Income Tax: Assessment under Section 153A Set Aside for Want of Search-Based Evidence

A search was conducted under Section 132 on 22.10.2016 in the assessee’s cases. Under this, the Assessing Officer issued notices under Section 153A and completed assessments for A.Y. 2015-16, disallowing exemption claims under Section 54F totaling Rs. 69,47,34,829, on the ground that the property purchased was already in use by the assessees through company shareholding and LLP conversion.

The CIT(A) allowed the exemption claims on merits but did not adjudicate the assessee’s additional ground that the assessments were invalid due to a lack of incriminating material. The Revenue appealed to the ITAT against the CIT(A)’s order, and the assessee invoked Rule 27 of the ITAT Rules to argue that the additions themselves were jurisdictionally flawed.

Central Issue: Whether the additions made under Section 54F during a completed assessment under Section 153A were valid without any incriminating material found during the search?

ITAT Held: The ITAT held that the disallowances made under Section 54F were without jurisdiction as they were not based on any incriminating material found during the search. It observed that the seized documents and statements relied on by the AO did not pertain to the assessment year in question and did not establish any undisclosed income or irregularity in the exemption claim.

Relying on binding precedents, including Kabul Chawla and Abhisar Buildwell, the Tribunal concluded that completed/unabated assessments cannot be reopened under Section 153A in the absence of incriminating material. Consequently, it upheld the CIT(A)’s order on jurisdictional grounds and dismissed the Revenue’s appeals as invalid.

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