2025 (3) TMI 145 - AT - Income Tax

Assessment u/s 153A - addition on account of alleged bogus purchases - as alleged no incriminating material found during the search HELD THAT - Without there being any incriminating material found during the search and merely relying on the statements recorded alone cannot be the basis of addition. Moreover in the present case the statements recorded prior and after the search were heavily relied to make the addition without there being any incriminating material or any mismatch of purchase or closing stock brought on record to be treated as incriminating material found during the search. In our considered view the assessee has submitted all the relevant quantitative details of raw material supported by tax audit report for the impugned assessment years under consideration and no discrepancies were brought on record except on the basis of statements recorded from Mohan Lal Gupta and Devender Kumar prior to search and also heavily relied on the 3 STRs forwarded by the Investigation Wing. There is no incriminating or corroborative evidence with the Revenue in conformity with the statements given by Mohan Lal Gupta and Devender Kumar. They made the statements prior to search and the Revenue must have gathered supporting evidence in line with the statements recorded. Merely relying on circumstantial evidences without there being any corroborative evidence cannot be treated as incriminating material. Therefore the assessment order is quashed.

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

Whether the assumption of jurisdiction under Section 153A of the Income Tax Act was valid, given the absence of incriminating material found during the search.
The validity of additions made to the assessee's income based on alleged bogus purchases and the enhancement of income by the Commissioner of Income Tax (Appeals) [CIT(A)].
Whether the statements recorded from individuals associated with the assessee, prior to and after the search, constituted incriminating material justifying the additions made.
The adequacy of procedural fairness, including the opportunity for cross-examination of witnesses whose statements were used against the assessee.
The treatment of statements recorded under Section 132(4) of the Income Tax Act as standalone incriminating material.

2. ISSUE-WISE DETAILED ANALYSIS

Assumption of Jurisdiction under Section 153A:

Legal Framework and Precedents: Section 153A allows for the reopening of assessments if incriminating material is found during a search. The legal precedent established by the Delhi High Court in CIT v. Kabul Chawla requires the existence of incriminating material for additions to be made in assessments that have become final.
Court's Interpretation and Reasoning: The Tribunal found that no incriminating material was discovered during the search. Statements recorded prior to the search and information from the Investigation Wing were not deemed sufficient to justify the reopening of assessments for unabated years.
Key Evidence and Findings: The Tribunal noted that the statements relied upon were recorded before the search and were not corroborated by any material found during the search.
Application of Law to Facts: The Tribunal applied the principle from Kabul Chawla, concluding that the absence of incriminating material meant the jurisdiction under Section 153A was improperly assumed.
Treatment of Competing Arguments: The Tribunal rejected the Revenue's reliance on statements as incriminating material, emphasizing the need for corroborative evidence.
Conclusions: The Tribunal quashed the assessments under Section 153A due to the lack of incriminating material.

Additions Based on Alleged Bogus Purchases:

Legal Framework and Precedents: Additions for bogus purchases require evidence of non-genuine transactions. The Tribunal considered various precedents concerning the treatment of statements as evidence.
Court's Interpretation and Reasoning: The Tribunal found that the statements used to support the additions were not corroborated by any physical evidence or documentation discovered during the search.
Key Evidence and Findings: The Tribunal highlighted the lack of opportunity for cross-examination and the absence of corroborative evidence supporting the statements.
Application of Law to Facts: The Tribunal applied the principle that statements alone, without supporting evidence, cannot substantiate additions for bogus purchases.
Treatment of Competing Arguments: The Tribunal dismissed the Revenue's argument that the statements were sufficient, emphasizing procedural fairness and the need for corroboration.
Conclusions: The Tribunal ruled that the additions based on alleged bogus purchases were unjustified and quashed them.

Procedural Fairness and Opportunity for Cross-Examination:

Legal Framework and Precedents: The principles of natural justice require that any adverse material used against an assessee be disclosed, and the assessee be given an opportunity to cross-examine witnesses.
Court's Interpretation and Reasoning: The Tribunal noted that the assessee was not given the opportunity to cross-examine individuals whose statements were used against them, violating principles of natural justice.
Key Evidence and Findings: The Tribunal found that statements from Mohan Lal Gupta and Devender Kumar were not provided to the assessee for cross-examination.
Application of Law to Facts: The Tribunal held that the failure to allow cross-examination rendered the statements unreliable as evidence.
Treatment of Competing Arguments: The Tribunal rejected the Revenue's reliance on these statements, emphasizing the need for procedural fairness.
Conclusions: The Tribunal found the procedural lapses significant enough to invalidate the reliance on the statements.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "Without there being any incriminating material found during the search and merely relying on the statements recorded alone cannot be the basis of addition."
Core Principles Established: The existence of incriminating material is a prerequisite for reopening assessments under Section 153A. Statements recorded under Section 132(4) cannot be used as standalone incriminating material without corroborative evidence.
Final Determinations on Each Issue: The Tribunal quashed the assessments under Section 153A for lack of incriminating material and procedural fairness. Additions based on alleged bogus purchases were also quashed due to insufficient evidence and procedural violations.

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