Delhi HC upholds ITAT deletion of Section 153A additions for bogus LTCG claims lacking corroborative evidence and Section 153C compliance

The Delhi HC upheld ITAT's decision to delete additions made under Section 153A assessment based on bogus LTCG claims. The AO relied solely on a statement recorded under Section 132(4) from a third party during search proceedings, without providing corroborative evidence or allowing cross-examination. The court found that the statement alone was insufficient to justify additions, particularly since the assessee denied knowing the witness. Crucially, the Revenue failed to follow mandatory procedures under Section 153C when using incriminating material from a third party's search. The HC ruled that using such material without proper compliance with Section 153C procedures was legally impermissible. Since the ITAT's factual finding was based on evidence evaluation, the HC declined to interfere under Section 260A jurisdiction. The assessment was held invalid due to procedural non-compliance and insufficient evidence.

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Issues Involved:
1. Justification of ITAT in deleting additions based on bogus long-term capital gain.
2. Validity of failure to provide cross-examination of the entry operator.
3. Applicability of Section 153A based on the search and statement under Section 132(4).
4. Requirement of incriminating material for assessment under Section 153A.
5. Legal recourse under Section 153C for using statements from a third-party search.

Issue-wise Detailed Analysis:

1. Justification of ITAT in deleting additions based on bogus long-term capital gain:
The Revenue challenged the ITAT's decision to delete the additions made on account of bogus long-term capital gain. The ITAT held that the evidences found during the search at the premises of the entry provider cannot be the sole basis for making additions in the assessment completed under Section 153A in the case of the beneficiary. The ITAT emphasized that no incriminating material was found at the Assessee's premises during the search, and the statement of Pradeep Kumar Jindal recorded under Section 132(4) was not confronted with the Assessee. The High Court upheld this view, noting that the statement alone without corroborative evidence cannot justify the additions.

2. Validity of failure to provide cross-examination of the entry operator:
The Revenue argued that the ITAT erred in setting aside the assessment order on the ground that no right of cross-examining Pradeep Kumar Jindal was afforded to the Assessee. The High Court observed that the Assessee was not provided with the statement of Pradeep Kumar Jindal, nor was given the opportunity to cross-examine him. The Court cited that the failure to provide cross-examination, combined with the lack of corroborative material, rendered the additions unjustifiable.

3. Applicability of Section 153A based on the search and statement under Section 132(4):
The Revenue contended that the ITAT wrongly held that the Assessee’s premises were not searched and thus notice under Section 153A could not have been issued. The High Court clarified that the assessment under Section 153A requires incriminating material found during the search. The statement of Mr. Jindal recorded under Section 132(4) alone does not constitute sufficient incriminating material to justify the assessment under Section 153A.

4. Requirement of incriminating material for assessment under Section 153A:
The High Court reiterated the legal position that the existence of incriminating material found during the search is a sine qua non for making additions pursuant to a search and seizure operation. The Court referred to the case of CIT v. Kabul Chawla and other precedents, emphasizing that statements recorded under Section 132(4) do not by themselves constitute incriminating material. The Court held that the statement of Mr. Jindal, without any corroborative evidence, cannot be the sole basis for making additions under Section 153A.

5. Legal recourse under Section 153C for using statements from a third-party search:
The High Court noted that the AO used the statement recorded during the search of a third party (Pradeep Kumar Jindal) for making additions in the hands of the Assessee. The Court highlighted that if the statement was to be construed as incriminating material, the proper legal recourse would have been to proceed under Section 153C by handing over the material to the AO having jurisdiction over the Assessee. The failure to follow this mandatory procedure under Section 153C rendered the assessment under Section 153A invalid.

Conclusion:
The High Court dismissed the appeals, finding no substantial question of law that required consideration. The Court upheld the ITAT’s decision, emphasizing the necessity of incriminating material for assessments under Section 153A and the procedural requirements under Section 153C for using third-party statements. The appeals and all pending applications were dismissed.

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