Facts of the Case

The present appeal was filed by the Revenue challenging the order dated 23.11.2022 passed by the Income Tax Appellate Tribunal (ITAT), arising from proceedings relating to Assessment Year (AY) 2008–09.

The matter originated from a search and seizure operation, wherein certain documents were recovered. The Assessing Officer initiated proceedings under Section 153C of the Income Tax Act, 1961 and made additions for AYs 2007–08 to 2009–10.

However, the seized documents (cash payment vouchers for milk purchases) pertained to later years i.e., AY 2010–11 and 2011–12, and not to the assessment years under consideration.

 Issues Involved

  1. Whether additions under Section 153C can be made in absence of incriminating material relating to the relevant assessment year.
  2. Whether the Assessing Officer is justified in making additions for earlier years based on documents pertaining to subsequent years.
  3. Whether any substantial question of law arises when the Tribunal has correctly applied settled legal principles.

 Petitioner’s Arguments (Revenue)

  • The Revenue challenged the ITAT’s order deleting additions made by the Assessing Officer.
  • It was contended that the Tribunal erred in holding that the additions were not sustainable under Section 153C.
  • The Revenue sought to frame substantial questions of law for consideration by the High Court.

 Respondent’s Arguments (Assessee)

  • The assessee contended that the seized documents did not pertain to the assessment years in question (AY 2007–08 to 2009–10).
  • It was argued that proceedings under Section 153C require incriminating material relatable to the specific assessment year, which was absent in the present case.
  • The assessee relied on settled judicial precedents to support its case.

 Court’s Findings / Order

The Delhi High Court dismissed the appeal of the Revenue and held:

  • The Tribunal correctly observed that the seized documents did not relate to the assessment years under consideration.
  • Initiation of proceedings under Section 153C must be based on incriminating material pertaining to the relevant assessment year, which was lacking in this case.
  • The issue is squarely covered by the judgment in:
    • CIT vs. Kabul Chawla (2016) 380 ITR 573 (Delhi HC)
    • Principal Commissioner of Income Tax vs. Abhisar Buildwell (2023 SCC OnLine SC 481) (affirming Kabul Chawla)
  • No substantial question of law arose for consideration.
  • Accordingly, the appeal was dismissed/closed.

 Important Clarification

  • For invoking Section 153C, there must be clear incriminating material linked to the relevant assessment year.
  • Additions cannot be made merely based on documents relating to different or subsequent assessment years.
  • This judgment reinforces the settled legal position that completed/unabated assessments cannot be disturbed without incriminating material.

 Sections Involved

  • Section 153C of the Income Tax Act, 1961 – Assessment of income of any other person pursuant to search.

Link to download the order - https://delhihighcourt.nic.in/app/showFileJudgment/60805072023ITA3402023_104313.pdf

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