2019 (1) TMI 874 - AT - Income Tax

Assessment u/s 153A - incriminating material found during the course of search and seizure - addition u/s 68 and 14A - non providing opportunity to cross-examine - 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. Thus the additions in question are not based on any incriminating material found during the course of search. On the legal position we find that the 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 The alleged statements recorded from entry operators have admittedly been retracted and the Assessing Officer has not based the additions on these statements. 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. 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. 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. No opportunity to cross-examine any these parties was provided to the assessee. - Decided in favour of assessee.

Issues Involved:
1. Delay in filing the appeal.
2. Jurisdiction and validity of additions under Section 153A/143(3) without incriminating material.
3. Relevance of statements recorded from entry operators and cash trail evidence.
4. Opportunity for cross-examination and confrontation of evidence.
5. Legal precedents and binding judgments.
6. Specific grounds of appeal raised by the revenue.

Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal was filed by the revenue with a delay of 26 days. The tribunal condoned the delay after being convinced that the department was prevented by sufficient cause from filing the appeal on time.

2. Jurisdiction and Validity of Additions under Section 153A/143(3) Without Incriminating Material:
The core issue was whether additions could be made under Section 153A/143(3) of the Income Tax Act when no incriminating material was found during the search. The original return filed by the assessee declared an income of ?52,969, but the assessment was completed with a total income of ?6,92,33,014. The First Appellate Authority granted part relief, relying on various High Court decisions, including PCIT vs. Salasar Stock Broking Limited and CIT vs. Veerprabhu Marketing Ltd., which held that incriminating material is a prerequisite for making additions in assessments under Section 153A/143(3) when the assessments have not abated.

3. Relevance of Statements Recorded from Entry Operators and Cash Trail Evidence:
The revenue argued that the additions were based on statements recorded from entry operators and a cash trail prepared during post-search inquiries. However, the assessee contended that these statements were retracted and not confronted with the assessee. The tribunal noted that the additions were not based on any incriminating material found during the search and that the statements recorded were not provided to the assessee, nor was any opportunity given for cross-examination.

4. Opportunity for Cross-Examination and Confrontation of Evidence:
The assessee argued that they were not provided with copies of bank statements or statements recorded from third parties, nor given an opportunity to cross-examine these parties. The tribunal emphasized the necessity of providing such opportunities, citing the Supreme Court's decision in Kishinchand Chellaram vs. CIT and the Jurisdictional High Court's decision in CIT vs. Eastern Commercial Enterprises, which upheld the right to cross-examine as an indispensable right.

5. Legal Precedents and Binding Judgments:
The tribunal reviewed several legal precedents, including the judgments of the Delhi High Court in CIT vs. Kabul Chawla, which established that no additions could be made in assessments under Section 153A unless based on incriminating material found during the search. The tribunal also referred to decisions from other High Courts and the Supreme Court, which reinforced this legal position.

6. Specific Grounds of Appeal Raised by the Revenue:
The revenue raised multiple grounds, including the failure of the CIT(A) to make independent inquiries, overlooking a Special Leave Petition admitted by the Supreme Court, and making comparisons with other cases. However, the tribunal found that the CIT(A) had correctly applied the legal principles and binding judgments, and the additions made by the Assessing Officer were not based on any incriminating material.

Conclusion:
The tribunal upheld the order of the CIT(A), which deleted the additions made by the Assessing Officer under Section 153A/143(3) as they were not based on any incriminating material found during the search. The appeal of the revenue was dismissed.

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