Facts of the Case

  • A search and seizure operation under Sections 132/133A was conducted on a third-party group (M/s K.R. Pulp & Papers Ltd.).
  • Statement of the Managing Director alleged routing of undisclosed income through bogus LTCG entries.
  • The assessee, Ms. Suman Agarwal, had declared LTCG from sale of shares of M/s KGN Industries Ltd. and claimed exemption under Section 10(38).
  • The Assessing Officer treated the LTCG as bogus and added ₹19,18,852 as unexplained credit under Section 68.
  • CIT(A) upheld the addition; however, ITAT deleted the addition due to absence of incriminating material.

Issues Involved

  1. Whether addition under Section 68 can be sustained in absence of incriminating material found during search.
  2. Whether statements recorded under Section 132(4) alone constitute incriminating evidence.
  3. Whether completed assessments can be reopened under Section 153A without fresh material.

Petitioner’s Arguments (Revenue)

  • The Revenue argued that:
    • Statement of the Managing Director constituted valid evidence of accommodation entries.
    • Conduct of other family members (paying tax on similar LTCG) corroborated the statement.
    • ITAT erred in ignoring such corroborative circumstances.

Respondent’s Arguments (Assessee)

  • The assessee contended that:
    • No incriminating material relating to her was found during the search.
    • Statement of a third party cannot be treated as incriminating evidence.
    • Assessment for AY 2011–12 was already completed; hence Section 153A cannot be invoked without new material.
    • Relied on precedents including CIT vs. Kabul Chawla.

Court Findings / Judgment

  • The Delhi High Court upheld the ITAT order and held:
    • No incriminating material was found during the search relating to the assessee.
    • Statement under Section 132(4) alone is insufficient without corroborative evidence.
    • No reference to the alleged company (KGN Industries Ltd.) was found in seized documents.
    • Completed assessments cannot be disturbed under Section 153A without incriminating material.
  • Acordingly, the appeal of the Revenue was dismissed.

Important Clarification by Court

  • Additions under Section 153A must be based on incriminating material discovered during search.
  • Statements alone do not qualify as incriminating evidence.
  • Completed assessments enjoy protection unless fresh evidence is unearthed.
  • Reinforced legal principle:

No addition can be made in absence of incriminating material for completed assessments.

 

These cases reaffirm that Section 153A additions must be linked to incriminating material found during search.

Sections Involved

  • Section 132 – Search and Seizure
  • Section 133A – Survey
  • Section 153A – Assessment in Case of Search
  • Section 68 – Unexplained Cash Credits
  • Section 10(38) – Exemption of Long-Term Capital Gains (LTCG)

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:2945-DB/58928072022ITA1672022_220429.pdf

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