Facts of the Case

The present appeal was filed by the Revenue challenging the order dated 27.02.2018 passed by the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2009–10.

The assessee had filed its return declaring income of ₹9.93 crores, which was initially processed under Section 143(1) and later assessed under Section 143(3) at the returned income.

Subsequently, a search and seizure operation under Section 132 was conducted. During assessment proceedings, the Assessing Officer (AO) noted a significant increase in share capital and share premium and required the assessee to justify the same.

The AO passed an order dated 31.03.2015 making an addition of ₹8 crores under Section 68 on the ground that the assessee failed to satisfactorily establish identity, creditworthiness, and genuineness of the transactions.

The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, observing that no incriminating material was found during the search. The ITAT upheld this finding.

Issues Involved

  1. Whether addition under Section 68 can be made in assessment under Section 153A without any incriminating material found during search?
  2. Whether completed (non-abated) assessments can be disturbed in absence of seized evidence?
  3. Scope and interpretation of Sections 153A and 68 in search assessments.

Petitioner’s Arguments (Revenue)

  • The ITAT erred in holding that addition cannot be made without incriminating material.
  • Incriminating evidence was allegedly discovered during a simultaneous search on an entry operator (Tarun Goel), and information was received through the Investigation Wing.
  • The AO used such material as a starting point for further investigation, which resulted in the addition.
  • The scope of incriminating material should not be restricted only to documents seized from the assessee.

Respondent’s Arguments (Assessee)

  • No incriminating material was found during the search relating to the impugned addition.
  • The case was of a completed (non-abated) assessment.
  • Reliance was placed on judicial precedents including:
    • CIT vs Kabul Chawla (2016) 380 ITR 573 (Del)
    • PCIT vs Meeta Gutgutia (2017) 82 taxmann.com 287 (Del)
  • It was argued that in absence of incriminating material, no addition can be made under Section 153A.

Court’s Findings / Order

The Delhi High Court dismissed the Revenue’s appeal and held:

  • Both CIT(A) and ITAT recorded concurrent findings that no incriminating material was found during the search.
  • The assessment in question was a non-abated (completed) assessment.
  • The AO himself admitted in the remand report that no documents were seized nor any admission was made by the assessee.
  • Following the ratio laid down in Kabul Chawla, the Court reiterated that:
    • Completed assessments can be interfered with under Section 153A only on the basis of incriminating material found during search.
  • Since no such material existed, the addition under Section 68 was unsustainable.

Accordingly, the appeal was dismissed as no substantial question of law arose.

Important Clarifications

  • Even though the judgment in Kabul Chawla is pending before the Supreme Court, there is no stay, and it continues to hold the field.
  • The Court clarified that the outcome of this case will be subject to the final decision of the Supreme Court in the pending SLP.

Sections Involved

  • Section 68 – Unexplained Cash Credits
  • Section 132 – Search and Seizure
  • Section 153A – Assessment in Case of Search
  • Section 143(1) & 143(3) – Regular Assessment
  • Section 147 – Reassessment

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/58914112022ITA292019_212016.pdf

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