Facts of the Case

  • Search and seizure proceedings were conducted against the assessee group.
  • Assessments for relevant years had already attained finality (non-abated assessments).
  • Additions were made under Section 68 on account of alleged bogus share capital/premium.
  • Revenue relied on:
    • Share certificates found during search
    • Statement of third party (Sh. Rajesh Agarwal)
    • Non-service of notices under Section 133(6)
  • ITAT deleted additions holding absence of incriminating material.
  • Revenue filed appeals before Delhi High Court.

Issues Involved

  1. Whether additions under Section 153A can be made without incriminating material in completed assessments?
  2. Whether share certificates and third-party statements constitute incriminating material?
  3. Whether denial of cross-examination vitiates reliance on third-party statements?

 Petitioner’s Arguments (Revenue)

  • ITAT erred in relying on CIT vs Kabul Chawla.
  • Original share certificates found at assessee’s premises indicated bogus transactions.
  • Statement of Sh. Rajesh Agarwal had a direct nexus with seized documents.
  • Investor companies were non-genuine as notices under Section 133(6) were returned unserved.
  • Investor entities lacked financial capacity.

 Respondent’s Arguments (Assessee)

  • Only photocopies of share certificates were found, not originals.
  • Share certificates are not incriminating as transactions were recorded in books.
  • Additions were not based on seized material but on post-search investigation.
  • No opportunity for cross-examination of Sh. Rajesh Agarwal was given.
  • Investor companies had sufficient net worth and had responded with full details.

Court Findings / Order

  • No incriminating material was found during search to justify additions.
  • Share certificates (whether original or photocopies) are not incriminating.
  • Statements under Section 132(4) alone do not constitute incriminating material.
  • Denial of cross-examination violates principles of natural justice.
  • Investors had sufficient net worth as evidenced from records (table on pages 8–10).
  • Settled law: No addition under Section 153A in absence of incriminating material in non-abated assessments.
  • No substantial question of law arose.

Final Order: Appeals dismissed.

Sections Involved

  • Section 153A – Assessment in case of search
  • Section 68 – Unexplained cash credit
  • Section 132(4) – Statement during search
  • Section 133(6) – Power to call for information
  • Section 143(3), 154 – Assessment provisions

 Important Clarifications by Court

  • Completed assessments cannot be disturbed under Section 153A without incriminating material.
  • Statements alone are insufficient unless supported by tangible evidence.
  • Cross-examination is a mandatory right; denial renders evidence invalid.
  • Pending SLP does not dilute binding precedent unless stayed.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:3920-DB/MMH26092022ITA3622022_184002.pdf

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