2025 (2) TMI 1188 - AT - Income Tax

Section 153A additions on exempt long-term capital gains deleted without seized incriminating material evidence

The ITAT Mumbai held that additions made under section 153A regarding declared long-term capital gains claimed as exempt under section 10(38) must be ... Assessment order passed u/s 153A - Bogus LTCG - Long term capital gains as exempt u/s 10(38) - HELD THAT:- Addition made in respect of an already declared LTCG, claimed exempt u/s 10(38) of the Act in the original return of income in the assessment order passed u/s 153A for the AY 2012-13 is hereby deleted as it is beyond the scope of assessment u/s 153A as not based on any seized or incriminating material. Consequently, the addition made u/s 69C of the Act alleging unexplained expenditure incurred to earn the said LTCG is also deleted. Assessment u/s 153A - Hon’ble Delhi High Court in the case of PCIT vs. Anand Kumar Jain (HUF) [2021 (3) TMI 8 - DELHI HIGH COURT] had held that statement u/s. 132(4) does not construe incriminating material for carrying out the assessment u/s.153A of the Act and statement cannot justify the additions made by the AO. Similarly other judgments which have been referred and relied upon by the ld. Counsel which are not repeated but underlying principle is that for making the addition within the scope and ambit of Section 153A for unabated assessment years, statement alone cannot be treated as incriminating material and here in this case this statement is not of the assessee but of her husband and here it is not a case of assessment u/s.153C that any material or document found from search of other person has been made the basis for addition. Albeit in case of assessment u/s 153A (searched person) wherein the addition for unabated assessment has to be confined on the basis of incriminating material found during the course of search. It is undisputed fact that no material much less incriminating material was found during the course of search from the premises of the assessee in support of the additions, made for the quantum amounts of the alleged cash loans given and the estimated interest thereon in all the AYs as per chart herein above is deleted. We direct accordingly to delete the additions as above The core legal issues considered by the Tribunal in these appeals arising from assessments under section 153A of the Income-tax Act, 1961 ('the Act') relate primarily to the validity and scope of additions made in the absence of incriminating material found during the search of the assessee's premises. Specifically, the Tribunal examined whether additions could be sustained where the incriminating material was found in searches conducted independently on other persons, without any joint or common search warrant including the assessee's name. Additional issues included the requirement of mandatory Document Identification Number (DIN) on assessment orders, the competence of the approval under section 153D, and the jurisdictional validity of the Assessing Officer's order under section 127(2) of the Act.Issue-wise detailed analysis is as follows:1. Legality of additions under section 153A in absence of incriminating material found during search of assessee's premisesThe relevant legal framework includes sections 132, 132A, 153A, and 153C of the Act, along with judicial precedents including the Supreme Court decision in PCIT vs Abhisar Buildwell (P) Ltd (2023) 149 taxmann.com 399 (SC), and coordinate bench decisions of the Tribunal. Section 153A mandates assessment or reassessment of income for six assessment years preceding the search and up to four extended years, but only if incriminating material is found during the search or requisition. Section 153C provides a special procedure for assessment of income of persons other than the searched person, where books of account or documents seized from the searched person pertain to such other person.The Court interpreted these provisions to mean that additions under section 153A must be strictly confined to incriminating material found during the search of the assessee's premises. Material found during independent searches of other persons, where the assessee's name does not appear in the search warrant or panchnama, cannot be used to make additions under section 153A against the assessee. Instead, such material can only be acted upon by initiating separate proceedings under section 153C, which is a non obstante provision and a complete code by itself.The key evidence included the panchnamas showing that the search warrant and search action on 06/10/2017 did not include the assessee's name, and no incriminating documents or material were seized from the assessee's premises. The Assessing Officer relied primarily on statements recorded under section 132(4) of the Act from the husband of the assessee and others, which related to information obtained from other independent searches. The husband's statements were later retracted and were not corroborated by any seized material from the assessee's premises.The Court treated the competing arguments by the Revenue, which contended that statements recorded under section 132(4) confronting the assessee with information found elsewhere constituted incriminating material, as untenable. The Tribunal held that mere