DEPUTY COMMISSIONER OF INCOME TAX, DELHI vs. INDIAN HYDRO ELECTRIC POWER PVT. LTD., DELHI
Income Tax Appellate Tribunal, DELHI “C” BENCH: NEW DELHI
Before: SHRI SUDHIR KUMAR & SHRI MANISH AGARWAL
PER MANISH AGARWAL, AM :
The captioned appeals are filed by Revenue against the common order, dated 26.10.2023 passed by Ld. Commissioner of Income Tax (A)-27, New Delhi [“Ld. CIT(A)”] in Appeal No. CIT(A),
Delhi-27/10394/2017-18 & CIT(A), Delhi-27/10802/2018-19 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment orders, both dated 30.09.2021 passed u/s 153A of the Act pertaining to Assessment Years 2018-19 & 2019-20 respectively.
As these captioned appeals are having identical issues which are inter-linked, inter-connected and this fact has been admitted by both the parties during the course of hearing before us where
ITA Nos.3906 & 3907/Del/2023
common submissions were made for both the years, therefore, both the appeals filed by the Revenue are decided by a common order.
ITA No.3906/Del/2023 [Assessment Year : 2018-19]
First we take up the appeal of Revenue in ITA No. 3906/Del/2023 for Assessment Year 2018-19. 4. Brief facts of the case are that assessee company is engaged in the business of developing, building, owning and operating power generation facility and furnished its return of income declaring Income at NIL for AY 2018-19 on 31.03.2019 and claimed loss of INR 11,05,11,469/-. A search & seizure operation u/s 132 of the Act was conducted by Investigation Wing on 07.04.2019 on Moser Baer group and office premises of the assessee was also search as assessee is one of the company of that group. Thereafter, notice u/s 153A of the Act was issued on 18.11.2020, in response to which return of income was filed on 26.03.2021, declaring a loss of INR 11,05,11,469/-. During the search at the residence of Shri Rajiv Agarwal, an employee of one of the companies with Moser Baer Group, some documents were found including an excel sheet titled “Funds Position” from his laptop. This document also contained details of funds received and payments made by the assessee company and were relied upon by the Department to infer receipt of accommodation entries of loans by the assessee company. In the statements recorded on 10.04.2019, Shri Rajiv Agarwal was asked about the nature of entries appearing in the said Excel Sheet found from his laptop and after considering his reply and based on the statement of Sh. Neeraj Jain who was alleged as the mediator/
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facilitator for obtaining these loans, additions of INR 25,05,00,000/- was made u/s 68 of the Act for AT 2018-19, treating these loans as unexplained cash credit. Further, addition of INR 25,05,000/- was made u/s 69C of the Act, by alleging the same as payment of commission @ 1% of the loan amount.
Against the said order, assessee filed an appeal before Ld. CIT(A) who vide order dated 26.10.2023, allowed the appeal of the assessee and deleted the additions made.
Aggrieved by the order of Ld.CIT(A), Revenue is in appeal before the Tribunal by taking following grounds of appeal:-
“The Ld. CIT(A) has erred on facts and in law, in deleting the addition of Rs. 25,05,00,000/- made u/s 68 of the Income Tax Act, 1961, on account of unsubstantiated cash credit found to be recorded on incriminating documents seized during the search, by ignoring the facts and circumstances of the case.
The Ld. CIT(A) has erred on facts and in law, in deleting the addition of Rs. 25,05,000/- made u/s 69C of the Income Tax Act, 1961, on account of 1% commission paid on the total entry which is his unexplained expenditure by ignoring the facts and circumstances of the case.
The Ld. CIT(A) has erred on facts and in law by accepting the bogus loan transactions made by the assessee as genuine by merely relying on the submissions of the assessee and ignoring the facts revealed by the Assessing Officer about the sham entities.
The Ld. CIT(A) has erred on facts and in law by accepting the retracted statement of Sh. Rajiv Agarwal and rejecting the original confession made by him u/s 132(4) of the Act during the search operation.
(a) The Order of the Ld. CIT(A) is erroneous and not tenable in law and on facts.
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(b) The appellant craves to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.”
