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Facts
A search and seizure operation under Section 132 was conducted, followed by a survey under Section 133A at the assessee's premises. The Assessing Officer (AO) made additions to the assessee's income for various assessment years (2011-12 to 2015-16), including unverified receipts and trading expenses, primarily based on a statement recorded from Shri Abhay Maheshwari, a director, under Section 132(4) of the Act, who stated the company was a "dummy company" with only rental income. These additions were subsequently confirmed by the First Appellate Authority.
Held
The Income Tax Appellate Tribunal (ITAT) held that additions made solely on the basis of a statement recorded under Section 132(4) of the Act are not sustainable without corroborative incriminating material found during the search. Citing the Delhi High Court's ruling in PCIT vs. Pavitra Realcon Pvt. Ltd., the ITAT emphasized that such statements, while providing information, do not grant the AO authority to make assessments without additional corroborating evidence. Consequently, all additions made by the AO were deleted.
Key Issues
Whether additions to income can be made solely based on a statement recorded under Section 132(4) of the Income Tax Act, 1961, without any corroborative incriminating material found during search.
Sections Cited
Section 132, Section 132(4), Section 133A, Section 142(1), Section 143(2), Section 143(3), Section 153A, Section 153C, Section 250(6), Section 127
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘C’, NEW DELHI
Before: SHRI G. S. PANNU & MS. MADHUMITA ROY
PER MS. MADHUMITA ROY – JUDICIAL MEMBER :
All the appeals filed by the assessee are directed against the common order dated 23.10.2018 passed by the Commissioner of Income Tax (Appeals)-IV, Kanpur, under Section 250(6) of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) arising out of the orders dated 28.12.2016 passed by the Learned DCIT, Central Circle – Noida, under Section 153C/143(3) of the Act for Assessment Years 2011-12 to 2015- 16 respectively. to 8184/Del/2018 KS Ultratech Pvt. Ltd. vs. DCIT Asst.Years :2011-12 to 2015-16 - 2 - 2. Since all the matters relate to the same assessee, these are heard analogously and are being disposed of by this common order.
ITA No.8180/Del/2018 for A.Y. 2011-12
The assessee company is a Private company incorporated on 21 July, 2008 and is registered with the Registrar of Companies, Delhi, involved in the business of architectural, engineering and other technical activities having two Directors namely Kumar Saurav, Abhay Maheshwari.
The brief fact leading to the case is this that a search and seizure operation under Section 132 of the Act was conducted on 27.11.2014 in the case of Maconns, Meenu and Yadav Singh Group Noida at its business premises and residences of one of the Directors namely Shri Abhay Maheshwari (of the appellant) lying and situated at S-550/D, School Block, Shakarpur wherein various incriminating documents were claimed to have been found and seized. Subsequently, a survey under Section 133A of the Act was conducted at the business premises of the company at 303, Plot No.11, Savitri Sadan-1, Preet Vihar Community Centre, Delhi. After issuance of order under Section 127 of the Act by the Pr CIT, New Delhi, notice under Section 142(1) of the Act was issued on 27.06.2016 in response whereof, the assessee filed its return of income on 25.07.2016 declaring total income at Rs.1,26,08,850/-. Thereafter, notice under Section 143(2) of the Act dated 12.07.2016 followed by a further notice under Section 142(1) of the Act due to to 8184/Del/2018 KS Ultratech Pvt. Ltd. vs. DCIT Asst.Years :2011-12 to 2015-16 - 3 - change of incumbent along with questionnaire dated 25.07.2016 was issued. The said proceeding was culminated in an order of addition on account of unverified receipt to the tune of Rs.2,13,57,660/-, in fact, the entire receipt has been treated as income of the assessee. Such addition was made on the basis of the statement claimed to have been made by the Director of the Company namely Shri Abhay Maheshwari accepting that the company is not engaged in any business activities rather it is a dummy company. Further that, it was admitted by him that he is the paid director and the entire affairs of the company is controlled and managed by Yadav Singh. It has only the rental income. No other activities were carried out. Neither the books of account were found nor was it produced at the assessment stage as of the opinion of the Learned AO. The proceeding culminated in making addition in the hands of the assessee which stood confirmed by the First Appellate Authority. Hence, the instant appeal before us.
At the time of the hearing of the instant appeal, the Learned Counsel appearing for the assessee submitted before us that it is evident from the records particularly, the assessment order that addition were made by the Learned AO only on the basis of statement made by Shri Abhay Maheshwari being the Director of the Company and not on any incriminating material claimed to have been found and seized during the course of search conducted by the Department. According to him as per the requirement of Section 153C of the Act the satisfaction note has not been recorded by the AO of the searched person. In this regard, he has to 8184/Del/2018 KS Ultratech Pvt. Ltd. vs. DCIT Asst.Years :2011-12 to 2015-16 - 4 - drawn our attention to the satisfaction recorded by the AO reproduced at Page 15 of the order passed by the Learned CIT(A) the contents whereof is as follows:
"During the course of search and seizure action at the residence of Abhay Maheshwari at H.No. S-550, D School block, Shakarpur, New Delhi the statement of Abhay Maheshwari was recorded on oath is 132(4) of Income Tax, Act 1961. Abhay Maheshwari has accepted that he is a working director in the company K. S. Ultratech Private Limited and getting salary from the company and working in the direction of Shri Yadav Singh."
