Assessment u/s 153A has to be on the basis of seized material. It can’t be arbitrary/without nexus

Assessment u/s 153A has to be made only on basis of seized material. Assessment can not be arbitrary or without any relevance or nexus with seized material

ABCAUS Case Law Citation:
ABCAUS 3265 (2020) (02) ITAT

Important case law relied upon by the parties:
Kabul Chawla, 380 ITR 573.
Chintels India Ltd vs. DCIT, 397 ITR 416 (Del)
PCIT vs. Best Infrastructure (India) Ltd. 397 ITR 82 (Del)
PCIT Vs. Meeta Gutgutia, 395 ITR 526 (Del)
PCIT vs. Ms Lata Jain, 384 ITR 543 (Del)

In the instant case, the appellant assessee had challenged the order passed by the learned Commissioner of Income Tax (Appeals)

Pursuant to search and seizure operation that took place in a group of cases, notice u/s. 153C read with section 153A of the Income Tax Act, 1961 (“the Act”) was issued to the assessee who filed return of income.

After issuing notice u/s. 143(2) and 142(1) and considering the case of the assessee, the Assessing Officer (AO) assessed income u/s. 153A(1)(b) read with section 143(3) of the Act by making addition by invoking the provisions of section 14A read with Rule 8D of the Income Tax Rules, 1962 and also by disallowing the freight charges.

The Assessee preferred appeal before the CIT(A) and contended that inasmuch as no incriminating document was found during the course of search proceedings, no addition could have been made by reopening the concluded assessment in view of the decision of the jurisdictional High Court.

The CIT(A), however, did not agree with the assessee and noted that unless the search would have carried out, the details of expenditure which was disallowed could not have come to light. The  CIT(A) further observed that a different opinion was taken by Hon’ble Kerala High Court differing from the decision of the jurisdictional High Court. The CIT(A), therefore, confirmed the addition and dismissed the appeal.

Before the Tribunal, the assessee contended that for the relevant assessment year the time available to issue notice under proviso to section 143(2) had already expired. Therefore, even by the date of search, assessment for this year stood concluded and does not abate, in view of which in absence of any incriminating material found during the search, assessment could not have been reopened nor any addition could have been made.

The Tribunal observed that it was not the case of Revenue that the additions made had any reference to any particular document or material that was unearthed during the search so as to justify the reopening of assessment and the additions.

The Tribunal stated that it is settled principle of law that in terms of decision of Hon’ble jurisdictional High Court, the assessments and reassessments pending on the date of the search shall abate and the total income for such assessment years will have to be computed by the Assessing Officers as a fresh exercise.

The Tribunal said that although Section 153A of the Act 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.

The Tribunal said that in the cases of concluded assessment, no addition/disallowance could be made in the absence of any incriminating material found during the course of search.

In view of the above settled principle of law, the Tribunal held that there was no justification either for reopening of the concluded assessment or making any addition without any reference or nexus to the material that was seized during the search and the same cannot be sustained.

Accordingly, the impugned assessment order passed u/s. 153C was quashed.

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