Statements recorded u/s 132 (4) do not constitute incriminating material by themselves for the assumption of jurisdiction under Section 153A – Delhi High Court
ABCAUS Case Law Citation:
ABCAUS 2015 (2017) (08) HC
The Substantial Question of Law framed for determination:
Whether having regard to the materials seized in the course of search under Section 132 and the statements made on behalf of the assessee, additions made by the Assessing Officer under Section 153A, were not justified as held by the ITAT?”
Assessment Year : 2005-06 to 2009-10
Important Case Laws Cited/relied upon by the parties:
PCIT v. Meeta Gutgutia 2017 (295) CTR 466 (Del)
CIT v. Kabul Chawla (2016) 380 ITR 573 (Del)
Commissioner of Income Tax v. Harjeev Aggarwal (2016) 290 CTR 263
Brief Facts of the Case:
During the course of a search, various loose papers were found. According to the Revenue, the seized documents were with regard to unaccounted receipts from sale of certain properties and unrecorded expenditure in the construction business of the respondent assessee company.
In support of its assumption of jurisdiction under Section 153A of the Income Tax Act, 1961 (‘Act’), the Revenue placed reliance on the statements of one outside party and two directors of the business Group. These statements were recorded under Section 132(4) of the Act. The case of the Revenue was that for the purposes of Section 153A of the Act these statements, by themselves, constituted incriminating material.
In the Assessment Order, AO, on the basis of the statements recorded, concluded that the share premium and share application money was nothing but an unexplained credit and accordingly added Rs. 3.60 Crores to the assessable income of the Assessee under Section 68 of the Act. The reason given by the AO for this addition was that the Assessees had failed to give any explanation or furnish any documentary evidence to prove the identity of the investors and their creditworthiness. They were also unable to prove the genuineness of the above transactions. It was also noted that the Assessees failed to produce the persons who purportedly advanced the alleged share application money or their bank accounts.
On appeal , CIT(A) negative the ground taken by the assessee that the addition was made by the AO without any evidence being collected during the search and seizure operation under Section 132 of the Act. The CIT (A) noted that when the director was confronted with those seized documents, he admitted the undisclosed income. It was also observed by the CIT (A) that the evidence does not mean only documentary evidence and the statement under Section 132(4) has been judicially held as an important evidence collected as a result of search and seizure operation.
The ITAT held this issue in favour of the Assessee.
Observations made by the High Court:
The High Court observed that in the case of Kabul Chawla the legal position was summarised thus:
i Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.
ii Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.
iii The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the ‘total income’ of the. aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs “in which both the disclosed and the undisclosed income would be brought to tax”.
iv Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material.
v In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word ‘assess’ in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word ‘reassess’ to completed assessment proceedings.
vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.
vii Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment
The High Court observed that several High Courts namely Gujarat High Court, Karnataka High Court, Kolkata High Court and Bombay High Court have also come to a similar conclusion that unless there is incriminating material qua each of the AYs in which additions are sought to be made, pursuant to search and seizure operation, the assumption of jurisdiction under Section 153A of the Act would be vitiated in law.
The High Court observed that the facts in the instant case were different from the facts in the case of Smt. Dayawanti Gupta which was relied by the Revenue. In the case of Smt. Dayawanti Gupta, the admission by the assessees themselves on critical aspects, of failure to maintain accounts and admission that the seized documents reflected transactions of unaccounted sales and purchases, was non-existent in the present case. In the said case, there was a factual finding to the effect that the assessees were habitual offenders, indulging in clandestine operations whereas there was nothing in the present case, whatsoever, to suggest that any statement made by the directors contained any such admission.
It was held that having regard to the materials seized in the course of search under Section 132 and the statements made on behalf of the Assessee, the assumption of jurisdiction under Section 153A and the consequent additions made by the AO were not justified.