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No Addition Can Be Made in the Absence of Incriminating Material Found During the Search

Introduction

The case of Manjeet Kaur Saran v. ACIT [i] involves a search and seizure operation conducted by the Income Tax Department. The dispute lies in the additions made by the assessing officer (‘AO’) to the total income of the Assessee, Manjeet Kaur Saran (‘Assessee’), who aggrieved by these additions, contested them on various grounds, including the validity of the assessment under s. 153A of the Income-tax Act, 1961 (‘Act’) and the justification for the inclusion of certain amounts attributed to unexplained cash shortages. The Income Tax Appellate Tribunal (‘ITAT’) critically analysed the circumstances surrounding the assessment and concluded that the additions made lacked justification, as they were solely based on the personal cash book of the Assessee without any accompanying incriminating evidence discovered during the search.

Brief Facts

  • The case pertains to an appeal filed by the Assessee against the order passed by the Commissioner of Income Tax (Appeals) [‘CIT(A)’].

  • A search and seizure operation under s. 132 of the Act was conducted in the HBN Group, which was engaged in various businesses. The Assessee, being the wife of the Chairman of the HBN Group, was also covered under the said operation.

  • Notice under s. 153A of the Act was issued to the Assessee, requiring her to file the return of total income. Subsequently, the Assessee filed a return declaring income from salary received from M/s HBN Dairies & Allied Ltd. After the assessment proceedings, the assessment order was passed by the AO making certain additions to the total income of the Assessee.

  • Aggrieved by the assessment order, the Assessee preferred an appeal before the CIT(A). The CIT(A) upheld the addition made by the AO, stating that the assessment for the relevant year was not a completed assessment case and therefore, the provisions of s. 153A of the Act could be invoked.

  • The grounds of appeal against the decision of the CIT(A) raised by the Assessee are as follows:

    • The Assessee challenged the addition of Rs. 14,25,000/- to the income due to unexplained cash shortages in the personal cash book of the Assessee, arguing it was unjustified and not compliant with the law.

    • The Assessee contested the assessment made under s. 153A of the Act, asserting that since no undisclosed money or incriminating documents were found during the search operation, the assessment under s. 153A is unwarranted.

Held

  • The ITAT held that the additions made by the AO and sustained by the CIT(A) were not justified in the absence of any incriminating material found during the search operation, and therefore, the appeal filed by the Assessee was allowed.

  • The ITAT made the following findings:

    • The addition of Rs. 14,25,000/- on account of unexplained cash shortages made by the AO and confirmed by the CIT(A) was deemed not maintainable and not in accordance with the provisions of the Act. The addition was made solely based on the personal cash book produced by the Assessee during the assessment proceedings, without any incriminating material found during the search operation.

    • The assessment made under s. 153A of the Act was also deemed not maintainable as there was no incriminating material found during the search operation to justify such an assessment. The ITAT referred to the judgment of the Hon'ble Supreme Court in the case of Principal Commissioner of Income Tax v. Abhisar Build Well Pvt. Ltd.[ii] and concluded that in the absence of any incriminating material, no addition can be made by the AO under s. 153A of the Act.

    • The ITAT allowed the ground that assessment made under s. 153A of the Act was not maintainable, thereby deleting the addition made by the AO. Consequently, since the main addition was deleted, other grounds raised by the Assessee required no adjudication.

Conclusion

The ITAT reiterates the important principle of law that the additions made to the income of the Assessee by the AO are not maintainable when no incriminating material is found during the search operation.




End Notes

[i] ITA No. 3782/DEL/2014 dated 13.06.2023.

[ii] Civil Appeal No. 6580/Del/2021 dated 24/04/2023.




Authored by Nitish Solanki, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.

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