Statement of third party is not an incriminating material in unabated assessment

In an unabated assessment, statement made by a third party can’t be treated as incriminating material

In a recent judgment, ITAT Kolkata has held that in an unabated assessment incriminating material in terms of provisions of Section 153A cannot be in the form of statement of a third party.

ABCAUS Case Law Citation:
4784 (2025) (10) abcaus.in ITAT

Important Case Laws relied upon by Parties:
PCIT v. Abhisar Buildwell P. Ltd. (2023)454 ITR 212(SC)

In the instant case, the Revenue had challenged the order passed by the CIT(A) in deleting addition made by the Assessing Officer (AO) u/s 68 of the Income Tax Act, 1961 (the Act) in respect of unexplained share application money received by the assessee during the relevant Assessment Year.

A search of action was conducted on a Business Group. Order u/s 153A/143(3) was passed making an addition inter alia under section 68 of the Act which was deleted by the CIT(A) by holding that the addition made by the AO were not based on any incriminating material seized during the course of search and therefore, the AO had no jurisdiction to make the addition in an unabated assessment on the date of search.

Thereafter, the matter travelled to Tribunal and Tribunal restored the appeal back to the file of the AO with a direction to conduct enquiry afresh. Accordingly, the AO issued notice to the assessee for appearing and filing the necessary documents, which were duly complied with by the assessee.

Thereafter, the AO noted that two directors of the assessee company did not appear in person. Finally, the AO again made an addition by treating the share application money as unexplained money in the books of the assessee in the assessment framed u/s 254/153A/143(3) of the Act.

Aggrieved assessee filed an appeal before the CIT (A) who again allowed the appeal of the assessee after taking into consideration the contention and reply of the assessee by holding that being an unabated assessment on the date of search and there being no seized incriminating material found during the said search. Therefore, the AO had no jurisdiction to make the addition by following the decision of the Hon’ble Apex Court

The Tribunal noted that search action was conducted on the assessee during AY 2015-16 and the assessment year  involved was 2009-10. Apparently, no proceedings were pending on the date of search and the time period to issue u/s 143(2) of the Act had also expired. Therefore, the assessment was unabated assessment on the date of search and in terms of provisions of Section 153A of the Act, the AO had jurisdiction to make any addition to the income of the assessee only on the basis of sized incriminating material and not otherwise.

The Tribunal further observed that the AO had referred to the statement of a third party for making the statement by treating the same as incriminating material whereas as a matter of fact the incriminating material cannot be in the form of statement of the third party.

The Tribunal also noted that the issue has been now settled by the Hon’ble Apex Court once and for all that in an unabated assessment year, the AO has no jurisdiction to make the addition unless there is incriminating material found and seized during the course of search qua the said addition.

The Tribunal opined that the CIT (A) had passed a very reasoned and speaking order. Accordingly, the appeal of the Revenue was dismissed.

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