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Facts
A search and seizure action was conducted on the assessee, leading to notices under section 153A. Additions were made to the returned income under section 68 of the Act, which were challenged before the CIT(A). The core issue was whether these additions were based on incriminating material found during the search.
Held
The Tribunal held that for assessments under section 153A, incriminating material found during the search is a prerequisite. If no incriminating material is found, additions cannot be made based on presumption or other material, and reassessment proceedings under section 147/148 would be the appropriate recourse.
Key Issues
Whether additions made under Section 153A can be sustained without any incriminating material found during a search operation, and whether statements recorded during search alone, without corroborative evidence, are sufficient for such additions.
Sections Cited
153A, 68, 143(3), 132, 153C, 147, 148, 132(4)
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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 & Ms. Tisha Bagh, A/Rs Revenue by : Dr. K.R. Subhash, CIT, D/R सुनवाई की तारीख/Date of Hearing : 19/03/2025 घोषणा की तारीख /Date of Pronouncement: 21/03/2025 आदेश/O R D E R PER NARENDRA KUMAR BILLAIYA, AM: to 827/Mum/2025, are appeals by the revenue and C.O. No. 69 to 72/Mum/2025 are cross-objections by the assessee preferred against the very same orders of the ld. CIT(A) - 50, Mumbai, dated 06/12/2024 pertaining to AYs 2012-13 and 2015-16. I.T.A. No. 824 to 827/Mum/2025 C.O. No. 69 to 72/Mum/2025 2
Since common issues are involved in the captioned appeals, they were heard together and are disposed off by this common order, for the sake of convenience and brevity.
In the cross-objections, the assessee has raised certain legal issues which are also considered in this common order of the sake of convenience. 4. Representatives of both sides were heard at length, case records carefully perused and the relevant documentary evidence brought on record, duly considered in the light of Rule 18(6) of the ITAT Rules, 1963. Judicial decisions relied upon, have been considered as and where necessary. 5. Briefly stated the facts of the case are that a search and seizure action was conducted on 22/03/2018 by DDIT (Inv.), Unit-6(1), Mumbai in the case of Aachman Group and other related entities. Case of the assessee company was covered under search and seizure action on 22/03/2018. 6. Consequent to search, notice u/s 153A dated 03/07/2019 was issued to the assessee in response to which the assessee filed its return of income. We are addressing the issues on the facts of AY 2012-13 as the facts of the other assessment years under consideration are identical, though quantum may differ. 7. The returned income of the assessee was assessed after making addition u/s 68 of the Act which was challenged before the ld. CIT(A). to 827/Mum/2025 C.O. No. 69 to 72/Mum/2025 3 It was strongly contended that the additions have been made by the AO which are not based on any incriminating material found/seized during the course of search conducted in the case of assessee. 7.1. The ld. CIT(A) called for a remand report from the AO on this contention of the assessee to which, the AO furnished this comment vide his letter dated 20/09/2024, which reads as under:- Comments on legal ground raised
by the assessee during appellate 2. proceedings 2.1. It has been directed vide above referred letter to submit comments on the legal ground for AY 2011-12 to 2015-16 that no addition can be made in absence of incriminating material in these years. With respect to the legal ground raised by the assessee, it is submitted that a search and seizure action u/s 132 was conducted on Janil Shah Group by DDIT(Inv.), Unit 6(1), Mumbai on 22.03.2018. During the course of search action various statement taken during search on Janil Shah Group wherein incriminating material was gathered in the form of information which suggests that the assessee company is a shell company on which addition has been made in block assessment order. It is also emphasized that the assessee has never raised the issue of incriminating material during the course of assessment proceedings. 2.2. Reliance is placed on the decision of Hon’ble Supreme Court in the case of P.R. Metrani v. CIT [2006] 287 ITR 209/157 Taxman 325 (SC) has explained the scope of section 132. It has been explained by the Hon’ble Supreme Court that the books of accounts, documents, money, bullion, jewellery or other valuable article or thing and any statements recorded of the persons searched may be used as evidence for any proceedings under the Act. The relevant portion of the order of the Hon’ble Supreme Court is reproduced as under: “18. Section 132 is a Code in itself. It provides for the conditions upon which and the circumstances in which the warrants of authorization can be issued. Sub-section (2) authorizes the authorized officer to requisition the services of any police officer or of any officer of the Central Government or of both to assist him for all or any of the purposes for which the search is conducted. Under sub-section (4) the authorized officer can during the course of search or seizure examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such persons during such examination may thereafter be used in evidence in any proceeding under the Act. to 827/Mum/2025 C.O. No. 69 to 72/Mum/2025
4. Therefore, if the search and seizure action reveals certain entities involved in questionable or dubious transactions, and it is observed that either some of the searched parties or other third parties have engaged in similar transactions with these entities, such information would be considered incriminating. 2.3. Further, reliance is also placed upon decision in the case of Nau Nidh Overseas (P.) Ltd. [2017] 88 taxmann.com 665 (Delhi), in a search conducted prior to 1.6.2015, when the director of the company also admitted that part of the cash belonged to another party, the Delhi High Court has observed that:
12. Like in Super Malls (P.) Ltd. (supra), the AO considered the totality of the statement to conclude – undoubtedly facially, that the cash seized belonged to the third party, i.e. the assessee in the present case. Such statement also constitutes as material because it is made in the course of the search under Section 132 (4) and is also in consonance with the ruling of this Court in Smt. Dayawanti (supra).
13. For the above reasons, these appeals have to succeed. The question of law framed is accordingly answered in favour of the Revenue. The impugned order of the ITAT is, therefore, set aside. The ITAT is now directed to hear the assessee’s appeal on its merits. Hence, incriminating material also includes information or finding of a concerted investigation which evidences that the assessee has not correctly shown its income in the return filed by it. Therefore, it is requested to reject assessee’s ground mentioned in point no. 2 of your letter.” [Emphasis supplied]” 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 to 827/Mum/2025 C.O. No. 69 to 72/Mum/2025 5 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 to 827/Mum/2025 C.O. No. 69 to 72/Mum/2025 6 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 to 827/Mum/2025 C.O. No. 69 to 72/Mum/2025 7 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 to 827/Mum/2025 C.O. No. 69 to 72/Mum/2025 8 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 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 to 827/Mum/2025 C.O. No. 69 to 72/Mum/2025 9 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. to 827/Mum/2025 C.O. No. 69 to 72/Mum/2025 10
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 to 827/Mum/2025 C.O. No. 69 to 72/Mum/2025 11 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 view taken by the Income-tax Appellate Tribunal. Therefore, we do not find any substantial question of law that requires our consideration.”
Considering the facts of the case in totality, in light of the judicial decisions discussed hereinabove, we do not find any merit in the captioned appeals by the revenue. Therefore, we decline to interfere with the findings of the ld. CIT(A). Appeals by the revenue stand dismissed.
The issues raised in the cross-objections by the assessee were not pressed. Therefore, the same are dismissed as not pressed.
In the result, appeals of the revenue and cross-objections of the assessee are dismissed. Order pronounced in the Court on 21st March, 2025 at Mumbai. (SANDEEP SINGH KARHAIL) ACCOUNTANT MEMBER Mumbai, Dated 21/03/2025 *SC SrPs *SC SrPs *SC SrPs *SC SrPs I.T.A. No. 824 to 827/Mum/2025 C.O. No. 69 to 72/Mum/2025 12