ITAT Delhi: Deletion of Section 56(2)(x) Addition in Section 153A Assessment Due to Absence of Incriminating Material
In a significant ruling concerning search and seizure assessments, the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has reinforced the sanctity of incriminating material as a prerequisite for additions under Section 153A of the Income Tax Act 1961. In the case of Murari Lal Harish Chand Jaiswal Pvt. Ltd Vs DCIT, the Tribunal deleted an addition of ₹1.81 crore made under Section 56(2)(x). The ruling emphasized that an Assessing Officer (AO) cannot mechanically import additions from an annulled regular assessment order into a search assessment without specific evidence unearthed during the search operation.
The Legal Landscape: Search Assessments and Abatement
To understand the gravity of this decision, one must first comprehend the interplay between regular assessments and search assessments. When a search is initiated under Section 132, the assessment proceedings for the preceding six years are reopened under Section 153A.
A critical concept here is "abatement." If a regular assessment under Section 143(3) is pending at the time of the search, it legally "abates" (ceases to exist), and the entire assessment jurisdiction shifts to Section 153A. However, if an assessment is already completed and not pending, it does not abate. The Supreme Court, in the landmark judgment of PCIT v. Abhisar Buildwell, established that for completed (unabated) assessments, no addition can be made unless incriminating material is found during the search.
Factual Matrix of the Case
The dispute arose for the Assessment Year (AY) 2018-19. The assessee, a company engaged in manufacturing tobacco products, filed its return of income on 28.09.2018, declaring an income of INR 1,09,82,630.
The case was initially selected for limited scrutiny under CASS to examine:
- ICDS compliance and adjustments.
- Income chargeable under Section 56(2)(x).