Facts of the Case

The Revenue filed appeals challenging the order dated 04 October 2017 passed by the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2011–12 concerning M/s Pavitra Realcon Pvt. Ltd., M/s Delicate Realtors Pvt. Ltd., and M/s Design Infracon Pvt. Ltd., all part of the BPTP Group.

A search and seizure operation under Section 132 of the Income Tax Act, 1961 was conducted on the BPTP Group on 07 December 2010. During the search, it was noticed that the respondent companies had shown advances against property aggregating ₹325.23 crores received from certain entities belonging to the “Jain Group,” alleged to be accommodation entry providers.

Directors of the respondent companies reportedly stated that they could not explain these receipts and made a voluntary disclosure treating the amounts as unaccounted income for AY 2011–12. Assessment proceedings were subsequently initiated, culminating in additions under Section 68 based on statements and documents seized from the Jain Group.

 Issues Involved

  1. Whether additions under Section 68 could be sustained in a search assessment without incriminating material relating to the assessee.
  2. Whether statements recorded under Section 132(4) alone constitute sufficient evidence for additions.
  3. Whether denial of cross-examination of third-party witnesses violates principles of natural justice.
  4. Validity of assessment under Section 153C in absence of proper jurisdictional satisfaction.

Petitioner’s (Revenue’s) Arguments

The Revenue contended that the ITAT erred in deleting additions despite explicit admissions by the Directors acknowledging receipt of accommodation entries. It argued that statements recorded during search under Section 132(4) possess high evidentiary value and justified the additions.

The Revenue also submitted that although notice under Section 153C was not issued for the relevant assessment year, the defect was curable under Section 292B. It further maintained that the assessment was properly framed based on seized materials from the Jain Group.

Respondent’s (Assessee’s) Arguments

The assessee contended that no incriminating material pertaining to the respondent companies was found during the search. The additions were based solely on statements and materials recovered from third parties, without establishing nexus to the assessee.

It was also argued that statements of third parties were not provided to the assessee and no opportunity for cross-examination was granted, thereby violating principles of natural justice.

Court Order / Findings

  • No incriminating material relating to the assessee was found during the search.
  • Additions under Section 68 cannot be sustained merely on the basis of statements recorded during search without corroborative evidence.
  • Admissions alone do not justify assessment unless supported by independent material.
  • The Court relied on precedents including CIT v. Harjeev Aggarwal and Kailashben Manharlal Chokshi v. CIT, which hold that statements under Section 132(4) cannot be the sole basis for addition.
  • Supreme Court decision in CIT v. Abhisar Buildwell Pvt. Ltd. was noted for the principle that completed assessments cannot be disturbed without incriminating material.
  • Material seized from third parties must demonstrably belong to or relate to the assessee to invoke Section 153C.
  • Failure to provide opportunity for cross-examination rendered the proceedings violative of natural justice, relying on Andaman Timber Industries v. CCE.
  • Jurisdictional defects cannot be cured under Section 292B.

Important Clarification

The judgment reinforces that search-based assessments must be grounded in tangible incriminating material directly linked to the assessee. Statements recorded during search, particularly when retracted or uncorroborated, cannot independently sustain additions.

It also affirms that denial of cross-examination of witnesses whose statements are relied upon constitutes a serious violation of natural justice, rendering the assessment invalid.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1772177436_PRINCIPALCOMMISSIONEROFINCOMETAXCENTRAL3VsDELICATEREALTORSPVT.LTD..pdf 

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