Facts of the Case

The present matter arises from two appeals filed by the Revenue against a common order passed by the Income Tax Appellate Tribunal (ITAT) concerning Assessment Years 2007–08 and 2008–09.

A search operation was conducted on 21 January 2011 in the Dharampal Satyapal Group. Pursuant to the search, notice under Section 153A of the Income Tax Act, 1961 was issued to the assessee, Abhisar Buildwell Pvt. Ltd., which had emerged from a demerger of a unit of Dharampal Satyapal Ltd.

The assessee filed returns declaring losses and claimed depreciation for the relevant assessment years. The Assessing Officer (AO), relying upon a Special Audit report under Section 142(2A), disallowed such depreciation on the ground that assets were acquired through a government grant, invoking Explanation 10 to Section 43(1).

Issues Involved

  1. Whether additions can be made under Section 153A of the Income Tax Act in the absence of incriminating material found during search.
  2. Whether a Special Audit Report obtained post-search can be treated as incriminating material for the purpose of Section 153A assessments.

Petitioner’s Arguments (Revenue)

  • The Revenue contended that the ITAT erred in deleting the additions made by the Assessing Officer.
  • It was argued that the Special Audit Report should be treated as incriminating material.
  • On this basis, the additions made under Section 153A were justified.

Respondent’s Arguments (Assessee)

  • The assessee argued that no incriminating material was found during the course of the search.
  • It was submitted that the Special Audit Report was prepared subsequent to the search and therefore cannot qualify as incriminating material.
  • Reliance was placed on settled judicial precedents governing Section 153A assessments.

Court Order / Findings

The Delhi High Court upheld the findings of the ITAT and dismissed the appeals of the Revenue.

  • The Court held that the Special Audit Report, having been prepared after the search, cannot be treated as incriminating material found during the search.
  • It reaffirmed that additions under Section 153A can only be made based on incriminating material discovered during the search.
  • The Court relied upon earlier binding precedents including:
    • CIT v. Kabul Chawla (2015) 380 ITR 573 (Del)
    • Pr. CIT v. Meeta Gutgutia (2017) 395 ITR 526 (Del)
  • It was also noted that the Supreme Court had dismissed the SLP against Meeta Gutgutia, thereby reinforcing the legal position.

The Court concluded that no substantial question of law arose and dismissed the appeals.

Important Clarification

  • Incriminating material must be found during the search itself for invoking additions under Section 153A.
  • Post-search materials, including audit reports, cannot justify additions under Section 153A.
  • The ruling reinforces the principle that completed assessments cannot be disturbed without incriminating evidence.

Sections Involved

  • Section 153A – Assessment in case of search or requisition
  • Section 142(2A) – Special Audit
  • Section 43(1) – Actual cost (Explanation 10)

 Link to download the order -

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

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