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., 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-assessee companies had shown advances against property aggregating ₹325.23 crores received from entities belonging to the “Jain Group,” alleged accommodation entry providers.

When confronted, the Directors reportedly stated that they were unable to explain the receipts and made a voluntary disclosure treating the amount as unaccounted income for AY 2011–12. Assessment orders were subsequently passed under Section 143(3) read with Section 153C making additions under Section 68 based on directors’ statements and documents seized from the Jain Group.

 Issues Involved

  1. Whether additions under Section 68 can be sustained in absence of incriminating material found during search relating to the assessee.
  2. Whether statements recorded under Section 132(4) alone are sufficient evidence for making additions.
  3. Whether reliance on third-party material without cross-examination violates natural justice.
  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 explicit admissions by the Directors acknowledging receipt of accommodation entries. It argued that statements recorded during search carry significant evidentiary value and justify additions.

It was further submitted that although no notice under Section 153C was issued for the relevant assessment year, the defect was curable under Section 292B. The Revenue also relied on documents seized from the Jain Group to support the additions.

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 materials recovered from third parties without establishing nexus to the assessee.

It was also argued that statements of the Jain Group’s owner were neither furnished nor was any opportunity for cross-examination 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.
  • Additions cannot be sustained solely on the basis of statements recorded under Section 132(4) without corroborative evidence.
  • Admissions made during search must be supported by independent material.
  • The Court relied on precedents such as CIT v. Harjeev Aggarwal and Kailashben Manharlal Chokshi v. CIT, holding that statements alone cannot justify additions.
  • Supreme Court decision in CIT v. Abhisar Buildwell Pvt. Ltd. was cited for the principle that completed assessments cannot be disturbed without incriminating material.
  • Failure to provide opportunity for cross-examination of witnesses whose statements were relied upon constituted 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 how the seized material belonged to the assessee.

Important Clarification

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

It also underscores that denial of cross-examination is a serious breach of natural justice that can nullify the entire assessment. Further, jurisdictional lapses cannot be cured by invoking Section 292B.

 Link to download the order -  https://www.mytaxexpert.co.in/uploads/1772177520_PRINCIPALCOMMISSIONEROFINCOMETAXCENTRAL3VsPAVITRAREALCONPVT.LTD..pdf  

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