The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has found that the Assessing Officer had exceeded the permissible assessment period for one year, lacked the conditions needed to reopen two older years, made additions to completed assessments without qualifying incriminating material, and passed the AY 2020–21 assessment after the statutory deadline.

The bench of  Madhumita Roy (Judicial Member) and S. Rifaur Rahman (Accountant Member) has observed that AY 2011–12 was too old to be assessed under the search assessment provisions invoked in this case. With the search conducted in January 2021, the earliest year within the relevant ten-year period was AY 2012–13. AY 2011–12 therefore fell outside that period, and the Tribunal quashed its assessment.

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The Income Tax Department searched the company on 15 January 2021 and subsequently issued notices under Section 153A of the Income-tax Act. The Assessing Officer completed assessments on 30 May 2022, making additions or disallowances relating to foreign travel, unsecured loans, share capital, share acquisitions and payments to consultants, among other transactions. The Commissioner of Income Tax (Appeals) upheld them.

Before the Tribunal, the company challenged both the Assessing Officer’s jurisdiction and the basis for the additions. The Revenue argued that material concerning foreign travel and payments to Dr. Hutarew and Partners was incriminating. It relied, among other things, on an email found during the search and a statement recorded from a company official.

The Tribunal separately examined the assessments for AYs 2013–14 and 2014–15. The fourth proviso to Section 153A permits assessment beyond the usual six-year period only when its specified conditions are met, including material revealing escaped income represented in the form of an asset.

The disputed items for those years included unsecured loans and foreign travel expenses. The Tribunal held that a loan is a liability and travel spending is expenditure; neither qualifies as an asset for this purpose. It therefore found that the condition for assessing these older years had not been satisfied and quashed both assessments.

The Tribunal found that the assessments had already concluded by the date of the search. Applying the Supreme Court’s ruling in Abhisar Buildwell, it held that additions to those completed assessments had to rest on incriminating material found during the search.

The Tribunal examined the disputed items individually. For foreign travel expenses, it said the department had drawn its conclusion from expenses recorded in the company’s books and a suspicion that some trips were personal. It found no material unearthed during the search establishing that the claims were bogus or unrelated to business.

The unsecured loan additions relied on financial records and statements recorded during an earlier investigation. The Tribunal held that statements from an earlier search could not be treated as incriminating material found in the present search.

The department had also relied on a commercial agreement seized during the search in connection with a share transaction. The Tribunal noted that the transaction was already recorded in the company’s books. In its view, the Assessing Officer’s application of a deeming provision to that recorded transaction did not turn the agreement into incriminating material for the completed assessments.

On the consultant payments, the Tribunal considered the Revenue’s allegation of fund diversion and the statement on which it relied. It concluded that an addition based solely on a statement, without the required incriminating material relating to the assessee’s completed assessment, could not be sustained on that basis. It accordingly allowed the company’s grounds against the additions for the completed years.

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