Before us, Ld.CIT DR for the Revenue submits that search action was carried out by the Department on 07.04.2019 on Moser bear group which includes the business premises of the assessee. During the search at the residence of Shri Rajiv Agarwal, one of the employees, an excel sheet titled “Funds Position” was found from his laptop and when he was confronted about the contents of this sheet, it was explained that the entries contained in the said sheet represents the accommodation entries in the form of unsecured loans taken by some of the group companies including the assessee company. He further stated one Shri Neeraj Jain had acted as mediator/facilitator for providing such accommodation entries on commission basis. Ld. CIT DR submits that the statement of Shri Neeraj Jain was also recorded wherein Shri Neeraj Jain also concurred the statements of Shri Rajiv Agarwal that he had provided accommodation entries in lieu of cash to various companies of the group which includes the assessee company also. Ld. CIT DR submits that these statements, though retracted however, cannot be brushed aside and had evidentiary value.
Ld. CIT DR further submits that additions were not only based on the statements of aforesaid two persons, but the Investigation Wing had made independent inquiries with respect to the companies from whom loans were received by the assessee wherein it was found that those companies were not traceable at the address given. Ld. CIT DR argued that the lender companies were not found at the ITA Nos.3906 & 3907/Del/2023 addresses and were not engaged in any regular and genuine business activity, and all were showing very meagre income from other sources and no income was shown from regular business activities. Ld. CIT DR thus contended that the additions were made of INR 25.05 crores in the year under appeal for bogus accommodation entries on the basis of evidences found during search and post search investigation.
Ld.CIT DR further submits that the AO has reproduced the statement of Shri Rajiv Agarwal and Shri Neeraj Jain in the assessment order wherein they have categorically admitted that these loans were accommodation entries obtained in lieu of cash. He submits that AO at page 21 has rebutted the submissions made by the assessee and further discussed the lender companies in subsequent pages and thereafter, observed that all the lender companies do not have any fixed assets, inventory and shown very meager income in the form of other income whereas the Revenue from operation were NIL. It is further submitted by Ld. CIT DR that on spot verification through Circle Inspector, it was found that most of the companies have no proper office set up and therefore, it cannot be said that these companies are engaged in real-time business activities. Ld. CIT DR further stated that on perusal of their bank statements, it could be seen that there were credit entries just prior to the entries of the loans to the assessee company. Therefore, by placing heavy reliance on the order of the AO, Ld.CIT DR submits that AO has rightly made the additions which order deserves to be upheld.
ITA Nos.3906 & 3907/Del/2023
10. On the other hand, Ld. AR for the assessee strongly supported the order of Ld.CIT(A) and submits that the loans taken by the assessee were alleged as bogus solely on the basis of statement of Shri Rajiv Agarwal & Shri Neeraj Jain recorded during the course of search and post-search investigation. He submits that there was no incriminating material that was found/seized as a result of search from the possession of the assessee company indicating any unaccounted or unrecorded transactions in the shape of loans etc.
Ld. AR submits that excel sheet found from the Laptop of Shri Rajiv
Agarwal contains details of the loans taken /repaid from various parties which were duly recorded in the books of accounts thus, the entries found recorded in the said Excel sheet cannot be held as incriminating document. He further submits that Shri Rajiv Agarwal
& Shri Neeraj Jain had retracted from their statements recorded where they have admitted the loan entries appearing in the Excel
Sheet as accommodation entries within a short period of 15-30 days and as such, these retracted statement cannot be made sole basis for making addition for the alleged bogus accommodation loans.
Ld.AR for the assessee drew our attention to the statement of Shri Ratul Puri, Director of the assessee company wherein he categorically denied indulging in any transactions of alleged accommodation entries as has been stated by Shri Rajiv Agarwal in his statement recorded u/s 131(1a) of the Act on 10.04.2019. Ld. AR further drew our attention to the fact that the assessee had filed all the necessary evidences in order to establish identity and creditworthiness of the lender companies and since all transactions were carried out through banking channel therefore, their
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genuineness cannot be doubted. Regarding non-availability of these companies at the given addresses, ld.AR stated that that some of the companies had changed their addresses and their latest master data as available at the website of Ministry of Corporate Affairs (“MCA”) were also filed before the AO and all such details were available in the Paper Book at pages 188 to 699 filed before us as were filed before the AO.
