Search Assessment Invalid Without Incriminating Evidence: ITAT Quashes Section 153A Additions [Read Order]

The New Delhi Bench ofIncome Tax Appellate Tribunal (ITAT) quashed additions made under Section 153A of the Income Tax Act, 1961, due to absence of incriminating material seized during search and held such additions in unabated years to be invalid. Accordingly, the assessee’s appeals were allowed and the Revenue’s appeals were dismissed.

The Assessee, RMS Diversified Pvt. Ltd., and the Revenue had filed cross-appeals against the orders of CIT(A)-4, Kanpur dated 28.03.2023 and 20.03.2023, arising from assessment orders passed under Section 153A read with section 143(3) by ACIT/DCIT, Noida dated 30.09.2021 for Assessment Years 2014-15 to 2019-20. The appeals were heard together involving common facts and connected issues.

The Section 153A of the Income Tax Act, 1961 explained that: Assessment in case of search or requisition.

“Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003 [but on or before the 31st day of March, 2021], the Assessing Officer shall—

• issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years and for the relevant assessment year or years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139;
• assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and for the relevant assessment year or years”

A search and seizure operation under Section 132 was conducted on 11.10.2018 on M/s PMC Group, during which incriminating documents/information allegedly belonging to the assessee were found and seized. Assessments were initiated under Section 153A, resulting in additions across five assessment years.

The Additions primarily comprised, for AY 2014-15, Rs. 17,94,00,000/- on account of doubtful unsecured loans from three companies, Rs. 3,33,50,200/- for suspicious share application money from two parties, and Rs. 61,644/- as disallowance under Section 14A; for AY 2015-16, Rs. 12,24,05,000/- for unsecured loans from ten companies and Rs. 1,43,33,350/- for share application money from 14 parties under section 68 ofthe Income Tax Act, 1961.

Further, for AY 2017-18, Rs. 1,00,00,000/- for loan from M/s SW Consultants Pvt. Ltd. (alleged accommodation entry provider) under Section 68, Rs. 4,00,000/- as commission under Section 69C, Rs. 3,03,781/- for interest disallowance, and Rs. 56,515/- under Section 14A; for AY 2018-19, Rs. 30,53,044/- for interest to M/s Amrendra Financials Pvt. Ltd., Rs. 3,03,781/- for interest to M/s SW Consultants Pvt. Ltd., Rs. 30,14,927/- for interest to M/s Lenient Consultants Pvt. Ltd. (all consequential to loans disallowed in AY 2017-18), and Rs. 2,00,000/- under Section 14A.

Lastly, for AY 2019-20, Rs. 8,21,714/- for interest payment to M/s SW Consultants Pvt. Ltd. and Rs. 41,667/- under Section 14A. The assessee succeeded partly before the CIT(A), leading to cross-appeals by both the assessee and the Revenue before the Tribunal.

The Counsel for the Assessee, Gagan R. Khandelwall and Jaind Kumar Jaiswal, stated that the appeals involve unabated assessment years (AY 2014-15 to 2018-19) and abated year (AY 2019-20). For unabated years, assessments under Section 153A can only be completed based on incriminating material found during search, which was absent in the present case.

Further, the Counsel relied on the Supreme Court’s decision in PCIT Vs. Abhishar Buildwell, 454 ITR 212 (SC) which argued that the CIT(A)'s view, Section 153A permits additions without reference to seized materials, was unsustainable. The additions in the abated year were consequential to earlier years.

On the other hand, the Departmental Representative for the Respondent, Dayainder Singh Sidhu, stated that suspicious circumstances constitute incriminating material.

The Tribunal consisted of Judicial Member, Anubhav Sharma and Accountant Member, Krinwant Sahay, heard and reviewed the matter.

The Tribunal, after considering the submissions made, found that no incriminating material seized during search was relied upon by the Assessing Officer in any assessment year. For AY 2014-15, the CIT(A) had deleted additions of Rs. 17,94,00,000/- (unsecured loans) and Rs. 3,33,50,200/- (share application money) based on evidence filed, and the Tribunal noted that additions were made by examining genuineness under Section 68 without reference to seized material.

The Tribunal also observed for AY 2015-16, unsecured loans from 10 parties were treated as suspicious by questioning identity and creditworthiness, not based on incriminating material. For AY 2017-18, additions on unsecured loans were made by examining penny stock transactions and relying on assessment of M/s SW Consultants Pvt. Ltd., not on seized material. Additions in AY 2018-19 and 2019-20 were merely consequential to earlier years.

Further, the Tribunal relied on the Supreme Court’s decision in PCIT Vs. Abhishar Buildwell, 454 ITR 212 (SC) stating that for unabated years, additions under Section 153A can only be made based on incriminating material found during search.

Accordingly, the Tribunal allowed Assessee’s appeal and dismissed Revenue’s appeal. The Order was pronounced in the open court on 17.12.2025.

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