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Facts
The assessee purchased shares of private companies. The AO made an addition under Section 56(2)(viia) of the Act for Rs. 7,85,55,233/- based on the fair value of shares, despite the assessee providing confirmation letters but not share transfer forms or proof of stamp duty payment. The CIT(A) admitted additional evidence and deleted the addition, finding that no incriminating material was found during the search.
Held
The Tribunal held that the assessment orders framed under Section 153A of the Act were devoid of any incriminating material found/seized during the search. Relying on judicial precedents, it was held that additions cannot be made merely on the basis of statements recorded during a search without corroborative material, especially for unabated assessment years where no incriminating material was found.
Key Issues
Whether the additions made under Section 56(2)(viia) were justified in the absence of incriminating material found during search, and if assessment proceedings under Section 153A are permissible without such material for unabated years.
Sections Cited
143(3), 263, 148, 147, 56(2)(viia), 11UA, 153A, 132, 132A, 153C, 143(2), 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI NARENDRA KUMAR BILLAIYA, HON’BLE & SHRI SANDEEP SINGH KARHAIL, HON’BLE
Assessee by : Shri Dhaval Shah, A/R Revenue by : Shri Rajesh Kumar Yadav, CIT, D/R सुनवाई की तारीख/Date of Hearing : 08/07/2025 घोषणा की तारीख /Date of Pronouncement: 09/07/2025 आदेश/O R D E R PER NARENDRA KUMAR BILLAIYA, AM: C.O. No. 55/Mum/2025 are appeal by the revenue and cross-objections by the assessee preferred against the very same order of the ld. CIT(A) - 50, Mumbai, dated 25/11/2024 pertaining to AY 2011-12. 2. The grievance of the revenue reads as under:-
“1. On the facts and circumstances of the case and in law, whether the Ld. CITA) is justified in admitting the additional ground raised by the assessee during the appellate proceedings."
2. On the facts and circumstances of the case and in law, whether the Ld. CIT(A) is justified in disregarding the Rule 46A(1) of the Income-tax Rules as the assessee was not entitled to produce any evidence, whether oral or documentary, before the Ld. CIT(A) other than the evidence produced during the proceedings before the Assessing Officer except the circumstances mentioned in the aforesaid rule."
3. On the facts and circumstances of the case and in law, whether Ld. CIT(A) is justified in allowing the appeal of the assessee on the basis of additional evidences filed during appellate proceedings by disregarding the fact that ample opportunities were provided during assessment proceedings.
4. On the facts and circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the addition made by the Assessing Officer under section 56(2)(vii)(a) of the Act amounting to Rs. 7,85,55,233/-, considering that the assessee had submitted only confirmation letter regarding the transfer of shares but failed to provide the share transfer form and proof of payment of stamp duty. In the absence of the share transfer form and proof of payment, how did the Ld. CIT(A) determine that the shares were purchased prior to the applicability of section 56(2) read with section 1IUA of the Act."
5. On the facts and circumstances of the case and in law, whether the Id. CIT(A) erred in not considering that the assessee had not fully and truly disclosed the necessary facts during both the assessment proceedings and the appellate proceedings for the year under consideration."
6. The appellant craves leave to add to, alter, amend, modify and / or delete any or all of the above said grounds of appeal the appellant reserves its right to file further submissions in the appeal.”
