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Income Tax Appellate Tribunal, DELHI BENCH : H : DELHI
Before: SHRI SAKTIJIT DEY & SHRI M. BALAGANESH
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : H : DELHI
BEFORE SHRI SAKTIJIT DEY, VICE PRESIDENT AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA No.4997/Del/2019 Assessment Year: 2013-14 ACIT, Vs Kamana Industries Pvt. Ltd., Central Circle-30, Piau Maniyari, New Delhi. Narela Road, Kundli, Sonepat, Haryana – 131 028. PAN AABCK7580K (Appellant) (Respondent) Assessee by : Shri P.C. Yadav & Shri Shivam Garg, Advocate Revenue by : Ms Sapna Bhatia, CIT-DR Date of Hearing : 01.05.2023 Date of Pronouncement : 27.07.2023 ORDER PER M. BALAGANESH, AM: This appeal in ITA No.4997/Del/2019 for AY 2013-14 arises out of the order of the Commissioner of Income-tax (Appeals)-30, New Delhi, in Appeal No.172/16- 17/2606 dated 13.03.2019 [hereinafter referred to as ‘ld. CIT(A)’, in short] against the order of assessment passed u/s 153A of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 29.12.2016 by the ld. Income-tax Officer, Central Circle-30, New Delhi (hereinafter referred to as ‘ld. AO’).
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The only issue to be decided in this appeal is as to whether the ld.CIT(A) was justified in deleting the addition made on account of share capital received by the assessee in the sum of Rs.7,10,00,000/- in the facts and circumstances of the instant case.
We have heard the rival submissions and perused the material available on record. The assessee is a private limited company engaged in the business of manufacturing of tobacco products and generation of wind power. The original return of income was filed by the assessee company on 29.09.2013 declaring loss of Rs.1,94,70,785/-. A search and seizure action u/s 132 of the Act was conducted on 09.10.2014 at various business and residential premises of M/s Kuber Group of cases including the premises of the assessee company. A notice u/s 153A of the Act was issued on 30.06.2016 to the assessee company. In response to the said notice, the assessee company filed its return of income declaring a loss of Rs.1,13,59,267/- on 17.10.2016. During the year under consideration, the assessee company received fresh share capital from the following parties:- I. M/s Campbell Advertising Pvt. Ltd. Rs. 50,00,000/- II. M/s Pashupati Dealcom Pvt. Ltd Rs. 5,50,000/ - III. M/s Sanjay Tie-up Pvt. Ltd. Rs. 39,50,000/- IV. M/s Sree Ohm Properties Pvt. Ltd. Rs. 2,15,00,000/- V. Visionary Infraprojects Pvt. Ltd. Rs. 4.00.00.000/- Total Rs. 7,10,00,000/ -
During the search, the Director of the group agreed for disclosure of Rs.100 crores for the whole group on account of share capital received in various entities from various parties. This statement was not retracted by the concerned director.
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As on the date of search on 09.10.2014, the assessee had already filed its original return of income on 29.09.2013 and the time limit for issue of notice u/s 143(2) of the Act had expired on 30.09.2014. Hence, as on the date of search assessment for AY 2013-14 becomes an unabated assessment. Now, the moot question that arises for our consideration is that whether the share capital received by the assessee during the year in the sum of Rs.7,10,00,000/- could be subject matter of any addition in the search assessment framed u/s 153A of the Act in the absence of any incriminating material found during the course of search qua this issue of share capital. The law is very well settled by the recent decision of the Hon’ble Supreme Court in the case of PCIT vs. Abhisar Buildwell Pvt. Ltd. in Civil Appeal No.0580/2021 dated 24.04.2023 wherein it has been categorically held that in respect of unabated assessment, the ld. AO while framing the search assessment, could not disturb the assessment already completed either u/s 143(1) or u/s 143(3) or u/s 147 of the Act unless he has any incriminating material found during the course of search relatable to such assessment year (i.e., unabated assessment year) qua the related addition that is made. In the instant case, it is not in dispute that there is absolutely no search material except the statement recorded from the director of the group. This fact is not controverted by the Revenue before us. Now, yet another point that arises for our consideration is as to whether a statement recorded u/s 132(4) of the Act per se could be construed as an incriminating material. We find that this issue is no longer res integra in view of the decision of the Hon’ble jurisdictional High Court in the case of PCIT vs. Best Infrastructure (I)
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(P) Ltd., reported in 397 ITR 82 and in the case of CIT vs. Harjeev Aggarwal, reported in 241 Taxman 199 wherein it has been categorically held that a Director of a company surrendering certain sums as undisclosed income could not be construed as incriminating material found during the course of search. It is not in dispute that the entire addition made in the instant case for disbelieving the share capital as unexplained cash credit u/s 68 of the Act was on the basis of statement recorded from Mr. Mul Chand Malu. It was submitted that Shri Mul Chand Malu was neither a director nor an employee in the assessee company. There is absolutely no other corroborative evidence found during the course of search to support this statement. This fact is also not controverted by the Revenue before us.
