Facts of the Case

The present appeal was filed by the Revenue under Section 260A of the Income Tax Act, 1961 against the order dated 05.09.2019 passed by the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2009-10, whereby the Revenue’s appeal was dismissed.

The assessee, a company engaged in trading of equity shares, securities, and commodities through recognized exchanges, filed its return declaring total income of ₹90,70,540/-. The return was processed under Section 143(1).

Subsequently, a search and seizure operation under Section 132 was conducted on 30.03.2012 as part of the Jaypee Group. During the search, computer data and documents were seized. Thereafter, notice under Section 153A was issued and the assessee reiterated its earlier return.

During assessment proceedings, the Assessing Officer (AO) observed Client Code Modifications (CCM) carried out by group companies and concluded that such modifications were not genuine but done for profit/loss shifting. Based on a Special Audit under Section 142(2A), an addition of ₹22,16,30,832/- was made. Further, ₹60,000/- was disallowed under Section 40A(3).

Issues Involved

  1. Whether additions under Section 153A can be made in the absence of incriminating material found during search?
  2. Whether completed assessments (non-abated) can be disturbed without fresh incriminating evidence?
  3. Validity of additions based on Client Code Modification allegations without seized material.

Petitioner’s (Revenue) Arguments

  • The Revenue contended that incriminating material was found during the search, justifying additions.
  • It relied on the assessment order stating that documents and data were seized.
  • It was argued that ITAT’s findings were perverse, and additions were rightly made.
  • The Revenue further submitted that at the time of assessment, the judgment in CIT vs Kabul Chawla was not available, hence detailed reference to incriminating material was not recorded.

Respondent’s (Assessee) Arguments

  • The assessee contended that no incriminating material relating to the additions was found during the search.
  • The assessment year in question was not pending (non-abated) on the date of search.
  • Reliance was placed on the principle laid down in CIT vs Kabul Chawla, wherein additions under Section 153A require incriminating material.

Court’s Findings / Order

The Delhi High Court upheld the findings of the CIT(A) and ITAT and held:

  • No addition can be made under Section 153A in the absence of incriminating material for completed assessments.
  • The Revenue failed to identify or produce any specific incriminating material even before the Court.
  • Mere general statements in the assessment order are insufficient without concrete evidence.
  • Findings of fact by CIT(A) and ITAT cannot be interfered with lightly.
  • The issue is squarely covered by the judgment in CIT vs Kabul Chawla.

Accordingly, the Court held that no substantial question of law arises and dismissed the appeal.

Important Clarification

  • Additions under Section 153A are restricted to incriminating material found during search in cases of completed assessments.
  • General allegations or audit observations without seized evidence cannot justify additions.
  • The burden lies on the Revenue to clearly demonstrate the existence of incriminating material.

Sections Involved

  • Section 260A – Appeal to High Court
  • Section 153A – Assessment in case of search
  • Section 132 – Search and Seizure
  • Section 142(2A) – Special Audit
  • Section 40A(3) – Disallowance of cash expenditure

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:2128-DB/MMH20072021ITA442021_234844.pdf


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