Gauhati High Court Dismisses Revenue Appeal, Holds Search Assessment Invalid Without Incriminating Material for Completed Years

Guwahati: The Gauhati High Court has dismissed an appeal filed by the Income Tax Department, affirming the well-established legal principle that no additions can be made in assessments initiated under Section 153A of the Income Tax Act, 1961, for completed assessment years unless based on incriminating material unearthed during the search operation.

A division bench comprising Chief Justice Mr. Vijay Bishnoi and Mr. Justice Kaushik Goswami upheld the orders of the Income Tax Appellate Tribunal (ITAT) and the Commissioner of Income Tax (Appeals) [CIT(A)], which had deleted a substantial addition made by the Assessing Officer (AO) in the case of Shri Rohit Karan Jain for Assessment Year 2014-15.

Background of the Case

The respondent, Rohit Karan Jain , had originally filed his Income Tax Return for AY 2014-15 declaring an income of Rs. 2,00,080/-. Subsequently, search and seizure operations were conducted at his residential premises on June 2, 2016, and July 11, 2016. Based on the search, proceedings were initiated under Section 153A, requiring the respondent to file returns for the relevant block period.

The AO, in the assessment order dated December 31, 2018, determined the respondent's total income at Rs. 4,25,30,080/-, making an addition of Rs. 4,23,30,000/-. This addition was primarily based on a statement recorded during the search from the respondent's father (Shri Karan Jain ) and Chairman of the CMJ Group (Shri Rohit Jain ), admitting to routing unaccounted cash through bogus Long Term Capital Gain (LTCG) entries. The AO relied on this disclosure, even though it was subsequently retracted by the respondent and his family members through affidavits, alleging coercion and threat.

Lower Authorities Quash Addition

Aggrieved by the AO's order, the respondent appealed to the CIT(A). The CIT(A), in an order dated April 8, 2019, allowed the appeal. The CIT(A) held that for AY 2014-15, which was a completed assessment year (as the time limit for issuing a notice under Section 143(2) had expired before the search), the AO could not disturb the assessment unless incriminating material was found during the search. The CIT(A) specifically noted that the AO's order did not refer to any incriminating material found during the search, and the addition was solely based on a retracted statement.

The Income Tax Department then appealed to the ITAT. The ITAT, in its order dated April 7, 2022, upheld the CIT(A)'s findings. The ITAT also concluded that the addition was made solely based on retracted statements and that no other incriminating material was seized during the search to substantiate the addition for the completed assessment year.

High Court's Analysis and Decision

The Revenue preferred an appeal before the High Court, raising two substantial questions of law concerning whether the ITAT was justified in confirming that the assessment for AY 2014-15 was not abated and whether the assessment was correctly held as not abated when no order was passed before the S. 153A order.

The High Court noted the submissions of the respondent's counsel, who argued that the law is now well settled by the Supreme Court that in the absence of incriminating material, no addition can be made in respect of a completed assessment under Section 153A. Reliance was placed on several Supreme Court judgments, including Principal Commissioner of Income tax, Central 3 Vs. Abhisar Buildwell (P) Ltd., [2023] 149 taxmann.com 399 (SC) .

The Court referred to the Abhisar Buildwell judgment, where the Supreme Court had explicitly affirmed the view taken by the Delhi High Court in Kabul Chawla and the Gujarat High Court in Saumya Construction (P.) Ltd. The Supreme Court held that while Section 153A gives the AO jurisdiction to assess or reassess total income for a six-year block upon search, this power is conditioned. For completed/unabated assessments within the block, additions can only be made if based on incriminating material unearthed during the search. If no such material is found for a completed year, the AO cannot make additions based on other existing material; the Revenue's only recourse would be regular reassessment under Section 147/148, subject to those provisions' conditions. The Supreme Court clarified that only pending assessments abate under Section 153A, not completed ones.

In the present case, AY 2014-15 was a completed assessment year as no notice under Section 143(2) was issued within the prescribed time before the search. The High Court observed that both the CIT(A) and the ITAT had recorded a concurrent finding of fact that, apart from the retracted statement, no other evidence or material was relied upon by the AO, and crucially, that no incriminating material was found during the search relevant to the addition made for this completed year.

The Court found that the finding of fact by the lower authorities regarding the absence of incriminating material was not liable to be interfered with in appeal. The High Court's jurisdiction is limited to substantial questions of law, and a finding of fact, unless perverse, does not raise a substantial question of law.

Accordingly, the Gauhati High Court concluded that the appeal did not involve any substantial question of law and was, therefore, devoid of merit.

The appeal was dismissed, affirming the decisions of the ITAT and CIT(A) that the addition made for the completed assessment year under Section 153A, without the support of incriminating material found during the search, was invalid.

The judgment reinforces the critical requirement of finding incriminating material during a search for disturbing completed assessments within the six-year block period under Section 153A, aligning with the settled position of law laid down by the Supreme Court.