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Facts
A search under Section 132 was conducted at the premises of SRS Group. The assessee's assessment was made under Section 153A based on a search. The assessee had filed its return of income earlier and the time limit for issuing a notice under Section 143(2) had expired.
Held
The Tribunal held that for completed assessments, additions under Section 153A cannot be made in the absence of incriminating material found during the search. Statements recorded under Section 132 alone, without corroborative evidence, do not constitute incriminating material.
Key Issues
Whether additions made under Section 153A are sustainable in the absence of any incriminating material found during the search, especially when the assessment for the year was already completed.
Sections Cited
153A, 132, 143(2), 68, 142A, 132(4), 132A, 147, 148
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “E” BENCH, DELHI
The instant appeal filed by the assessee is directed against the order dated 31.01.2024 passed by the CIT(A)-3 Gurgaon, arising out of the Assessment Order dated 25.06.2021 passed by the DCIT, Central Circle-2, Faridabad under Section 153A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for Assessment Year 2015-16.
The brief fact leading to the case is this that a search under Section 132 was conducted on 06.06.2018 at the residential as well as office premises of SRS Group of case. Subsequently, assessment jurisdiction was transferred to the circle by Pr.CIT, Faridabad dated 11.03.2019. The assessee along with other two Sh. Gopal Dass Garg and Sh. Tarun Garg were also covered during search. The assessee filed its return of income for the year under consideration on 26.09.2015. Therefore, the time limit to issue notice under Section 143(2) expired on 30.09.2016. As on the date of search the assessment for the concerned assessment year has attained finality and as the time limit for adjudication under Section 132 of the Act has already expired the completed assessment could not be disturbed by invoking the provision of Section 153A of the Act in the absence of any incriminating material found/unearthed during the course of search as was the crux of the case made out by the assessee before us. However, assessment was finalized upon making addition of Rs.45,16,407/- on account of unexplained income from other sources.
3. Heard both the sides and perused the material on record. The case of other assessee namely Sh. Gopal Dass Garg was taken up in Coordinate Bench the nature of allegation wherein was exactly identical. In fact the assessment of the assessee before us was made under Section 68 of the Act on account of loan received from one M/s Rajat Fincap Private Limited by the AO computing total addition of Rs.64,50,000/- and allocating 50% each both the brothers amounting to Rs.32,25,000/- per person. Relevant to mention that the assessment order of Sh. Gopal Garg and the assessee before us the allegation whereof found to have been identical having regard to the observation made by the Ld. AO in the following manner:
“4.3.1 in respect of investment in property H. No. 887 Sector 15 Faridabad, the assessee was required to explain the source of investment in the said property of Rs. 3,74,50,000/-(land and construction). The assessee was required to explain the source of investment in purchase of the property. In response, it was submitted that for this purpose a loan was sanctioned on 26.04.2014 from PNB Housing Finance Ltd. The PNB Housing Finance Ltd has issued a Pay order No. 96803/110024050 on 28.04.2014 in favour of M/s Super Screws Pvt Ltd (seller) for Rs. 3,10,00,000.-. The necessary documents were filed, examined and contention was found correct.
Further, this property H No 887 Sector 15 Faridabad was referred for valuation u/s 142A of the Act. The DVO vide its report F. No. DVO/IT/Jaipur/T 09/1/2020-21/34 dated 15.06.2021 provided his valuation report in which property has been valued in respect of construction at Rs. 1,94,56,300/- against the value of construction declared by assessee of Rs. 1,68,98,979/-. The said valuation report and the facts were confronted to the assessee (in respect of difference in valuation of Rs. 25,57,321/-) and in response, the assessee submitted its reply which is reproduced as under:
“This is with reference to your show cause notice regarding difference in cost of construction in valuation report and Fair Market Value of Plot No. 887 and 888, Sector - 15, Faridabad. We hereby submit that assesee has jointly own the property bearing address Plot No. 888, Sector - 15, Faridabad with Sh. Mohan Garg having his 50% share in this property.”
Sir, the total cost of Total Total Difference construction in expenditure estimated by House No. 887 and declared by the Valuation Cell 888 jointly done by assessee Sh. Mohan Garg and Sh. Gopal Garg. The yearwise incurred on construction of these house is as under: Financial Year 2014-15 3,275,000.00 3,770,600.00 495,600.00 2015-16 4,750,000.00 5,468,800.00 718,800.00 2016-17 2,104,841.00 2,423,400.00 318,559.00 2017-18 976,694.00 1,124,500.00 147,806.00 2018-19 5,792,444.00 6,669,000.00 876,556.00 Total 16,898,979.00 19,456,300.00 2,557,321.00 Therefore, there is a small difference of Rs 2,557,321/- in the cost of construction as per assessee and estimated by the DVO.
