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2022 (7) TMI 1378 - HC - Income TaxAssessment u/s 153A - Whether no incriminating material was found during the course of search? - HELD THAT - No material found during search pertaining to M/s KGN Industries Ltd. has been placed on record. The Revenue has not placed on record any incriminating material which was found as a result of the search conducted on the assesee herein. It is also the contention of the assessee that there was no surrender by her unlike Sh. Madho Gopal Agarwal and she, therefore, specifically disputed that any notice under Section 153A of the Act could have been initiated against her. The said facts are not disputed by the counsel for the Revenue. On the date of search, admittedly, the assessment with respect to the AY under consideration 2011-12 admittedly stood completed. Since no assessment was pending for the relevant AY 2011-12 on the date of search and no incriminating material was found during the course of search, the issue is covered in favour of the assessee by the judgment of this Court in the case of Commissioner of Income Tax v. Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT and Principal CIT vs. Meeta Gutgutia 2017 (5) TMI 1224 - DELHI HIGH COURT - No substantial questions of law.
Issues:
1. Interpretation of incriminating material in income tax proceedings. 2. Validity of additions made by Assessing Officer based on statement by Managing Director. 3. Applicability of Section 153A of the Income Tax Act, 1961 in the absence of incriminating material. Issue 1: Interpretation of incriminating material in income tax proceedings The case involved a dispute regarding undisclosed income routed through bogus entries of Long Term Capital Gains (LTCG) by selling shares of penny stock companies. The Revenue alleged that LTCG earned by the promoters was used for personal use. The Assessing Officer (AO) rejected the return filed by the assessee, treating the gain as unexplained credit under Section 68 of the Act. The CIT(A) upheld the addition, relying on the statement of the Managing Director. However, the ITAT set aside the addition, stating that no incriminating material was found during the search against the assessee. The ITAT relied on precedents to establish that statements alone do not constitute incriminating material without corroborative evidence. Issue 2: Validity of additions based on Managing Director's statement The AO made additions based on the statement of the Managing Director regarding the LTCG claimed as exempt income under Section 10(38) of the Act. The ITAT found that the AO's additions were solely based on the Managing Director's disclosures without any incriminating material found during the search against the assessee. The ITAT referenced judgments to support its conclusion that statements alone are not sufficient to make additions without corroborative evidence. The appellant challenged the ITAT's decision, arguing that the ITAT erred in disregarding corroborative conduct of family members in relation to the Managing Director's statement. Issue 3: Applicability of Section 153A in absence of incriminating material The ITAT's decision was based on the absence of incriminating material during the search against the assessee for the relevant assessment year. The ITAT relied on legal principles to conclude that no addition can be made under Sections 153A and 153C of the Act without incriminating material. Precedents were cited to establish that assessments pending on the date of search shall abate if no incriminating material is found. The judgment highlighted the necessity of assessments being based on seized material and not arbitrary grounds. The appeal was dismissed, affirming the ITAT's decision in favor of the assessee. This detailed analysis of the judgment addresses the interpretation of incriminating material in income tax proceedings, the validity of additions based on a Managing Director's statement, and the applicability of Section 153A in the absence of incriminating material, providing a comprehensive understanding of the legal issues involved in the case.
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