In assessments under Section 153A, additions can only be made in completed, unabated assessments if incriminating material is found during a search. Furthermore, mandatory satisfaction must be recorded before invoking Section 14A, and excess income voluntarily offered in certain years must be telescoped against other years.

Headnote:(A) Income Tax Act, 1961 - Sections 132(1), 132(4), 143(3), 153A, 14A - Rule 8D(2)(ii) - Search and seizure operation - Assessment of income - Addition based on incriminating material - Telescoping of income - Disallowance of expenditure - Completed assessments, unless abated, cannot be reopened under Section 153A without evidence of incriminating material unearthed during search - Admission of additional income during search does not validate tax addition in the absence of corroborating incriminating material - Telescoping benefit must be granted when excess income is voluntarily offered in certain years against shortfalls in others. (Paras 3, 10, 13, 15, 17, 20, 23)

(B) Income Tax - Disallowance of expenditure under Section 14A - Satisfaction requirement - The Assessing Officer is required to record specific satisfaction regarding the expenditure incurred for earning exempt income before invoking provisions of Section 14A read with Rule 8D. (Paras 21, 23, 24)

Facts of the case:
Following a search and seizure operation, the tax authorities issued notices under Section 153A. The assessee offered additional income to buy peace and avoid litigation. The authorities made additions regarding lease rental expenses, amortization of building costs, and unexplained expenditure, and initiated disallowance under Section 14A. The appellate authority confirmed these additions, leading to the current proceedings.

Findings of Court:
The court observed that the assessments for the relevant years were completed and not abated, and no incriminating material was found to justify the additions for lease rental or building amortization. Regarding the ad-hoc income offered, the court held that since the offer was not corroborated by seized material, telescoping benefits between assessment years must be granted. The disallowance under Section 14A was set aside for failure to record the mandatory satisfaction.

Issues: Whether the tax authority can make additions in completed assessments under Section 153A without incriminating material, whether the assessee is entitled to telescoping benefit for income offered, and whether satisfaction is mandatory for disallowance under Section 14A.

Ratio Decidendi: Completed assessments in search proceedings cannot be interfered with unless incriminating material is discovered. Additions made without such evidence are unsustainable. Furthermore, principles of equitable taxation require the granting of telescoping benefits for excess income voluntarily offered in other years. Mandatory procedural requirements like recording satisfaction before disallowance under Section 14A must be strictly followed.

Result: Appeals allowed in part.

Table of Content
1. assessment under section 153a requires incriminating material for unabated assessments. (Para 3 , 4 , 10 , 11 , 12)
2. completed assessments remain final unless triggered by fresh incriminating materials found during search. (Para 13 , 14 , 15 , 16 , 17)
3. adhoc income surrender requires telescoping benefit against excess declarations in other years. (Para 18 , 19 , 20)
4. section 14a disallowance requires formal satisfaction and consideration of yield-generating investments only. (Para 21 , 22 , 23 , 24)

ORDER

PER BENCH

These are the four appeals filed by the assessee against the separate orders passed by the Ld.CIT(A) dated 28/03/2025 in respect of the A.Ys. 2015-16, 2016-17, 2017-18 and 2018-19.

2. The issues involved in all the appeals are common except for the A.Y. in which the additional issue of disallowance made u/s. 14A was involved and therefore for the sake of convenience, all the appeals are taken up together and the appeal in ITA No. 1268/Bang/2025 is taken as the lead case and the decision arrived in the said appeal would apply mutatis mutandis to the other appeals. The grounds raised by the assessee are extracted below:

ITA No. 1268/Bang/2025

“1. The appellate order passed by the learned Commissioner of Income-tax [Appeals]-15, Bengaluru, passed under Section 250 of the Act dated 28/03/2025 for the impugned assessment year 2015-16, in so far as it is against the Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant's case.

2. The appellant denies itself liable to be assessed under section 143[3] r.w.s. 153A of the Act under the impugned order on the ground that:-

[i]. The search initiated in the case of the appellant is illegal and ultra vires the provisions of section 132[1][a], [b] & [c] of the Act:

[ii]. That the search is conducted not on the basis of any prior information or material inducing any belief but purely on the suspicion and therefore, the action under section 132[2] is bad in law [224 ITR 19 [SC]] and consequent assessment under section 153A is null and void-ab-inito on the parity of the ratio of the decision of the Hon'ble Apex Court in the case of Ajith Jain, reported in 260 ITR 80.

[iii]. The learned Commissioner of Income tax [Appeals] has not discharged the burden of proving that there is a valid search under section 132 [1] [a], [b] & [c] of the Act, and consequently the assumption of jurisdiction to make an assessment under section 153A of the Act is untenable in law.

3. The learned Commissioner of Income tax [Appeals] failed to appreciate that a valid search is a sine qua non for making a valid assessment under section 153A of the Act on the parity of the ratio of the decision of the Hon'ble Apex Court in the case of Ajit Jain, reported in 260 ITR 80.

4. The appellant is of the apprehension and contends that the learned Assessing Officer has failed to record the satisfaction regarding an inference of liability before the issuance of notice under section 153A of the Act and consequently the assessment is bad in law and liable to be cancelled, on the facts and circumstances of the case.

5. Without prejudice, the appellant denies itself liable to be assessed on a total income of Rs.32,24,91,742/- as determined by the learned assessing officer and confirmed by the learned Commissioner of Income-tax [Appeals], as against the income returned by the appellant of Rs. 32,09,86,440/-, on the facts and circumstances of the case.

6. The learned Commissioner of Income tax [Appeals] is not justified in confirming the addition made of Rs. 4,10,433/- by the learned assessing officer on account of disallowance of proportionate lease rental expenses, on the facts and circumstances of the case.

7. The learned Commissioner of Income tax [Appeals] is not justified in confirming the addition made of Rs. 10,94,871/- by the learned assessing officer on account of disallowance of amortisation of lease expenses, on facts and circumstances of the ca

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2025 Supreme(Online)(ITAT) 23577

INCOME TAX APPELLATE TRIBUNAL (BANGALORE BENCH)Laxmi Prasad Sahu, Accountant Member, Soundararajan K., Judicial MemberShankaranarayana Constructions Pvt. Ltd. – AppellantVersusAssistant Commissioner of Income Tax – RespondentITA Nos. 1268 to 1271/Bang/2025

INCOME TAX APPELLATE TRIBUNAL (BANGALORE BENCH)
Laxmi Prasad Sahu, Accountant Member, Soundararajan K., Judicial Member
Shankaranarayana Constructions Pvt. Ltd. – Appellant
Versus
Assistant Commissioner of Income Tax – Respondent
ITA Nos. 1268 to 1271/Bang/2025