2022 (3) TMI 521 - AT - Income Tax

Assessment u/s 153A - incriminating material found during the course of search and seizure action or not? - Addition of capital gain u/s 68 - whether AO has grossly erred in law in completing assessment u/s 153A r.w.s. 143 (3) even when no incriminating material whatsoever found in course of search which could suggest any undisclosed income so as to initiate proceedings u/s 153A? - HELD THAT - Neither in the assessment order nor in the order of the ld. CIT (A) there is any mention or finding that the additions have been made by the AO on the basis of any incriminating material found during the course of search and seizure in the case of the assessee. AO has solely relied upon the report of the Investigation Wing and statement of one Shri Anuj Agarwal recorded by the Investigation Wing during the survey under section 133A of the Act. Therefore, even if the information/report of the Investigation Wing Kolkata is considered as a relevant evidence, the same cannot be regarded as incriminating material unearthed during the course of search and seizure u/s 132 in case of the assessee. The requirement for making the addition under section 153A in the assessment years where the assessment was not pending on the date of search and the proceedings are in the nature of reassessment is essentially the incriminating material disclosing undisclosed income which was not disclosed by the assessee. In the case in hand, the AO himself has not claimed any incriminating material found during the search and seizure in the case of the assessee. Accordingly, the additions made by the AO while passing the assessment order under section 153A for the assessment year 2010-11 are not sustainable and accordingly the same are liable to be deleted. Addition u/s 68 - The assessee brought on record the evidence in the shape of bills, allotment of shares, payment through banking channel, dematerializing of the shares in the Demat account of the assessee and sale of the shares through Stock Exchange from the Demat account of the assessee. The documentary evidence which can be independently verified and the correctness of the same cannot be questioned being the payment made by the assessee through banking channel reflected in the bank account statement as well as dematerializing of the shares in the Demat account proving the fact of holding of the shares by the assessee in the Demat account. The evidence produced by the assessee has established at least two facts that the assessee was holding the shares in his Demat account and the payment for purchase consideration was made through banking channel which is also not disputed by the AO. AO has not brought on record any material to controvert or disprove these evidences of payment through banking channel, holding of the shares in the Demat account of the assessee, sale of shares from the Demat account through Stock Exchange at the prevailing price in the Stock Exchange on the date of sale. Thus the conclusion of the AO is based on suspicion and surmises without any tangible material to show that the assessee s own unaccounted income has routed back to the assessee in the shape of Long Term Capital Gain. While recording the statement during the course of search and seizure and survey operations, no attempt should be made to obtain confession as to the undisclosed income. The Board has again issued a Circular dated 18th December, 2014 and advised the Taxing Authorities to avoid obtaining admission of undisclosed income under coercion/undue influences. Thus in the absence of any incriminating material found during the course of search and seizure action, the confession as recorded during the course of search and seizure action has no evidentiary value. It is also pertinent to note that if a confession revealing certain information or disclosing certain transactions which are not disclosed by the assessee in the books of account, the same has a good evidentiary value and a simplicitor retraction of such statement cannot be accepted until and unless the assessee at the time of retraction explains the mistakes and circumstances under which such mistakes were committed while making the confession. In the case in hand, the confession of the assessee is not revealing any transaction which is not already disclosed or recorded in the books of account. Therefore, any confession of undisclosed income which is already part of books of account as well as already disclosed in the return of income filed under section 139(1), in the absence of any supporting documentary evidence cannot be regarded as a good evidence for addition. Hence, we do not find any error or illegality in the impugned order of the ld. CIT (A) qua this issue. This covers the Ground Nos. 1 to 7 of the Revenue s appeal.

Issues Involved:
1. Deletion of addition under Section 68 of the IT Act on account of bogus LTCG claimed as exempt income under Section 10(38).
2. Deletion of addition under Section 69C of the IT Act on account of unexplained commission expenditure.
3. Validity of additions based on incriminating documents and statements under Sections 132(4) and 131.
4. Consideration of statements recorded under Sections 132(4) and 131 as incriminating material.
5. Validity of retraction of statements made under Section 132(4).
6. Legality of making additions in absence of incriminating material during completed assessments.
7. Non-acceptance of High Court decision in a similar case regarding the validity of retracted statements.

Detailed Analysis:

Issue 1: Deletion of Addition under Section 68 of the IT Act
The main contention was whether the CIT (A) was right in deleting the addition of ?2,83,12,308/- made by the AO under Section 68 on account of bogus LTCG. The assessee had claimed this amount as exempt income under Section 10(38). The CIT (A) held that the addition made by the AO was not sustainable as no incriminating material was found during the search. The transactions were conducted through recognized stock exchanges, and the payments were made through banking channels, supported by documentary evidence. The CIT (A) relied on various judgments, including the Hon'ble Jurisdictional High Court in Jai Steel (India) vs. ACIT, which emphasized that in the absence of incriminating material, no additions could be made.

Issue 2: Deletion of Addition under Section 69C of the IT Act
The AO had made an addition of ?2,83,123/- under Section 69C for alleged commission expenditure. The CIT (A) deleted this addition, stating that there was no material or evidence of paying any commission by the assessee. The CIT (A) noted that the addition under Section 69C could only be made if the expenditure was actually incurred and evidenced, which was not the case here.

Issue 3: Validity of Additions Based on Incriminating Documents and Statements
The AO had relied on statements recorded under Sections 132(4) and 131, where the assessee had admitted the income from capital gains as undisclosed. However, the CIT (A) found that these statements were not corroborated by any incriminating material found during the search. The CIT (A) emphasized that the addition made without any incriminating material found during the search was not sustainable, following the precedent set by the Hon'ble Jurisdictional High Court in Jai Steel (India) vs. ACIT.

Issue 4: Consideration of Statements as Incriminating Material
The CIT (A) held that the statements recorded under Sections 132(4) and 131 could not be considered as incriminating material unless supported by documentary evidence. The CIT (A) referred to the judgment in Kabul Chawla vs. ACIT, which stated that in the absence of any incriminating material, the completed assessment could only be reiterated and not disturbed.

Issue 5: Validity of Retraction of Statements
The assessee had retracted the statements made under Section 132(4), claiming that they were made under duress. The CIT (A) accepted the retraction, noting that the statements were not supported by any incriminating material found during the search. The CIT (A) cited various judgments that supported the view that retracted statements could not be the sole basis for additions.

Issue 6: Legality of Additions in Absence of Incriminating Material
The CIT (A) held that in the absence of any incriminating material found during the search, the AO could not make any additions while completing the assessment under Section 153A. The CIT (A) relied on the judgment in Jai Steel (India) vs. ACIT, which stated that completed assessments could only be interfered with based on incriminating material unearthed during the search.

Issue 7: Non-Acceptance of High Court Decision
The CIT (A) did not accept the decision of the Hon'ble High Court in the case of Shri Roshan Lal Sancheti, where the court had held that retracted statements should generally be made within a reasonable time and supported by convincing evidence. The CIT (A) held that the retraction in the present case was valid as the statements were not supported by any incriminating material.

Conclusion:
The CIT (A) deleted the additions made by the AO under Sections 68 and 69C, holding that the additions were not sustainable in the absence of any incriminating material found during the search. The CIT (A) relied on various judgments, including those of the Hon'ble Jurisdictional High Court, which emphasized that completed assessments could only be interfered with based on incriminating material unearthed during the search. The retraction of statements made under Section 132(4) was accepted as valid, and the statements were not considered as incriminating material. The appeals filed by the revenue were dismissed.

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