Briefly stated the facts of the case are that the original assessment order u/s 143(3) of the Act was passed on 23/01/2014 determining the total income at Rs. 2,73,340/-. Thereafter, the assessment order was subject to the proceedings u/s 263 of the Act and pursuant to the 263 order, assessment order u/s 143(3) r.w.s. 263 of the Act was passed on 30/12/2016 determining total income at Rs. 5,00,29,010/-. This order was quashed by the Co-ordinate Bench vide order dated 04/08/2017. C.O. No. 55/Mum/2025 3
Subsequently, the assessment was reopened u/s 148 of the Act and the assessment order u/s 147 r.w.s. 143(3) of the Act was passed on 26/12/2018 determining the total income at Rs. 21,16,400/-. A search and seizure action was conducted on 22/03/2018 by DDIT (Inv.) Wing, Unit - 6(1), Mumbai in the case of Aachman Group and other related entities. The case of the assessee company was covered under the search and seizure action on 22/03/2018. Consequent to the search action, statutory notices were issued and served upon the assessee pursuant to which the assessee filed its return of income. During the course of search and seizure action, it was seen that the assessee has purchased the shares of few private companies and the assessee was asked to furnish the details of fair value of shares purchased for the purpose of Section 56(2)(viia) r.w.r 11UA. The assessee furnished the necessary details but the submissions of the assessee did not find any favour with the AO who completed the assessment proceedings by making addition of Rs. 7,85,55,233/-. 4.1. The assessee challenged the assessment before the ld. CIT(A) questioning the additions made u/s 56(2)(viia) of the Act at Rs. 7,85,55,233/- and by way of an additional ground, questioned the legality of the assessment order passed u/s 153A r.w.s. 143(3) of the Act as there was no pending assessment proceedings as on the date of search action and there is no nexus between the addition made to the returned income to that of incriminating material found/seized. After considering the submissions and the facts emanating from the records, the ld. CIT(A) admitted the additional evidence by giving a categorical finding that the assessee was prevented by reasonable cause from producing these documents before the OA and on analysis of the evidence, the ld. CIT(A) found that the impugned shares have been received by the assessee before 01/06/2010 which has been confirmed by the AO in his report. Therefore, the provisions of Section 56(2)(viia) of the Act are not applicable. Addressing the additional ground, the ld. CIT(A) observed that no incriminating material regarding the purchase of shares by the assessee was found during the course of search and there is no documentary evidence found during the search which indicate that the assessee has paid in cash for acquiring these shares below the fair-market price and deleted the addition.
We have given a thoughtful consideration to the orders of the authorities below qua the grounds of appeal taken by the revenue. We find that on identical set of facts, in assessee’s own case, the Co-ordinate Bench in to 827/Mum/2025 & C.O. No. 69 to 72/Mum/2025 for Assessment Years 2012-13 to 2015-16, has considered a similar grievance and held as under:- “7.2. The report of the AO highlights the statement recorded in the course of search on Janil Shah Group basis which, the AO contended that these statements are to be considered as incriminating material found during the course of search. In his report, the AO referred to various statements recorded during the course of search at Janil Shah Group. After considering the remand report, the ld. CIT(A) was of the opinion that the AO has not discussed any findings of the searched or incriminating material found during the course of search. The ld. CIT(A) further observed that there is nothing adverse in the statement recorded during the course of search which can be considered as an incriminating material. The ld. CIT(A) concluded by holding that the additions made u/s 56(2)(vii) of the Act is not based on any search findings and in respect of other additions, the ld. CIT(A) took a similar view that the additions made by the AO are not based on any incriminating material found during the course of search conducted on the assessee. The ld. CIT(A) further observed that the assessment orders are not passed u/s 153C of the Act or u/s 148 of the Act. As per the observation of the ld. CIT(A) at para 21 of his order, it is clear that the impugned assessment orders framed u/s 153A of the Act are devoid of any incriminating material found/seized during the course of search conducted in the assessee’s own case. Drawing support from various judicial decisions, the ld. CIT(A) concluded by holding that the revenue has to follow the procedure laid down under the provisions of Section 153C of the Act in a situation where the documents were found from premises of a third party irrespective of the fact that the third party was also subjected to search. The ld. CIT(A) ultimately held that all the impugned additions/disallowances made in the assessment order passed u/s 143(3) r.w.s. 153A of the Act, has to be deleted. Basis the findings given in AY 2012-13, the ld. CIT(A) deleted the addtions made in AY 2013-14, 2014-15 & 2015-16.
Before us it has been strongly contended by the ld. D/R, that it is not necessary that the incriminating material should be found and seized from the premises of the searched person i.e., the assessee. The ld. D/R strongly relied upon the findings of the AO.