Ld.AR further submits that most of the loans were repaid in subsequent assessment years and necessary confirmations and the copy of ledger account of the year when they were repaid, were also filed before the AO. He submits that once so called statements which were made basis to hold the loans as accommodation entries were retracted and no further inquiries were carried out by the AO at the correct addresses provided by the assessee of the lender companies and no incriminating material was found from the possession of the assessee company, ld. CIT(A) has rightly deleted the additions which order deserves to be upheld.
Ld.AR for the assessee also filed a detailed written submission in this regard which is reproduced as under:-
OUR SUBMISSIONS
I.
“STATEMENTS CANNOT BE RELIED UPON DEHORS
INCRIMINATING MATERIAL
It is respectfully submitted that the additions made by the AO under Sections 68 and 69C of the Act are wholly unsustainable, as they are not based on any incriminating material found during the course of the search conducted under Section 132 of the Act.
ITA Nos.3906 & 3907/Del/2023
2. The AO has placed primary reliance on the statements of Mr. Neeraj
Jain and Shri Rajiv Agarwal. However, both statements were subsequently retracted, and the retractions were duly placed on record. Despite this, the AO chose to rely on the untested and uncorroborated statements.
Furthermore, the only document referred to in the assessment order is an excel sheet titled “Funds Position”, found on the laptop of Shri Rajiv Agarwal an employee of a group company who held no official position in the Respondent-Assessee. The said sheet merely contained references to certain financial transactions, including entries labelled as loans received by the Respondent-Assessee. It is submitted that:
All such loan transactions mention in the excel sheet were duly recorded in the books of account of the Respondent-Assessee;
Supporting evidence such as PAN, bank statements, financial statements, and confirmations were filed for each creditor;
All funds were received through regular banking channels, and there is no allegation or evidence of receipt of cash;
There was no indication in the excel sheet or elsewhere of any cash exchange, unrecorded income, or concealment of any asset.
The said excel sheet, therefore, did not qualify as incriminating material either factually or in law. The AO failed to establish any direct nexus between the sheet and any alleged undisclosed income of the Respondent-Assessee. In fact, the reliance on such a document found from a third party and unaccompanied by any supporting evidence renders the entire foundation of the addition unsound and untenable.
Even the excel sheet titled “Funds Position”, which formed the sole basis of the allegation, was seized from the possession of Shri Rajeev Agarwal, who is neither a director nor a shareholder of the Respondent-Assessee. The document was not found from the premises or possession of the Respondent-Assessee. Consequently, the presumption under Section 132(4A) of the Act cannot be invoked against the Respondent-Assessee, as the foundational requirement that the document must be found in the possession or control of the Respondent-Assessee is not satisfied. The reliance on such a third-party document, without any independent verification or supporting evidence, renders the additions legally untenable.
ITA Nos.3906 & 3907/Del/2023
6. Reliance in this regard is placed on various judicial precedents:
ACIT, New Delhi vs. Shyam Sunder Jindal, ITA No. 5671/Del/2016
[ITAT Delhi - 21.05.2025]
From the observation of ld. CIT(A) it could be seen that ld. CIT(A) accepted the contentions of the assessee and held that no addition could be made as no incriminating material was found/seized with respect to the admission made in the statements recorded during search from the possession of assessee. It is evidently clear that in the assessment order there is no mention, reference or finding that the additions have been made by the AO based on any incriminating material found/seized during thecourse of search and seizure in the case of the assessee. 14. It is a settled proposition of law that mere statement u/s 132(4) or u/s 131 is not sufficient to make an addition. A statement made must be relatable to incriminating material found during the search or the statement must be made relatable to some material by subsequent inquiry/investigations. 16. The crux of the aforesaid decision is that a declaration or disclosure made by the person is binding unless it is rebutted by the person by furnishing valid evidences. In the present case, the assessee admitted certain income in the statements recorded u/s 132(4) of the Act, which was later retracted, and reasons for such retraction were explained by making detailed submissions with the help of explanation of seized material, which does not indicate any incriminating material. Thus, the appellant retracted the statement recorded u/s 132(4) of the Act, showing the admission made therein by Gopal Garg vs. DCIT Central Circle-2 Faridabad, Haryana ITA No. 965/Del/2024 [ITAT Delhi – 07.02.2025]
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
ITA Nos.3906 & 3907/Del/2023
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: …..
