Section 153A additions unsustainable where assessments final before search and no incriminating material seized; witness statement excluded

Held that where assessments had attained finality before the search and no incriminating materials were seized, additions under s.153A could not be sustained. HC upheld concurrent findings of the lower authorities that the AO failed to place any incriminating material on record and that investor companies had adequate net worth for their investments. The court excluded a witness's statement as the assessees were denied cross-examination, finding that reliance on such evidence violated principles of natural justice. No substantial question of law arises.

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Issues Involved:
1. Reliance on the judgment in CIT vs Kabul Chawla.
2. Incriminating material found during the search.
3. Statement of Mr. Rajesh Agarwal and its evidentiary value.
4. Notices under Section 133(6) of the Income Tax Act, 1961.
5. Net worth of investor companies.
6. Validity of additions under Section 153A in absence of incriminating material.
7. Opportunity to cross-examine Mr. Rajesh Agarwal.

Detailed Analysis:

1. Reliance on the judgment in CIT vs Kabul Chawla:
The appellant argued that the ITAT erred by relying on CIT vs Kabul Chawla, as a similar issue is pending before the Supreme Court in the case of M/s Apar Industries Ltd. However, the court noted that there is no stay order in favor of the revenue in the Apar Industries case. Consequently, the issue of law is covered by existing judgments, including CIT vs Kabul Chawla.

2. Incriminating material found during the search:
The appellant contended that original share certificates were found at the premises of the assessee company, suggesting that the investor companies were bogus. However, the ITAT found that only photocopies of share certificates were seized, which merely recorded the number of shares issued and were disclosed in the books of accounts. The ITAT concluded that these documents were not incriminating.

3. Statement of Mr. Rajesh Agarwal and its evidentiary value:
The appellant relied on the statement of Mr. Rajesh Agarwal to support the additions. However, the respondent argued that they were not given an opportunity to cross-examine Mr. Rajesh Agarwal. The court agreed with the ITAT that without cross-examination, the statement could not be relied upon as evidence.

4. Notices under Section 133(6) of the Income Tax Act, 1961:
The appellant argued that the investor companies were not genuine as notices issued under Section 133(6) were returned unserved. However, the ITAT found that the investor companies had filed detailed replies and furnished requisite details, which the Assessing Officer had failed to consider.

5. Net worth of investor companies:
The respondent provided a table showing the net worth of the investor companies, which indicated that they had sufficient net worth to make the investments. The court agreed with the ITAT that the investor companies had sufficient net worth to make the investments.

6. Validity of additions under Section 153A in absence of incriminating material:
The court reiterated that no additions could be made under Section 153A if no incriminating material was found during the search, especially when the assessment had attained finality prior to the date of search. This principle was supported by multiple judgments, including CIT vs Kabul Chawla and PCIT vs. Meeta Gutgutia.

7. Opportunity to cross-examine Mr. Rajesh Agarwal:
The court emphasized that the respondents were denied the opportunity to cross-examine Mr. Rajesh Agarwal, despite a specific request. This denial violated the principles of natural justice, making the statement inadmissible as evidence. The court referred to the Supreme Court judgment in M/s Andaman Timber Industries vs. CCE, which held that not allowing cross-examination of witnesses whose statements were the basis of the order is a serious flaw.

Conclusion:
The court concluded that no substantial question of law arose for consideration. Both CIT (A) and ITAT had given concurrent findings that no incriminating material was brought on record to sustain the additions. The appeals were dismissed along with pending applications.

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