The undisputed fact is that, there is no incriminating material found and seized from the premises of the assessee to trigger the proceedings u/s 153A of the Act in respect of unabated years covered in the block period. Assessment for AY 2012-13 was completed on 30/09/2014, for AY 2013-14 on 31/03/2016, AY 2014-15 on 22/11/2016 and AY 2015-16, the time limit to issue notice u/s 143(2) of the Act expired on 30/09/2016 and no assessment proceedings were initiated u/s 143(3) of the Act. Thus, it is clear that the assessment years are unabated and, therefore, the ratio laid down by the Hon’ble Supreme Court in the case of Abhisar Buildwell Pvt. Ltd. [454 ITR 212] squarely applies, wherein the Hon’ble Supreme Court has held as under:- “On a plain reading of section 153A of the Income-tax Act, 1961, it is evident that once a search or requisition is made, a mandate is cast upon the Assessing Officer to issue notice under section 153 of the Act to the person, requiring him to furnish the return of income in respect of each assessment year falling within the six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made, and assess or reassess it. According to the provisions of section 153A, in a case of search under section 132 or requisition under section 132A, the Assessing Officer gets jurisdiction to assess or reassess the "total income" in respect of each assessment year falling within six assessment years. Under the second proviso to section 153A, the assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. According to sub-section (2) of section 132A, if any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) of section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner.
Therefore, the intention of the legislation seems to be that in a case of search, only pending assessment or reassessment proceedings shall abate and the Assessing Officer would assume jurisdiction to assess or reassess the "total income" for the entire six-year period or block assessment period. The intention does not seem to be to reopen completed or unabated assessments, unless any incriminating material is found with respect to the concerned assessment year falling within the six years preceding the search. Therefore, on a true interpretation of section 153A of the Act, in case of a search under section 132 or requisition under section 132A during which any incriminating material is found, even in a case of unabated or completed assessment, the Assessing Officer would have jurisdiction to assess or reassess the "total income" taking into consideration the incriminating material collected during the search and other material which would include income declared in the returns, if any, furnished by the assessee as well as the undisclosed income. However, where during the search no incriminating material is found, in the case of a completed or unabated assessment, the only remedy available to the Department would be to initiate reassessment proceedings under section 147 or section 148 of the Act, subject to fulfilment of the conditions mentioned in those sections, as in such a situation, the Department cannot be left with no remedy.
If, even in a case of search where no incriminating material is found during the course of search, and the assessment is unabated or completed, the Assessing Officer were to assess or reassess the income or total income taking into consideration the other material, there would be two assessment orders, which shall not be permissible under the law. The second proviso to section 153A and sub-section (2) of section 153A would then be redundant. Rewriting provisions is not permissible under the law.
Thus in a case of search under section 132 or requisition under section 132A, the Assessing Officer assumes jurisdiction for assessment under section 153A; all pending assessments or reassessments shall stand abated. In case any incriminating material is found or unearthed, even in case of unabated or completed assessments, the Assessing Officer would assume the jurisdiction to assess or reassess the "total income" taking into consideration the incriminating material unearthed during the search and the other material available with the Assessing Officer including the income declared in the returns; and in case no incriminating material is unearthed during the search, the Assessing Officer cannot assess or reassess taking into consideration the other material in respect of completed assessments or unabated assessments, meaning thereby, in respect of completed or unabated assessments, no addition can be made by the Assessing Officer in the absence of any incriminating material having been found during the course of search under section 132 or requisition under section 132A of the Act. However, completed or unabated assessments can be reopened by the Assessing Officer in exercise of powers under section 147 or 148 of the Act, subject to fulfilment of the conditions as envisaged or mentioned under section 147 or 148 of the Act and those powers are saved.”
Insofar as, the statement recorded during the course of search of other person, stand of the revenue that the same has to be considered as incriminating material, is also not tenable in the light of decision of Hon’ble Delhi High Court in the case of PCIT vs. Pavitra Realcon (P) Ltd. reported in (2024) 340 CTR (Del) 225. The relevant portion of the decision reads as under:- “17. We have heard the learned counsels appearing on behalf of the parties and perused the record.
The primary grievance which arises in the present appeals pertains to whether the Tribunal was right in deleting additions made under s. 68 of the Act by holding that no C.O. No. 55/Mum/2025 7 assessment could have been made on mere presumption of existence of incriminating material.
Undisputedly, during the period of search, no incriminating material appears to have been found. However, the Revenue proceeded to issue notice under s. 143(2) of the Act on the pretext of the statements of the Directors of the respondent-assessee companies recorded under s. 132(4) of the Act and material seized from the search conducted on Jain group of companies. The assessment order was also passed under s. 143(3) r/w s. 153C of the Act making additions under s. 68 of the Act.
