Facts of the Case

The case arose from multiple appeals filed by the Revenue under Section 260A of the Income Tax Act against a common order of the ITAT concerning six assessment years (AY 2012–13 to AY 2017–18).

The assessee, M/s Agson Global Pvt. Ltd., was subjected to a search and seizure operation on 21.03.2017. The Assessing Officer (AO) made substantial additions on three major grounds:

  1. Unexplained share capital and share premium under Section 68
  2. Alleged bogus purchases (25% disallowance)
  3. Cash deposits during demonetization (AY 2017–18)

However, the CIT(A) partly reduced additions and the ITAT deleted most additions, leading to Revenue appeals before the High Court.

Issues Involved

  1. Whether additions under Section 68 for share capital/share premium were justified.
  2. Whether alleged bogus purchases warranted disallowance.
  3. Whether cash deposits during demonetization could be treated as unexplained income.
  4. Whether completed assessments can be disturbed without incriminating material under Section 153A.

Petitioner’s (Revenue) Arguments

  • The Tribunal erred in deleting additions despite evidence of accommodation entries and lack of creditworthiness of investor entities.
  • Statements of entry operators and seized materials indicated routing of unaccounted income.
  • The Tribunal wrongly relied on the principle laid down in Kabul Chawla regarding absence of incriminating material.
  • The CIT(A) had confirmed that incriminating material existed.
  • Cash deposits during demonetization were excessive and unexplained.

Respondent’s (Assessee) Arguments

  • ITAT is the final fact-finding authority; no substantial question of law arises.
  • AO acted under directions of Investigation Wing, violating quasi-judicial independence.
  • Funds were routed through banking channels and properly recorded in books.
  • No incriminating material was found during search for completed assessments.
  • Purchases were genuine, supported by documents, and corresponding sales existed.
  • Cash deposits matched recorded cash sales during demonetization.

Court’s Findings / Order

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

Key Findings:

1. No Addition without Incriminating Material

  • Completed assessments (AY 2012–13 to 2014–15) cannot be disturbed under Section 153A without incriminating material.
  • Statement under Section 132(4) and photocopies of documents were not incriminating evidence.

2. Section 68 – Share Capital

  • Assessee proved:
    • Identity of investors
    • Creditworthiness
    • Genuineness of transactions
  • Funds were routed through banking channels and recorded in books.
  • No evidence of unaccounted income introduced.

3. Bogus Purchases

  • No concrete evidence found during search to establish bogus transactions.
  • Disallowance cannot be made without rejecting corresponding sales.
  • Books supported by documents and stock records.

4. Demonetization Cash Deposits

  • Deposits matched recorded cash sales.
  • AO incorrectly included non-demonetized currency and calculation errors.
  • No evidence of fictitious sales.

Important Clarifications

  • Mere suspicion or investigation reports cannot substitute evidence.
  • Photocopies of documents are not incriminating material without corroboration.
  • Motivation to route funds is irrelevant if transactions are explained and recorded.
  • Section 68 requires failure to explain source—not mere circular transactions.
  • Search assessments cannot reopen concluded assessments without fresh incriminating material.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:234-DB/RAS19012022ITA682021_142140.pdf

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