Facts of the Case

The present appeal was filed by the Revenue challenging the order dated 21 January 2021 passed by the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2010–11.

The ITAT had deleted additions made by the Assessing Officer on the ground that such additions were not based on any incriminating material found during the course of a search conducted under Section 132 of the Income Tax Act.

The assessment year in question was a concluded assessment, meaning it was not pending on the date of search. The additions included disallowances such as advertisement expenditure and disallowance under Section 14A, none of which were linked to any material discovered during the search proceedings.

Issues Involved

  1. Whether additions can be made under Section 153A of the Income Tax Act in respect of a concluded assessment without any incriminating material found during search.
  2. Whether the ITAT was correct in relying upon judicial precedents such as CIT vs Kabul Chawla.
  3. Whether pending SLP before the Supreme Court affects the binding nature of existing High Court judgments.

Petitioner’s Arguments (Revenue)

  • The ITAT erred in deleting additions solely on the ground that no incriminating material was found during the search.
  • Section 153A permits reassessment, and additions need not strictly depend on incriminating material.
  • The ITAT wrongly relied on CIT vs Kabul Chawla, despite the fact that an SLP on a similar issue was pending before the Supreme Court in M/s Apar Industries Ltd.

Respondent’s Arguments (Assessee)

  • The assessment year was already concluded and not pending at the time of search.
  • No incriminating material was found during the search to justify additions.
  • As per settled law, completed assessments cannot be disturbed under Section 153A in absence of incriminating material.

Court Order / Findings

  • The assessment year was a concluded assessment, and no incriminating material was found during the search.
  • As per settled law, additions under Section 153A in such cases are not permissible.
  • The Court relied on precedents including:
    • CIT vs Kabul Chawla (380 ITR 573)
    • PCIT vs Meeta Gutgutia (2017)
    • PCIT vs Bhadani Financiers Pvt. Ltd. (2021)

It reaffirmed that completed assessments can only be interfered with on the basis of incriminating material found during search.

Important Clarification

  • Although Kabul Chawla is under challenge before the Supreme Court, there is no stay on its operation.
  • Therefore, it continues to be binding precedent.
  • The Court clarified that the outcome of this case shall be subject to the final decision of the Supreme Court in the pending SLP in M/s Apar Industries Ltd.

Sections Involved

  • Section 153A – Assessment in case of search or requisition
  • Section 132 – Search and seizure
  • Section 14A – Disallowance relating to exempt income

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:4190-DB/MMH11102022ITA3892022_173625.pdf

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