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. …….
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 ofthe appeal of the Assesse. 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.
PCIT (Central)-3 vs. Anand Kumar Jain (HUF), ITA No. 23/2021
[Delhi High Court – 12.02.2021]
“8. Next, we find that, the assessment has been framed under section 153A, consequent to the search action. The scope and ambit of section 153A is well defined. This court, in CIT v. Kabul Chawla,1 concerning the scope of assessment under Section 153A, has laid out and summarized the legal position after taking into account the earlier decisions of this court as well as the decisions of other High Courts and Tribunals. In the said case, it was held that the existence of incriminating material found during the course of the search is a sine qua non for making additions pursuant to a search and seizure operation. In the event no incriminating material is found during search, no addition could be made in respect of the assessments that had become final. Revenue’s case is hinged on the statement of Mr.
Jindal, which according to them is the incriminating material discovered during the search action. This statement certainly has the evidentiary value and ITA Nos.3906 & 3907/Del/2023
relevance as contemplated under the explanation to section 132(4) of the Act. However, this statement cannot, on a standalone basis, without reference to any other material discovered during search and seizure operations, empower the AO to frame the block assessment. This court in Principal Commissioner of Income Tax, Delhi v. Best Infrastructure (India) P.
Ltd.,2 has inter-alia held that:
“38. Fifthly, statements recorded under Section 132(4) of the Act do not by themselves constitute incriminating material as has been explained by this Court in Harjeev Aggarwal.3”
10. Now, coming to the aspect 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 AO 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 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 AO who has juri iction over such person.
Here, the assessment has been framed under section 153A on the basis of alleged incriminating material
(being the statement recorded under 132(4) 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 ITAT. Therefore, we do not find any substantial question of law that requires our consideration.”
Best Infrastructure (India) (P.) Ltd. vs. CIT [2017] 397 ITR 82
[Delhi High Court – 01.08.2017]
“38. Fifthly, statements recorded under Section 132 (4) of the Act of the Act do not by themselves constitute incriminating material as has been explained by this Court in Harjeev Aggarwal (supra). Lastly, as already pointed out hereinbefore, the facts in the present case are different from the facts in Smt. Dayawanti Gupta (supra) where the admission by the Assessees themselves on critical aspects, of failure to maintain accounts and admission that the seized documents reflected transactions of unaccounted
ITA Nos.3906 & 3907/Del/2023
sales and purchases, is non-existent in the present case. In the said case, there was a factual finding to the effect that the Assessees were habitual offenders, indulging in clandestine operations whereas there is nothing in the present case, whatsoever, to suggest that any statement made by Mr. Anu Aggarwal or Mr. Harjeet Singh contained any such admission.”
Principal Commissioner of Income Tax (Central)-3 v. Pavitra
Realcon Pvt. Ltd., ITA 579/2018, High Court of Delhi:
“19. 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.
CIT v. Harjeev Aggarwal [2016] 70 taxmann.com 95 [Delhi High
Court – 10.03.2016]
It is also necessary to mention that the aforesaid interpretation of Section 132(4) of the Act must be read with the explanation to Section 132(4) of the Act which expressly provides that the scope of examination under Section 132(4) of the Act is not limited only to the books of accounts or other assets or material found during the search. However, in the context of Section 158BB(1) of the Act which expressly restricts the computation of undisclosed income to the evidence found during search, the statement recorded under Section 132(4) of the Act can form a basis for a block assessment only if such statement relates to any incriminating evidence of undisclosed income unearthed during search and cannot be the sole basis for making a block assessment.
Principal Commissioner of Income-tax, Central -3, New Delhi v.
