Facts of the Case

The assessee, Kamal Kishore Chaurasia, filed his return of income on 28.11.2014 declaring total income of Rs. 2,32,80,220 for Assessment Year 2014-15.

The original assessment was completed on 27.10.2016.

A search and seizure operation under Section 132 of the Income Tax Act was conducted on 15.01.2020 in the Kamla Pasand Group, including the assessee.

Consequently, notice under Section 153A was issued requiring the assessee to file return for six assessment years preceding the year of search.

During assessment proceedings, the Assessing Officer observed that the assessee had claimed exempt Long Term Capital Gain (LTCG) under Section 10(38) amounting to Rs. 6,73,58,676 from sale of shares of Nikki Global Finance Ltd.

The assessee had purchased 74,140 shares in FY 2006-07 for Rs. 8,42,321 and sold them during FY 2013-14 for Rs. 6,74,19,148, thereby claiming LTCG.

The Assessing Officer relied upon statements of alleged entry operators Anil Kedia and Soumen Sen, who stated that the company was a penny stock used for providing accommodation entries.

  • Added Rs. 6,74,19,148 under Section 68 treating sale proceeds as unexplained cash credit.
  • Added Rs. 20,22,574 under Section 69C as commission for obtaining accommodation entries.

 

Issues Involved

  1. Whether addition under Section 68 can be made in a search assessment under Section 153A when no incriminating material is found during search.
  2. Whether commission expenses under Section 69C can be added without any seized evidence.
  3. Whether the scope of Section 153A allows reassessment of completed assessments without incriminating material found during search.

 

Petitioner’s Arguments (Revenue)

  • The assessee was a beneficiary of bogus LTCG through penny stock transactions.
  • Statements of entry operators Anil Kedia and Soumen Sen, recorded under Section 131, confirmed that Nikki Global Finance Ltd. was used for accommodation entries.
  • The abnormal rise in share prices was not supported by the financials of the company.
  • Therefore, the addition under Sections 68 and 69C was justified.

 

Respondent’s Arguments (Assessee)

  • The assessment for AY 2014-15 was already completed before the search.
  • Hence, it was an unabated assessment.
  • No incriminating documents or material were found during the search relating to the alleged LTCG transaction.
  • The additions were made solely based on third-party investigation reports and statements.
  • As per settled law, no addition can be made in Section 153A proceedings for completed assessments unless supported by incriminating material found during search.

 

Court Findings / ITAT Order

The ITAT Delhi Bench held that:

  • The additions made by the Assessing Officer were not based on any incriminating material found during the search.
  • The information regarding the alleged bogus LTCG originated from earlier investigation by the department and not from search proceedings.
  • Since the assessment was already completed (unabated assessment), additions under Section 153A can only be made on the basis of incriminating material discovered during search.

The Tribunal relied on judicial precedents including:

  • PCIT vs Abhisar Buildwell Pvt Ltd (Supreme Court, 2023)
  • CIT vs Kabul Chawla (Delhi High Court, 380 ITR 573)
  • CIT vs Meeta Gutgutia (Delhi High Court, 395 ITR 526)

Accordingly, the ITAT confirmed the order of the CIT(A) and dismissed the Revenue’s appeal.

The additions were deleted:

  • Rs. 6,74,19,148 under Section 68
  • Rs. 20,22,574 under Section 69C

 

Important Clarification

The Tribunal reaffirmed an important legal principle:

For completed (unabated) assessments, Section 153A does not permit additions unless incriminating material is found during the search.

If no such material is discovered, the assessing officer cannot revisit or disturb the completed assessment.

This principle has been strongly upheld by the Supreme Court in PCIT vs Abhisar Buildwell Pvt Ltd (2023).

 

Sections Involved

  • Section 132 – Search and Seizure
  • Section 153A – Assessment in case of search
  • Section 68 – Unexplained Cash Credit
  • Section 69C – Unexplained Expenditure
  • Section 10(38) – Exemption on Long Term Capital Gains (applicable during the relevant period)
  • Section 131 – Power regarding discovery and production of evidence

Link to download the order -  https://itat.gov.in/public/files/upload/1735632808-4htuvt-1-TO.pdf

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