Facts of the Case

The Revenue initiated proceedings against the assessee company pursuant to a search conducted on the Raj Darbar Group under Section 132 of the Income Tax Act. During the search, certain documents allegedly relating to the assessee were seized, leading to proceedings under Section 153C.

The Assessing Officer alleged that around 25 Kolkata-based companies had subscribed to shares of the assessee company and that these entities were non-existent or doubtful. Consequently, an addition of ₹3.32 crores was made under Section 68 as unexplained cash credits.

The assessee challenged the addition before the Commissioner of Income Tax (Appeals), who allowed the appeal. The ITAT upheld this decision, leading to the present appeal before the High Court.

Issues Involved

  1. Whether additions under Section 68 can be made in proceedings under Section 153C without reference to incriminating material found during search.
  2. Whether completed assessments can be disturbed in absence of seized material directly linked to the assessee.

Petitioner’s (Revenue) Arguments

  • The ITAT erred in ignoring that the shareholder companies were non-existent and lacked credibility.
  • The transactions involving share allotment and buyback indicated accommodation entries.
  • The reliance placed on CIT v. Kabul Chawla was misplaced given the peculiar facts of the case.

Respondent’s (Assessee) Arguments

  • No incriminating material was found during the search relating to the alleged transactions.
  • The addition under Section 68 was based on post-search inquiries rather than seized evidence.
  • Since the assessment was already completed, no addition could be made under Section 153C without incriminating material.

Court’s Findings / Order

The High Court dismissed the Revenue’s appeal and upheld the ITAT’s order, holding:

  • The Assessing Officer failed to rely on any incriminating material seized during the search.
  • Even in remand proceedings, it was admitted that no such material existed.
  • Additions were made purely on investigation reports and not on seized evidence.
  • In absence of incriminating material, completed assessments cannot be reopened under Section 153C.
  • The case is squarely covered by the precedent of:
    • CIT v. Kabul Chawla

Thus, the addition under Section 68 was held unsustainable.

Important Clarification

  • The Court reaffirmed that in Section 153C proceedings, incriminating material is a sine qua non for making additions in respect of completed assessments.
  • Mere suspicion, investigation reports, or third-party information cannot substitute seized evidence.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:4206-DB/NAC15122021ITA1122020_220917.pdf

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