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Facts
The assessee filed a return of loss for AY 2011-12. A search action was conducted, leading to a notice under Section 153A. The AO made an addition of Rs. 35,00,000/- on account of alleged bogus share capital, relying solely on a statement of a third party, Sh. Anil Aggarwal, recorded during his search.
Held
The Tribunal held that the assessment order was illegal as the addition was made solely on the basis of a third-party statement without corroborative material or compliance with Section 153C. The assessee was not given an opportunity to cross-examine the witness.
Key Issues
Whether an addition under Section 153A can be made solely on the basis of a third-party statement without corroboration and adherence to Section 153C.
Sections Cited
153A, 143(3), 68, 132(4), 153C, 143(1), 132
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCHES: C : NEW DELHI
Before: SHRI S. RIFAUR RAHMAN & SHRI ANUBHAV SHARMA
ORDER
PER ANUBHAV SHARMA, JM:
This appeal is preferred by the assessee against the order dated 28.09.2016 of the Commissioner of Income-tax (Appeals)-24, New Delhi (hereinafter referred to as the Ld. First Appellate Authority or ‘the Ld. FAA’, for short) in Appeal No.141/15-16 arising out of the appeal before it against the order dated 30.03.2015 passed u/s 153A r.w.s. 143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the DCIT, Central Circle-08, New Delhi (hereinafter referred to as the Ld. AO).
Heard and perused the records. Ld. AR has argued on the additional grounds and same are reproduced below:- “1. That the assessment order dated 30.03.2015 passed u/s 153A(1) r.w.s 143(3) of the Income Tax Act, 1961 (“the Act”) by the Assessing Officer (“A.O.”) and the additions made therein are illegal, bad in law and without jurisdiction and the same are liable to be deleted. The said order passed and the addition made thereunder is illegal and without the mandate of law. 2. That the assessment order dated 30.03.2015 passed u/s 153A(1) r.w.s 143(3) of the Act and the addition made thereunder is illegal as no addition could be made on the facts of the present case.
That in view of the facts and circumstances of the case, and in law, the approval under section 153D of the Act is mechanical and without any application of mind and is not a valid approval. Thus, the impugned assessment order is illegal, bad in law, and liable to be quashed.”
3. The necessary facts are, assessee filed its return of income for A.Y. 2011- 12, declaring a loss of Rs. 70,389/- on 27.09.2011, which was processed under Section 143(1) of the Act. A search and seizure action under Section 132 of the Act was conducted on the K-World Group of Cases on 05.04.2012, including the Assessee. Thereafter, a notice dated 09.07.2014 was issued under Section 153A of the Act to the Assessee, in response to the same Assessee filed its return of income on 24.11.2024. The Assessing Officer (‘AO’) completed the assessment vide order dated 30.03.2015 passed under Section 153A r.w.s. 143(3) of the Act by making a sole addition of Rs. 35,00,000/- on account of the alleged bogus share capital received from M/s Ankay Associates Pvt. Ltd. , 2 which was allegedly controlled by Sh. Anil Aggarwal who was in business of providing accommodation entry. under Section 68 of the Act. The AO made such an addition on the basis of a statement of Sh. Anil Aggarwal recorded under Section 132(4) of the Act during the course of his search.
Ld. AR has submitted that the addition is made by solely placing reliance on the statement of a third party recorded during the search on the third party. The statement was never provided/confronted to the Assessee by the AO.Ld. AR relied decision in ‘PCIT, Circle 3 Vs. Anand Kumar Jain (HUF) judgement dated 12.02.2021 by the Hon’ble jurisdictional High Court to contend that statement of another person cannot be considered incriminating material without corroboration. The relevant extract is reproduced as below: “7. The preliminary question under consideration before us is whether a statement under Section 132(4) constitutes incriminating material for carrying out assessment under S. 153(A) of the Act. 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. ….. while exercising jurisdiction under section 260A of the Act.
Next, we find that, the assessment has been framed under section 153A, consequent to the search action. The scope and ambit of section 153A is well defined. This court, in CIT v. Kabul Chawla, 1 concerning the scope of assessment under Section 153A, has laid out and summarized the legal position after taking into account the earlier decisions of this court as well as the decisions of other High Courts and Tribunals. In the said case, it was held that the existence of incriminating material found during the course of the search is a sine qua non for making additions pursuant to a search and seizure operation. In the event no incriminating material is found during search, no addition could be made in respect of the assessments that had 3
become final. Revenue’s case is hinged on the statement of Mr. Jindal, which according to them is the incriminating material discovered during the search action. This statement certainly has the evidentiary value and relevance as contemplated under the explanation to section 132(4) of the Act. However, this statement cannot, on a standalone basis, without reference to any other material discovered during search and seizure operations, empower the AO to frame the block assessment 5. Reliance was also placed in the case ‘PCIT v. Best Infrastructure (India) Pvt. Ltd., order dated 01.08.2017 passed by Hon’ble Jurisdictional High Court. Relevant extract of the same is reproduced as below: “38. Fifthly, statements recorded under Section 132 (4) of the Act of the Act do not by themselves constitute incriminating material as has been explained by this Court in Commissioner of Income Tax v. Harjeev Aggarwal (supra)….”
Further ld. AR submitted that in the instant case the Ld. AO had not made the alleged addition on the basis of any incriminating material or any material found during the course of the search on the Assessee by proceeding under Section 153A of the Act. As the AO has proceeded to use the statement recorded during the search on a third party, the statement if at all, could have been used against the Assessee only under Section 153C of the Act. Reliance was placed in the case of Anand Kumar Jain (HUF (supra). The relevant extract is reproduced as below: 10. Now, coming to the aspect viz the invocation of section 153A on the basis of the statement recorded in search action against a third person. We may note that the 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 4
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. On this count alone, we find no perversity in the view taken by the ITAT. Therefore, we do not find any substantial question of law that requires our consideration.”
Ld. DR has submitted that case of Anand Kumar Jain (supra) pertained to abated year of assessment. It was submitted that statement of specific fact constitutes incriminating material and all conditions of section 68 of the Act were satisfied.
8. On admitted facts it comes up that the case of revenue is that as per the statement of Sh. Anil Kumar Jain, accommodation entries were provided to Rockland Group. There is no specific reference of assessee. There is no material to show that assessee is in any connected to Rockland Group or its directors. No material is mentioned in impugned orders to show that any document or any information from the financials showed of assessee or M/s Ankay Associates Pvt. Ltd. indicate that share capital was received from some tainted sources. Reliance of statement alone of Sh. Anil Kumar Jain, is thus not legal. In any case the assessment has been completed in the hands of assessee u/s 153A r.w 143(3) of the Act. The search in case of assessee was conducted on 5.4.2012. Search in case of Sh. Anil Kumar was conducted and statement recorded on 21.10.2021. Thus if statement of Sh. Anil Kumar was to be relied as incriminating material then assessee happened to be ‘other person’, and 5 assessment should have been completed by proceeding u/s 153C of the Act. The decisions relied in case of Anand Kumar Jain case (supra), squarely apply to the case of assessee. The additional grounds are sustained. The appeal is allowed. The impugned assessment is quashed.