence of incriminating material; that factual predicate was absent here. Interpretation and reasoning: The Court parsed paragraph 14(iii) of Abhisar to show it authorizes assessment where incriminating material is found; it reasoned that Abhisar does not assist the Revenue where no incriminating material pertains to the assessment year. Therefore Saumya's rule remained applicable and controlling on facts where no incriminating material was seized. Ratio vs. Obiter: Ratio - Saumya Construction's rule was applied as the governing precedent on these facts; Abhisar Buildwell was distinguished on its factual predicate and not treated as overturning Saumya's applicable holding in the absence of incriminating material. Observations about Abhisar's scope are explanatory (obiter in relation to present facts) to clarify non-applicability. Conclusions: The Tribunal and the Court correctly applied Saumya Construction; Abhisar Buildwell is distinguishable and does not warrant interference where no incriminating material was unearthed for the assessment year in question. Overall Conclusion The Court affirmed the Tribunal's and CIT(A)'s concurrent factual findings that no incriminating material relevant to the assessment year was found in the search, applied the Saumya Construction principle that additions under section 153A cannot be sustained without such material in cases of unabated assessments, distinguished Abhisar Buildwell on its factual predicate, and dismissed the Revenue's appeal upholding deletion of the addition under section 68.