2026 (1) TMI 875 - AT - Income Tax

Assessment under section 153A: additions for unabated years require incriminating material found in search, otherwise additions fail.

Assessment under section 153A is examined with focus on whether incriminating material was found during search for unabated years; reliance on a Supreme ... Assessment u/s 153A - Incriminating material found during the search or not? - difference in abated and unabated years - HELD THAT:- Tax authorities seems to have completed the assessments on the premises that there is no difference in abated and unabated years assessment so far the search assessments are concerned but the law as now stands settled by decision of Abhishar Buildwell, [2023 (4) TMI 1056 - SUPREME COURT] that in case of unabated year assessments the additions can be only on the basis of incriminating material found and seized in the search, makes us sustain the contention of ld. Counsel that bereft of incriminating material/information found in search the additions and disallowance were made in AY 2014-15, 2015-16 and 2017-18. The additions in AY 2018-19 and 2019-20 are only consequential to earlier years and loose their substratum. Corresponding grounds raised by the assessee are thus sustained. Resultantly, appeals of the assessee are allowed and of the Revenue stands dismissed.. Issues: (i) Whether additions and disallowances in unabated assessment years completed under Section 153A can be sustained in the absence of incriminating material or information seized during the search; (ii) Whether additions in abated assessment years which are consequential to unabated years survive if the antecedent additions are not based on seized incriminating material.Issue (i): Whether additions/disallowances in unabated assessment years under Section 153A were permissible without reliance on incriminating material seized during search.Analysis: The assessments challenged involved additions under Sections 68, 69C and disallowances under Section 14A in unabated years. The assessments did not refer to or rely upon any incriminating documents or information recovered during the search; instead the assessing officer examined the transactions on merits (creditworthiness, identity and genuineness) and relied on material outside the seized records, including penny stock related inquiries. The settled legal test requires that, for unabated years, additions under Section 153A must be founded on incriminating material found in the search; additions founded on independent inquiries or material dehors the seized records do not meet that threshold.Conclusion: The additions and disallowances in the unabated assessment years are not sustainable as they were not based on incriminating material seized in the search. The issue is decided in favour of the assessee.Issue (ii): Whether additions in abated assessment years that are consequential to the unabated years remain sustainable where the antecedent additions fail for lack of seized incriminating material.Analysis: The impugned additions in the abated year flow directly as consequences of the additions in the unabated years. Where the foundational additions in the unabated years are set aside for not being based on incriminating seized material, the consequential additions lose their legal foundation.Conclusion: The consequential additions in the abated assessment year do not survive and are disallowed; this issue is decided in favour of the assessee.Final Conclusion: The appeals challenging additions and disallowances in the unabated assessment years succeed for lack of reliance on incriminating material seized in the search, and consequential additions in the abated year likewise fail; the assessee obtains relief on the decided issues.Ratio Decidendi: For unabated assessment years completed under Section 153A, additions and disallowances are sustainable only if they are founded on incriminating material or information discovered and seized during the search; consequential additions in abated years collapse if the foundational additions in unabated years are invalidated for lack of such seized material.