Delhi High Court Affirms ITAT View: No Section 153A Re‑assessment Without Incriminating Material
Background of the Appeal
The Delhi High Court, in PCIT Vs S.S. Con Build Pvt. Ltd. (Delhi High Court), dealt with an appeal filed by the Revenue under the Income Tax Act 1961 concerning Assessment Year 2007-08.
The challenge was directed against the order dated 8th April, 2021 of the Income Tax Appellate Tribunal (ITAT) in ITA No. 1986/Del./2016, where the Tribunal had deleted an addition of Rs.33,91,35,982 made under Section 68 on account of alleged unexplained credits, in an assessment framed under Section 153A.
The core legal issue before the High Court was whether, in a search assessment under Section 153A, the Assessing Officer is empowered to make additions under Section 68 in the absence of any incriminating material unearthed during the search, particularly where the assessment for the relevant year stood completed prior to the date of search.
Revenue’s Grounds of Challenge
Objection to Deletion of Rs.33,91,35,982 Addition
The Revenue contended that the ITAT had erred in law and on facts in deleting the addition of Rs.33,91,35,982. According to the Department, this amount represented unexplained credits liable to be taxed under Section 68. The Assessing Officer had invoked Section 153A to frame the assessment pursuant to a search, and the Revenue argued that the statutory framework did not restrict such assessment only to issues arising out of incriminating material found during search.
The Revenue’s stance was that:
Section 153Adoes not expressly require that additions must be anchored in seized or incriminating material.- Once a search has been conducted and
Section 153Ais triggered, the Assessing Officer is empowered to assess or reassess the total income for the prescribed block of years, which, according to the Department, includes revisiting concluded assessments irrespective of the presence or absence of incriminating evidence.
Challenge to ITAT’s Reliance on Kabul Chawla
The ITAT had followed the judgment of the Delhi High Court in Commissioner of Income Tax v. Kabul Chawla, (2016) 380 ITR 573, where it was held that:
In the absence of any incriminating material found during search, the Assessing Officer cannot re‑appraise or review assessments that were already completed and had attained finality before the date of search under
Section 153A.
The Revenue argued that:
- Reliance on Commissioner of Income Tax v. Kabul Chawla was misplaced because, in its view,
Section 153Aitself did not contain any such limitation. - The Department had not accepted the decision in Kabul Chawla and had filed Special Leave Petitions (SLPs) before the Supreme Court, which were stated to be pending.
Thus, the Revenue urged that, given the pendency of the challenge before the Supreme Court, the principle laid down in Kabul Chawla should not be treated as conclusive or binding.
High Court’s Consideration of Pending SLPs
The Delhi High Court noted an important factual position:
- Although Commissioner of Income Tax v. Kabul Chawla had been assailed before the Supreme Court through SLPs, no stay order had been granted against the operation of that judgment.