ITAT Deletes Rs 6.43 Crore Additions, Dismisses Revenue’s Appeal in Search Assessment Case

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has dismissed an appeal filed by the Income Tax Department against taxpayer Mehfooz Khan for Assessment Year 2018-19. The Revenue had challenged the order of the CIT(A), who had earlier deleted additions totalling more than Rs. 6,43,79,840 made by the AO.

The case arose from a search operation conducted on the Tyagi Group on May 16, 2018, in which the assessee was also covered. During the course of assessment proceedings under section 153A of Income Tax Act, the Assessing Officer made several additions, which included alleged unexplained investments in properties and addition on grossing up business receipts.

One of the major additions was of Rs. 2, 83,50,000 which the Assessing Officer treated as unexplained investment in immovable property on the basis of a copy of sale deed found during the search. However, the taxpayer had produced loan confirmations, bank statements and PAN details of lenders to prove the source of funds. The CIT(A) held that these documents were not verified by the Assessing Officer and no contrary evidence was brought on record. The appellate authority also noted that a registered sale deed is a public document and cannot automatically be treated as incriminating material. Therefore, the addition was deleted.

Another addition of Rs. 76,50,000 was made on the basis of agreements to sell (Ikraranamas) allegedly showing property transactions. The taxpayer argued that one deal was cancelled after a token advance was refunded, while another agreement was unsigned and never materialized. The CIT(A) found that these documents were recovered from the possession of a third person, not from the taxpayer. It further noted that the AO had not examined the alleged sellers or independently verified the transactions. As a result, the addition was deleted.

The Assessing Officer had also made an addition of Rs. 2,71,32,500 by grossing up receipts of Rs.16,27,950 at 6% and denying the taxpayer the benefit claimed under Section 44AD. The CIT(A) held that the taxpayer had already offered the entire receipts as income and that the Assessing Officer’s approach resulted in double taxation. More importantly, there was no seized material found during the search to justify such an addition. Accordingly, this addition was also deleted.

While deciding the appeal, the Tribunal relied on landmark judgments including Kabul Chawla and Abhisar Buildwell Pvt. Ltd. These decisions stipulate that additions under Section 153A are permissible in completed assessments only if the incriminating material is found on search. In the present case the Tribunal noted that the impugned additions were not supported by any incriminating material seized during the search.

The Tribunal agreed with the findings of the CIT(A) on all the three disputed additions. It was held that the Assessing Officer had not led any evidence to show that the alleged investments or additions to income were connected with any incriminating material found during the course of the search proceedings. Therefore, the deletions made by CIT(A) were confirmed.

Accordingly, the ITAT dismissed the appeal of the Revenue and ruled in favour of the assessee.