Change in head of income not permissible u/s 153A if no incriminating material is found during search-ITAT

Change in head of income not permissible u/s 153A if no incriminating material is found during the search-ITAT

Prelude:
Section 153A of the Income Tax Act, 1961 contains provisions governing assessment of cases where a search action has taken place u/s 132 or books of account/other documents have been requisitioned u/s 132A.

The assessment under section 153A can be made on the basis of incriminating material. However, the term “incriminating material” has not been defined in the Income Tax Act.

In the context of relevant provisions the term “incriminating material” means books of account and other documents found in the course of search operations but not produced in the course of original assessment and undisclosed income or property disclosed during the course of search.

Settled Law is that no addition can be made by the Assessing Officer while completing assessment u/s 153A unless on the basis of any ‘incriminating material’ found during the search.

The current case law involved a controversy with respect to the action of the Assessing Officer treating the ‘Long Term Capital Gains’ originally returned by the assessee as “income from other sources’

Change in head of income is not permissible in assessment u/s 153A 

ABCAUS Case Law Citation:
ABCAUS 2157 (2018) (01) ITAT

The Challenge/Grievance:
The petitioner assessee had filed the present Income Tax Appeal before the Income Tax Appellate Tribunal (Tribunal/ITAT) challenging the action of the lower income tax authorities in treating his income as ‘income from other sources’ as against ‘Long Term Capital Gains’ claimed by the assessee.

Important Case Laws Cited/relied upon by the parties:
CIT Vs. Continental Warehousing Corporation (2015) 279 CTR 0389 (Bombay)
CIT Vs. Kabul Chawla 234 Taxman 300 (Delhi),
PCIT v. Meeta Gutgutia 2017 (295) CTR 466 (Del)

Contention made on behalf of the Appellant Assessee:
The assessee not only challenged the change of head of income, but also raised a legal ground stating that the aforesaid change of head and the resultant addition was made by the Assessing officer was illegal as the assessment order nowhere mentioned that any incriminating material was found during search action.

It was submitted that the assessee had returned the same income in response to notice u/s 153A of the Act, which was originally returned in the return of income filed u/s 139 of the Act.

Placing reliance on the judgments of Bombay High Court and Delhi High Court, it was contended that in view of the fact that no incriminating material was found during the search action, the addition in the case of already concluded assessment cannot be made, therefore no additions were warranted in the case of the assessee.

Observations made by the Tribunal:
The Hon’ble Tribunal observed that the assessee’s case was squarely covered by the decisions relied by the assessee.

It was noted that the Assessing officer had not found any material for further addition rather he had just changed the head of the income already returned by the assessee which, was not warranted in view of the settled legal position of law.

Decision/Conclusion/Held:
The appeal of the assessee was allowed by setting aside the order of CIT(A). The additions made on account of change of head of income was ordered to be deleted.