Statements made by stranger-third party in search case unless connected/corroborated can not lead to adverse consequences

Statements made by stranger-third party in search case unless connected or corroborated could not be attributed to or lead to adverse consequences-HC

ABCAUS Case Law Citation:
ABCAUS 2133 (2017) (11) HC

A search assessment was completed in respect of a group whose premises were subjected to search and seizure proceedings under Section 132 of the Income Tax Act, 1961 (‘the Act’).

The assessee’s contention before the Revenue authorities was two-fold i.e. that the statements made in the course of the search and seizure operations, having regard to Section 132(4), could not be binding upon it. The argument was that the statement made by one supplier to the Group was in any case not binding upon the assessee who was a stranger and a third party.  The assessee’s second contention was that in the absence of any incriminating material recovered from its premises, the search completed in the facts of this case was untenable.

The AO disregarded the contentions and taxed various amounts on the basis of that statement.

The CIT(A) granted relief on the merits holding that the statement made by a stranger/third party in the course of a search, could not be attributed to or lead to adverse consequences as far as the assessee was concerned. It was further held that there was no corroborative material to connect those statements to the assessee’s assessments. The ITAT affirmed the CIT(A)’s views by placing reliance upon the decision of Delhi High Court.

The High Court observed that the CIT(A) view that the statement under Section 132(4) could not bind the assessee was correct. The text of Section 132(4), clarifies that the presumption arises in the case of the searched party. In case the statements by the party whose premises are searched, or to be attributed to a third party – as in the case of the assessee, there has to be a connect or corroboration. Clearly, there was none in the present case. The High Court opined that on this score, the addition made by the AO was unsustainable; the CIT(A) correctly directed the cancellation.

On the second contention, the High Court observed that since no incriminating material was found from the assessee’s premises. In the circumstances, the ruling in Kabul Chawla squarely applied to the case.