Further that, referring the satisfaction note, the Learned CIT(A) proceeded with the remand report submitted by the Ld. AO wherein the statement recorded under Section 132(4) of the Act of Shri Maheshwari has been considered to this effect that the appellant company was not carrying out any business activities and therefore, the claim of expenses is unjustified. The Learned CIT(A) further reproduced the observation made by the Learned AO in the remand report with the following contents :
“During the course of search at the office premise of the one of the director of the company shri Abhay Maheshwari at S-550/-D, School Block, Shakarpur, he accepted on aoth u's 132(4) of the Act that "the company is not engaged in any business activities rather it is a dummy company. He himself admitted that i am pald director and the entity affairs of the company is controlled and managed by the Yadav Singh. It has only rental Income. No other activities are carried out. No books of account were found. "Assessee was asked to furnish the bills/ vouchers and supporting documents to establish the business activities have been carried out, since, no business activities are carried out by the companies and the professional receipt received is from the related concerns. On query, regarding the evidences of these expenses and justification for payment of directors' salary no satisfactorily to 8184/Del/2018 KS Ultratech Pvt. Ltd. vs. DCIT Asst.Years :2011-12 to 2015-16 - 5 - explanations have been offered by the assessee. Froin the Laptop seized from the premise of Abhay Maheshwar, trial Balance of the Assessee- Company (Page 4 to 24) covering period of the FY 2012-13, 2013-14 & 2014-15 was found and seized."
Relying upon the same he concluded as follows: “From the above discussion, it is an undisputed that the statement of Shri Abhay Maheshwari recorded during the course of search u/s 132 of the Act, constitutes the incriminating material. Further, on the basis of the incriminating material in the form of statement of Shri Abhay Maheshwari, AO has made the additions of disallowances of expenditure from the receipts received by the appellant company in all these assessment years i.e. A.Y. 2009-10 to A.Υ. 2015-16. Thus, it is concluded that, their exists incriminating document in the form of statement of Shri Abhay Maheshwari,. Director of the appellant company, which has a direct bearing on the - determination of total income of the appellant company for all these assessment years under appeals. The decision relied by the appellant for challenging the validity of notice issued u/s 153C of the Act are not applicable to present facts of the case. Therefore, the jurisdictional precondition in the form of existence of the seized document, as a result of search u/s 132 of the Act and having bearing on the determination of the total income of the appellant does exists in the present facts of the case.”
Thus it appears from the above that the Authorities below mainly relied upon the statement made by the Shri Abhay Maheshwari, the director of the company and opined that existence of incriminating document in the form of statement of Shri Maheshwari, the Director of the appellant company has a direct bearing on the determination of the total income of the company for all these Assessment Years under appeals. The assessee’s Counsel joins issues here. It was vehemently argued by him that the statement recorded under Section 132(4) of the Act cannot be a standalone basis for making assessment. In this regard he has relied upon the judgment passed by the Hon’ble Delhi High Court in ITA Nos.8180 to 8184/Del/2018 KS Ultratech Pvt. Ltd. vs. DCIT Asst.Years :2011-12 to 2015-16 - 6 - the case of PCIT vs. Pavitra Realcon Pvt. Ltd. and others in dated 29th May, 2024, a copy whereof has duly been submitted before us. While dealing with this particular identical aspect of the matter, the Hon’ble High Court has pleased to observe as follows:
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, 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: -
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.
From the above judgment it appears that the statement made during the course of search cannot be the sole basis of addition against the assessee in the absence of any corroborative documents unearthed during the course of search.
On the contrary, the ld. D.R relied upon the judgment passed by the Hon’ble Kerala High Court in the case of CIT Vs. St. Francis Clay Décor Tiles reported in (2016) 70 taxman.com 234 (Kerala) holding that to 8184/Del/2018 KS Ultratech Pvt. Ltd. vs. DCIT Asst.Years :2011-12 to 2015-16 - 7 - any material which was unearthed during search operations or any statement made during course of search by assessee is a valuable piece of evidence in order to invoke Section 153A. In this regard, we would like to observe that this Bench is bound by the judgment passed by the jurisdictional High Court i.e Delhi High Court and not any other High Court. Thus, this particular judgment relied upon by the Ld. D.R has no manner of application in the case in hand.
Having regard to this particular aspect that the addition made solely on the basis of the statement u/s 132(4) of the Act by Shri Maheshwari, the Director of the company that too without any corroborative evidences unearthed during the course of search, the same is found to be sustainable and thus deleted.
