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 was formed after demerger of a unit of Dharampal Satyapal Ltd.

The assessee filed returns declaring losses for Assessment Years 2007-08 and 2008-09 and claimed depreciation. The Assessing Officer relied on a Special Audit report conducted under Section 142(2A) and disallowed depreciation, stating that assets were acquired out of a deferred government grant and thus hit by Explanation 10 to Section 43(1).

Issues Involved

  1. Whether additions can be made under Section 153A in absence of incriminating material found during search.
  2. Whether a Special Audit report prepared after the search can be treated as incriminating material.

Petitioner’s Arguments (Revenue)

  • The Special Audit report should be treated as incriminating evidence.
  • The Assessing Officer was justified in making additions based on findings of the Special Auditor.
  • The ITAT erred in deleting additions despite the audit findings.

Respondent’s Arguments (Assessee)

  • No incriminating material was found during the search relating to the assessee.
  • Additions under Section 153A cannot be sustained without such material.
  • The Special Audit report was prepared after the search and hence cannot qualify as incriminating material.
  • Reliance was placed on judicial precedents including:
    • CIT v. Kabul Chawla (2015) 380 ITR 573 (Del)
    • Pr. CIT v. Meeta Gutgutia (2017) 395 ITR 526 (Del)

Court Findings / Order

  • The Court held that the Special Audit report was prepared after the search and during assessment proceedings and therefore cannot be treated as incriminating material found during the search.
  • The Court reaffirmed the legal position laid down in CIT v. Kabul Chawla and Pr. CIT v. Meeta Gutgutia.
  • It was held that in absence of incriminating material, additions under Section 153A are not sustainable.
  • No substantial question of law arose.
  • Appeals filed by the Revenue were dismissed.

Important Clarification

  • Material obtained post-search, such as Special Audit reports, cannot be treated as incriminating material for the purpose of Section 153A.
  • Additions under Section 153A must strictly be based on material found during the search.
  • The ruling strengthens the binding precedent that completed assessments cannot be disturbed without incriminating evidence.

 Link to download the order -

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

Bottom of Form

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.