Assessment u/s 153A must be based on ‘Incriminatory Materials’ found during the Search: ITAT Kolkata [Read Order]


The Kolkata bench of the Income Tax Appellate Tribunal, in a recent case, held that assessment under section 153A of the Income Tax Act, 1961 cannot be completed without citing any “incriminatory material” discovered during the search.

The assessee-Company is primarily engaged in the manufacture of railway products. In consequent to a search took place on the business premises of the assessee, the officer completed assessment by disallowing the amount paid in respect of Commission, PF/ ESI ,

Fringe Benefit Tax u/s 40(a) and Bonus u/s 43B of the Act.The assessee impugned the said order before the Appellate Tribunal on second appeal by contending the hat the assessment was completed under section 153A without the support of any incriminating material. The revenue on the other hand, contended that the expression, ‘incriminating material’ is not found in the provisions of the Act and the same is merely a creation of the judiciary.

While quashing the impugned order  by rejecting the contentions of the Revenue, the Tribunal observed that “we find that the provisions of section 132 of the Act relied upon by the ld DR would be relevant only for the purpose of conducting the search action and initiating proceedings u/s 153A of the Act. Once the proceedings u/s 153A of the Act are initiated, which are special proceedings, the legislature in its wisdom bifurcates differential treatments for abated assessments and unabated assessments. At the cost of repetition, we state that in respect of abated assessments (i.e pending proceedings on the date of search), fresh assessments are to be framed by the ld AO u/s 153A of the Act which would have a bearing on the determination of total income by considering all the aspects, wherein the existence of incriminating materials does not have any relevance. However, in respect of unabated assessments, the legislature had conferred powers on the ld AO to just follow the assessments already concluded unless there is an incriminating material found in the search to disturb the said concluded assessment. In our considered opinion, this would be the correct understanding of the provisions of section 153A of the Act , as otherwise, the necessity of bifurcation of abated and unabated assessments in section 153A of the Act would become redundant and would lose its relevance.”In view of the above, the Tribunal allowed the above expenses claimed by the assessee.

Read the full text of the order below.