ITAT Mumbai Quashes Parallel Search And Scrutiny Assessments, Grants Relief On Sales Reconciliation And Project Write-Offs

Tribunal Flags Jurisdictional Overreach In Post-Search Proceedings

The Income Tax Appellate Tribunal Mumbai Bench has set aside multiple additions made against Tin Tar Retail Corp, holding that the Assessing Officer could not run parallel proceedings under Sections 143(3) and 153A for the same assessment year following a search action. The Tribunal observed that once a search under Section 132 is initiated, pending assessments abate under the second proviso to Section 153A and fresh assessments must proceed only under the search framework. Issuing a scrutiny notice after the search and completing a separate assessment was held to be legally unsustainable. On this ground alone, the regular assessment for AY 2017–18 was quashed.

Additions On “Suppressed Sales” And Abandoned Projects Rejected

On merits, the Tribunal rejected the Revenue’s allegation of suppressed sales arising from ERP data mismatches, accepting the assessee’s explanation that differences stemmed from sales returns not auto-adjusted in the system. In the absence of concrete incriminating material, the reconciliation was found credible and the ₹96.77 lakh addition was deleted. The Bench also allowed write-off of ₹47.93 lakh incurred on a Hyderabad retail project that was ultimately abandoned, holding that expenses incurred in expansion of an existing business — where no enduring asset comes into existence — are allowable as revenue expenditure.

Further, disallowances relating to prior period expenses, irrecoverable VAT, and sundry balances were deleted as being wholly connected to business operations.

Resultantly, the Tribunal granted substantial relief to the assessee across AYs 2017–18 and 2018–19, reinforcing limits on post-search assessments and the need for concrete incriminating evidence.