No Addition Without Incriminating Evidence in PCIT v. Swetaben Patel
Fact and issue of the case
Heard learned advocate Mr. Varun Patel for the appellant department.
The present Tax Appeal under section 260A of the Income Tax Act, 1961 arises out of order dated 8.6.2022 of the Income Tax Appellate Tribunal, Ahmedabad in Income Tax (SS)A No. 464 of 2019 in respect of the Assessment Year 2011-2012.
The Revenue has proposed the following questions to be arising as substantial questions of law in the appeal, “
(i) Whether in the facts and circumstances of the case and in law, the ITAT has erred in giving relief to the assessee holding that no incriminating materials were found with regard to the issue of additions made in the assessment order ?
(ii) Whether in the facts and circumstances of the case and in law, the ITAT has erred in deleting the addition on account of unexplained cash credit u/s. 68 of Rs. 3,32,56,865/- and addition on account of expenses on bogus LTCG u/s 69C of Rs. 8,92,705/- ?” 3. The facts in brief are that on 27.12.2016, the Assessing Officer passed assessment order under section 143(3) read with section 153A(1) (b) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) determining total income at Rs. 3,57,97,628/- making addition of Rs. 3,32,56,865/- under section 68 of the Act on account of alleged bogus long term capital gain. Further addition under section 69C of the Act to the tune of Rs. 8,92,705/- on account of expenses of bogus long term capital gain was also made.
The Commissioner of Income Tax (Appeals) passed order dated 01.07.2019 allowing the appeal of the assessee by deleting the additions made in the assessment order. It recorded a finding that no incriminating material was found at the premises of the assessee during search. The Income Tax Appellate Tribunal as per impugned order dated 8.6.2022 dismissed the appeal of the Revenue against the aforementioned order of Commissioner of Income Tax (Appeals).
While learned advocate for the appellant took the court through the order impugned in the appeal to make various submissions to assail the same and to submit that the aforesaid substantial questions of law arise, in course of the hearing, however, learned advocate fairly conceded that the issue represented in the substantial questions of law is answered by the supreme court in Principal Commissioner of Income Tax, Central-3 vs. Abhisar Buildwell P. Ltd. being Civil Appeal No. 6580 of 2021 and other group of appeals decided on 24th April, 2023. They were the group of appeals filed by the Revenue as well as the assessee respectively. The issue involved in the said appeals before the supreme court was about the scope of assessment under section 153A of the Act. According to the case of the Revenue, the Assessing Officer is competent to consider all the material available on record including the material found during the search and make assessment of ‘total income’. While some High Courts had agreed with the said proposition, other High Courts took the view that if no assessment proceedings are pending on the date of initiation of search, the Assessing Officer can consider only such incriminating material found during the search and it is not permissible for the Assessing Officer to consider any other material derived from any other source.
The supreme court in Abhisar Buildwell P. Ltd. (supra) answered the question as to whether in respect of completed assessment/un-abated assessment, the jurisdiction of the Assessing Officer to make assessment is confined to incriminating material found during the course of search under section 132 of the Act or the requisition under section 132A and whether additions made by the Assessing Officer in absence of any incriminating material found during the search, could be sustained or not.
The supreme court confirmed the view taken by this court in Principal Commissioner of Income Tax-4 vs. Saumya Construction [(2016) 387 ITR 529 (Gujarat)] well as that of Delhi High Court in Commissioner of Income Tax, Central-III vs. Kabul Chawla [(2015) 61 taxmann.com 412 (Delhi)], which were in favour of the assessee. The supreme court held that no addition can be made in respect of completed/ unabated assessment in absence of any incriminating material.
The supreme court observed in Abhisar Buildwell P. Ltd. (supra) thus, “….
The lead judgment is by the Delhi High Court in the case of Kabul Chawla (supra), which has been subsequently followed and approved by the other High Courts, referred to hereinabove. One another lead judgment on the issue is the decision of the Gujarat High Court in the case of Saumya Construction (supra), which has been followed by the Gujarat High Court in the subsequent decisions, referred to hereinabove. Only the Allahabad High Court in the case of Pr. Commissioner of Income Tax v. Mehndipur Balaji, 2022 SCC Online All 444 : (2022) 447 ITR 517 has taken a contrary view.” (para 7) 4.4 The Kabul Chawla (supra) was quoted for its ratio as under,
“In the case of Kabul Chawla (supra), the Delhi High Court, while considering the very issue and on interpretation of Section 153A of the Act, 1961, has summarised the legal position as under: Summary of the legal position
On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:
i. Once a search takes place under Section 132 of the Act, notice under Section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.
ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.
iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the ‘total income’ of the aforementioned six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six AYs “in which both the disclosed and the undisclosed income would be brought to tax”.
iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material.”
v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word ‘assess’ in Section 153 A is relatable to abated proceedings (i.e., those pending on the date of search) and the word ‘reassess’ to completed assessment proceedings.
vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.
vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.”
Observation of the court
The decision of Saumya Construction (supra) of Gujarat High Court was also quoted for its paragraph Nos. 15 and 6 to held that the case of completed assessment/unabated assessment in absence of any incriminating material will not permit making of addition by the Assessing Officer and that the Assessing Officer has no jurisdiction to reopen the completed assessment.
Finally, the supreme court confirmed the view taken by the Delhi High court in Kabul Chawla (supra and of this Court in Saumya Construction (supra laying down the law that no addition can be made in respect of completed assessment in absence of any incriminating material. The supreme court in laying down the proposition considered the object and purpose of insertion of section 153A of the Act.
In view of the above decision of the supreme court in Abhisar Buildwell P. Ltd. (supra), there is no gainsaying that the issue sought to be raised and the substantial questions of law ought to be put forth in that context, are answered.
No case is made out in this appeal. No question of law much less any substantial question of law could be said to be arising in view of law laid down by the supreme court in Abhisar Buildwell P. Ltd. (supra). The appeal stands dismissed accordingly.