Abhisar Buildwell Pvt. Ltd. v. ACIT Ratio Applies To New Reassessment Regime: ITAT Says Additions Pursuant To Search Need Incriminating Material

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that no addition can be made in a completed assessment year pursuant to a search unless incriminating material relating to that year is discovered during the search proceedings. The Tribunal relied on the principle laid down by the Supreme Court of India in the landmark decision in Abhisar Buildwell Pvt. Ltd., which clarified that additions in respect of completed assessments under search proceedings are permissible only when supported by incriminating material found during the search. Ratio of Supreme Court decision in Abhisar Buildwell, held to be applicable to new Section 147 regime after 1-4-2021. The bench of Challa Nagendra Prasad (Judicial Member) and M. Balaganesh (Accountant Member) has criticized the method adopted by the tax authorities to compute undisclosed income. The seized documents themselves contained detailed financial information such as unaccounted receipts, purchases, salary expenses, wages, and other operational costs. Instead of analyzing these records to determine the actual profit, the AO and CIT(A) relied on estimated gross profit rates. The bench emphasized that income in search assessments should primarily be determined from the seized material itself, rather than through arbitrary estimations. Malhotra Cables Pvt. Ltd., engaged in the business of manufacturing and trading copper wires and cables, was subjected to a search and seizure operation under Section 132 of the Income Tax Act on December 12, 2022. The search covered the company’s business premises as well as the residences of its directors and employees. During the operation, the tax authorities seized various documents and digital records allegedly indicating unaccounted business activities. Based on the seized material, the Assessing Officer (AO) alleged that the company had carried out unaccounted transactions through bogus purchases and undisclosed sales of copper scrap generated during production. The department claimed that the company inflated production losses to generate excess scrap, which was then sold outside the books of account. It also alleged that certain purchases were made in cash and not recorded in the regular books. On this basis, the AO treated purchases worth more than ₹90.74 crore as suspicious and further estimated additional unaccounted purchases of about ₹21.70 crore. To compute the alleged undisclosed income, the AO applied the highest gross profit rate of 46.65% from one assessment year across all the years under review, resulting in substantial additions to the company’s income. The matter was carried in appeal before the Commissioner of Income Tax (Appeals) , who partly accepted the company’s contentions. The CIT(A) held that the gross profit rate adopted by the AO was excessive and reduced the estimated profit margin to 12.5%, relying on judicial precedents dealing with bogus purchase cases. However, both the assessee and the revenue challenged the decision before the ITAT, leading to cross-appeals. The Tribunal examined the issue relating to Assessment Year 2016–17, which had already been completed before the search was conducted. Since no proceedings were pending for that year at the time of the search, the assessment was categorized as a completed assessment. The bench noted that the department had failed to identify any incriminating material seized during the search that specifically pertained to AY 2016–17. In the absence of such evidence, the Tribunal held that the Assessing Officer could not reopen or disturb the completed assessment. Accordingly, the ITAT upheld the deletion of an addition of approximately ₹3.35 crore made by the AO for AY 2016–17. The Tribunal partly allowed the appeals and directed that income be computed based on the seized documents and actual financial details rather than on generalized profit estimates. Case Details Case Title: Malhotra Cables Pvt. Ltd Versus DCIT Citation: JURISHOUR-320-ITA-2026(DEL) Case No.: ITA Nos. 1317 to 1324/Del/2025 Date: 11/03/2026 Counsel For Appellant: Gaurav Jain, Adv Counsel For Respondent: Kranti, CIT (DR) Click Here To Read Order Read More: FIR Against ED Officers Transferred to CBI: Jharkhand HC

Abhisar Buildwell Pvt. Ltd. v. ACIT Ratio Applies To New Reassessment Regime: ITAT Says Additions Pursuant To Search Need Incriminating Material

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