2021 (3) TMI 8 - HC - Income Tax

Assessment u/s 153A - Bogus LTCG - statement recorded in search action against a third person - whether a statement under Section 132(4) constitutes incriminating material for carrying out assessment under S. 153(A) ? - ITAT deleted the addition - HELD THAT - A reading of the impugned order reveals that the statement of Mr. Jindal recorded under Section 132(4) forms the foundation of the assessment carried out under Section 153A of the Act. That statement alone cannot justify the additions made by the AO. Even if we accept the argument of the Revenue that the failure to cross-examine the witness did not prejudice the assessee, yet, we discern from the record that apart from the statement of Mr. Jindal, Revenue has failed to produce any corroborative material to justify the additions. On the contrary we also note that during the course of the search, in the statement made by the assessee, he denied having known Mr. Jindal. Since there was insufficient material to support the additions, the ITAT deleted the same. This finding of fact, based on evidence calls for no interference, as we cannot re-appreciate evidence while exercising jurisdiction under section 260A AO has used this statement on oath recorded in the course of search conducted in the case of a third party (i.e., search of Pradeep Kumar Jindal) for making the additions in the hands of the assessee. As per the mandate of Section 153C, if this statement was to be construed as an incriminating material belonging to or pertaining to a person other than person searched (as referred to in Section 153A), then the only legal recourse available to the department was to proceed in terms of Section 153C of the Act by handing over the same to the AO who has jurisdiction over such person. Here, the assessment has been framed under section 153A on the basis of alleged incriminating material (being the statement recorded under 132(4) of the Act). As noted above, the Assessee had no opportunity to cross-examine the said witness, but that apart, the mandatory procedure under section 153C has not been followed. No perversity in the view taken by the ITAT. - Decided in favour of assessee.

Summary

Issues Involved:
1. Justification of ITAT in deleting additions based on bogus long-term capital gain.
2. Validity of failure to provide cross-examination of the entry operator.
3. Applicability of Section 153A based on the search and statement under Section 132(4).
4. Requirement of incriminating material for assessment under Section 153A.
5. Legal recourse under Section 153C for using statements from a third-party search.

Issue-wise Detailed Analysis:

1. Justification of ITAT in deleting additions based on bogus long-term capital gain:
The Revenue challenged the ITAT's decision to delete the additions made on account of bogus long-term capital gain. The ITAT held that the evidences found during the search at the premises of the entry provider cannot be the sole basis for making additions in the assessment completed under Section 153A in the case of the beneficiary. The ITAT emphasized that no incriminating material was found at the Assessee's premises during the search, and the statement of Pradeep Kumar Jindal recorded under Section 132(4) was not confronted with the Assessee. The High Court upheld this view, noting that the statement alone without corroborative evidence cannot justify the additions.

2. Validity of failure to provide cross-examination of the entry operator:
The Revenue argued that the ITAT erred in setting aside the assessment order on the ground that no right of cross-examining Pradeep Kumar Jindal was afforded to the Assessee. The High Court observed that the Assessee was not provided with the statement of Pradeep Kumar Jindal, nor was given the opportunity to cross-examine him. The Court cited that the failure to provide cross-examination, combined with the lack of corroborative material, rendered the additions unjustifiable.

3. Applicability of Section 153A based on the search and statement under Section 132(4):
The Revenue contended that the ITAT wrongly held that the Assessee’s premises were not searched and thus notice under Section 153A could not have been issued. The High Court clarified that the assessment under Section 153A requires incriminating material found during the search. The statement of Mr. Jindal recorded under Section 132(4) alone does not constitute sufficient incriminating material to justify the assessment under Section 153A.

4. Requirement of incriminating material for assessment under Section 153A:
The High Court reiterated the legal position that the existence of incriminating material found during the search is a sine qua non for making additions pursuant to a search and seizure operation. The Court referred to the case of CIT v. Kabul Chawla and other precedents, emphasizing that statements recorded under Section 132(4) do not by themselves constitute incriminating material. The Court held that the statement of Mr. Jindal, without any corroborative evidence, cannot be the sole basis for making additions under Section 153A.

5. Legal recourse under Section 153C for using statements from a third-party search:
The High Court noted that the AO used the statement recorded during the search of a third party (Pradeep Kumar Jindal) for making additions in the hands of the Assessee. The Court highlighted that if the statement was to be construed as incriminating material, the proper legal recourse would have been to proceed under Section 153C by handing over the material to the AO having jurisdiction over the Assessee. The failure to follow this mandatory procedure under Section 153C rendered the assessment under Section 153A invalid.

Conclusion:
The High Court dismissed the appeals, finding no substantial question of law that required consideration. The Court upheld the ITAT’s decision, emphasizing the necessity of incriminating material for assessments under Section 153A and the procedural requirements under Section 153C for using third-party statements. The appeals and all pending applications were dismissed.