2018 (12) TMI 1863 - AT - Income Tax

Assessment u/s 153A - incriminating material found in search or not? - addition made is of share application received u/s 68 of the Act and addition of commission paid allegedly for the share application money and finally a disallowance u/s 14A - HELD THAT - In the case on hand, the assessee filed its original return of income on 31/08/2008. The time limit for issual of notice u/s 143(2) of the Act, was 30/09/2009. The search and seizure operation was conducted in this case on 18/02/2013. The statutory period for issual of notice u/s 143(2) of the Act, in the case of the Assessment Years had expired prior to the date of search operation. Hence the assessment for the impugned Assessment Year has not abated. Additions in question are not based on any incriminating material found during the course of search. No incriminating material has been found during the course of search. The alleged statements recorded from entry operators have admittedly been retracted and the Assessing Officer has not based the additions on these statements. Even otherwise, 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 detail 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 revenue claims to have made these additions. The Hon ble Supreme Court in the case of Kishinchand Chellaram vs. CIT 1980 (9) TMI 3 - SUPREME COURT had held that 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 or whether the statements were recorded during the course of survey operations. It is well settled that a statement recorded during the course of survey operation cannot be used as an evidence under the Act. Only a general statement has been made that the investigation wing had recorded some statements. There is no evidence whatsoever that cash has been routed from the assessee company or that any cash was deposited by the assessee company. 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. Thus, 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. Thus, we hold that the additions in question are not based on any incriminating material. - Decided in favour of assessee.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Requirement of incriminating material for additions under Section 153A/143(3).
3. Comparison with other judicial pronouncements.
4. Legal position on additions without incriminating material.
5. Use of statements and cash trail as evidence.
6. Opportunity for cross-examination.
7. Final decision on the appeal.

Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal by the revenue was delayed by 26 days. The tribunal reviewed the petition for condonation and was convinced that the department had sufficient cause for the delay. Consequently, the delay was condoned, and the appeal was admitted.

2. Requirement of Incriminating Material for Additions under Section 153A/143(3):
The assessee, a company, originally declared an income of ?46,654/- for the Assessment Year 2010-11. A search and seizure operation under Section 132 was conducted, leading to a revised return with the same income. However, the Assessing Officer (AO) determined the total income to be ?9,25,10,580/- based on additional findings. The First Appellate Authority granted partial relief, relying on precedents that incriminating material is a prerequisite for making additions under Section 153A/143(3) when assessments have not abated.

3. Comparison with Other Judicial Pronouncements:
The revenue contended that the CIT(A) erred by not making independent inquiries and by overlooking a Special Leave Petition admitted by the Supreme Court. They also argued that the CIT(A) incorrectly compared the case with others where the facts differed, such as the case of Veer Prabhu Marketing and Kabul Chawla.

4. Legal Position on Additions Without Incriminating Material:
The tribunal examined whether additions can be made in an assessment under Section 153A/143(3) without incriminating material when the assessment year in question has not abated. They reviewed various judgments, including those from the Calcutta High Court and Delhi High Court, which held that no additions can be made without incriminating material found during the search.

5. Use of Statements and Cash Trail as Evidence:
The revenue argued that statements from entry operators and a cash trail prepared during post-search inquiries constituted incriminating material. However, the assessee countered that these statements were retracted and not confronted with the assessee, and the cash trail was not part of the seized documents. The tribunal noted that the AO did not base the additions on these statements and that no opportunity for cross-examination was provided.

6. Opportunity for Cross-Examination:
The tribunal emphasized that the assessee was not given an opportunity to cross-examine the individuals whose statements were used for the additions. They cited the Supreme Court's judgment in Kishinchand Chellaram vs. CIT, which mandates the provision of cross-examination to the assessee.

7. Final Decision on the Appeal:
The tribunal concluded that the additions were not based on any incriminating material found during the search. They upheld the CIT(A)'s decision, which was based on binding judicial precedents, and dismissed the revenue's appeal.

Conclusion:
The tribunal dismissed the revenue's appeal, emphasizing the necessity of incriminating material for additions under Section 153A/143(3) when the assessment has not abated and the importance of providing the assessee an opportunity for cross-examination.