2024 (5) TMI 1408 - HC - Income Tax

Addition u/s 68 - Evidentiary value of statements recorded u/s 132(4) - as per ITAT no assessment could have been made on mere presumption of existence of incriminating material - Rectification of mistake u/s 292B or not, when no notice u/s 153C was issued - HELD THAT -Statement recorded under Section 132 (4) of the Act has better evidentiary value but it is also a settled position of law that addition cannot be sustained merely on the basis of the statement. There has to be some material corroborating the content of the statements. Act does not contemplate computing of undisclosed income solely on the basis of statements made during a search. However, these statements do constitute information, and if they relate to the evidence or material found during the search, they can be used in proceedings under the Act, as specified under Section 132 (4) of the Act. Nonetheless, such statements alone, without any other material discovered during the search which would corroborate said statements, do not grant the AO the authority to make an assessment. Rectification of mistake u/s 292B or not, when no notice u/s 153C was issued - HELD THAT - Reliance can also be placed upon the decision in the case of CIT v. Micron Steels P. Ltd. 2015 2015 (2) TMI 589 - DELHI HIGH COURT whereby, it was held that the jurisdictional defects cannot be cured under Section 292B of the Act and they render the entire proceedings null and void. In the present case, it is seen that the Revenue has failed to allude to any steps which were taken to determine that the seized material belonged to the respondent-assessee group. Notably, the satisfaction note has also been prepared in a mechanical format and it does not provide any details about the incriminating material. Therefore, a failure on the part of the Revenue to manifest as to how the material gathered from the search of Jain group of companies belonged to the respondent-assessee group and the same is incriminating, vitiates the entire assessment proceedings. Accordingly, we find no reason to intermeddle with the order of the ITAT which has rightly set aside the assessment order and deleted the additions made therein. Decided in favour of assessee.

Summary

Issues Involved:

1. Validity of additions under Section 68 based on incriminating material.
2. Legal implications of statements recorded under Section 132(4).
3. Principles of natural justice and cross-examination rights.
4. Applicability of Section 292B for curing defects in assessment proceedings.

Summary:

1. Validity of Additions under Section 68:
The primary grievance in the appeals was whether the ITAT was correct in deleting additions made under Section 68 of the Income Tax Act, 1961, based on the presumption of incriminating material. The ITAT found no incriminating material during the search, and the assessment orders were based on statements of the Directors and documents seized from the Jain group of companies. The ITAT held that no assessment could be made on mere presumption without corroborative material.

2. Legal Implications of Statements Recorded under Section 132(4):
The Revenue contended that the statements recorded under Section 132(4) of the Act had better evidentiary value. However, the ITAT and the Court referred to precedents like Kailashben Manharlal Chokshi v. CIT and CIT v. Harjeev Aggarwal, which established that statements alone, without corroborating evidence, cannot justify additions. The Court emphasized that statements recorded during search operations must be supported by additional material evidence to be used for assessment.

3. Principles of Natural Justice and Cross-Examination Rights:
In the case of M/s Design Infracon Pvt. Ltd., the ITAT noted a violation of principles of natural justice as the statement of the owner of the Jain group of companies was not provided to the respondent-assessee companies, nor was the opportunity for cross-examination given. The Supreme Court in Andaman Timber Industries v. CCE and State of Kerala v. K.T. Shaduli Grocery Dealer held that not providing an opportunity for cross-examination amounts to a gross violation of natural justice, rendering the order null and void.

4. Applicability of Section 292B for Curing Defects:
The Revenue argued that the assessment order under Section 143(3) read with Section 153C was a rectifiable mistake under Section 292B of the Act. However, the Court found this argument lacking merit, as Section 292B condones invalidity arising from mere mistakes, defects, or omissions but does not cure jurisdictional defects. The Court cited CIT v. Micron Steels P. Ltd., which held that jurisdictional defects render proceedings null and void.

Conclusion:
The Court upheld the ITAT's decision, finding no substantial question of law. The appeals were dismissed, and the ITAT's order setting aside the assessment and deleting the additions was affirmed.