confrontation or statements without seized incriminating material from the searched premises cannot form the basis of additions under section 153A. The Tribunal extensively relied on the Supreme Court's direction in Abhisar Buildwell that in absence of incriminating material found during search, no addition can be made under section 153A.Accordingly, the Tribunal concluded that additions made on the basis of material found in searches of other persons and statements recorded thereon were beyond the scope of section 153A. The proper recourse for the Revenue was to initiate proceedings under section 153C, which was not done. Hence, the additions were deleted.2. Validity of additions rejecting exemption claimed under section 10(38) on Long Term Capital Gains (LTCG) for AY 2012-13The assessment order rejected exemption claimed on LTCG under section 10(38) based on alleged accommodation entries in shares of certain companies. The AO relied on investigation reports and statements recorded in searches conducted on other persons, not on the assessee's premises. The Tribunal referred to a coordinate bench decision on identical facts where it was held that additions based on material found in searches of other persons cannot be made under section 153A but only under section 153C.The Court analyzed the modus operandi of the entry operators and found no incriminating material seized from the assessee's premises. The statements of entry operators recorded prior to the search on the assessee were not sufficient to sustain additions under section 153A. The Tribunal also noted that the statements of the assessee and her husband were recorded pursuant to information from other searches and were not corroborated by seized material. The Tribunal held that the AO had no jurisdiction to deny exemption under section 10(38) in the section 153A proceedings and deleted the addition.3. Additions for unexplained cash loans and interest income for AYs 2014-15 to 2018-19The AO made additions under section 69 and 69C on account of alleged unexplained cash loans given by the assessee to a third party, Mr Nilesh Bharani, and interest income thereon. The AO relied on statements recorded under section 132(4) from Mr Bharani and the husband of the assessee. However, the statements were later retracted and were not supported by any seized material from the assessee's premises. The search of the assessee's premises spanning six days did not yield any documents or evidence of such loans or interest income.The Tribunal observed that the statements recorded were not signed or authenticated by the authorized officers, and the manner of recording was irregular, indicating that the statements were not voluntary or reliable. The Tribunal relied on judicial precedents holding that statements under section 132(4) are not evidence per se and cannot sustain additions without corroborative material found during the search.The Tribunal also noted that the Revenue failed to confront the assessee or her husband with any documents or records during the search, and the retraction of statements further weakened the case for additions. The Tribunal held that additions based solely on uncorroborated and retracted statements were unsustainable and deleted the additions.4. Other procedural groundsThe assessee raised grounds regarding the absence of mandatory DIN on assessment orders, incompetent and mechanical approval under section 153D, and illegal jurisdiction based on a void order under section 127(2). Since the appeals were allowed on substantive grounds, the Tribunal did not adjudicate these procedural issues.Significant holdings include:'In case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132-A of the 1961 Act.''Where the Assessing Officer is satisfied that any books of account or documents seized or requisitioned pertain or relate to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A.''The provisions of Sections 153A and 153C of the Act are special provisions starting with non-obstante clause thereon which had been introduced in the statute only for the limited purpose of framing assessments pursuant to search actions carried out and information/material surfaced therein.''Statements recorded under section 132(4) of the Act per se are not evidence and cannot sustain additions unless corroborated by material found during the search.''Additions made solely on the basis of uncorroborated and retracted statements recorded under section 132(4) of the Act cannot be sustained.''The only course available for the Revenue was to initiate proceedings under section 153C of the Act in respect of incriminating material found in searches of other persons and not to make additions under section 153A of the Act.'On each issue, the Tribunal applied the law to the facts by carefully examining the search records, panchnamas, statements recorded, and the absence of incriminating material from the assessee's premises. It treated the Revenue's reliance on statements recorded elsewhere as insufficient and contrary to the statutory scheme. The Tribunal's conclusions consistently favored the assessee, deleting all impugned additions and holding that the Revenue failed to comply with the mandatory procedural and substantive requirements for assessments under sections 153A and 153C.