In Assessment Year 2012-13 the further addition to the extent of Rs. 8 lac on account of unexplained advance was made by the ld. AO confirmed by the First Appellate Authority. This is in regard to the advance alleged to have been taken by the assessee from M/s Sanjeev Enterprises for supply of machines. As it appears from the order passed by the Ld. AO that the said addition has been made solely on the basis of the statement made by the assessee of not doing any business and therefore advance for supply of material as found to be not justified. As we have already observed in the previous ground of appeal that statement cannot be the sole basis of making addition without any corroborative evidence unearthed during the course of search, the addition is not sustainable. Apart from that we do not find any incriminating material to 8184/Del/2018 KS Ultratech Pvt. Ltd. vs. DCIT Asst.Years :2011-12 to 2015-16 - 8 - referred by the ld. AO while making this particular addition against the assessee save and except the statement of Maheshwari which cannot be considered to be incriminating in nature as already observed by us hereinabove. Further that the ld. CIT(A) neither made any deliberation on this issue nor assigned any cogent reason while confirming this addition made by the ld. AO. The order passed by the ld. CIT(A) is, thus found to be erroneous. Taking into consideration the entire aspect of the matter, the addition is further found to be not sustainable and therefore, deleted.
ITA No.8184/Del/2018 (AY: 2015-16)
So far as the addition in respect of assessment year 2015-16 is concerned it is found that the said year is abated year. In that particular year addition of Rs.30,69,283/- on account of trading expenses made by the ld. AO on the basis of the statement recorded u/s 132(4) of the Act made by the assessee is under challenge before us.
The assessee has shown turnover/receipt of Rs.3,91,943/-, shown revenue from operation of Rs.19,50,727/- and loss from other income of Rs.15,58,783/- which included the short term capital loss on sale of shares. Against that particular receipt the assessee claimed expenses to the tune of Rs.30,69,283/-. As the director of the company Shri Abhay Maheshwari claimed to have stated that no business is being carried out by the company, the addition to the tune of Rs.30,69,283/- has been made to 8184/Del/2018 KS Ultratech Pvt. Ltd. vs. DCIT Asst.Years :2011-12 to 2015-16 - 9 - by the ld. AO which was further confirmed by the First Appellate Authority. Hence, has been challenged before us.
In the instant appeal, the ld. Counsel appearing for the assessee submitted before us that ld. AO reproduced the statement made by Shri Maheshwari at page 3 of the assessment order but the entire statement relevant to this particular issue involved in this matter has purportedly been not reproduced/skipped where Shri Maheshwarih has categorically, stated that he has never seen loading and uploading of machinery and goods and only received bills and vouchers of the same which may be genuine. It was further stated that he was not involved in the whole process and the said bills produced before him were entered into account books. Further that Shri Yadav Singh and the other directors Shri Kumar Saurabh might be knowing the real functioning of the company and also the reason of high net profit of the company. Instead of taking into consideration the entire statement made by Shri Maheshwari, only a part of the same suitable to the interest of revenue has been reproduced and relied upon by the ld. AO. Drawing inference that no business activities is being carried out by the company and making addition on the basis of such formation of opinion, is thus found to be bad in law and thus liable to be deleted as argued by him.
The ld. D.R on the other hands relied upon the order passed by the authorities below.
Upon perusal of the order passed by the ld. AO it appears that at page 3 of the statement of Shri Maheshwari is reproduced as under: to 8184/Del/2018 KS Ultratech Pvt. Ltd. vs. DCIT Asst.Years :2011-12 to 2015-16 - 10 -
On the other hand, from the copy of the statement made by Shri Maheshwari made available to the assessee by the department speaks otherwise which is as follows: to 8184/Del/2018 KS Ultratech Pvt. Ltd. vs. DCIT Asst.Years :2011-12 to 2015-16 - 11 - to 8184/Del/2018 KS Ultratech Pvt. Ltd. vs. DCIT Asst.Years :2011-12 to 2015-16 - 12 -
Thus, upon comparison of the statement actually made by Shri Maheshwari and the reproduction made by the Ld. AO in the assessment order it appears, that the submission made by the assessee’s counsel that though as per statement made by Shri Maheshwari that he has never seen loading and unloading of machinery and goods and only received the bills and vouchers of the same which might have been genuine or that he to 8184/Del/2018 KS Ultratech Pvt. Ltd. vs. DCIT Asst.Years :2011-12 to 2015-16 - 13 - does not know the whole process of real functioning of the company, is found to be true which has not been taking into consideration in its proper perspective by the ld. AO rather inferred in a negative manner so as to make addition in the hands of the assessee. Having regard to this particular aspect of the matter inference drawn by the ld. AO that it has been categorically stated by Shri Maheshwari that the company is not carrying out any business activities and therefore making addition of claim of expenses to the tune of Rs.30,69,283/- is not found to be sustainable in the absence of any corroborative evidence in the hands of the revenue. Hence, the addition to the tune of Rs.30,69,283/- made by the ld. AO is found to have no basis and thus deleted.
Assessee’s all appeals are allowed.
This Order pronounced in the Open Court on 27/07/2024