Sir, the valuation made by the DVO is only an estimated cost of construction and difference between estimation (according to DVO report) is only Rs.25,57,321/- and marginal difference which is acceptable. The report is only an estimation and variation is bound to there for various reason/ factor as held by various judicial authorities. Sir, during the course of search there is no incriminating documents/ paper/ material were found or seized which shows that there is a unexplained or excess expenditure incurred by the assessee in construction of the house.
Apart from the above consideration, the question of valuation of expenses is the subject of binding decisions of this court. The Supreme Court had, in Smt. Amiya Bala Paul v. CIT (2003) 262 ITR 407 (of course dealing with powers of the AO to refer the question of valuation, pre-Section 142-A, but in the context of the then prevailing Section 55-A and Section 142 (2)) held that no addition could be made by the AO, exclusively relying upon the value arrived at by the DVO. It was held that:
11. The common feature of Sections 133(6) and 142(2) is that the Assessing Officer is the fact-finding authority. it is his opinion on the basis of the facts as found on an enquiry conducted by himself which results in the assessment order. A report by the Valuation Officer under Section 55A is on the other hand the outcome of an inquiry held by the Valuation Officer himself and reflects his opinion on the evidence before him. Such a report would not be the result of an inquiry by the Assessing Officer under the provisions of Section 133(6) or Section 142(2), It is true that the Assessing Officer is not bound by strict rules of evidence and a report of a Valuation Officer under Section 55A may be considered by the Assessing Officer as a piece of evidence if it is relevant, (See CIT v. East Commercial Co. Ltd. 1967 LXIII /TR 449, 457). However, the power of inquiry granted to an Assessing Officer under Sections 133(6) and 142(2) does not include the power to refer the matter to the Valuation Officer for an enquiry by him.
Therefore, addition in respect of variation in valuation in between cost of construction of building as indicated by the DVO is not significant and no addition is required against this proposed addition on account of the difference between the cost of construction declared by the assessee and DVO.
On perusal of the reply filed by the assessee, it was noticed that the assessee has received Rs. 40,00,000/- from M/s Rajat Fincap Pvt Ltd: M/s Rajat Fincap has been established a paper company during investigation proceedings in the case of M/s SRS Group, The assessee was confronted with this fact and response was sought in this regard.
Further, the assessee has made payment of Rs. 24,50,000/- on account of stamp for which Rs. 9,00,000/- was received from M/s Rajat Fincap Pvt Ltd (apart from Rs. 40,00,000/-). On perusal of bank account statement of the assessee, it has been observed that bank account was credited by Rs. 9,00,000/- on 25.04.2014 from M/s. Rajat Fincap Private Limited and same was withdrawn as cash from bank account which was used for stamp duty payment.
Therefore, the assessee was required to prove the creditworthiness of M/s Rajat Fincap Pvt Ltd. In response, the assessee furnished its reply but it was not found satisfactory. The replies of the assessee were considered and it is observed that the assessee has not discharged its onus. The creditworthiness of M/s Rajat Fincap Pvt Ltd was not proved by the assessee and therefore, the reply of the assessee is not acceptable on the basis of following facts and grounds:
The search action was initiated on SRS Group on 06.06.2018 and finally concluded on 02.08.2018. During the course of pre-search, search and post-search investigation proceedings, it came to notice that SRS Group accepted huge cash from public and has earned huge unaccounted income in last 6-7 years and the same have been routed back in the companies/concerns of the group in form of capital and loan from shell entities. After depositing the cash, funds were transferred by layering of funds to SRS Limited or other sister concerns. During the course of enquiries by the Investigation wing, following 71 shell concerns were identified to be used by the SRS group to route its funds. M/s Rajat Fincap Pvt. Ltd. has also been established a shell/paper entity during investigation proceedings.
Sr. No. Company Name 1. Aakash Infratrade Pvt. Ltd.
2. Achievers Bullions & Jewellers Pvt. Ltd.
Ahead Enterprises Ltd Ahead Enterprises Ltd. (Build. Mat) 4. Akarshan Multitrade Private Limited 5. Akriti Global Traders Limited 6. Anila Financiars Private Limited 7. Auspicious Real Esate Pvt. Ltd.
