2018 (12) TMI 1620 - AT - Income Tax

Assessment u/s 153A - independent enquiry to determine the existence of incriminating evidence in the seized material - Addition of share application money received u/s 68, addition of commission allegedly paid on the share application money and disallowance u/s 14A - granting no right to cross-examination a witness - HELD THAT - Additions are not based on any incriminating material found during the course of search. The alleged statements recorded from entry operators have been admittedly retracted by them and the Assessing Officer has not based the additions on these statements. When copies of the alleged statements recorded by the revenue officials have not been given to the assessee, no addition can be made based on such evidence which is not confronted to the assessee. The contents of the statements are also not brought out in the assessment order. Only a general reference is made that there were certain statements recorded from various entry operators by the investigation wing. No addition can be made on such general observations. We also find that the assessee has not been given an opportunity to cross-examine any of these persons, based on whose statements, the ld. D/R claims that the additions have been made. The Hon ble Supreme Court in the case of Kishinchand Chellaram vs. CIT 1980 (9) TMI 3 - SUPREME COURT had held that the opportunity of cross-examination must be provided to the assessee. Even otherwise, it is not clear as to which of these statements were recorded during the course of search operation u/s 132 of the Act or whether the statements were recorded during the course of any survey operations u/s 133A of the Act. It is well settled that a statement recorded during the course of survey operation cannot be used as evidence under the Act. Coming to the alleged cash trail, none of the material gathered by the Assessing Officer by way of bank account copies of various companies supposed to be part of the chain of companies was not confronted to the assessee. The alleged statements that were recorded from directors of these companies which formed this alleged chain were also not brought on record. Only a general statement has been made. There is no evidence whatsoever that cash has been routed from the assessee company to any of these chain of companies. No evidence that any cash was deposited by the assessee company. Moreover, there is no material whatsoever brought on record to demonstrate that the alleged cash deposit made in the bank account of a third party was from the assessee company. No opportunity to cross-examine any these parties was provided to the assessee. The bank statements based on which the cash trail was prepared are part of the disclosed documents and cannot be held as incriminating material. None of these material gathered by the Assessing Officer can be categorized as incriminating material found during the course of search or found during the course of any other operation under the Act merit addition - decided in favour of assessee.

Summary

Issues Involved:
1. Delay in filing appeals.
2. Validity of additions made under Section 153A/143(3) without incriminating material.
3. Jurisdictional High Court's stance on incriminating material.
4. Statements from entry operators and their admissibility.
5. Cash trail and its evidentiary value.
6. Assessee's right to cross-examine witnesses.

Detailed Analysis:

1. Delay in Filing Appeals:
The tribunal noted a delay of 26 days in filing the appeals. After reviewing the petition for condonation, the tribunal found sufficient cause for the delay and admitted the appeals.

2. Validity of Additions Made Under Section 153A/143(3) Without Incriminating Material:
The assessee filed original returns declaring Nil income for AY 2008-09 and total income of ?24,379 for AY 2010-11. Post a search and seizure operation, revised returns were filed declaring the same income. The Assessing Officer (AO) completed assessments determining total incomes significantly higher than originally declared. The First Appellate Authority granted part relief, relying on the judgments of the Calcutta High Court and the Delhi High Court, which held that incriminating material is a prerequisite for making additions under Section 153A/143(3) when assessments for the respective years have not abated.

3. Jurisdictional High Court's Stance on Incriminating Material:
The tribunal referred to various judgments, including:
- PCIT vs. Salasar Stock Broking Limited: The Calcutta High Court agreed that incriminating material is necessary before exercising power under Section 153A.
- CIT vs. Veerprabhu Marketing Ltd.: The court held that disallowances not based on incriminating material found during search cannot be upheld.
- CIT vs. Kabul Chawla: The Delhi High Court established that additions in assessments under Section 153A should be based on incriminating material found during the search.

4. Statements from Entry Operators and Their Admissibility:
The AO made additions based on survey statements recorded from various entry operators. However, the tribunal noted that these statements were retracted and not provided to the assessee for cross-examination. The tribunal emphasized that statements recorded during the course of survey operations cannot be used as evidence, citing the judgment in CIT vs. S. Kader Khan Son.

5. Cash Trail and Its Evidentiary Value:
The AO relied on a cash trail prepared during post-search investigations. The tribunal found that the cash trail was not part of the seized documents and was based on disclosed bank statements, which do not qualify as incriminating material. The tribunal also noted that the assessee was not provided with the bank statements or given an opportunity to cross-examine the parties involved.

6. Assessee's Right to Cross-Examine Witnesses:
The tribunal upheld the assessee's right to cross-examine witnesses, citing the Supreme Court's decision in Kishinchand Chellaram vs. CIT and the Jurisdictional High Court's decision in CIT vs. Eastern Commercial Enterprises. The tribunal concluded that material collected behind the assessee's back cannot be used to make additions without confronting the assessee with such material.

Conclusion:
The tribunal dismissed the revenue's appeals, upholding the First Appellate Authority's decision to delete the additions made by the AO. The tribunal emphasized that additions under Section 153A/143(3) must be based on incriminating material found during the search, and the assessee's right to cross-examine witnesses must be respected.