2018 (4) TMI 788 - AT - Income Tax

Validity of initiating proceedings u/s 153A - Validity of Search Action - reliability of seized material - Held that - The impugned seized material AIBSG/01 and AIBSG/02 were found in the premises of the BSG and not in the premises of the assessee. AO himself has held that the seized material AIBSG/01 and AIBSG/02 did not belong to the assessee but rather belongs to BSG. Having held that the said seized material belonged to BSG, AO at a later date issued the requisite notice and completed the assessment in his case making substantial additions, largely relying on the same seized material - Unless the material belongs to the assessee, the same cannot be used or held against the assessee in proceedings under Section 153A or 153C of the Act. Thus the additions made by the Assessing Officer based on seized material AIBSG/01 is unsustainable for this reason. As the seized material AIBSG/01 as per the panchanama contained 72 total pages and 72 written pages whereas the copies supplied to the assessee contained 90 written pages - reply of Revenue is that all the seized material are properly numbered, serialized, are genuine and that the objection put forth by the assessee is hyper technical in nature. If the copies of the seized documents supplied are in excess of the actual documents seized, as seemed to be suggested by the assessee, the assessee could easily point out the documents that don t belong to it. This has not been done. It could be merely a case of wrong mention of numbers in the Panchanama. As long as the assessee has not pointed out any document as not being genuine, this objection is technical and has no bearing on the substantive issues raised in the appeal. We, therefore, dismiss the objections raised in this regard. Statements recorded based on the seized material AIBSG/01 and AIBSG/02 from BSG, AKG and KMG - mere reliance on a statement recorded during search action, that too of third persons, for making additions in the case of the assessee is not appropriate - Where the assessee has claimed that the statement was not based on any documents. It is also settled principle that when documents / statements are used against the assessee, copies of the same have to be provided and opportunities afforded to the assessee to explain the statements made. Mere reliance on a statement recorded in the wee hours of the day in the course of search action without any further efforts to bring in corroborative evidence and afford opportunities to the assessee and to the deponents also to explain or rebut or correct the statements is inappropriate. On an appraisal of the record before us, in our view, the Assessing Officer has faultered in not following the rule of law and the procedures prescribed in this regard Disallowances made on the basis of statements of persons not being made available for cross-examination cannot be used against the assessee and hence such disallowances are not sustainable. Even otherwise, we have already held in the pre-paragraphs of this order (supra) that seized material found in the premises of third person cannot be used against the assessee without any corroborative evidence that the seized material belongs to the assessee. Therefore these additions fail on this count as well

Issues Involved:
1. Validity of search action.
2. Correctness of additions made based on seized material.
3. Bogus expenses for Assessment Years 2009-10 and 2010-11.

Detailed Analysis:

1. Validity of Search Action:
The assessee challenged the validity of the search action under Section 132 of the Income Tax Act, 1961. The Tribunal referred to the amendment in the Finance Act, 2017, which precludes the Tribunal from examining the validity of search actions. Consequently, the Tribunal decided this issue against the assessee and dismissed the grounds raised in this regard.

2. Correctness of Additions Based on Seized Material:
Seized Material AIBSG/01 and AIBSG/02:
- The assessee argued that the seized materials AIBSG/01 and AIBSG/02 were found at the residence of Bharat S. Ghorpade (BSG) and not at the premises of the assessee. The Assessing Officer had initially held that these materials belonged to BSG and issued a notice under Section 153A r.w.s. 153C to BSG.
- The assessee contended that the materials did not belong to them and cited several judicial pronouncements supporting their claim that materials not belonging to the assessee cannot be used against them.
- The Tribunal agreed with the assessee, stating that the additions based on these seized materials were unsustainable since they did not belong to the assessee.

Pagination Discrepancies:
- The assessee pointed out discrepancies in the number of pages of the seized materials provided to them compared to what was recorded in the Panchanama. The Tribunal dismissed this objection, stating it was hyper-technical and had no bearing on the substantive issues.

Statements Recorded:
- The assessee argued that the statements from Kartikeya M. Ghorpade (KMG) and Ambika Ghorpade (AKG) were recorded based on documents that were not shown to them, as these documents were in another town.
- The Tribunal held that mere reliance on statements recorded during search without corroborative evidence was inappropriate. The Tribunal emphasized the need for corroborative evidence and proper procedures, including providing copies of statements and opportunities for cross-examination.

Loose Sheets as Evidence:
- The assessee contended that loose sheets could not be relied upon as evidence. The Tribunal refrained from making observations on this issue, as it had already held that the additions based on the seized materials were unsustainable due to procedural lapses.

3. Bogus Expenses for Assessment Years 2009-10 and 2010-11:
- The additions for bogus expenses were based on statements from employees and certain materials seized from BSG’s residence.
- The Tribunal found discrepancies between the seized materials and the statements. The Tribunal noted that the assessee was not provided copies of the statements nor given an opportunity for cross-examination.
- The Tribunal cited judicial pronouncements emphasizing that additions cannot be made based on third-party statements without cross-examination.
- Consequently, the Tribunal deleted the additions made on account of bogus expenses for Assessment Years 2009-10 and 2010-11.

Conclusion:
The Tribunal allowed the assessee's appeals for Assessment Years 2008-09 to 2011-12, holding that the additions based on the seized materials and statements were unsustainable due to procedural lapses and lack of corroborative evidence. The Tribunal also deleted the additions made on account of bogus expenses for Assessment Years 2009-10 and 2010-11.

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