Bhavya Forex Dealers Private Limited 11. C M T Read Estate Private Limited CMT Real Estate Private Limited (share App. Ac) 12 Celebration Jewellers Pvt. Ltd. Celebration Jewellers Share Application 13. Decent Tradecom Pvt. Ltd.
Diazo Industries Limited 17. Distinct Projects Private Limited
Diwakar Sales Agencies Private Limited 19. Exclusive Agencies Ltd. 20. Fayda Portfolio Private Limited 21. Frontier Commercial Company Ltd. 22. Futuristic Agencies Ltd. 23. Geetikalspat India Private Limited 24. Gharana Real Estate Pvt. Ltd. 25. Goldfelld Sales Agencies Ltd. 26. Goldies Trading Company Pvt. Ltd. 27. Goodluck Ornaments Pvt. Ltd. 28. Goodluck Tradecom Pvt. Ltd. 29 Haryana Facilities Services (P) Ltd. 30 High Spirits Sales Agencies Private ltd. 31 Jagriti Tradecon Pvt. Ld. 32 Jma build Well Private Limited 33 Jma Buildcon Limited 34 Jyotirmay Housing Pvt. Ltd. 35 K K R Real Esate Private Ltd. 36 KM Realtech Limited 37 Kushagra Sales Agencies Pvt. Ltd. 38 Logical Jewellers Private Limited 39 Logical Sales Agencies Pvt. Ltd. 40 Lucra Jewels Private Ltd. 41 Madhav Bullions And Jewelers Pvt. Ltd. 42 Mass Securities Pvt. Ltd. 43 Midway Tradecon Pvt. Ltd. 44 MK Realtrade Pvt. Ltd. 45 MSR Marketing Ltd. 46 NKR Infrastructure Pvt. Ltd. 47 Prayas Tracon Ltd. 48 Rajat Fincap Private Limited 49 Richi Look Markeing 50 Rudraksha Agencies Co. Ltd. 51 Satmaya Trading Co. Ltd. 52 Satyam Precious Metals Private Limited
53 Saubhagya Ornaments Private Limited 54 Shree Ashtvinayak Gems And Stones Pvt. Ltd. 55 Shristi Tracon Pvt. Ltd. 56 SRS Banquets & Resorts Ld. 57 SRS Builwell Industries 58 Stunning Suppliers and Traders Pvt. Ltd. 59 Sucon India Limited 60 Swami Hitech Projects Limited 61 Swami Sweets and Namkeens Pvt. Ltd. 62 Three Brothers Entertainment Ltd. 63 Top line Traders Ld. 64 Topchoice Computech Limited 65 Trustworthy Gems and Jewellery Pvt. Ltd. 66 Trustworthy Sales Agencies Pvt. Ltd. 67 Upfront Trading Co. Ltd. 68 Upright Enterprises ltd. 69 Vardan Sales Agencies Pvt. Ltd. 70 Vision Jewellers Private Limited 71 Wellknown Jewellers Private Limited
The case of the other assessee namely Sh. Gopal Garg was taken up by the Hon’ble Tribunal and the following observations were made on the identical facts:
“6. We have heard both the parties and perused the material available on record. In the present case, original return was filed on 26/09/2015 for Assessment Year 2015-16 and the time limit to issue the notice u/s 143(2) of the Act has already been expired therefore the assessment year under consideration being completed, assessment could not be disturbed in the assessment made u/s 153A of the Act in the absence of any incriminating material found during the course of the search. As could be seen from the order of the Ld. CIT(A), the Ld. CIT(A) at Paragraph 4.5 observed that the addition of Rs. 49 lakhs, (50% in the hands of the appellant) made on account of statement of Rajesh Mangla recorded u/s 132(4) of the Act recorded during the search proceedings in the case of SRS Ltd. The Ld. CIT(A) treating the said statement as incriminating material unearthed during the course of the search proceedings accordingly upheld the certain additions made by the A.O. It is now well settled law that statement recorded u/s 132 of the Act does not constitute incriminating material in the absence of any other corroborative evidence as held in following judicial pronouncements:
• “PCIT vs. Best Infrastructure Pvt. Ltd., 397 ITR 82 (Delhi) affirmed by the Hon'ble Supreme Court in the case of Pr. Commissioner of Income Tax 2 Delhi Versus M/S Best Infrastructure (India) Pvt. Ltd. 2018 (6) TMI 971 - SC ORDER, Dated: 14-5-2018
• CIT vs. Harjeev Aggarwal, 2016 (3) TMI 329 - DELHI HIGH COURT, Dated: - 10-3-2016
• PCIT (Central) - 3 Versus Anand Kumar Jain (HUF), SatishDev Jain, Sajan Kumar Jain, 2021 (3) TMI 8 – DELHIHIGH COURT, Dated: 12-2- 2021
• Principal Commissioner of Income Tax (Central) -3 Versus PavitraRealcon Pvt. Ltd.DesignInfracon Pvt. Ltd., And Delicate Realtors Pvt. Ltd., 2024 (5) TMI 1408 - DELHI HIGH COURT, Dated: - 29-5-2024
• Principal Commissioner of Income Tax, Delhi-20 Versus Ms. Suman Agarwal, 2023 (2) TMI 1116 - DELHI HIGH COURT, Dated: - 28-7-2022.
