s.153A additions in unabated year valid only on seized incriminating material; cash-based disallowances deleted accordingly

ITAT held that in an unabated assessment year, additions under s.153A are permissible only on the basis of incriminating material seized during search. Although cash intercepted and requisitioned under s.132A was deposited in the PDA account and ownership thereof was accepted by the assessee, the AO's disallowances were based solely on examination of regular books and records, without any seized incriminating material. Applying the settled legal position limiting s.153A jurisdiction in unabated years, the Tribunal found the additions unsustainable in law and allowed the assessee's appeal.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, in an assessment made under section 153A for an unabated assessment year, additions/disallowances in respect of power and fuel and handling labour charges, business promotion expenses, and godown rent can be sustained in the absence of any incriminating material found during search.

1.2 Whether the Assessing Officer had jurisdiction under section 153A to disturb a completed/unabated assessment where no incriminating material relatable to the additions was seized during search and requisition proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Scope of section 153A in unabated assessment year and validity of additions/disallowances in absence of incriminating material

Legal framework

2.1 The Court examined the provisions of section 153A of the Act in the context of an unabated assessment year, with specific reference to the principle that, for such years, additions can be made only on the basis of incriminating material found during search, as laid down by the Supreme Court in PCIT v. Abhisar Buildwell P. Ltd.

Interpretation and reasoning

2.2 It was noted that the assessment year in question was an unabated assessment as on the date of search, there being no pending proceedings under section 143(3) and the time limit for issuing notice under section 143(2) having expired.

2.3 The search and requisition action under sections 132A and 133A was initiated consequent to the interception and requisition of cash of Rs. 40 lakhs, which the assessee admitted as owned by it. However, during the course of search, no incriminating material was found or seized relating to the disallowances subsequently made by the Assessing Officer in respect of power and fuel and handling labour charges, business promotion expenses, and godown rent.

2.4 The disallowances were made by the Assessing Officer at 20% of power and fuel and handling charges, full disallowance of business promotion expenses under section 69C for want of supporting evidence, and addition of godown rent on the ground that the assessee admitted to not paying such rent. These were based solely on examination of books of account and records furnished during assessment, and not on any seized material.

2.5 The Commissioner (Appeals) deleted the additions primarily on the ground that the books of account had not been rejected by the Assessing Officer, and therefore such ad hoc or unsupported disallowances were not sustainable.

2.6 The Court upheld the deletion of additions, but on a different legal footing, holding that in an unabated assessment year, section 153A permits additions only where they are founded on incriminating material seized during search, and not otherwise. As no such incriminating material existed in relation to the impugned expenses and disallowances, the action of the Assessing Officer was held to be contrary to section 153A.

Conclusions

2.7 For an unabated assessment year, additions under section 153A must be based on incriminating material found during search; mere examination of books of account and records is insufficient.

2.8 Since no incriminating material was found during search relating to power and fuel and handling labour charges, business promotion expenses, or godown rent, the Assessing Officer lacked jurisdiction under section 153A to make these additions.

2.9 The order of the Commissioner (Appeals) deleting the additions was confirmed, though on the ground of the legal limitation on the scope of section 153A in unabated years rather than solely on non-rejection of books.

2.10 Consequently, the Revenue's appeal was dismissed, and the assessee's cross objection challenging the jurisdiction of the Assessing Officer under section 153A in respect of the unabated assessment was allowed.

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