Addition in Section 153A Assessment cannot sustain if no ‘Incriminating Material’ found during Search

7. Heard rival submissions and perused the material available on record. The dispute raised is regarding legal validity of additions made by AO under section 153A proceedings of the Act. Under the provisions of section 153A, in all cases, where search is conducted under section 132 of the Act, AO is empowered to assess or reassess total income of six assessment years preceding the assessment year in which search was conducted. The section also provides that assessment or reassessment relating to any assessment year falling within period of six assessment years if pending on the date of initiation of search shall abate. There have been divergent views regarding scope of application of section 153A in cases where no incriminating material was found indicating any undisclosed income. The Coordinate Benches of Tribunal had taken the view that in case no incriminating material was found AO had no jurisdiction to make assessment or reassessment under section 153A while some other Benches held that jurisdiction under section 153A was automatic to reassess six immediate preceding assessment years irrespective of the fact whether any incriminating material was found or not. Another aspect on which there had been divergent views was whether even if AO had jurisdiction under section 153A, addition can be made in assessment /reassessment only when some incriminating material has been found. All these aspects had been referred to the Special Bench of the Tribunal in case of Alcargo Global Logistics Ltd. v. Dy. CIT reported in [2012] 137 ITD 287/23 taxmann.com 103 (Mum.) and order of Special Bench dated 6.7.2012.

8. The Special bench in the case of Alcargo Global Logistics Ltd. supra, has held that provisions of section 153A come into operation if a search or requisition is initiated after 31.5.2003 and on satisfaction of this condition, the AO is under obligation to issue notice to the person requiring him to furnish the return of income for six years immediately preceding the year of search. The Special Bench further held that in case assessment has abated, the AO retains the original jurisdiction as well as jurisdiction under section 153A for which assessment shall be made for each assessment year separately. Thus, the AO can make additions in the assessment in a case where assessment has abated, even if no incriminating material has been found. But in other cases the Special Bench held that the assessment under section 153A can be made on the basis of incriminating material which in the context of relevant provisions means books of account and other documents found in the course of search but not produced in the course of original assessment and undisclosed income or property disclosed during the course of search. In the present case, the Assessee filed his return on 27-03-2002 for the year under consideration at page no-9 of paper book and assessment had been completed under summary scheme under section 143(1) and time limit for issue of notice under section 143(2) had expired on the date of search. Therefore, there was no assessment pending in this case and in such a case there was no question of abatement. Therefore, addition could be made only on the basis of incriminating material found during search.

9. In the present case, the AO had made assessment on the material information available in the return of income. Where, the AO has estimated the profit from brick business at a higher rate of profit on the basis analysing of earlier years and financial data of subsequent years of the assessee. The AO has brought no defect in the profit & loss account of the assessee. Similarly the information regarding the gift and unsecured loan was available in the return of income as capital account had been credited and balance sheet reflecting the loan. It is pertinent to note that all the details i.e ITR and some bank statements of donors are placed at page no’s 24 to 41 which clearly shows that the donors i.e Smt.Radha Ghosh donated Rs.2,00,000/- in cash to Assessee, like wise Smt Minati Ghosh donated Rs.2,00,000/- by cheque, Brindavan Ghosh for Rs.50,000/-, Sambhu Ghosh for Rs.50,000/-, Ashwini Ghosh for Rs.2,00,000/- and Sita Ghosh for Rs.1,00,000/- and confirmed the said transactions by letter of confirmations. It is observed form the assessment order that the AO had not referred to any incriminating material found during the search based on which addition had been made. Therefore following the decision of the Special Bench (supra), we hold that the AO had no jurisdiction to make additions under section 153A and accordingly, are liable to be deleted.

10. We also find guidance & support from the judgment dated 4^th August 2016 of Hon’ble High Court of Calcutta in the case of CIT Vs. Veerprabhu Marketing limited vide ITA no. 661/2008 placed on record in paper book wherein the Revenue raised a question of law and observation of Hon’ble High Court of Calcutta therein relevant to the issue on hand which is reproduced and as under: