2019 (1) TMI 697 - AT - Income Tax

Assessment u/s 153A - addition u/s 68 - statement recorded in search - surrender was made under pressure which was immediately retracted - Held that - No incriminating material has been found as a result of search. In so far as the statement of Shri. I.C. Jindal is concerned, it is submitted that such statement is not incriminating qua the assessee and in any case, such statement was recorded under duress and same has also been retracted immediately after the search, as such, such statement cannot be made the basis of making the addition. The statements recorded would certainly constitute information and if such information is relatable to the evidence or material found during search, the same could certainly be used in evidence in any proceedings under the Act as expressly mandated by virtue of the explanation to Section 132(4) of the Act. However, such statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the AO to make a block assessment merely because any admission was made by the Assessee during search operation. Further in respect of the Mr. Assem Kumar Gupta, as has been submitted hereinabove, in his statement there is no allegation whatsoever qua the assessee and further his statement is factually incorrect and also his statement was also recorded in the forced circumstances and lastly despite the specific requested he has not been confronted for the cross examination. In fact, on the basis of the independent enquiry conducted by the learned AO, aforesaid broker has confirmed the factum of sale and purchase of the shares, in such circumstances, the statement of Shri. Aseem Kumar Gupta is of no much credence, more so when he has also not been confronted for the cross examination of the assessee, despite specific request. It is settled law that where addition of undisclosed income was made on basis of mere statement under section 132(4) which was not corroborated by any material evidence, neither such statement would be a conclusive evidence, nor any addition could be made. In the instant case, since the surrender was made under pressure which was immediately retracted, and except the aforesaid, no adverse material has been found from the premises of the appellant, as such, such statement cannot be made the basis for the assessment. - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction and validity of assessment orders under section 153A/143(3) of the Income-tax Act.
2. Legality of the search operation under section 132 without a separate search warrant.
3. Violation of principles of natural justice by the Assessing Officer.
4. Addition of unexplained cash credit under section 68 of the Income-tax Act.
5. Interest charged under sections 234A and 234B of the Income-tax Act.
6. Disallowance of set off of short-term capital loss against gains.
7. Addition on account of deemed dividend under section 2(22)(e) of the Income-tax Act.

Detailed Analysis:

1. Jurisdiction and Validity of Assessment Orders:
The assessee challenged the jurisdiction of the Assessing Officer (A.O.) in passing orders under section 153A/143(3) despite no undisclosed income or materials found during the search. The Tribunal observed that the A.O. is mandated to issue notice under section 153A once a search is conducted, requiring the assessee to file returns for six preceding assessment years. However, the Tribunal emphasized that the assessment under section 153A should be based on incriminating material found during the search. Since no such material was found, the Tribunal held that the addition made under section 153A was unsustainable.

2. Legality of Search Operation:
The assessee contended that the search operation under section 132 was illegal due to the absence of a separate search warrant. The Tribunal did not find merit in this argument, as the search was conducted under the authority of law, and the procedural aspects were duly followed.

3. Violation of Principles of Natural Justice:
The assessee argued that the A.O. violated the principles of natural justice by not providing adequate opportunity to respond and by not issuing a show-cause notice regarding the additions. The Tribunal found that the A.O. had not given the assessee sufficient opportunity to cross-examine witnesses or respond to the allegations, thereby violating natural justice principles.

4. Addition of Unexplained Cash Credit:
The A.O. made additions under section 68, treating long-term capital gains on the sale of shares as unexplained cash credits. The Tribunal noted that the assessee provided substantial documentary evidence, including Demat account statements, purchase and sale bills, and proof of payment of Security Transaction Tax (STT). The A.O. relied on the statements of third parties and adverse findings against the broker without allowing cross-examination. The Tribunal held that the addition was not justified as it was based on uncorroborated statements and without considering the evidence provided by the assessee.

5. Interest Charged Under Sections 234A and 234B:
The Tribunal did not specifically address the interest charged under sections 234A and 234B, as the primary focus was on the validity of the additions under section 68 and the overall assessment process.

6. Disallowance of Set Off of Short-Term Capital Loss:
For the assessment year 2007-08, the A.O. disallowed the set-off of short-term capital loss against gains, considering the transactions as colorable devices. The Tribunal found that the assessee had provided complete documentary evidence for the transactions, and merely because the transactions were with a sister concern did not justify the disallowance. The Tribunal directed the deletion of the disallowance.

7. Addition on Account of Deemed Dividend:
The A.O. added an amount as deemed dividend under section 2(22)(e), treating it as an advance for the purchase of a manufacturing unit. The Tribunal held that the amount was indeed an advance for a commercial transaction and not a loan or advance as contemplated under section 2(22)(e). The Tribunal directed the deletion of the addition.

Conclusion:
The Tribunal allowed the appeals of the assessee, quashing the additions made by the A.O. under section 153A/143(3) due to the absence of incriminating material found during the search and violations of natural justice principles. The Tribunal emphasized the need for corroborative evidence to support additions and upheld the assessee's documentary evidence as sufficient.

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