No Additions can be made in unabated Years without Incriminating Material u/s 153C: ITAT [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) upheld the decision of the commissioner of Income Tax(Appeals)[CIT(A)], stating that no additions can be made in unabated years under section 153C of the Income Tax Act,1961, without incriminating material.

The Revenue-appellant challenged the order dated 14/05/2024 passed by the CIT(A) arising from the Assessment Order passed by the AO, dated 28/12/2018 under section 153C read with section 143(3) of the  Act) for the Assessment Year(AY) 2011-12.

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In this case,Wismore Equity Pvt. Ltd..respondent-assessee was part of a search and seizure operation under section 132 of the Act, on 23/07/2015 and later dates. The operation, conducted at the premises of Sh. Deepak Aggarwal, Mukesh Kumar, and others in Delhi, uncovered a group involved in providing accommodation entries. Several incriminating documents were seized, showing the group's involvement in this practice.

Documents related to the assessee company were among the seized items. The case was transferred to Deputy Commissioner of Income Tax/Assistant Commissioner of Income Tax (DCIT/ACIT), by order under section 127 of the Act on 27/09/2018. A notice under section 153C was issued to the assessee on 08/01/2018. Despite receiving a notice under section 142(1) on 22/11/2018, the assessee did not respond, leading to a penalty notice under section 271(1)(b) of the Act.

In response to the section 153C notice, the assessee filed its return of income for the assessment year 2011-12 on 27/11/2018, declaring income of Rs. 11,809. Following further notices, the AO passed an Assessment Order on 28/12/2018, assessing income at Rs. 20,72,36,950.

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The assessee appealed the decision, and the CIT(A) allowed the appeal on 14/05/2024.

The Revenue Counsel argued that the CIT(A) erred in deleting the addition, as the assessee's involvement in accommodation entry practices was confirmed. The CIT(A) wrongly accepted the evidence provided by paper companies. The Finance Act 2017 amendment should apply, as the search date was 03/10/2018, and the relevant assessment year, 2011-12, was within the eligible assessment years. Additionally, there could not be two different search dates in the same case.

The Assessee Counsel stated that the regular return for AY 2011-12 was filed on 30/09/2011, and the assessment became unabated after 30/09/2012. Since there was no incriminating material for the additions, the case was covered by the Supreme Court's decision in Abhisar Buildwell in favor of the assessee.

A search on Deepak Aggarwal and Mukesh Kumar took place in 2015, and the satisfaction note recorded in 2018 didn’t refer to any documents related to the assessee. The AO made additions without any supporting documents, and the CIT(A) quashed the assessment due to the lack of incriminating material. The additions were based on regular accounting records, and no evidence linked the assessee to accommodation entries. Therefore, the revenue’s appeal should be dismissed.

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The two member bench Vimal Kumar ( Judicial Kumar ) and Shamim Yahya ( Accountant Member ) found that the assessee filed the return on 20/10/2011, and the assessment year was unabated. The assessment order dated 28/12/2018 under sections 153C and 153A lacked incriminating material, and the satisfaction note did not refer to any relevant documents.

The AO made additions without such material. The CIT(A) quashed the order, citing the ruling in CIT vs. Abhisar Buildwell Pvt. Ltd., which held that no additions can be made in unabated years without incriminating material. The Tribunal upheld the CIT(A)'s decision and dismissed the Revenue's appeal.

To Read the full text of the Order CLICK HERE

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