2018 (12) TMI 403 - AT - Income Tax

Validity of assessment u/s 153A - incriminating material found during the course of search and seizure proceedings - addition of share application money received u/s 68 and addition of commission allegedly paid on the share application money and finally a disallowance u/s 14A - Held that - No incriminating material has been 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. 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 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. 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. 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 an 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. 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 against revenue

Issues Involved:
1. Delay in filing appeals.
2. Validity of additions made under section 153A/143(3) without incriminating material.
3. The necessity of incriminating material for additions in assessments not abated.
4. The use of statements from entry operators and post-search investigations as incriminating material.
5. The right of the assessee to cross-examine witnesses.
6. The relevance of case laws and judicial precedents.

Detailed Analysis:

1. Delay in Filing Appeals:
The appeals filed by the revenue were delayed by 26 days. After reviewing the petition for condonation, the Tribunal found sufficient cause for the delay and condoned it, thereby admitting the appeal.

2. Validity of Additions Made Under Section 153A/143(3) Without Incriminating Material:
The assessee filed original returns declaring specific incomes for the Assessment Years 2009-10 and 2010-11. Post a search and seizure operation, the Assessing Officer issued notices under section 153A and made additions based on revised returns. The First Appellate Authority granted relief, relying on precedents that incriminating material is a prerequisite for making additions under section 153A/143(3) if the assessments for the respective years have not abated.

3. The Necessity of Incriminating Material for Additions in Assessments Not Abated:
The Tribunal examined whether additions could be made without incriminating material when the assessments had not abated. The Tribunal noted that the original returns were filed and processed without any pending assessments by the time of the search. Various case laws, including those from the Hon'ble Calcutta High Court and Delhi High Court, were cited, establishing that in the absence of incriminating material, no additions can be made for completed assessments.

4. The Use of Statements from Entry Operators and Post-Search Investigations as Incriminating Material:
The revenue argued that statements recorded from entry operators during search operations and post-search investigations constituted incriminating material. However, the Tribunal found that these statements were retracted, and the Assessing Officer did not base the additions on these statements. Moreover, the assessee was not provided with these statements or given an opportunity to cross-examine the witnesses, making such evidence inadmissible.

5. The Right of the Assessee to Cross-Examine Witnesses:
The Tribunal emphasized the importance of the assessee's right to cross-examine witnesses, citing the Hon'ble Supreme Court's decision in Kishinchand Chellaram vs. CIT and the Jurisdictional High Court's decision in CIT Vs Eastern Commercial Enterprises. The Tribunal held that material collected behind the back of the assessee without confrontation cannot be used for making additions.

6. The Relevance of Case Laws and Judicial Precedents:
The Tribunal relied on multiple judicial precedents, including the Hon'ble Calcutta High Court's decisions in CIT vs. Veerprabhu Marketing Ltd. and PCIT vs. Salasar Stock Broking Limited, which held that incriminating material is necessary for making additions under section 153A/143(3) for years where assessments have not abated. The Tribunal also distinguished the judgment of the Hon'ble Kerala High Court in E.N. Gopakumar vs. CIT, noting it contradicted the jurisdictional High Court's binding decisions.

Conclusion:
The Tribunal upheld the First Appellate Authority's decision, finding that the additions were not based on any incriminating material found during the search. The appeals of the revenue were dismissed, reinforcing the principle that completed assessments can only be interfered with based on incriminating material discovered during a search.

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