Section 153A: No Addition in Completed Assessments Without Incriminating Material, Reiterates ITAT

Overview

The provisions of Section 153A of the Income Tax Act empower the Assessing Officer (AO) to issue notices and reassess income for six assessment years immediately preceding the year of a search. While all pending assessments or reassessments as on the date of the search abate, completed or finalized assessments (unabated assessments) continue to enjoy protection unless supported by incriminating material discovered during the search.

Judicial precedents have now firmly established that completed assessments cannot be disturbed merely on suspicion or review. For non-abated years, additions under Section 153A can be made only when there is incriminating material, such as undisclosed income, property, books of account, or documents unearthed during the search. In the absence of such material, the AO must reiterate the original assessment and cannot make fresh additions relating to issues like bogus purchases, labour expenses, subcontracting expenses, unsecured loans, or interest disallowances.

The principle was once again reaffirmed by the Mumbai ITAT in DCIT, Central Circle 5(1) vs. Saket Infra Projects Pvt. Ltd. (2023-VIL-544-ITAT-MUM), strengthening taxpayer protection against arbitrary additions in completed assessments.

The provisions of sec.153A of the Act provide for issuing of notice u/s 153A of the Act for 6 assessment years immediately preceding the year of search and thereafter, the AO shall assess or reassess the total income for the above said 6 years. This section further provides that all pending assessment or reassessment pending as on the date of search shall abate. Hence the assessments of the assessment years falling within the period of above said 6 years which are not pending, i.e., which have attained finality shall not abate. Assessments of such assessment years are called “unabated/completed/finalized” assessments. The question earlier was whether the AO is entitled to interfere with such kinds of unabated/completed/ finalized assessments or not without there being any incriminating material found during the course of search.

It is now a settled principle now that in respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search and undisclosed income or undisclosed property discovered in the course of search. However, in case of completed assessments, the assessment u/s. 153A has to be made on the basis of incriminating material only, i.e., undisclosed income/property/books of
accounts/documents. Where nothing incriminating is found in the course of search relating to any of the assessment years covered u/s.153A of the Act, the assessment for such A.Ys. cannot be disturbed and the completed assessment has only to be reiterated. Important point is that there must be “incriminating material” to support the allegations like bogus purchases, job works, subcontract works, labour expenses, addition of unsecured loans and interest disallowance, etc. Incase these allegations are without any incriminating material or the incriminating material is without substance not being contrary to and/or not disclosed during regular assessment proceedings, then 153A cannot be resorted to.

The proposition was again reiterated in the case of THE DCIT, CENTRAL CIRCLE 5(1) Vs M/s SAKET INFRA PROJECTS PVT LTD [2023-VIL-544-ITAT-MUM].