PCIT Vs Ind Sing Developers Pvt. Ltd. (Karnataka High Court)
Pre-search records not ‘incriminating’, No addition u/s 153A without incriminating material found during search: Karnataka High Court
A search u/s 132 was conducted on 26.08.2008. AO passed order u/s 153A r.w.s. 143(3) treating sale proceeds as business income, relying primarily on a senior advocate’s opinion found during search.
CIT(A) held it to be capital gains. ITAT ruled that assessment should be in hands of AOP, not the assessee. No valid incriminating material was found to support the addition in post-search reassessment. The legal opinion was never put to the assessee for rebuttal & thus could not be the sole basis of addition.
The core issues before the High Court was whether ₹6 crore received by the assessee on sale of land & relinquishment of rights should be taxed as Business income (as per AO), or Capital gains/capital receipt (as declared by assessee).Also, whether search assessment additions u/s 153A are valid without incriminating material.
High Court’s observed that the Tribunal rightly rejected reliance on a legal opinion not confronted to the assessee. The balance sheets relied upon were already with the department prior to the search & hence not incriminating. AO’s action in recharacterizing income based on legal opinion & old records violated settled law that additions u/s 153A must be based on search-specific incriminating material. Revenue failed to prove perversity or misapplication of law in Tribunal’s findings.