M/s PGF Ltd., ITA 528/2019, High Court of Delhi
ITA Nos.3906 & 3907/Del/2023
7. It is well settled from the judicial precedents cited above that the statements recorded under Section 132, in the absence of any corroborating incriminating material, do not constitute valid grounds for making additions. Moreover, where such statements have been retracted, the AO is duty-bound to consider the retractions and independently verify the facts before relying on them. In the present case, no incriminating material was found during the course of the search in relation to the Respondent-Assessee.
In light of the above, it is respectfully submitted that the additions made by the AO in the absence of any search-based incriminating material are invalid and liable to be deleted.
II.
RETRACTED STATEMENTS CANNOT BE RELIED UPON 9. It is a settled principle of law that retracted statements cannot form the basis for making additions unless they are duly corroborated by independent and credible evidence. In the present case, the AO placed reliance on the statements of Mr. Neeraj Jain and Shri Rajiv Agarwal both of which were subsequently retracted through written communications submitted during the course of assessment. Despite the retractions, the AO failed to undertake any further enquiry or verification, nor was any independent material brought on record to substantiate the contents of the original statements.
Significantly, both retractions were made within a short and reasonable time, thereby strengthening their evidentiary weight and credibility. Mr. Rajiv Agarwal retracted his statement within 13 days, on 23.04.2019, from the date of its original recording on 10.04.2019. Similarly, Mr. Neeraj Jain issued his retraction within 34 days, on 08.05.2019, from the date of his statement. These prompt and unequivocal retractions indicate that the original statements were either made under coercion or given under misapprehension and thus cannot be relied upon without further corroboration.
In his retraction dated 23.04.2019, Mr. Rajiv Agarwal asserted that his statement was extracted under duress, alleging that he was detained in unauthorized custody for seven days, during which time he and his family were subjected to severe mental harassment. He specifically mentioned that the authorities threatened arrest of his wife and minor son, and that his statement was pre-drafted and obtained under pressure without being read or understood. Accordingly, he stated
ITA Nos.3906 & 3907/Del/2023
that the statement was neither voluntary nor true, and retracted it in its entirety, emphasizing that no adverse inference should be drawn therefrom. (Page No. 111-113 and Page No. 108-119 of Paper Book for AY 2018-19 and 2019-20)
Likewise, Mr. Neeraj Jain, in his retraction dated 08.05.2019, outlined the mental and emotional distress faced by his family during the search and seizure operation. He categorically stated that he was not the subject of the search and that his statement was forcibly recorded by linking him with entities over which he had no control or involvement. Mr. Jain further deposed that the authorities drafted both the questions and answers and compelled him to sign the statement without any opportunity to review its contents. Consequently, he too formally retracted his statement and clarified that no part of it should be used to draw adverse conclusions against the assessee.
The Hon’ble Rajasthan High Court in Pr. CIT v. Roshan Lal Sancheti [2023] 150 taxmann.com 66 has recognized that retraction of a statement can be considered valid where it is accompanied by cogent reasons and made within a reasonable time.
In the present case, the following key features distinguish the factual matrix and reinforce the bona fides of the retractions made:
The statements of Mr. Rajiv Agarwal and Mr. Neeraj Jain were retracted within a short and reasonable span 13 days and 34 days, respectively.
Each retraction was made by way of a detailed written affidavit citing clear grounds including the involuntary nature of the statement, undue pressure, and denial of an opportunity to review the contents. This timely action lends strong credibility to the retraction and demonstrates absence of delay or afterthought.
No documents, cash, or material incriminating the Respondent-Assessee were found during the search to support the contents of the original statements. The alleged transactions are fully recorded in the books of accounts, supported by confirmations, PANs, financial statements, and banking records.
In view of the above, and in the absence of any corroborating material evidence, the retracted statements lack probative value and are devoid of any evidentiary merit. The Hon’ble Courts have consistently held that retracted statements must be viewed with extreme caution and cannot be acted upon unless duly supported by independent material found during search or investigation. Particularly
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in the context of proceedings under Section 153A/153C, the law mandates that additions must be based on incriminating material found during the course of search, and not merely on uncorroborated retracted statements, which stand vitiated by procedural infirmities and violation of the principles of natural justice.
