Facts of the Case

The present appeals were filed by the Revenue challenging the order passed by the Income Tax Appellate Tribunal (ITAT) concerning Assessment Years 2005–06 to 2009–10. The Assessing Officer (AO) had made additions on account of alleged suppression of gross profit after rejecting the books of accounts of the assessee company.

The additions were primarily based on documents seized during a search operation and statements recorded under Section 132(4) of the Income Tax Act, 1961. However, both the Commissioner of Income Tax (Appeals) [CIT(A)] and ITAT deleted the additions holding that no incriminating material relevant to the concerned assessment years was found during the search.

Issues Involved

  1. Whether additions under Section 153A of the Income Tax Act, 1961 can be made in the absence of incriminating material found during search.
  2. Whether a statement recorded under Section 132(4) alone constitutes incriminating material.
  3. Whether additions can be sustained based on documents pertaining to different assessment years.
  4. Whether distinction between completed and non-scrutiny assessments affects applicability of Section 153A.

Petitioner’s Arguments (Revenue)

  • The ITAT erred in deleting additions despite rejection of books of accounts.
  • Statements recorded under Section 132(4) should be treated as incriminating material.
  • The requirement of incriminating material applies only to completed assessments under Section 143(3), not to non-scrutiny cases.
  • Reliance on CIT vs Kabul Chawla was misplaced as the issue is pending before the Supreme Court.

Respondent’s Arguments (Assessee)

  • No incriminating or corroborative material was found during the search for the relevant assessment years.
  • Additions were wrongly made using documents of subsequent years.
  • Statements under Section 132(4) cannot independently justify additions without supporting evidence.
  • The AO adopted an incorrect method by comparing incomparable products while calculating gross profit.

Court Findings / Order

The Delhi High Court dismissed the appeals of the Revenue and upheld the ITAT order, holding:

  • No addition can be made under Section 153A in absence of incriminating material for completed assessments.
  • A statement under Section 132(4) alone is not sufficient to constitute incriminating material unless supported by other evidence.
  • Additions based on documents of unrelated assessment years are unsustainable.
  • The AO’s comparison of gross profit was flawed as it compared different products with varying price structures.
  • Concurrent findings of fact by CIT(A) and ITAT cannot be interfered with under Section 260A unless a substantial question of law arises.

Accordingly, the Court held that no substantial question of law arose and dismissed the appeals.

Important Clarifications by the Court

  • Existence of incriminating material is a sine qua non for invoking Section 153A in respect of completed assessments.
  • Statements recorded during search must have nexus with seized material to justify additions.
  • Distinction between Section 143(1) and 143(3) assessments is irrelevant for Section 153A.
  • Courts will not interfere with concurrent findings of fact unless legally perverse.

Sections Involved

  • Section 132(4) – Statement during search
  • Section 153A – Assessment in case of search or requisition
  • Section 143(1) & 143(3) – Assessment provisions
  • Section 260A – Appeal to High Court

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/MMH19102022ITA4112022_180611.pdf


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