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Facts
The assessee, VKM Feeds Private Limited, filed its original return declaring Rs. 14.32 lakhs. During a search, the Promoter Director stated about Rs. 48 lakhs profit from egg trading. Based solely on this statement, the AO initiated proceedings under Section 153C and made an addition of Rs. 33.67 lakhs, which was upheld by the CIT(A). The assessee contended the statement was approximate and referred to overall income, and no corroborative material was found.
Held
The Tribunal, following precedents from various High Courts, held that an addition cannot be made solely on the basis of a statement recorded under Section 132(4) during a search, if no corroborative incriminating material is found. Since no such material was found, the addition made by the AO and upheld by the CIT(A) was deleted.
Key Issues
Whether an addition can be made in proceedings initiated under Section 153C solely based on a statement recorded under Section 132(4) during a search, without any corroborative incriminating material.
Sections Cited
250, 153C, 132(4), 144, 68, 143(2), 143(3), 158BB(1), 153A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, COCHIN
Before: SHRI INTURI RAMA RAO & SHRI SANDEEP SINGH KARHAIL
PER SANDEEP SINGH KARHAIL, J.M : The assessee has filed the present appeal against the impugned order dt. 25-09-2024, passed u/s. 250 of the Income Tax Act, 1961 (‘The Act’) by the Ld. Commissioner of Income Tax (Appeals),Kochi-3 [‘Ld.CIT(A)’] for the AY. 2017-18.
The only issue that arises for our consideration, in the present appeal, is whether an addition can be made in a proceeding initiated u/s. 153C of the Act merely on the basis of the statement recorded u/s. 132(4) of the Actduring the search proceedings.
The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is a private limited company and is engaged in the manufacturing of chicken feed. Since during the year under considerationthe assessee’s factory was under construction, the assessee carried on trading in eggs. For the year under consideration, the assessee filed its original return of income on 28-03-2018, declaring a total income of Rs. 14,32,460/-. On the basis of the statement of the Promoter Director of the assessee recorded u/s. 132(4) of the Act, proceedingsu/s. 153C of the Actwere initiated and notice u/s. 153C of the Act was issued on 14-08-2019. In his statement, the Promoter Director of the assessee submitted that the assessee carried out trading in eggs and made a profit of about Rs. 48 lakhs. Since the assessee had already declared a total income of Rs.14,32,460/-, the assessee was asked to explain the discrepancy. In response, the assessee submitted that the Promoter Director had only mentioned the approximate amount of profit and not the profit after finalization of the accounts, which was declared by the assessee in the original return of income. The assessee further submitted that thePromoter Director meant the total income earned from Pollachi and which is meant to include the income from Mango and Coconut groves. The AO, vide an order dt. 26-12-2019 passed u/s. 144 r.w.s. 153C of the Act, disagreed with the submissions of the assessee and on the basis of the statement of the PromoterDirector recorded during the search made an addition of Rs 33,67,540/- to the total income of the assessee.
The Ld.CIT(A), vide impugned order, dismissed the appeal filed by the assessee and upheld the addition made by the AO on the basis of the statement recorded u/s. 132(4) of the Act during the course of the search. Being aggrieved, the assessee is in appeal before us.
During the hearing, the Ld.AR submitted that the impugned order addition has been made by the AO solely on the basis of the statement recorded u/s. 132(4) of the Act, and no material was found during the search supporting the statement recorded.
On the other hand, the Ld.DR, vehemently relying upon the orders passed by the lower authorities, submitted that the statement recorded during the search is itself evidenceon the basis of which an addition can be made.
We have considered the submissions of both sides and perused the material available on record. In the present case, there is no dispute regarding the fact that the impugned additionwas made solely on the basis of the statement of the Promoter Director recorded during the course of the search. It is further undisputed that no incriminating material was found during the search at the premises of the Promoter Director. It is further evident from the record that on the basis of the said statement alone, proceedingsu/s. 153C of the Act were initiated in the case of the assessee. We find that the issue of whether the addition can be made solely on the basis of the statement recorded during the search without any corroborative incriminating material came up for consideration before the Hon’ble Delhi High Court in PCIT vs. Pavitra Realcon (P) Ltd., reported in (2024) 340 CTR (Del) 225. While answering the aforesaid question in the negative, the Hon’ble Delhi High Court, in the aforesaid decision, observed as follows: - “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 ITAT was right in deleting additions made under Section 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 Section 143(2) of the Act on the pretext of the statements of the Directors of the respondent-assessee companies recorded under Section 132(4) of the Act and material seized from the search conducted on Jain group of companies. The assessment order was also passed under Section 143(3) read with Section 153C of the Act making additions under Section 68 of the Act.
However, it is an undisputed fact that the statement recorded under Section 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 KailashbenManharlal Chokshi v. CIT[1], 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 section 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 state ment, if it is subsequently retracted and necessary evidence is led contrary to such admission. Hence, there is no reason not to disbelieve the retraction made by the Assessing Officer and 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 Assessing Officer under section 132(4) of the Act. The Tribunal has com mitted an error in ignoring the retraction made by the assessee. [Emphasis supplied] 22. Further, the position with respect to whether a statement recorded under Section 132(4) of the Act could be a standalone basis for making assessment was clarified by this Court in the case of CIT v. Harjeev Aggarwal[2], 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 section 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 section 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 Assessing Officer to make a block assessment merely because any admission was made by the assessee during search operation. [Emphasis 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 Section 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.”
In another judgment, the Hon'ble Delhi High Court in 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 view taken by the Income-tax Appellate Tribunal. Therefore, we do not find any substantial question of law that requires our consideration."
We further find that the Hon’ble Jurisdictional High Court in CIT vs. Promy Kuriakose, reported [2016] 386 ITR 597 (Kerala), upheld the findings of the Tribunal that in the absence of search material, proceedingsu/s. 153C of the Act cannot be initiated.
Therefore, respectfully following the decisions of the Hon’ble High Courts, as cited supra, we are of the considered view that no addition can be made merely on the basis of the statement recorded u/s. 132(4) of the Act without any incriminating material corroborating the same being found during the course of the search. Accordingly, the addition made by the AO and upheld by the Ld.CIT(A) is deleted. As a result, the grounds raised by the assessee are allowed.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on 27-05-2025 by way of proper mentioning on the Notice Board