This principle has been reiterated in numerous judicial pronouncements, which have held that additions based solely on retracted and untested statements is legally unsustainable. Reliance in this regard is placed on the following case laws:
CIT v. Jindal Steel & Power Ltd. [2023] 157 taxmann.com 207
(Supreme Court – 06.12.2023)
From the materials on record, we find that the assessing officer had solely relied upon the statements made by Shri S.K. Gupta on 12-12-2006 and 23-12-2006 during the course of the search. However, the assessing officer overlooked the fact that within a short span of time, Shri S.K. Gupta had retracted from the said statements by filing an affidavit on 5-2-2007. Thereafter, he reiterated the statements made by him in the affidavit dated 5-2-2007 in a statement recorded on 8-2-2007. We find that in the later statements, Shri S.K. Gupta had categorically stated that he had rendered services to the assessee. He also mentioned that the name of the assessee was not referred to as one of the beneficiaries of the accommodation bills in his earlier statement. He had categorically stated that he had rendered service to the assessee and that the assessee had not obtained any bogus accommodation bills from him. The assessing officer had disbelieved the affidavit as well as the subsequent statement of Shri S.K. Gupta without any justifiable and cogent reason. That apart, when the revenue had relied upon the retracted statement of Shri S.K. Gupta, it ought to have provided an opportunity to the assessee to cross-examine Shri S.K. Gupta, which was however denied. Thus, revenue was not justified in disallowing the claim of professional expenses of the assessee on account of payment to Shri S.K. Gupta and his group of companies. 52. Therefore, we agree with the view taken by the High Court. As noted by the High Court, the entire issue is based on appreciation of the materials on record. The Tribunal had scrutinized the materials on record and thereafter had recorded a finding of fact that there was sufficient evidence to justify payment made by the assessee to Shri S.K. Gupta, a consultant of the assessee, and that the assessing officer had wholly relied upon the statement of Shri
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Gupta recorded during the search operation, which was retracted by him within a reasonable period. In these circumstances, we are of the view that there is no admissible material to deny the claim of expenditure made by the assessee. Accordingly, this issue is answered in favour of the assessee and against the revenue.
CIT v. Harjeev Aggarwal [2016] 70 taxmann.com 95 [Delhi High
Court – 10.03.2016]
“… 24. If the Revenue's contention that the block assessment can be framed only on the basis of a statement recorded under Section 132(4) is accepted, it would result in ignoring an important check on the power of the AO and would expose
Companys to arbitrary assessments based only on the statements, which we are conscious are sometimes extracted by exerting undue influence or by coercion Sometimes statements are recorded by officers in circumstances which can most charitably be described as oppressive and in most such cases, are subsequently retracted.
Therefore, it is necessary to ensure that such statements, which are retracted subsequently, do not form the sole basis for computing undisclosed income of a Company.. …”
Gajjam Chinna Yellappa vs. Income-tax Officer [2015] 370 ITR 671
[Andhra Pradesh and Telangana -06.11.2014]
“The Act empowers the Assessing Officers or other authorities to record the statements of the assesses, whenever a survey or search is conducted under the relevant provisions of law. The statements so recorded are referable to Section 132 of the Act. Sub-section 4 thereof enables the authorities not only to rely upon the statement in the concerned proceedings but also in other proceedings that are pending, by the time the statement was recorded.
If the statement is not retracted, the same can constitute the sole basis for the authorities to pass an order of assessment.
However, if it is retracted by the person from whom it was recorded, totally different considerations altogether, ensue. The situation resembles the one, which arises on retraction from the statement recorded under Section 164 Cr.P.C. The evidentiary value of a retracted statement becomes diluted, and it loses the strength, to stand on its own. Once the statement is retracted, the Assessing Authority has to garner some
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support, to the statement for passing an order of assessment.
In I.T.A.No.112 of 2003, this Court dealt with the very aspect and held that a retracted statement cannot constitute the sole basis for fastening liability upon the assessee.
