2025 (3) TMI 1553 - AT - Income Tax

Search Assessment u/s 153A r/w 143(3) Fails Without Incriminating Material; Third-Party Seizure Not Enough for Addition

ITAT Chandigarh-AT dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of addition made u/s 153A r/w 143(3) in the hands of the assessee. The ... Assessment order u/s 153A r/w Section 143(3) - Assessment of income of any other person - document seized from a third party - HELD THAT:- We find that document was not found from the premises of the assessee. An addition under Section 153A could not be made in the income of the assessee unless incriminating material was found during the course of search carried out upon the premises of the assessee. We rely upon the judgement of Hon'ble Supreme Court in the case of Abhisar Buildwell Pvt. Ltd. [2023 (4) TMI 1056 - SUPREME COURT] The authenticity of the document has not been proved by the AO because assumption of truth contemplated under Section 132(4) is confined qua the person who has confessed a document. In other words, this document was from the books of Shri Kapil Romana and if he admits these entries pertaining to him can be construed as true qua him and he can be bound for the liabilities, but not a third person. We rely upon the judgement of Hon'ble Supreme Court in the case of CBI Vs V.C. Shukla [1998 (3) TMI 675 - SUPREME COURT] When an explanation or defence by an assessee based on number of facts established by evidence and circumstances required consideration, whether it is sound or not, must be determined not by considering the weight to be attached to each single fact in isolation but by assessing the cumulative effect of all the facts as a whole. Thus, this cumulative setting of all these folds of contentions raised by the assessee do indicate that evidence possessed by the Revenue is not worthy of credence and on this basis, no addition could be made in the hands of the assessee. We find that ld. First Appellate Authority has considered all these aspects elaborately in a well reasoned order wherein ld. First Appellate Authority had taken into consideration various propositions propounded by the Hon'ble Supreme Court as well as Hon'ble High Courts. We do not find any error in the finding of the CIT (A) and we concur with it. Accordingly, the appeal of the Revenue is dismissed on merit also. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Maintainability of cross objections that merely support the order of the first appellate authority under section 253(4). 1.2 Whether assessment of the assessee's income based on a document seized from a third party could be validly framed under section 153A instead of following the mandatory procedure under section 153C. 1.3 Whether addition under section 68 read with section 115BBE based solely on a third-party seized ledger ('BTD 2011') allegedly reflecting an opening balance in favour of the assessee was sustainable in law on facts and evidence. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Maintainability of cross objections supporting the order of the first appellate authority under section 253(4) Legal framework (as discussed): 2.1 The Tribunal examined sub-section (4) of section 253, which provides that a respondent, on receipt of notice of an appeal against an order of the Commissioner (Appeals), may within 30 days file a memorandum of cross objection 'against any part of the order' of the Commissioner (Appeals). Interpretation and reasoning: 2.2 The Tribunal interpreted section 253(4) to mean that a cross objection lies only where the respondent is 'aggrieved with any part of the order' of the Commissioner (Appeals). 2.3 Grounds in the cross objection which merely support or approve the order of the Commissioner (Appeals), without assailing any part thereof, do not fall within the permissible scope of section 253(4). Conclusions: 2.4 Grounds in the cross objection that only asserted that the Commissioner (Appeals) had 'rightly' deleted the addition under section 68/115BBE were held to be not maintainable in a cross objection and were rejected. Issue 2: Necessity of following section 153C when incriminating material relating to the assessee is found in search of a third person, and validity of assessment under section 153A Legal framework (as discussed): 3.1 The Tribunal set out and analysed section 153C(1), dealing with 'assessment of income of any other person', under which: (a) where money, bullion, jewellery, valuable article, books of account or documents seized 'belongs to' or 'pertains to' or the information 'relates to' a person other than the person referred to in section 153A, the Assessing Officer of the searched person must: - record satisfaction that such material has a bearing on determination of total income of such other person; and - hand over such material and satisfaction note to the Assessing Officer having jurisdiction over the 'other person', who must then proceed in accordance with section 153A. 3.2 The Tribunal noted that section 158BD is pari materia to section 153C and referred to judicial exposition (including the decisions in IBC Knowledge Park and Calcutta Knitwears) laying down that recording of satisfaction and transmission of seized material are mandatory pre-conditions to assume jurisdiction over a third party. Interpretation and reasoning: 3.3 It was undisputed that the impugned document 'BTD 2011' was seized from the premises of a third person (Shri Kapil Romana) and not from the assessee. 