Jothi Narayanan Vs DCIT (ITAT Chennai)
No Addition U/s 153A Without Incriminating Material – ITAT Chennai Quashes Search Additions Based Only on Special Audit Findings
In a search conducted u/s 132 on 04.10.2017 in the case of the assessee, Managing Director of Annai Builders Real Estates Pvt. Ltd., the AO completed assessments u/s 153A r.w.s. 143(3) for multiple years and made several additions including perquisite income u/s 17(2), deemed dividend u/s 2(22)(e), and other adjustments based mainly on findings of a special audit ordered u/s 142(2A).
The assessee challenged the jurisdiction of the AO u/s 153A on the ground that the relevant assessment years were completed/unabated assessments and that no incriminating material was found during search. The AO relied on Tally data seized from the company’s hard disk and the subsequent special audit report to justify the additions.
The Tribunal held that the seized Tally accounts and books of the company were already part of regular books and returns filed prior to the search, and therefore could not be treated as incriminating material. It further held that a special audit report u/s 142(2A) based on existing books does not constitute incriminating material for the purposes of section 153A.
Relying on the Supreme Court ruling in PCIT v. Abhisar Buildwell (P) Ltd., the ITAT held that in respect of completed/unabated assessments, additions can be made in search assessments only if they are based on incriminating material found during the search. Since no such material existed in the present case, the assumption of jurisdiction u/s 153A and the consequential additions were held to be unsustainable.
Accordingly, the Tribunal allowed the assessee’s appeals for the relevant assessment years and set aside the additions made in the search assessments.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
The assessee aggrieved by the order(s) of the Learned Commissioner of Income Tax (Appeals) – (in short “ld.CIT(A)”) for the Assessment Year(s) – (in short “A.Y.”) 2012-13 to 2016-17 & 2018-19 dated 24.07.2025, has filed the present batch of 6 appeals before this Tribunal.
