2019 (1) TMI 691 - AT - Income Tax

Assessment u/s 153C - proof of incriminating material found during the course of search and seizure - addition u/s 68 and 14A - no opportunity of cross-examination to assessee given - Held that - In the case on hand, the assessee filed its original return of income on 31/08/2008. The time limit for issue 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 issue 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. Only 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 of the Act. 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 The alleged statements recorded from entry operators have admittedly been retracted and the Assessing Officer has not based the additions on these statements.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. 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. 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 a chain was given/confronted to the assessee. The alleged statements were supposedly recorded from directors of these companies which formed this alleged chain are also not brought on record. 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 - 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 - Decided in favour of assessee.

Issues Involved:
1. Delay in filing the appeal.
2. Requirement of incriminating material for additions under Section 153A.
3. Comparison with other case laws and judicial pronouncements.
4. Non-confrontation of evidence to the assessee.
5. Statements and materials gathered post-search.
6. Legal position on additions in assessments not based on incriminating materials.

Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal was filed by the revenue with a delay of 26 days. The Tribunal, after reviewing the petition for condonation, accepted that the department had a sufficient cause for the delay and hence condoned it, allowing the appeal to be admitted.

2. Requirement of Incriminating Material for Additions Under Section 153A:
The core issue was whether additions could be made under Section 153A read with Section 143(3) of the Income Tax Act when no incriminating material was found during the search. The Tribunal noted that the original return was filed on 02/09/2009, and the search and seizure operation occurred on 18/02/2013. The assessment for the year had not abated, and the additions made by the Assessing Officer were not based on any incriminating material found during the search. The Tribunal emphasized that the additions were based on general observations and statements which were not directly confronted to the assessee.

3. Comparison with Other Case Laws and Judicial Pronouncements:
The Tribunal referenced several judicial pronouncements, including:
- PCIT vs. Salasar Stock Broking Limited and CIT vs. Veerprabhu Marketing Ltd.: Both cases emphasized that incriminating material is a prerequisite for making additions in assessments under Section 153A where assessments have not abated.
- CIT vs. Kabul Chawla: This case reiterated that in the absence of incriminating material, completed assessments cannot be interfered with under Section 153A.
- E.N. Gopakumar vs. CIT: The Kerala High Court held that the Assessing Officer could interfere with completed assessments only based on incriminating material found during the search.

4. Non-Confrontation of Evidence to the Assessee:
The Tribunal highlighted that the assessee was not provided with copies of bank statements or statements recorded from third parties, which formed the basis of the additions. The Tribunal stressed the importance of providing the assessee with an opportunity to cross-examine the evidence and witnesses against them, citing the Supreme Court’s decision in Kishinchand Chellaram vs. CIT and the jurisdictional High Court’s decision in CIT vs. Eastern Commercial Enterprises.

5. Statements and Materials Gathered Post-Search:
The Tribunal noted that the statements recorded from entry operators and the cash trail prepared by the Assessing Officer during post-search enquiries were not part of the seized documents. Furthermore, these statements were retracted, and the assessee was not given an opportunity to cross-examine the individuals who made these statements.

6. Legal Position on Additions in Assessments Not Based on Incriminating Materials:
The Tribunal reiterated the legal position that additions under Section 153A can only be made based on incriminating materials found during the search. The Tribunal cited multiple judgments supporting this view, including:
- CIT vs. Veerprabhu Marketing Ltd.
- PCIT vs. Salasar Stock Broking Limited
- Anurag Dalmia vs. DCIT
- Pr. CIT vs. Somaya Construction Pvt. Ltd.
- CIT vs. IBC Knowledge Park Pvt. Ltd.
- CIT vs. Gurinder Singh Bawa
- Pr. CIT vs. Meeta Gutgutia

The Tribunal concluded that the additions made by the Assessing Officer were not based on any incriminating material found during the search and were therefore not sustainable. Consequently, the Tribunal upheld the order of the Commissioner of Income Tax (Appeals) and dismissed the revenue's appeal.

← Previous Next →