Facts of the Case

  • The Revenue filed multiple appeals against a common ITAT order concerning several group companies for different assessment years.
  • The additions were made primarily on account of:
    • Alleged bogus share capital and share premium
    • Statements of a third party (Rajesh Agarwal)
    • Alleged non-response or invalid responses to notices under Section 133(6)
  • During search proceedings:
    • Share certificates were found (dispute whether originals or photocopies)
  • ITAT held:
    • No incriminating material was found
    • Additions were not sustainable

Issues Involved

  1. Whether additions under Section 153A can be made without incriminating material when assessment is already completed.
  2. Whether share certificates found during search constitute incriminating material.
  3. Whether third-party statements without cross-examination can be relied upon.
  4. Whether non-service or alleged non-response to Section 133(6) notices invalidates assessee’s claim.

Petitioner’s (Revenue) Arguments

  • ITAT wrongly relied on CIT vs Kabul Chawla (380 ITR 573).
  • Original share certificates were found at assessee’s premises, indicating:
    • Bogus investor companies
    • Accommodation entries
  • Additions were supported by:
    • Statement of Rajesh Agarwal
    • Post-search investigation
  • Notices under Section 133(6) were returned unserved, showing:
    • Lack of genuineness
    • Insufficient financial capacity of investors

Respondent’s (Assessee) Arguments

  • Only photocopies of share certificates were found, not originals.
  • Share certificates:
    • Merely record transactions already disclosed in books
    • Cannot be treated as incriminating material
  • Statement of Rajesh Agarwal:
    • Cannot be relied upon due to denial of cross-examination
  • Investor companies:
    • Filed detailed replies under Section 133(6)
    • Had sufficient net worth (supported by financial data table in record – pages 8–9)

Court Findings / Judgment

The Delhi High Court held:

1. No Addition Without Incriminating Material

  • If assessment is non-abated (already completed):
    • No addition can be made under Section 153A
  • Relied on:
    • CIT vs Kabul Chawla
    • PCIT vs Meeta Gutgutia
    • PCIT vs Bhadani Financiers Pvt. Ltd.

2. Share Certificates Are Not Incriminating Material

  • Share certificates only reflect recorded transactions
  • Even if seized, they do not constitute incriminating evidence

3. Statement Without Cross-Examination Is Invalid

  • Statement of Rajesh Agarwal:
    • Cannot be relied upon due to denial of cross-examination
  • Relied on:
    • Andaman Timber Industries vs CCE (SC)
  • Violation of principles of natural justice

 

4. Statements Under Section 132(4) Alone Are Not Enough

  • Such statements do not constitute incriminating material by themselves
  • Relied on:
    • PCIT vs Best Infrastructure (India) Pvt. Ltd.

5. Investor Companies Had Sufficient Net Worth

  • Financial data shows:
    • Adequate capacity to invest
  • Allegation of bogus entities rejected

6. Pending SLP Does Not Override Binding Precedent

  • Though SLP in Apar Industries was pending:
    • No stay granted
    • Existing High Court judgments remain binding

Final Order

  • No substantial question of law arises
  • Revenue appeals dismissed

Important Clarifications

  • Completed assessments (non-abated) cannot be disturbed under Section 153A without incriminating material
  • Third-party statements require cross-examination
  • Documents already recorded in books are not incriminating
  • Burden of proof lies on Revenue in search assessments

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 & rectification

Link to download the order -   https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:3926-DB/MMH26092022ITA3682022_184246.pdf  

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