Facts of the Case

The present batch of appeals was filed by the Revenue challenging a common order passed by the Income Tax Appellate Tribunal (ITAT) concerning multiple assessment years.

The dispute arose from a search and seizure operation conducted under Section 132 of the Income Tax Act. The Assessing Officer made additions under Section 68 alleging that the share capital and premium received by the assessee companies were from bogus entities.

The ITAT deleted the additions on the ground that no incriminating material was found during the search. The Revenue challenged this finding before the Delhi High Court.

Issues Involved

  1. Whether additions under Section 153A can be made in absence of incriminating material found during search?
  2. Whether share certificates found during search constitute incriminating material?
  3. Whether statements recorded under Section 132(4) can independently justify additions?
  4. Whether denial of cross-examination violates principles of natural justice?

Petitioner’s (Revenue’s) Arguments

  • ITAT wrongly relied on CIT vs Kabul Chawla despite pending SLP before the Supreme Court.
  • Original share certificates found at assessee’s premises indicated accommodation entries and bogus investments.
  • Additions were justified based on statement of a third party (Mr. Rajesh Agarwal) having nexus with seized material.
  • Notices issued under Section 133(6) were returned unserved, indicating non-genuine investor companies.

Respondent’s (Assessee’s) Arguments

  • Only photocopies of share certificates were found, not originals, and thus they were not incriminating.
  • Share certificates merely reflected recorded transactions already disclosed in books.
  • Statement of Mr. Rajesh Agarwal cannot be relied upon as no opportunity for cross-examination was provided.
  • Investor companies had sufficient net worth and had duly responded to notices under Section 133(6).

Court Findings / Judgment

  • No incriminating material was found during the search to justify additions under Section 153A.
  • Share certificates, whether original or photocopies, do not constitute incriminating material as they reflect disclosed transactions.
  • Statements under Section 132(4) alone cannot be treated as incriminating evidence.
  • Denial of cross-examination violates principles of natural justice, making such evidence unreliable.
  • Settled law: No addition can be made in completed assessments without incriminating material.

Final Order:
All appeals filed by the Revenue were dismissed as no substantial question of law arose.

Important Clarifications

  • In absence of incriminating material, completed assessments cannot be disturbed under Section 153A.
  • Statements without corroborative evidence have limited evidentiary value.
  • Cross-examination is a fundamental right under principles of natural justice.
  • Mere possession of documents already disclosed in books does not make them incriminating.

Sections Involved

  • Section 153A of the Income Tax Act, 1961
  • Section 68 of the Income Tax Act, 1961
  • Section 132(4) of the Income Tax Act, 1961
  • Section 133(6) of the Income Tax Act, 1961

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:3924-DB/MMH26092022ITA3662022_184145.pdf


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