Facts of the Case

A search and seizure operation under Section 132 of the Income Tax Act, 1961 was conducted on 27.07.2016 and 23.08.2016 at the premises of the assessee and related group entities.

Subsequently, assessments for AY 2011-12 and AY 2013-14 were completed under Section 153A, wherein the Assessing Officer made additions relating to unexplained investments in the form of loans and advances.

The Revenue alleged that the assessee, who was a director in certain companies, had received accommodation entries through entry operators in Kolkata. The allegation was primarily based on the statement recorded during survey proceedings under Section 133A.

However, the assessee later retracted the statement through an affidavit, asserting that the statement was not correct and no incriminating evidence supported the allegations.

The CIT(A) deleted the additions on the ground that no incriminating material was found during the search for the relevant assessment years. 

Issues Involved

  1. Whether additions can be made under Section 153A in respect of unabated assessments when no incriminating material is found during search.
  2. Whether a statement recorded during survey/search can be the sole basis for making additions without corroborative evidence. 

Petitioner’s Arguments (Revenue)

  • The CIT(A) erred in deleting the additions made by the Assessing Officer.
  • The assessee had accepted in his statement that accommodation entries were received through entry operators.
  • The assessee subsequently retracted the statement without producing any evidence to substantiate the retraction.
  • The decision in Pebble Investment and Finance Pvt. Ltd. vs ITO was applicable to the case.
  • The Revenue also argued that the ratio laid down in CIT vs Kabul Chawla should not be applied, as the department had filed SLP in related matters.

Respondent’s Arguments (Assessee)

  • No incriminating material was discovered during the search proceedings which could justify the additions made under Section 153A.
  • The assessment years involved were unabated assessments, and therefore additions could only be made on the basis of incriminating material found during search.
  • The additions were solely based on statements recorded during survey proceedings, which were later retracted through a sworn affidavit.
  • Judicial precedents, particularly CIT vs Kabul Chawla, clearly establish that additions cannot be made under Section 153A without incriminating material in respect of completed assessments.

Court Findings / Order

  • The CIT(A) had examined the seized material and assessment records and found that no incriminating evidence was unearthed during the search.
  • The additions made by the Assessing Officer were not based on any seized or incriminating material relating to the relevant assessment years.
  • The legal principle laid down in CIT vs Kabul Chawla was applicable to the present case.
  • The Tribunal further noted that the said principle has been affirmed by the Supreme Court in PCIT vs Abhisar Buildwell Pvt. Ltd. (454 ITR 212).

Important Clarification by ITAT

  • Additions under Section 153A for completed (unabated) assessments can only be made if incriminating material is found during the search.
  • Statements recorded during search or survey alone cannot constitute incriminating material unless supported by evidence.

Link to download the order - https://itat.gov.in/public/files/upload/1703850146-1564%20&%201565%20Amit%20Sankhwal%20...pdf

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