Facts of the Case

A search operation was conducted on 21st January 2011 in the Dharampal Satyapal Group. Consequent to the search, notice under Section 153A was issued to the assessee, Abhisar Buildwell Pvt. Ltd., which had emerged from demerger of a unit of Dharampal Satyapal Ltd.

The assessee filed returns declaring losses for AY 2007-08 and AY 2008-09 and claimed depreciation on certain assets. The Assessing Officer relied upon a Special Audit report conducted under Section 142(2A) and disallowed depreciation on the ground that assets were acquired from deferred government grants under Explanation 10 to Section 43(1).

The CIT(A) deleted the additions on the ground that no incriminating material was found during the search. The ITAT upheld the CIT(A)’s order.

Issues Involved

  1. Whether additions under Section 153A can be made without any incriminating material found during search.
  2. Whether a Special Audit Report obtained post-search can be treated as incriminating material.

Petitioner’s Arguments (Revenue)

  • The Revenue contended that the Special Audit Report should be considered as incriminating material.
  • It was argued that the Assessing Officer was justified in making additions based on findings of such audit.

Respondent’s Arguments (Assessee)

  • The assessee argued that no incriminating material was found during the search.
  • It was submitted that the Special Audit Report was prepared after the search and hence cannot be treated as incriminating evidence.
  • Reliance was placed on judicial precedents including CIT v. Kabul Chawla and Pr. CIT v. Meeta Gutgutia.

Court Findings / Order

The Delhi High Court held:

  • The Special Audit Report, being prepared subsequent to the search, cannot be regarded as incriminating material found during search.
  • Additions under Section 153A must be based on incriminating material discovered during the search.
  • The legal position laid down in CIT v. Kabul Chawla (2015) and Pr. CIT v. Meeta Gutgutia (2017) continues to hold the field.
  • No substantial question of law arose in the present case.

Accordingly, the appeals filed by the Revenue were dismissed.

Important Clarification

  • Material obtained post-search, including Special Audit Reports, cannot be treated as incriminating material for the purpose of Section 153A.
  • Completed assessments cannot be disturbed in absence of incriminating material found during search.
  • The judgment reinforces the binding nature of precedents like Kabul Chawla and Meeta Gutgutia.

Sections Involved

  • Section 153A of the Income Tax Act, 1961
  • Section 142(2A) of the Income Tax Act, 1961
  • Explanation 10 to Section 43(1)

 Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2019:DHC:7392-DB/SMD24072019ITA2392018_153309.pdf

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