However, it is an undisputed fact that the statement recorded under s. 132(4) of the Act has better evidentiary value but it is also a settled position of law that addition cannot be sustained merely on the basis of the statement. There has to be some material corroborating the content of the statements.
In the case of Kailashben Manharlal Chokshi us. CIT (2008) 220 CTR (Guj) 138 : (2008) 14 DTR (Guj) 257: 2008 SCC Online Guj 436, the Gujarat High Court held that the additions could not be made only on the basis of admissions made by the assessee, in the absence of any corroborative material. The relevant paragraph No. 26 of the said decision has been reproduced hereinbelow : "26. In view of what has been stated hereinabove we are of the view that this explanation seems to be more convincing, has not been considered by the authorities below and additions were made and/or confirmed merely on the basis of statement recorded under s. 132(4) of the Act. Despite the fact that the said statement was later on retracted no evidence has been led by the Revenue authority. We are, therefore, of the view that merely on the basis of admission the assessee could not have been subjected to such additions unless and until, some corroborative evidence is found in support of such admission. We are also of the view that from the statement recorded at such odd hours cannot be considered to be a voluntary statement, if it is subsequently retracted and necessary evidence is led contrary to such admission. Hence, there is no Explanation duly supported by the evidence. We are, therefore, of the view that the Tribunal was not justified in making addition of Rs: 6 lakhs on the basis of statement recorded by the AO under s. 132(4) of the Act. The Tribunal has committed an error in ignoring the retraction made by the assessee." (emphasis, italicized in print, supplied)
Further, the position with respect to whether a statement recorded under s. 132(4) of the Act could be a standalone basis for making assessment was clarified by this Court in the case of CIT us. Harjeev Aggarwal (2016) 290 CTR (Del) 263 : (2016) 133 DTR (Del) 122 : 2016 SCC Online Del 1512, wherein, it was held that merely because, an admission has been made by the assessee during the search operation, the same could not be used to make additions in the absence of any evidence to corroborate the same. The relevant paragraph of the said decision is extracted herein below :
20. In our view, a plain reading of s. 158BB(1) of the Act does not contemplate computing of undisclosed income solely on the basis of a statement recorded during the search. The words evidence found as a result of search' would not take within its sweep statements recorded during search and seizure operations. However, 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 s. \132(4) of the Act. However, such statements on a stand alone 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.
(emphasis, italicized in print, supplied)
In our opinion, the Act does not contemplate computing of undisclosed income solely on the basis of statements made during a search. However, these statements do constitute information, and if they relate to the evidence or material found during the search, they can be used in proceedings under the Act, as specified under s. 132(4) of the Act. Nonetheless, such statements alone, without any other material discovered during the search which would corroborate said statements, do not grant the AO the authority to make an assessment.
Also, the Supreme Court in the case of Principal CIT us. Abhisar Buildwell (P) Ltd.
(2023) 332 CTR (SC) 385 : (2023) 225 DTR (SC) 105 : 2023 SCC Online SC 481, has clarified that in case no incriminating material is found during the search conducted under s. 132 of the Act, the AO will have no jurisdiction to make an assessment. The relevant paragraph is reproduced herein below :
36.4. 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 s. 132. or requisition under s. 132A of the 1961 Act. However, the completed/unabated assessments can be reopened by the AO in exercise of powers under ss. 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under ss. 147/148 of the Act and those powers are saved.
(emphasis, italicized in print, supplied)
This Court in the case of CIT us. Kabul Chawla (2015) 281 CTR (Del) 45 : (2015) 126 DTR (Del) 130: 2015 SCC Online Del 11555, has explicitly noted that the information/material which has been relied upon for assessment has to relate with the assessee. The relevant portion of the said decision is extracted herein below :
(iv) Although s. 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously; an assessment has to be made under this section only on the basis of the seized material." (emphasis, italicised in print, supplied)”
In another judgment, the Hon’ble Delhi High Court in the case of PCIT vs. Anand Kumar Jain (HUF) [432 ITR 384], interalia held as under:- “10. Now, coming to the aspeci, 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 Assessing Officer 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 the 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 Assessing Officer 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 section 132(1) 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 C.O. No. 55/Mum/2025 9