2025 (11) TMI 412 - AT - Income Tax

Appeal dismissed; addition under s.68 deleted in s.153A for long-term capital gains exempt under s.10(38) due to no seized material

ITAT (Del) upheld the CIT(A)'s deletion of an addition made by the AO under s.68 in proceedings under s.153A, concluding there were no seized materials ... Assessment u/s 153A - addition u/s 68 denying long term capital gain claimed by the assessee u/s 10(38) - HELD THAT:- As we observed that there is no reference to any seized materials based on which the addition was made u/s 68 of the Act denying the claim for exemption in respect of long term capital gains shown by the assessee. On careful perusal of the order of the Ld. CIT(A), we do not see any valid reason to interfere with the findings of the Ld. CIT(A) and the decision in deleting the addition made by the AO in the absence of any seized materials relating to the addition. Thus, the grounds raised by the Revenue are rejected. Appeal filed by the Revenue is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether an addition made under section 68 in an assessment completed under section 153A can be sustained in respect of a completed/unabated assessment year where no incriminating material relating to that year was found in the search or requisition proceedings. 2. Whether an Assessing Officer may rely on analysis of publicly available financial statements and price movement of a company (characterised by AO as a 'penny stock') - without any seized documents or statements from the search - to make additions in a section 153A proceeding for a completed assessment year. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of additions under section 68 in a section 153A assessment where no incriminating material was seized for the completed assessment year Legal framework: Section 153A confers jurisdiction to assess or reassess total income for assessment years falling within the six-year block where a search under section 132 or requisition under section 132A is made; the second proviso to section 153A provides that pending assessments/ reassessments shall abate, while completed/unabated assessments ordinarily remain unaffected unless incriminating material is found during the search in relation to those years. Where no incriminating material is found during search, the appropriate remedy for reopening completed assessments is under sections 147/148 subject to statutory conditions. Precedent treatment: The Tribunal applied and followed the Supreme Court pronouncement (referred to in the impugned order) holding that additions in completed/unabated assessments under section 153A are permissible only if incriminating material relating to those years is unearthed during the search; otherwise the Revenue's remedy is to initiate reassessment under sections 147/148. High Court decisions consistent with this view were also cited as being in agreement. Interpretation and reasoning: The Court examined the assessment record and the CIT(A) order and observed absence of any reference to seized material or statements arising from the search supporting the addition. The AO's addition was based on analysis of share price movement and company financials, not on any incriminating document unearthed in the search. Applying the established principle that section 153A assessments are linked to incriminating material found in search/requisition, the Tribunal reasoned that the necessary predicate for interfering with a completed assessment was missing. Ratio vs. Obiter: Ratio - In the context of section 153A, additions in respect of completed/unabated assessment years require incriminating material discovered during the search/requisition; absent such material, additions cannot be sustained under section 153A and the correct statutory route is reopening under sections 147/148. Observations characterising the precise contours of what constitutes 'incriminating material' as against other material are explanatory but supportive of the ratio. Conclusion: The addition under section 68 in respect of the completed assessment year is not sustainable under section 153A because there was no incriminating material seized or discovered during the search relating to that year; the CIT(A)'s deletion of the addition is upheld. Issue 2: Reliance on analysis of financial statements and market movement (penny stock characterization) in absence of seized material Legal framework: The scope of section 153A is limited to assessing undisclosed income found during search or requisition; material external to the search may be relevant when incriminating materials are seized, but cannot alone convert a completed assessment into a block assessment basis without the statutory trigger. Precedent treatment: The Tribunal relied on the Supreme Court decision emphasising that assessment under section 153A must be linked to incriminating material unearthed during search and that reliance solely on other material (market data or financial statements) without seized evidence is impermissible for completed years. Interpretation and reasoning: The AO had characterised the shares as 'penny stock' because of a significant price rise and purportedly analyzed ten years of financial statements; however, the assessment order did not cite any seized documents or statements from the search to corroborate such suspicion. The Tribunal found no concrete material in the record showing that the analysis constituted or derived from incriminating material obtained during the search. Absent that connection, use of financial analysis or price movement amounted to adjudication on returns without the statutory foundation required by section 153A. Ratio vs. Obiter: Ratio - Market behaviour or company financial analysis, standing alone and not tied to incriminating material seized during search, cannot justify additions under section 153A for completed assessment years. Obiter - The assessment officer should explicitly record nexus between any seized incriminating material and the proposed additions when invoking section 153A. Conclusion: The AO's reliance on financial statement analysis and price movement, unaccompanied by seized incriminating material, does not validate the addition; therefore the addition based on characterization as a 'penny stock' fails and is properly deleted in the section 153A proceeding. Cross-reference and final determination Cross-reference: Issue 2 is consequential to Issue 1 - the absence of seized incriminating material (Issue 1) renders reliance on other analyses (Issue 2) insufficient to sustain additions under section 153A; the statutory scheme and precedents require the AO to either produce incriminating material from the search or follow sections 147/148 to reopen completed assessments. Final conclusion: The deletion of the addition made by the AO under section 68 in the section 153A assessment is affirmed because the addition was not based on any incriminating material seized or discovered during the search; the Revenue's grounds to sustain the addition are rejected.