2019 (4) TMI 406 - AT - Income Tax

Tribunal rules against tax additions without incriminating material, emphasizes due process

Deputy Commissioner of Income Tax, Central Circle-4 (1), Kolkata Versus M/s. Maan Steel & Power Ltd

The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision to delete the additions made by the Assessing Officer. It found that the additions ... Assessment u/s 153A r.w.s. 143(3) - No incriminating material found during the course of search - post search investigation - Addition of share application money received u/s 68 and disallowance of donation paid - denial of right to cross-examination a witness - HELD THAT:- No incriminating material has been found during the course of search. The alleged statements recorded from entry operators have been admittedly retracted by them and the Assessing Officer has not based the additions on these statements. Even otherwise, when copies of the alleged statements recorded by the revenue officials have not been given to the assessee, no addition can be made based on such evidence which is not confronted to the assessee. The contents of the statements are also not brought out in the assessment order. Only a general reference is made that there were certain statements recorded from various entry operators by the investigation wing. No addition can be made on such general observations. Assessee has not been given an opportunity to cross-examine any of these persons, based on whose statements, the ld. D/R claims that the additions have been made. AS in the case of Kishinchand Chellaram vs. CIT [1980 (9) TMI 3 - SUPREME COURT] had held that the opportunity of cross-examination must be provided to the assessee. Also it is not clear as to which of these statements were recorded during the course of search operation u/s 132 or whether the statements were recorded during the course of any survey operations u/s 133A. It is well settled that a statement recorded during the course of survey operation cannot be used as evidence under the Act. Coming to the alleged cash trail, none of the material gathered by the Assessing Officer by way of bank account copies of various companies supposed to be part of the chain of companies was not confronted to the assessee. The alleged statements that were recorded from directors of these companies which formed this alleged chain were also not brought on record. Only a general statement has been made. There is no evidence whatsoever that cash has been routed from the assessee company to any of these chain of companies. There is no evidence that any cash was deposited by the assessee company. Moreover, there is no material whatsoever brought on record to demonstrate that the alleged cash deposit made in the bank account of a third party was from the assessee company. - Decided in favour of assessee. Issues Involved:1. Validity of additions made under Section 153A read with Section 143(3) of the Income Tax Act, 1961, without incriminating material.2. Jurisdiction of the Assessing Officer to make additions based on statements and documents not confronted to the assessee.3. Legal precedents and their applicability to the case.Issue-wise Detailed Analysis:1. Validity of Additions under Section 153A/143(3) Without Incriminating Material:The core issue was whether additions could be made under Section 153A read with Section 143(3) of the Income Tax Act, 1961, in the absence of incriminating material found during the search and seizure operation. The Tribunal noted that the assessee had filed its original return on 30/09/2011, and the assessment for the year had not abated since the statutory period for issuing notice under Section 143(2) had expired before the search on 13/12/2012. The Tribunal relied on the decisions of various High Courts, including the Calcutta High Court in CIT vs. Veerprabhu Marketing Ltd. and PCIT vs. Salasar Stock Broking Ltd., which held that incriminating material is a prerequisite for making additions in such cases. The Tribunal concluded that no incriminating material was found during the search, and thus, the additions made by the Assessing Officer were not justified.2. Jurisdiction of the Assessing Officer Based on Unconfronted Statements and Documents:The Tribunal addressed the issue of whether the Assessing Officer could base additions on statements and documents not confronted to the assessee. The revenue argued that statements from entry operators and a cash trail prepared during post-search investigations constituted incriminating material. However, the Tribunal found that these statements were retracted by the entry operators and were not provided to the assessee for cross-examination. The Tribunal emphasized that material collected behind the back of the assessee cannot be used to make an addition without confronting the assessee with such material, citing the Supreme Court's decision in Kishinchand Chellaram vs. CIT and the Calcutta High Court's decision in CIT vs. Eastern Commercial Enterprises. The Tribunal held that the Assessing Officer's reliance on such statements and documents without providing an opportunity for cross-examination was against the principles of natural justice.3. Legal Precedents and Their Applicability:The Tribunal extensively discussed relevant legal precedents to determine the applicability to the case at hand. It cited the Delhi High Court's decision in CIT vs. Kabul Chawla, which outlined that completed assessments could only be interfered with based on incriminating material found during the search. The Tribunal also referred to the Supreme Court's dismissal of the special leave petition in Pr. CIT vs. Kurele Paper Mills Pvt. Ltd., reinforcing that no additions could be made in the absence of incriminating material. The Tribunal distinguished the Kerala High Court's decision in E.N. Gopakumar vs. CIT, noting that it was contrary to the binding decisions of the Calcutta High Court.Conclusion:The Tribunal upheld the order of the Commissioner of Income Tax (Appeals), which had deleted the additions made by the Assessing Officer. It concluded that the additions were not based on any incriminating material found during the search and that the assessee was not provided an opportunity to confront the evidence used against it. The appeal of the revenue was dismissed, affirming the principle that in the absence of incriminating material, no additions could be made under Section 153A/143(3) for assessments that had attained finality.