In view of the above, it could be safely construed that the addition made u/s 68 of the Act disbelieving the share capital received by the assessee in the sum of Rs.7.10 crores was made without any incriminating material or document found during the course of search. Respectfully following the decision of the Hon’ble Supreme Court in the case of Abhisar Buildwell Pvt. Ltd. (supra), we have no hesitation in deleting the addition made u/s 68 of the Act in the facts and circumstances of the instant case.
Further, even otherwise, the assessee had specifically pointed out before the ld. AO, vide letter dated 16.01.2018 that Shri Mul Chand Malu was neither a director nor an employee in the assessee company and that his statement cannot be relied upon while framing assessment in the hands of the assessee company. Further, it 4
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was pointed out that Shri Mul Chand Malu died on 10.04.2017 and, hence, the surrender made by him could not be honoured. In fact, we find that the ld.CIT(A) on more than one occasion in his order had categorically stated that the addition towards share capital in the instant case has been made purely based on the statement recorded u/s 132(4) of the Act from Shri Mul Chand Malu alone. It is also pertinent to note that Shri Mul Chand Malu in his statement had not specified the entities for which he is offering Rs.100 crores in his statement. This fact is also not controverted by the Revenue before us. We further find that similar addition made in the case of group company of the assessee was subject matter of adjudication by this Tribunal in the case of ACIT vs. Sanjivani Industries Pvt. Ltd. in ITA No.4214/Del/2018 for AY 2009-10, vide order dated 31.03.2022 wherein, under identical circumstances, based on the same statement of Shri Mul Chand Malu, this Tribunal had deleted the addition made u/s 68 of the Act. Same arguments as advanced by the ld. DR before us in the instant case were also made by the ld. DR in that case also. For the sake of convenience, the relevant operative portion of the said Tribunal order is reproduced hereunder:- “10. We have heard the rival submissions and perused the material available on record. The issue in the present appeal is with respect to the addition made to undisclosed income. It is a fact that assessee had filed its original return of income on 30.09.2009 declaring loss of Rs. Rs.30,91,011/-. The return of income was processed u/s 143(1) of the Act on 03.11.2010 accepting the loss declared by assessee. 11. It is also an undisputed fact that no notice u/s 143(2) of the Act was issued till 30.09.2010 which was the last date by which notice u/s 143(2) of the Act could have issued for A.Y. 2009-10. A search action in the case of assessee was carried out on 09.10.2014 and on the date of search no assessment proceedings were pending in the case of assessee.
