Facts of the Case

The Revenue filed multiple appeals against a common order of the ITAT concerning several group companies for different assessment years.

  • A search operation was conducted on the assessee group.
  • Assessments had already been completed prior to the search (non-abated assessments).
  • The Assessing Officer made additions under Section 68 alleging bogus share capital and premium.
  • The additions were primarily based on:
    • Share certificates found during search
    • Statement of a third party (Mr. Rajesh Agarwal)
    • Allegation that investor companies were non-genuine

The ITAT deleted the additions holding that no incriminating material was found during the search.

Issues Involved

  1. Whether additions under Section 68 can be made in Section 153A proceedings without incriminating material when assessments have attained finality.
  2. Whether share certificates (original/photocopies) 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 genuineness of investors.

Petitioner’s (Revenue’s) Arguments

  • ITAT erred in relying on CIT vs Kabul Chawla.
  • Original share certificates found during search indicated bogus investor companies.
  • Statement of Mr. Rajesh Agarwal linked the seized documents with accommodation entries.
  • Notices under Section 133(6) returned unserved indicated non-genuine entities.

Respondent’s (Assessee’s) Arguments

  • Only photocopies, not original share certificates, were found.
  • Share certificates merely recorded transactions already disclosed in books.
  • No addition was based on these documents by the AO.
  • Statement of Mr. Rajesh Agarwal cannot be relied upon due to:
    • No opportunity for cross-examination
  • Investor companies:
    • Filed replies under Section 133(6)
    • Had sufficient net worth to make investments

Court’s Findings / Judgment

The Delhi High Court dismissed all Revenue appeals and upheld the ITAT order.

1. No Addition Without Incriminating Material

  • Where assessments are completed and not pending on the date of search:
    • Additions under Section 153A cannot be made without incriminating material.
  • The Court relied on:
    • CIT vs Kabul Chawla
    • PCIT vs Meeta Gutgutia
    • PCIT vs Bhadani Financiers Pvt. Ltd.

 

2. Share Certificates Not Incriminating

  • Share certificates merely reflect recorded transactions.
  • Even if seized, they do not constitute incriminating material.

 

3. Statement Without Cross-Examination is Invalid

  • Statement of Mr. Rajesh Agarwal cannot be relied upon:
    • No cross-examination opportunity was provided
  • Reliance placed on:
    • Andaman Timber Industries vs CCE (SC)
  • Violation of natural justice renders such evidence unreliable.

 

4. Statements Under Section 132(4) Alone Not Sufficient

  • Statements alone do not qualify as incriminating material
  • Reliance on:
    • PCIT vs Best Infrastructure (India) Pvt. Ltd.

 

5. Investor Companies Found Genuine

  • Investors had sufficient net worth (as reflected in table on pages 8–10).
  • Notices under Section 133(6):
    • Replies were filed with supporting documents
  • Therefore, allegation of bogus investment failed.

 

6. Pending SLP Does Not Affect Binding Precedent

  • Mere pendency of SLP (e.g., Apar Industries case) does not dilute binding nature of High Court judgments.

 

Final Order

  • No substantial question of law arose.
  • All appeals filed by Revenue were dismissed.

Important Clarifications

  • Completed (non-abated) assessments cannot be disturbed without incriminating material.
  • Photocopies or disclosed documents do not qualify as incriminating evidence.
  • Cross-examination is a mandatory requirement where third-party statements are relied upon.
  • Section 153A is not a tool for reviewing concluded assessments without fresh evidence.

Sections Involved

  • Section 153A – Assessment in case of search
  • Section 68 – Unexplained cash credit
  • Section 132(4) – Statements 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:3923-DB/MMH26092022ITA3652022_184115.pdf

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