Facts of the Case

The assessee company was engaged in trading of equity shares, securities, and commodities through recognized exchanges. It filed its return declaring income of ₹39.85 crore for AY 2010–11.

Subsequently, a search and seizure operation under Section 132 was conducted on 30 March 2012 as part of the Jaypee Group. During the search, electronic data and documents were seized.

A notice under Section 153A was issued, and the assessee reiterated its earlier return. During assessment proceedings, the Assessing Officer alleged irregular Client Code Modifications (CCM) and concluded that profits were shifted artificially.

Additions amounting to ₹3.33 crore were made on various grounds, including:

  • Interest disallowance
  • Preliminary expenses
  • Transfer pricing adjustments
  • Disallowance under Section 14A

The total assessed income was enhanced to ₹43.18 crore.

Issues Involved

  1. Whether additions under Section 153A can be made in absence of incriminating material found during search.
  2. Whether completed assessments (non-abated) can be reassessed without fresh evidence.
  3. Applicability of the principle laid down in CIT vs Kabul Chawla.

Petitioner’s Arguments (Revenue)

  • The Assessing Officer was justified in making additions based on findings of the special audit and CCM irregularities.
  • The assessee had allegedly suppressed income through manipulation of client codes.
  • The additions were valid under Section 153A proceedings.

Respondent’s Arguments (Assessee)

  • No incriminating material was found during the search to justify additions.
  • The assessment for the relevant year was already completed and not pending (non-abated) on the date of search.
  • Additions under Section 153A cannot be made without seized material.
  • Reliance placed on CIT vs Kabul Chawla.

Court Findings / Judgment

The Delhi High Court upheld the findings of CIT(A) and ITAT and dismissed the Revenue’s appeal, holding:

  • No incriminating material was found during the search to support the additions.
  • The assessment was not pending on the date of search; hence, it was a non-abated assessment.
  • Additions under Section 153A are not permissible in absence of incriminating material.
  • The Revenue failed to identify or produce any such material even during appellate proceedings.
  • The issue is squarely covered by the precedent in CIT vs Kabul Chawla.

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

Important Clarification

  • In search assessments under Section 153A, additions can only be made:
    • If assessment is pending (abated), OR
    • If incriminating material is found during search
  • For completed (non-abated) assessments, no addition is permissible without seized incriminating evidence.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:2294-DB/MMH03082021ITA742021_071152.pdf


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