In the instant case, the appellants specifically pleaded that the statements were recorded from them by applying pressure, till midnight, and that they have been denied access outside the society. The Assessing
Officer made an effort to depict that the withdrawal or retraction on the part of the appellants is not genuine.
We do not hesitate to observe that an Assessing Officer does not have any power, right or juri iction to tell, much less to decide, upon the nature of withdrawal or retraction. His duty ends where the statement is recorded. If the statements are retracted, the fate thereof must be decided by law meaning thereby, a superior forum and not by the very authority, who is alleged to have exerted force.
It is not as if the retraction from a statement by an assessee would put an end to the procedure that ensued on account of survey or search. The Assessing
Officer can very well support his findings on the basis of other material. If he did not have any other material, in a way, it reflects upon the very perfunctory nature of the survey. We find that the appellate authority and the Tribunal did not apply the correct parameters, while adjudicating the appeals filed before them. On the undisputed facts of the case, there was absolutely no basis for the Assessing Officer to fasten the liability upon the appellants. Our conclusion find support from the Circular dated
10.03.2003 issued by the Central Board of Direct
Taxes, which took exception to the initiation of the proceedings on the basis of retracted statements.”
DEEPCHAND & CO. v. ACIT [1995] 51 TTJ 421 [Bombay Tribunal - 27-
07-1994]
The stereotyped mention at the end of the statement that whatever was stated was true and to the best of the knowledge and belief and the statement given was voluntary without any threat, force or undue influence, would not mean that the partners agreed for making additions. Putting certain expression at the end of the statement cannot be taken as true in view of the retraction. Retraction
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can be made only after understanding the correct meaning and consequences of the statement.
Crucially, the AO failed to bring any independent corroborative evidence on record to substantiate the contents of the retracted statements. It is a well-established legal principle that retracted statements, in the absence of supporting material, have little to no evidentiary value. Therefore, the assessment order having been based solely on such uncorroborated and retracted statements, is legally unsustainable and liable to be quashed.
III.
DENIAL OF OPPORTUNITY FOR CROSS-EXAMINATION: VIOLATION
OF PRINCIPLES OF NATURAL JUSTICE
In the present case, the AO made significant additions solely on the basis of statements recorded from third parties, particularly Mr. Neeraj Jain and Shri Rajiv Agarwal. It is pertinent to note that the Respondent- Assessee had specifically requested an opportunity to cross-examine Mr. Neeraj Jain (refer letter dated 17.09.2021 at Pg. 141 of Paper Book – AY 2018–19) and (refer letter dated 17.09.2021 at Pg. 143 of Paper Book – AY 2019-20), but the same was denied by the AO without any justification. It is a settled principle of law that any evidence or statement used against the assessee must be tested through cross-examination if so requested. The failure to allow cross- examination constitutes a gross violation of the principles of natural justice, and any addition made on the basis of such untested statements is legally unsustainable.
Reliance in this regard is placed on various judicial precedents:
M/s Andaman Timber Industries Vs. CCE (Civil Appeal No. 4228 of 2006)
"5. According to us, not allowing the assessee to cross examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected.
It is to he borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross examine, the Adjudicating Authority did not grant this opportunity to the ITA Nos.3906 & 3907/Del/2023
assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has .specifically mentioned that such an opportunity was sought by the assessee. However-, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As, far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their exiactory prices remain static. It was not for the Tribunal to have guesswork as to .for what purposes the appellant wanted to cross examine those dealers and what extraction the appellant wanted from them.”
“7. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross examination. That apart. the Adjudicating Authority simply relied upon the pricelist as maintained at the depot to determine the price the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the pricelist itself could be the subject matter of cross examination. Therefore, it was not for the Adjudicating
Authority to presuppose as to; chat could be the subject matter of the cross examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil
Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving ins reasons for accepting or rejecting the submissions.”
“8. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid Iwo witnesses was the only basis of issuing the Show Cause
Notice.”