7. Further the Hon'ble Supreme Court in the case of Abhisar Buildwell Pvt. Ltd. (supra) held that addition cannot be made in the absence of any incriminating material found during the course of search. The relevant portion of the Judgment of Hon'ble Supreme Court are reproduced as under:-
“14. In view of the above and for the reasons stated above, it is concluded as under: iv) In case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfillment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved."
By respectfully following the ratio laid down by the Hon'ble Supreme Court in the case of Abhisar Buildwell (supra), considering the fact that no incriminating materials/documents or any other evidence was found or seized during the course of search proceedings which resulted in additions against the Assessee, we find merit in Ground No. 3 of the appeal of the Assessee. Accordingly, we quash the assessment order and the order of the Ld. CIT(A). Since, we have allowed the Ground No. 3 and quash the assessment, other Grounds of appeal
requires no adjudication.
9. In the result, appeal of the Assessee is partly allowed.”
5. Mainly case of the assessee is this that since no material/documents or any evidence was found or seized during the course of search addition under Section 153A of the Act is not sustainable in the eyes of law. In this regard reliance is placed on the judgment passed by the Hon’ble Apex Court in the case of PCIT Vs. Abhishar Buildwell, reported in (2023) 454 ITR 212 (SC). Apart from that the Ld. AO relied upon the judgment passed by the Hon’ble Delhi High Court in the case of CIT Vs. Kabul Chawla, reported in (2015) SCC OnLine Del 11555. Apart from that the Ld. Senior Counsel Mr. Ved Jain appearing for the assessee relied upon the judgments passed in the following cases:
• PCIT vs. Best Infrastructure Pvt. Ltd., 397 ITR 82 (Delhi) affirmed by the Hon'ble Supreme Court in the case of Pr. Commissioner of Income Tax 2 Delhi Versus M/S Best Infrastructure (India) Pvt. Ltd. 2018 (6) TMI 971 - SC ORDER, Dated: - 14-5-2018 • CIT vs. Harjeev Aggarwal, 2016 (3) TMI 329 - DELHI HIGH COURT, Dated: - 10-3-2016 • PCIT (Central) - 3 Versus Anand Kumar Jain (HUF), Satish Dev Jain, Sajan Kumar Jain, 2021 (3) TMI 8 - DELHI HIGH COURT, Dated: - 12-2- 2021 • Principal Commissioner of Income Tax (Central) -3 Versus Pavitra Realcon Pvt. Ltd.Design Infracon Pvt. Ltd., And Delicate Realtors Pvt. Ltd., 2024 (5) TMI 1408 - DELHI HIGH COURT, Dated: - 29-5-2024 • Principal Commissioner of Income Tax, Delhi-20 Versus Ms. Suman Agarwal, 2023 (2) TMI 1116 - DELHI HIGH COURT, Dated: - 28-7-2022
The statement recorded under Section 132 as relied upon by the Ld. AO does not constitute incriminating material in the absence of any other corroborative evidence as also submitted by him. Judgments relied upon also laid down that the statement recorded during the course of search alone cannot be regarded as incriminating unless supported by corroborative evidence substantiating the same. So far as the addition made by the Ld. AO under Section 153A is concerned in the absence of any incriminating material referred by the Ld. AO the same is not found to be sustainable in the eyes of law keeping in view the judgment passed by the Hon’ble Apex Court in the case of Abhisar Buildwell (supra). Further that we have already observed that the statement in the absence of corroborative evidence cannot be said to be incriminating in nature, the entire assessment in the case in hand without having support of any incriminating material unearthed during the course of search is found to be unsustainable in the eyes of law and thus, the consequent addition made by the Ld. AO is found to be bad in law and deleted.
The appeal of the assessee is allowed.