2019 (2) TMI 699 - AT - Income Tax

Assessment u/s 153A - addition made of share application received u/s 68 and addition of commission paid allegedly for the share application money and finally a disallowance u/s 14A - denial of cross-examination a witness - Held that - 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 The alleged statements recorded from entry operators have admittedly been retracted and the Assessing Officer has not based the additions on these statements.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 As a matter of fact, the right to cross-examination a witness adverse to the assessee is an indispensable right and the opportunity of such cross-examination is one of the cornerstones of natural justice. 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. 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 None of the 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. Validity of additions made under Section 153A/143(3) of the Income Tax Act, 1961, without incriminating material.
3. Whether the CIT(A) erred by not making independent inquiries.
4. Applicability of judgments and legal precedents.
5. Whether the assessment should be based on statements and materials not provided to the assessee.
6. Whether the CIT(A) failed to adjudicate on merits.
7. Additional grounds raised by the revenue.

Detailed Analysis:

1. Delay in Filing the Appeal:
The revenue's appeal was delayed by 26 days. The tribunal, after reviewing the petition for condonation, concluded that the department was prevented by sufficient cause from filing the appeal on time. Consequently, the delay was condoned, and the appeal was admitted.

2. Validity of Additions under Section 153A/143(3):
The assessee, a company, filed its original return of income on 26/09/2008. A search and seizure operation was conducted on 18/02/2013, leading to a notice under Section 153A. The revised return declared the same income as the original. The assessment was completed with a total income of ?1,65,87,090/-.

The CIT(A) granted partial relief, relying on the Calcutta High Court decisions in 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) where assessments have not abated. The tribunal upheld this view, noting that the additions were not based on any incriminating material found during the search.

3. Independent Inquiry by CIT(A):
The revenue contended that the CIT(A) erred by not conducting independent inquiries to determine the existence of incriminating evidence. However, the tribunal found that the CIT(A) had relied on established legal precedents and the absence of incriminating material during the search, making further inquiry unnecessary.

4. Applicability of Judgments and Legal Precedents:
The tribunal considered various judgments, including those from the Calcutta High Court and the Delhi High Court, which consistently held that additions under Section 153A require incriminating material found during the search. The tribunal also noted the Supreme Court's dismissal of the department's SLP in a similar case, reinforcing the need for incriminating material.

5. Statements and Materials Not Provided to the Assessee:
The revenue argued that statements from entry operators and a cash trail prepared post-search constituted incriminating material. The assessee countered that these were not part of the seized documents and were not provided for cross-examination. The tribunal held that no addition could be made based on materials not confronted to the assessee, emphasizing the principles of natural justice and the right to cross-examine adverse witnesses.

6. Adjudication on Merits by CIT(A):
The revenue claimed that the CIT(A) failed to adjudicate the appeal on its merits. However, the tribunal found that the CIT(A) had adequately addressed the legal issue regarding the necessity of incriminating material for additions under Section 153A, rendering further adjudication on merits unnecessary.

7. Additional Grounds Raised by the Revenue:
The tribunal noted that the department reserved the right to add or alter grounds during the appeal. However, no new grounds were introduced or argued during the proceedings.

Conclusion:
The tribunal upheld the CIT(A)'s order, finding no infirmity in the deletion of additions made without incriminating material. The appeal of the revenue was dismissed.

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