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The Hon’ble Delhi High Court in the case of Kabul Chawla (supra) has held that completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. 13. In the present case, we find that addition has been made on account of unexplained credit u/s 68 of the Act being share application money and premium received. The addition has been made on the basis of the statement of Shri Mul Chand Malu which was recorded u/s 132(4) of the Act. Before us, it is the case of the Revenue that Mul Chand Malu was not a third party and he was the main person and promoter, his statement was recorded three times during the search and post search and he always admitted to the undisclosed income and the same was not been retracted by him. On the other hand it is the contention of the assessee that Mr. Mul Chand Malu was not the director and was a third party and no addition can be based on the statement of third party. On the issue of the statement of Mul Chand Malu, we find that identical issue arose in the case of group company, namely Kuber Khadyan Pvt. Ltd. and the Co-ordinate Bench of Tribunal, vide order dated 26.03.2021 has decided the issue and held that statement of Mul Chand Malu u/s 132(4) of the Act cannot be considered as incriminating unless it is corroborated by incriminating material found during the course. The relevant findings reads as under: “9.2 The only dispute is regarding whether there was any incriminating material found during the course of the search. According to the Learned DR statement of Sh. Mulchand Malu recorded under section 132(4) constitute incriminating material and therefore decision of the Kabul Chawla (supra) is not applicable over the facts of the assessee. 9.3 We find that Hon’ble Delhi High Court in the case of PCIT Vs Best Infrastructure Private Limited, 397 ITR 82 has held that statement under section 132(4) in the itself does not constitute incriminating material. The relevant finding of the Hon’ble High Court is reproduced as under: “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 Commissioner of Income Tax v. Harjeev Aggarwal (supra). Lastly, as already pointed out hereinbefore, the facts in the present case are different from the facts in Smt. Dayawanti Gupta v. CIT (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 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
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Mr. Anu Aggarwal or Mr. Harjeet Singh contained any such admission.” 9.4 The relevant paragraph of the decision of the Hon’ble Hon’ble Delhi High Court in the case of Harjeev Agrawal (supra) also reproduced as under: “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 standalone 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. 21. A plain reading of Section 132 (4) of the Act indicates that the authorized officer is empowered to examine on oath any person who is found in possession or control of any books of accounts, documents, money, bullion, jewellery or any other valuable article or thing. The explanation to Section 132 (4), which was inserted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1st April, 1989, further clarifies that a person may be examined not only in respect of the books of accounts or other documents found as a result of search but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Act. However, as stated earlier, a statement on oath can only be recorded of a person who is found in possession of books of accounts, documents, assets, etc. Plainly, the intention of the Parliament is to permit such examination only where the books of accounts, documents and assets possessed by a person are relevant for the purposes of the investigation being undertaken. Now, if the provisions of Section 132(4) of the Act are read in the context of Section 158BB(1) read with Section 158B(b) of the Act, it is at once clear that a statement recorded under Section 132(4) of the Act can be used in evidence for making a block assessment only if the said statement is made in the context of other evidence or material discovered during the search. A statement of a person, which is not relatable to any incriminating document or material found during search and seizure operation cannot, by itself, trigger a block assessment. The undisclosed income of an Assessee has to be computed on the basis of evidence and material found during search. The statement recorded under Section 132(4) of the Act may also be used for making the assessment, but only to the extent it is 7
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relatable to the incriminating evidence/material unearthed or found during search. In other words, there must be a nexus between the statement recorded and the evidence/material found during search in order to for an assessment to be based on the statement recorded. 22. In CIT v. Sri Ramdas Motor Transport Ltd.: (1999) 238 ITR 177 (AP), a Division Bench of Andhra Pradesh High Court, reading the provision of Section 132(4) of the Act in the context of discovering undisclosed income, explained that in cases where no unaccounted documents or incriminating material is found, the powers under Section 132(4) of the Act cannot be invoked. The relevant passage from the aforesaid judgment is quoted below: "A plain reading of sub-section (4) shows that the authorised officer during the course of raid is empowered to examine any person if he is found to be in possession or control of any undisclosed books of account, documents, money or other valuable articles or things, elicit information from such person with regard to such account books or money which are in his possession and can record a statement to that effect. Under this provision, such statements can be used in evidence in any subsequent proceeding initiated against such per son under the Act. Thus, the 15 question of examining any person by the authorised officer arises