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 (AY 2008–09 to AY 2011–12).

The core issue arose from a search and seizure operation conducted on the assessee group, wherein certain documents, including share certificates, were found. The Assessing Officer (AO) made additions under Section 68 alleging bogus share capital and accommodation entries.

However, both the Commissioner of Income Tax (Appeals) [CIT(A)] and ITAT held that:

  • No incriminating material was found during the search.
  • Additions were primarily based on post-search statements and investigation reports.

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 share certificates found during search constitute incriminating material?
  3. Whether statements recorded under Section 132(4) without cross-examination can be relied upon?
  4. Whether non-service of notices under Section 133(6) invalidates the genuineness of investors?

Petitioner’s Arguments (Revenue)

  • The ITAT erred in relying on CIT vs Kabul Chawla (380 ITR 573) despite the issue being pending before the Supreme Court.
  • Original share certificates were found at the assessee’s premises, indicating bogus investor companies.
  • Additions were supported by the statement of Mr. Rajesh Agarwal, which had a nexus with seized material.
  • Notices issued under Section 133(6) were returned unserved, suggesting non-genuine entities with insufficient financial capacity.

Respondent’s Arguments (Assessee)

  • Only photocopies of share certificates were found, not originals, and these were already recorded in books.
  • Share certificates merely reflect disclosed transactions and cannot be treated as incriminating material.
  • The statement of Mr. Rajesh Agarwal is unreliable as no opportunity for cross-examination was provided.
  • Investor companies had sufficient net worth and had submitted all relevant documents in response to notices under Section 133(6).

Court’s Findings / Order

The Delhi High Court dismissed all appeals filed by the Revenue and held:

1. No Addition Without Incriminating Material

  • Where assessments have attained finality and no incriminating material is found, no addition can be made under Section 153A.

2. Share Certificates Not Incriminating

  • Share certificates, whether original or photocopies, merely record transactions already disclosed and do not qualify as incriminating material.

3. Statements Without Cross-Examination Invalid

  • Statements relied upon without granting cross-examination violate principles of natural justice and cannot be used as evidence.

4. Reliance on Binding Precedents

  • The Court reaffirmed:
    • CIT vs Kabul Chawla
    • PCIT vs Meeta Gutgutia
    • PCIT vs Best Infrastructure (India) Pvt. Ltd.

5. Section 132(4) Statements Alone Insufficient

  • Statements recorded during search do not constitute incriminating material by themselves.

6. No Substantial Question of Law

  • Since findings were factual and concurrent, no substantial question of law arose, leading to dismissal of appeals.

Important Clarifications

  • Pending SLP before the Supreme Court does not dilute binding precedent unless a stay is granted.
  • Cross-examination is a fundamental right in tax proceedings when statements are relied upon.
  • Post-search inquiries cannot substitute incriminating material for completed assessments.

Sections Involved

  • Section 153A – Assessment in case of search or requisition
  • Section 68 – Unexplained cash credits
  • Section 132(4) – Statement during search
  • Section 133(6) – Power to call for information

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:3919-DB/MMH26092022ITA3612022_183926.pdf

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