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2018 (10) TMI 1635 - AT - Income TaxAssessment u/s 153A - enhancement of income - assessments made pursuant to search operation - bogus Long Term Capital Gains of hundreds of crores of rupees by pre-arranged trading in shares of some non-descript listed companies has been shown and such bogus pre-arranged tax exempt Long Term Capital Gain was nothing but a form of accommodation entry obtained - addition based on statement of third party which was later retracted - opportunity to the assessee to cross-examine the person whose statements were relied upon not given - Held that - AO made the additions on the basis of the statements of third parties recorded u/s 132(4)/133A of the Act and third parties evidences/documentation. However, no live nexus with the incriminating material found in the course of search in the case of the assessee was established. The statements of the third parties were recorded behind the back of the assessee but the opportunity of cross-examination of such parties was not allowed to the assessee, even the statements were retracted later on. The pen drive of Sh. Ankur Agarwal corroborated/substantiated, the share transactions carried out by the assessee which were duly found recorded in the regular books of the assessee and the said pen drive did not contain anything incriminating against the assessee. Therefore, merely on the basis of the statement of Sh. Ankur Agarwal, the addition made u/s 153A of the Act was also not justified, particularly when Sh. Ankur Agarwal retracted his statement later on. In the instant case, the AO also failed to establish any link/nexus of the alleged cash trail. In the present case, as the enhancement was based on the order of the Settlement Commission dated 27.05.2015 received much after issuance of notice u/s 153A of the Act after the search dated 13.06.2014. The same could not be categorized as incriminating material found during the course of search. Therefore, the ld. CIT(A) had taken a contrary stand in the case of the assessee i.e. Sh. Neeraj Singal vis- -vis the BSL by enhancing the income on the same count, in the absence of incriminating material. It is also relevant to point out that the enhancement on account of alleged sale of scrap in the hands of the assessee was made by the ld. CIT(A) on the basis of statement of one Sh. Chandrakant Mahadev Jadhav, employee of BSL recorded u/s 131 of the Act on 13.06.2014 and hand written nothing in his personal diary. However, the said person retracted from his original statement on 30.11.2016. Therefore, the ld. CIT(A) was not justified in enhancing the income on the basis of the said statement. CIT(A) enhanced the income in the absence of any incriminating material found during the course of search and considered a new source of income which was outside the subject matter of the assessment framed by the AO or the grounds agitated by the assessee in its appeal before the ld. CIT(A). Therefore, the enhancement made u/s 153A r.w.s. 251 of the Act was not justified and accordingly the same is deleted. - Decided in favour of assessee.
Issues Involved:
1. Validity of assumption of jurisdiction under Section 153A of the Income Tax Act. 2. Addition on account of Long Term Capital Gains (LTCG) and commission expenses. 3. Enhancement of income by the Commissioner of Income Tax (Appeals) [CIT(A)]. 4. Admissibility and reliability of statements and documents seized during the search. 5. Opportunity for cross-examination of witnesses. 6. Presumption under Section 132(4A)/292C of the Income Tax Act. 7. Principles of natural justice. Detailed Analysis: 1. Validity of Assumption of Jurisdiction under Section 153A: The search and seizure operation under Section 132(1) was conducted on 13.06.2014. The assessments for the assessment years 2010-11 and 2011-12 were completed prior to the search and were not abated. The return for the assessment year 2012-13 was processed under Section 143(1), and the time to issue notice under Section 143(2) had expired before the search. Therefore, the assessments for these years were considered unabated. The Tribunal held that additions under Section 153A can only be made on the basis of incriminating material found during the search. Since no such material was found, the additions were not justified. 2. Addition on Account of LTCG and Commission Expenses: The AO made additions based on statements of third parties and documents seized from third parties. However, these statements were retracted, and no incriminating material was found during the search at the assessee's premises. The Tribunal noted that the presumption under Section 132(4A)/292C is available only against the person from whose possession the documents are found. Since the documents were seized from third parties, they could not be used against the assessee without corroborative evidence. The Tribunal deleted the additions made by the AO on account of LTCG and commission expenses. 3. Enhancement of Income by CIT(A): The CIT(A) enhanced the income by considering new sources of income outside the subject matter of the assessment framed by the AO. The Tribunal held that the CIT(A) acted beyond jurisdiction under Section 251 by considering new sources of income not mentioned in the return or considered by the AO. The enhancement was based on the order of the Settlement Commission and statements recorded by DGCEI, which were not incriminating materials found during the search. Therefore, the enhancement was deleted. 4. Admissibility and Reliability of Statements and Documents Seized: The AO relied on statements of third parties recorded under Section 132(4) and documents seized from third parties. However, these statements were retracted, and the opportunity for cross-examination was not provided to the assessee. The Tribunal held that the statements of third parties could not be relied upon without giving the assessee an opportunity for cross-examination. The statements were not considered reliable as they were retracted and the persons were not produced for cross-examination. 5. Opportunity for Cross-Examination of Witnesses: The Tribunal emphasized the importance of providing an opportunity for cross-examination of witnesses whose statements are relied upon by the AO. In this case, the AO issued summons to the witnesses, but they did not appear. The Tribunal held that the onus was on the Revenue to ensure the presence of witnesses for cross-examination. Since this was not done, the statements could not be relied upon. 6. Presumption under Section 132(4A)/292C: The presumption under Section 132(4A)/292C is available only against the person from whose possession the documents are found. In this case, the documents were seized from third parties, and there was no independent evidence to link the seized documents with the assessee. Therefore, the presumption could not be applied against the assessee. 7. Principles of Natural Justice: The Tribunal noted that the principles of natural justice were violated as the assessee was not given an opportunity to cross-examine the witnesses. The reliance on retracted statements without providing an opportunity for cross-examination rendered the assessment order a nullity. The Tribunal emphasized that any addition based on statements of third parties without affording an opportunity for rebuttal or cross-examination is perverse. Conclusion: The Tribunal allowed the appeals of the assessee, holding that the additions made under Section 153A were not justified in the absence of incriminating material found during the search. The enhancement of income by the CIT(A) was also deleted as it was beyond jurisdiction. The Tribunal emphasized the importance of providing an opportunity for cross-examination and adhering to the principles of natural justice.
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