Loading judgment…
Facts
During a search operation, a loose sheet was found indicating Rs.10 lakhs receivable by the assessee for the handover of a batchmix plant. Based on this, the AO issued a Section 153C notice and subsequently added Rs.17 lakhs as unexplained investment in a batchmix plant under Section 69, which the assessee failed to explain. The CIT(A) upheld this addition.
Held
The Tribunal noted that the seized material and satisfaction note related to Rs.10 lakhs receivable, while the addition was for Rs.17 lakhs of unexplained investment, for which no incriminating material was found. Citing the Supreme Court's decision in PCIT v. Abhisar Buildwell Pvt. Ltd., the Tribunal held that for a non-abated assessment under Section 153C, any addition must be based on incriminating material. Since the addition of Rs.17 lakhs was not linked to any seized incriminating material, it was deemed without jurisdiction and deleted.
Key Issues
Whether an addition for unexplained investment under Section 69, made pursuant to a Section 153C notice, is valid for a non-abated assessment year when it is not supported by incriminating material found during the search operation.
Sections Cited
69, 153C, 143(2), 142(1), 131
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘A’ Bench, Hyderabad
Before: SHRI RAVISH SOOD & SHRI MADHUSUDAN SAWDIA
आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M. : This appeal is filed by Shri Janagama Papa Rao (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals)-12, Hyderabad (“Ld. CIT(A)”), dated 14.11.2024 for the A.Y. 2018-19.
The grounds of the appeal are as under :
Brief facts of the case are that, the assessee is an individual engaged in the business of civil contract works. The assessee filed his original return of income for the assessment year 2018–19 on 27.10.2018 declaring a total income of Rs.17,30,180/-. Subsequently, during a search and seizure operation a loose sheet was found from the residential premises Smt. J. Arun Jyothi, wife of the assessee, evidencing that an amount of Rs.10 lakhs was to be received by the assessee on handing over of a batchmix plant. Based on this material, the Learned Assessing Officer (“Ld. AO”) issued notice under section 153C of the Income Tax Act, 1961 (“the Act”) to the assessee on 25.02.2022. In response, the assessee filed return of income on 27.04.2022 again declaring the same income of Rs.17,30,180/- as declared in the original return. During the assessment proceedings, the Ld. AO issued notices under sections 143(2) and 142(1) of the Act. In the course of assessment, the Ld. AO observed that the assessee had made an investment of Rs. 17 lakhs in a batchmix plant, for which the assessee failed to explain the source to his satisfaction. Accordingly, the Ld. AO treated the same as unexplained investment under section 69 of the Act and added Rs. 17 lakhs to the total income of the assessee.
Aggrieved with the order of Ld. AO, the assessee filed appeal before the Ld. CIT(A), who upheld the addition. Aggrieved further, the assessee is in appeal before the Tribunal.
The Learned Authorised Representative (“Ld. AR”) submitted that the satisfaction recorded by the Ld. AO under section 153C (placed at page nos. 1–2 of the paper book) clearly relates to the seized document placed at page no. 6 of the paper book. The said document shows that four persons, including the assessee, were to receive total sum of Rs.2.80 Crores from the handing over of batchmix plant. The amount attributable to the assessee was Rs.10 lakhs. It was contended that although the satisfaction note and seized document both pertain to the proposed receipt of Rs.10 lakhs on handover of the batchmix plant, no addition has been made by the Ld. AO on this basis. Instead, the addition made is of Rs.17 lakhs on a different account, namely unexplained investment in the batchmix plant, for which there is no corresponding seized material or any mention in the satisfaction note.
The Ld. AR further submitted that the original return of income was filed on 27.10.2018 and the notice under section 153C was issued on 25.02.2022. Thus, the assessment year 2018–19 is a concluded (non-abated) assessment. In such a case, in view of the judgment of the Hon’ble Supreme Court in the case of PCIT v. Abhisar Buildwell Pvt. Ltd. [2023] 148 taxmann.com 286 (SC), no addition can be made in the assessment under section 153C unless it is based on incriminating material seized during search. Since the seized document and satisfaction note refer to Rs.10 lakhs receivable and not to any investment of Rs.17 lakhs, and the Ld. AO has not made any addition on the basis of such seized material, the addition made is beyond jurisdiction and deserves to be deleted.
Per contra, the learned Departmental Representative (“Ld. DR”) relied on the orders of the revenue authorities and submitted that the investment of Rs.17 lakhs made by the assessee in the batchmix plant was not explained to the satisfaction of the Ld. AO. It was contended that the addition was validly made under section 69 of the Act, since the assessee failed to establish the source of investment. The Ld. DR, however, did not specifically dispute that no seized document evidencing such investment was found or relied upon, nor did he controvert the limited scope of the satisfaction recorded by the Ld. AO referring only to Rs.10 lakhs receivable.
We have heard the rival submissions and gone through the orders of the revenue authorities and the material available on record, including the satisfaction note (page nos. 1–2 of the paper book), seized document (page no. 72), and the case law relied upon by the Ld. AR. It is evident from the satisfaction note recorded by the Ld. AO and the seized loose sheet found from the premises of the assessee’s wife, Smt. J. Arun Jyothi, that the material in question relates to the alleged receivable of Rs.10 lakhs by the assessee on handing over of batchmix plant. We note that no addition has been made by the Ld. AO in relation to the said Rs. 10 lakhs, which was the subject matter of the seized material and the basis of satisfaction under section 153C of the Act. Instead, the Ld. AO has proceeded to make an addition of Rs.17 lakhs towards unexplained investment in the batchmix plant, for which there is neither any reference in the seized documents nor any recording of satisfaction.
It is a settled law that in case of a non-abated assessment under section 153C of the Act, the scope of addition is confined only to the material incriminating in nature found during the course of search. The Hon’ble Supreme Court in the case of PCIT v. Abhisar Buildwell Pvt. Ltd. (supra) has held that in respect of completed assessments, no addition can be made unless it is based on incriminating material found during search. In the present case, we find that, the original return of income was filed on 27.10.2018 and the notice under section 153C of the Act was issued on 25.02.2022. Hence, the assessment for A.Y. 2018–19 was not abated on the date of search or issuance of notice. We also note that, the addition of Rs. 17 lakhs made by the Ld. AO is not based on the seized material referred to in the satisfaction note. Therefore, in view of the above facts and the binding decision of the Hon’ble Supreme Court in Abhisar Buildwell (supra), the addition made by the Ld. AO without reference to any incriminating material cannot be sustained.
Accordingly, we hold that the impugned addition of Rs.17 lakhs made under section 69 of the Act is without jurisdiction and deserves to be deleted.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 18th July, 2025.