CIT vs. Ashwani Gupta [2010] 322 ITR 396 (Delhi High Court)
“the Tribunal has correctly understood the law and applied it to the facts of the case. Once there is a violation of the principles of natural justice inasmuch as seized material is not provided to an assessee nor is cross-examination of the person on whose statement the Assessing Officer relies upon, granted, then, such deficiencies would amount to a denial of opportunity and, consequently, would be fatal to the proceedings. Following the approach adopted by us in SMC
ITA Nos.3906 & 3907/Del/2023
Share Brokers (supra), we see no reason to interfere with the impugned order. No substantial question of law arises for our consideration.”
Sona Electric Company vs. CIT 152 ITR 507 (Delhi High Court)
“Then, there is finally, the third question which requires to be examined. The statement of Shri Sardari Lal was recorded on 23rd August, 1969, in the absence of the assessee. On that date, a letter had been submitted on behalf of the assessee to state that the grandmother of Shri Madan Mohan Gupta.
managing partner of the assessee, had died and some other dale after a fortnight should be fixed. It seems that the ITO recorded the statement in the absence of the assessee thus excluding cross-examination by the assessee. This shows that the statement of Shri Sardari Lal has to be excluded from consideration. Significantly, one of the questions put to Shri Sardari Lal by the ITO was as to what was the explanation for all other payments being made either by an account payee cheque or against receipted vouchers and even against a bearer cheque, signature had been taken on the counterfoil. The witness was unable to explain why the assessee had been treated differently. If the so-called receipt signed by Shri Brij Mohan and the statement of Shri
Sardari Lal as well as the cheque dated 27th July. 1967, are excluded from consideration, we would he left with a case with no evidence."
Rajuram Savaji Purohit vs. ITO [2024] 169 taxmann.com 18
(Mumbai - Trib.)
“it is also an admitted fact that no cross-examination was granted to the assessee though materials were considered adversely in its case. The Hon'ble Supreme Court in the case
Recently, Hon'ble Supreme Court in the matter of Andaman
Timber Industries vs, Commissioner of Central Excise,
Kolkata-II (2015, [2015] 62taxmann.com 3/52 GST 355/314
ELT 641 (SC)SC), held that when statements of witnesses are made basis of demand, not allowing assessee to cross- examine witnesses, is a serious flaw which makes order nullity, as it amounts to violation of principles of natural justice. Moreover, if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the show cause notice.”
In the absence of any opportunity for cross-examination, the reliance placed by the AO on third-party statements is in clear violation of the principles of natural justice. Accordingly, such untested and ITA Nos.3906 & 3907/Del/2023 uncorroborated statements cannot form the basis for making additions and render the assessment legally unsustainable.
IV.
FAILURE ON THE PART OF THE AO TO CONSIDER EVIDENCE
ESTABLISHING
IDENTITY,
CREDITWORTHINESS,
AND GENUINENESS SUBMITTED BY THE RESPONDENT-ASSESSEE
It is submitted that during the course of assessment proceedings, the Respondent-Assessee has placed on record voluminous, credible documentary evidence and reason for which the loan was taken to conclusively prove the identity and creditworthiness of each lender, as well as the genuineness of each loan transaction. The burden cast upon the assessee under Section 68 has been duly discharged, and there exists no material whatsoever to justify the additions made.
It is submitted that the unsecured loans received by the Respondent- Assessee during the relevant assessment years were raised for legitimate business purposes, including meeting working capital requirements, financing operational expenses, and supporting business expansion activities. As a company engaged in the hydro-electric power sector, the nature of operations necessitated significant capital deployment, including payments to vendors, project-related expenditures, and servicing of ongoing commitments.
The receipt of loans through proper banking channels, coupled with the corresponding entries in the books of accounts, confirm the commercial exigency behind availing the said loans. At no point has the AO brought any material on record to indicate otherwise or to suggest that the loan proceeds were used for any purpose other than business.
Further in order to establish the identity, creditworthiness and genuineness of the lenders the Respondent-Assessee submitted as under:
Identity of the Lenders
The Respondent-Assessee submitted comprehensive documentation during the assessment proceedings to establish the identity of each lender entity from whom unsecured loans were received. The documents furnished included:
Copy of Permanent Account Number (PAN) of each lender;
Certificate of Incorporation issued by the