only when he found such person to be in possession of any undisclosed money or books of account. But, in this case, it is admitted by the Revenue that on the dates of search, the Department was not able to find any unaccounted money, unaccounted bullion nor any other valuable articles or things, nor any unaccounted documents nor any such incriminating material either from the premises of the company or from the residential houses of the managing director and other directors. In such a case, when the managing director or any other persons were found to be not in possession of any incriminating material, the question of examining them by the authorised officer during the course of search and recording any statement from them by invoking the powers under section 132(4) of the Act, does not arise. Therefore, the statement of the managing director of the assessee, recorded patently under section 132(4) of the Act, does not have any evidentiary value. This provision embedded in sub- section (4) is obviously based on the well established rule of evidence that mere confessional statement without there being any documentary proof shall not be used in evidence against the person who made such statement. The finding of the Tribunal was based on the above well settled principle." 23. It is also necessary to mention that the aforesaid interpretation of Section 132(4) of the Act must be read with the 8
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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. 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 assessees 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 an assessee. 25. In Commissioner of Income Tax v. Naresh Kumar Aggarwal: (2014) 3699 ITR 171 (T & AP), a Division Bench of Telangana and Andhra Pradesh High Court held that a statement recorded under Section 132(4) of the Act which is retracted cannot constitute a basis for an order under Section 158BC of the Act. The relevant extract from the said judgement is quoted below: “17. The circumstances under which a statement is recorded from an assessee, in the course of search and seizure, are not difficult to imagine. He is virtually put under pressure and is denied of access to external advice or opportunity to think independently. A battalion of officers, who hardly feel any limits on their power, pounce upon the assessee, as though he is a hardcore criminal. The nature of steps, taken during the course of search are sometimes frightening. Locks are broken, seats of sofas are mercilessly cut and opened. Every possible item is forcibly dissected. Even the pillows are not spared and their acts are backed by the powers of an investigating officer under section 94 of the Code of Criminal Procedure by operation of subsection (13) of section 132 of the Act. The objective may be genuine, and the exercise may be legal. However, the freedom of a citizen that transcends, even the Constitution cannot be treated as non- existent.” “18. It is not without reason that Parliament insisted that the recording of statement must be in relation to the seized and recovered material, which is in the form of documents, cash, gold, 9
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etc. It is, obviously to know the source thereof, on the spot. Beyond that, it is not a limited licence, to an authority, to script the financial obituary of an assessee.” “19. At the cost of repetition, we observe that if the statement made during the course of search remains the same, it can constitute the basis for proceeding further under the Act even if there is no other material. If, on the other hand, the statement is retracted, the Assessing Officer has to establish his own case. The statement that too, which is retracted from the assessee cannot constitute the basis for an order under section 158BC of the Act.”
9.5 In view of the above finding of the Hon’ble Delhi High Court statement of Sh. Mulchand Malu under section 132(4) of the Act alone cannot be considered as incriminating material unless any corroborating incriminating material is found during the course of the search from the premises of the assessee.” 14. As far as the reliance of Learned DR in the case of B. Kishore Kumar (supra) is concerned, we find that the Co-ordinate Bench of Tribunal while deciding the issue in the case of Kuber Khadyan has also at para 9.6 and 9.7 of the order observed that the ratio of the decision in the case of B. Kishore Kumar (supra) is not applicable as in that case the addition was sustained on the basis of statement recorded by assessee himself and was not based on the statement of third party. Further the Co-ordinate Bench of Tribunal placing reliance on the decision of Kabul Chawla (supra) has upheld the order of CIT(A) and dismissed the appeal of Revenue. Before us, Revenue has not placed any material on record to demonstrate that the decision rendered by Co-ordinate Bench in the case of Kabul Khadyan has been set aside/stayed/overruled by Higher Judicial Forum nor has pointed to any distinguishing feature in the facts of the present case as compared to that of Kuber Khadyan. Considering the totality of the aforesaid facts, we find no reason to interfere with the order of CIT(A) and thus the grounds of Revenue are dismissed. 15. In the result, appeal of the Revenue is dismissed.”
In view of the aforesaid observations and respectfully following the decisions relied upon hereinabove, we have no hesitation in deleting the addition made u/s 68 of the Act in the facts and circumstances of the instant case. Accordingly, the grounds raised by the Revenue are dismissed.
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In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 27.07.2023. Sd/- Sd/- (SAKTIJIT DEY) (M. BALAGANESH) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 27th July, 2023. dk Copy forwarded to 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi