Search-Based Addition u/s 153A Unsustainable without Incriminating Material for Completed Assessments: ITAT Deletes ₹26.10 Lakh in Raj Shyama Construction Case [Read Order]

The Bench of the Income Tax Appellate Tribunal (ITAT), Delhi, held that an addition made under Section 153A of the Income Tax Act, 1961, cannot be sustained in the absence of incriminating material for a completed assessment year. The Tribunal deleted the addition of ₹26,10,031 made to the income of a road construction company, observing that the search findings pertained to a different assessment year.

The appeal was filed by Raj Shyama Construction Pvt. Ltd., a private limited company engaged in the business of road construction, filed its return of income declaring ₹4,24,43,610, which was assessed under Section 143(3) of the Income Tax Act, 1961, at ₹4,92,17,410, after adding ₹67,73,795 as income.

Subsequently, a search under Section 132 was conducted on August 11, 2016, in the assessee’s group, following which an assessment under Section 153A was framed on December 28, 2018. The Assessing Officer (AO) made an addition of ₹93,83,826 for purchases allegedly made from M/s Raja Construction, a concern purportedly used to inflate purchases.

The Commissioner of Income Tax (Appeals) [CIT(A)] partly confirmed the addition to the extent of ₹26,10,031, being the difference between the earlier and the fresh assessment additions. Aggrieved, the assessee appealed before the ITAT.

Represented by Ajay Wadhwa, and Shivam Garg, CA, the appellant argued that the assessment framed under Section 153A was void as the year in question was a completed assessment on the date of search, and no incriminating material was found during the proceedings. Relying on the Supreme Court ruling in Pr. CIT v. Abhisar Buildwell Pvt. Ltd. (2023), it was contended that additions for unabated years must be based solely on incriminating material discovered during search.

It was further argued that the AO’s reliance on the statement of the company’s director recorded under Section 132(4), was misplaced, as the statement referred to AY 2014–15 and was uncorroborated. The approval granted under Section 153D by the Additional CIT was also challenged arguing it was mechanical and without due application of mind.

Additionally, documentary evidence including invoices, bank statements, and ledgers were furnished to establish the genuineness of purchases from M/s Raja Construction.

Represented by Pitambar Das, the Revenue contended that the AO had rightly assumed jurisdiction under Section 153A based on incriminating material found during the search. It was further argued that the company’s director had confirmed the bogus nature of the transactions, and the subsequent retraction of his statement was not credible.

The Bench comprising Accountant Member, S. Rifaur Rahman and Judicial Member, Anubhav Sharma observed that the original assessment under Section 143(3) was completed before the search and that no material found during the search pertained to A.Y. 2013-14. The statement of the company's director, which formed the basis for the addition, clearly referred to transactions relevant to A.Y. 2014-15.

The Tribunal ruled that since the assessment year under consideration was unabated and no incriminating material was found, the addition made under Section 153A could not be sustained. It was held that the law is well-settled that completed assessments cannot be disturbed in the absence of incriminating evidence.

Consequently, the Tribunal deleted the addition of ₹26,10,031 sustained by the CIT(A).

Accordingly, the appeal was partly allowed.

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