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Q: Is income tax addition Permissible in Unabated Assessments?

The Chennai Bench of Income Tax Appellate Tribunal (ITAT) has held that no addition is permissible unabated assessment unless based on incriminating material.

The Chennai Bench of Income Tax Appellate Tribunal (ITAT) has held that no addition is permissible unabated assessment unless based on incriminating material.

The bench of Aby T. Varkey (Judicial Member) and Amitabh Shukla (Accountant Member) has observed that the usurpation of jurisdiction under section 153C of the Act to be invalid and also deleted the additions made under section 69 of the Income Tax Act for want of incriminating material found & seized in the course of search.

Background

A search was conducted against Kamlesh Jain & Others. The AO has noted that the seized material which was found in the course of search contained information relating to the assessee. It is observed that the satisfaction note was recorded by the AO. On the same date, notice under section 153C of the Income Tax Act was issued upon the assessee for AYs 2012-13 & 2013- 14.

According to the AO, ordinarily having regard to the date of search i.e. 25-02-2020, he was within his jurisdiction to issue notices under section 153C of the Act in respect of six assessment years preceding the assessment year of search i.e. in the present case search took place, so, ordinarily the AO was empowered under section. 153C to reopen six preceding assessment years preceding the searched assessment year and those AY’s were AYs 2014-15 to 2019-20.

However, the AO exercised powers conferred under Section 153C read with fourth proviso to Section 153A, which was inserted by Finance Act 2017 w.e.f. 01.04.2017, and has reopened AYs 2012- 13 & 2013-14, which were beyond six assessment years but, according to the AO, within ten assessment years.

The income-tax assessments of the assessee for AYs 2012-13 & 2013-14 were either completed under section 143(1)/143(3) and/or the time limit for issue of notice under section 143(2) of the Act had expired.

The income-tax assessments for AYs 2012-13 & 2013-14 were not pending before AO on the date of search, therefore, those years did not abate consequent to the search. Post the issue of notice under section 153C of the Income Tax Act for unabated AYs 2012-13 & 2013-14, the AO is noted to have completed the income-tax assessments.

Conclusion

The tribunal held that in the case of unabated assessments of an assessee, no addition is permissible in the order under section 153C of the Income Tax Act unless it is based on any incriminating material found during the course of search. Having regard to this legal position, we now revert back to the facts of the present case to ascertain whether the income which the AO assessed in the orders impugned in this appeal was based on or made with reference to any incriminating document found in the course of search which would justify the additions made under section 69 of the Income Tax Act.

The tribunal noted that a statement seeking time to verify from records and submit the details regarding the investments sold, as understandably the data was quite old, cannot be treated as an incriminating statement to draw adverse inference in an unabated assessment.

The ITAT while allowing the appeal held that usurpation of jurisdiction under section 153C of the Income Tax Act to be invalid and also deleted the additions made under section 69 of the Income Tax Act for want of incriminating material found & seized in the course of search.

FAQs

What is unabated assessment under income tax ?

Section 153A of the Income Tax Act, 1961 deals with unabated assessments. It states that an assessment that has already been completed and is no longer pending can only be reopened during a search operation if there is incriminating material found during the search.

Is income tax addition Permissible in Unabated Assessments?

The Chennai Bench of Income Tax Appellate Tribunal (ITAT) has held that no addition is permissible unabated assessment unless based on incriminating material.