Facts of the Case

  • A search and seizure operation under Sections 132/133A was conducted on M/s K.R. Pulp & Papers Ltd. group.
  • During investigation, the Managing Director allegedly admitted routing undisclosed income through bogus LTCG entries.
  • The assessee, Shiv Kumar Agarwal, had declared LTCG of ₹3,61,496/- from sale of shares of M/s KGN Industries Ltd., claimed exempt under Section 10(38).
  • The Assessing Officer treated the LTCG as unexplained credit under Section 68 based on third-party statement.
  • CIT(A) upheld the addition.
  • ITAT deleted the addition holding absence of incriminating material.

Issues Involved

  1. Whether addition under Section 68 can be made in Section 153A proceedings without incriminating material found during search?
  2. Whether a statement recorded under Section 132(4) alone constitutes incriminating material?
  3. Whether completed assessments can be reopened without fresh evidence discovered during search?

Petitioner’s Arguments (Revenue)

  • The ITAT erred in ignoring the statement of the Managing Director admitting bogus LTCG entries.
  • Conduct of other family members (offering LTCG to tax) corroborates the statement.
  • The statement under Section 132(4) along with surrounding circumstances constitutes valid evidence.

Respondent’s Arguments (Assessee)

  • No incriminating material was found during the search relating to the assessee.
  • Statement of a third party cannot be sole basis for addition.
  • Assessment for AY 2011-12 was already completed; hence addition under Section 153A is invalid.
  • Reliance placed on CIT v. Kabul Chawla (2016) and other precedents.

Court’s Findings / Order

  • No reference to M/s KGN Industries Ltd. was found in the statement or seized documents.
  • No incriminating material was discovered during the search against the assessee.
  • Statement under Section 132(4) alone is not sufficient without corroborative evidence.
  • Since the assessment was already completed, addition under Section 153A is impermissible without incriminating material.
  • The case is squarely covered by:
    • CIT v. Kabul Chawla (2016) 380 ITR 573
    • PCIT v. Meeta Gutgutia (2017) 395 ITR 526
    • CIT v. Best Infrastructure India Pvt. Ltd. (2017) 397 ITR 82
  • Appeal of the Revenue dismissed.

Important Clarification by the Court

  • Completed assessments can only be interfered with under Section 153A if incriminating material is found during search.
  • Statements recorded during search do not constitute incriminating material by themselves unless supported by evidence.
  • Additions must have direct nexus with seized material.

Sections Involved

  • Section 132 – Search & Seizure
  • Section 132(4) – Statement during Search
  • Section 133A – Survey
  • Section 153A – Assessment in Case of Search
  • Section 68 – Unexplained Cash Credit
  • Section 10(38) – Exemption on Long Term Capital Gains (LTCG)
  • Section 127 – Transfer of Cases

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:2946-DB/58928072022ITA2312022_220611.pdf

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