Facts of the Case

The Revenue filed appeals challenging the order dated 04 October 2017 passed by the Income Tax Appellate Tribunal (ITAT) concerning Assessment Year 2011-12 in respect of M/s Design Infracon Pvt. Ltd., along with connected entities forming 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 emerged that the respondent companies had shown advances against property aggregating approximately ₹325.23 crores received from certain entities belonging to the “Jain Group,” alleged to be accommodation entry providers.

Directors of the respondent companies reportedly made statements indicating inability to explain these receipts and offered the amount as unaccounted income for AY 2011-12. Assessment orders were subsequently passed under Section 143(3) read with Section 153C, making substantial 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 absence of incriminating material found during search relating to the assessee.
  2. Whether statements recorded under Section 132(4) alone constitute sufficient evidence for assessment.
  3. Whether failure to provide opportunity for cross-examination of third-party witnesses vitiates the proceedings.
  4. Whether jurisdictional defects in assessment can be cured under Section 292B.

Petitioner’s (Revenue’s) Arguments

The Revenue contended that the ITAT erred in deleting additions despite admissions by the Directors acknowledging receipt of accommodation entries. It argued that statements recorded during search carry significant evidentiary value and justified the additions.

It was further submitted that although notice under Section 153C was not issued for the relevant assessment year, the omission was a rectifiable defect under Section 292B. The Revenue also relied on materials seized from the Jain Group to support the assessment.

Respondent’s (Assessee’s) Arguments

The assessee contended that no incriminating material pertaining to it was found during the search. The additions were based primarily on statements and documents recovered from third parties without establishing a nexus to the assessee.

It was also argued that neither the statements of the Jain Group’s owner nor an opportunity for cross-examination was provided despite repeated requests, constituting a serious violation of natural justice.

Court Order / Findings

  • No incriminating material relating to the assessee was found during the search.
  • Statements recorded under Section 132(4), though having evidentiary value, cannot alone justify additions without corroborative evidence.
  • Admissions made during search must be supported by independent material to sustain assessment.
  • The Court relied on precedents including CIT v. Harjeev Aggarwal and Kailashben Manharlal Chokshi v. CIT, which hold that statements alone cannot form the basis of additions.
  • Supreme Court ruling in CIT v. Abhisar Buildwell Pvt. Ltd. was cited to reiterate that completed assessments cannot be disturbed in absence of incriminating material.
  • Failure to provide opportunity for cross-examination of witnesses whose statements were relied upon amounted to violation of natural justice, rendering the proceedings invalid, consistent with Andaman Timber Industries v. CCE.
  • Jurisdictional defects cannot be cured under Section 292B.
  • The satisfaction note was found to be mechanical and did not establish that the seized material belonged to the assessee.

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, especially when uncorroborated or retracted, cannot independently sustain additions.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1772177485_PRINCIPALCOMMISSIONEROFINCOMETAXCENTRAL3VsDESIGNINFRACONPVT.LTD..pdf  

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.