3.4 The Tribunal held that, in such circumstances, the statutory scheme requires: - the Assessing Officer of the searched person (from whose premises the document was found) to first record satisfaction that the seized material 'belongs to/pertains to/relates to' the assessee and that it has a bearing on the assessee's income; and - thereafter transmit the seized material along with the satisfaction note to the Assessing Officer having jurisdiction over the assessee, who must then issue notice and proceed under section 153C. 3.5 On facts, the Tribunal found that: - there was no satisfaction recorded by the Assessing Officer of the searched third person (Shri Kapil Romana) that the seized document 'BTD 2011' pertains to or relates to the assessee; - no satisfaction note or seized material was transmitted as contemplated under section 153C; and - notwithstanding this, the Assessing Officer of the assessee used the said document directly in the assessee's assessment framed under section 153A. 3.6 The Tribunal emphasised that even where the assessee himself is covered by search under section 132, material unearthed in the search of another person cannot be used in the assessee's section 153A assessment without complying with the mandatory procedure under section 153C. 3.7 The Tribunal held that in such a situation the Assessing Officer may pass an order under section 153A in respect of the assessee, but if reliance is sought to be placed on documents found in the search of a third party, the Assessing Officer must, within that framework, also validly initiate and record satisfaction for section 153C, and then proceed in accordance with that provision. Use of third-party seized material without following section 153C is impermissible. 3.8 The Tribunal drew support from the jurisdictional High Court decision in Misty Meadows Private Limited (where a 153A assessment was quashed for want of a valid search on the assessee and the High Court held that the procedure under section 153C is mandatory) and noted that the Supreme Court had declined to interfere with the High Court's reasoning, specifically endorsing the findings in paragraph 33. Conclusions: 3.9 The Tribunal concluded that the document 'BTD 2011' seized from the premises of the third person could not be validly used in the assessee's assessment under section 153A without first complying with the mandatory requirements of section 153C. 3.10 On this jurisdictional ground alone, the entire addition based on 'BTD 2011' in the assessee's assessment was held to be unsustainable. Issue 3: Sustainability of addition under section 68 read with section 115BBE based on third-party ledger 'BTD 2011' allegedly reflecting unexplained opening balance of Rs. 9,65,71,414/- Legal framework (as discussed): 4.1 Section 68: treatment of unexplained cash credits where any sum is found credited in the books of an assessee and the assessee either offers no explanation about the nature and source or the explanation is not satisfactory. 4.2 Section 115BBE: special rate of tax on income referred to in section 68, inter alia. 4.3 Section 132(4), section 132(4A) and section 292C: presumptions regarding correctness of documents/books found during search, confined to the person from whose possession such documents/books are found. 4.4 Section 153A: scope of assessment pursuant to search; reliance placed by the Tribunal on the Supreme Court's decision in Abhisar Buildwell, which links jurisdiction under section 153A to discovery of 'undisclosed income' based on incriminating material found during the search. 4.5 Evidentiary principles from decisions such as CBI v. V.C. Shukla, and other High Court and Tribunal decisions, regarding evidentiary value of third-party documents and the necessity of cross-examination when statements or documents are relied upon against an assessee. Interpretation and reasoning: (a) Nature and evidentiary value of 'BTD 2011' 4.6 It was an admitted position that the ledger document 'BTD 2011': - was found and seized from the premises of a third person (Shri Kapil Romana), and not from the assessee; - was not in the handwriting of the assessee and the assessee denied any connection with the entries; - constituted a ledger in the books of the third party supposedly titled 'BTD 2011 Happy Ji INT A/c' with an opening balance of Rs. 15,67,08,109/- and various debit/credit entries between 01.04.2019 and 02.11.2019. 4.7 The Assessing Officer inferred that the assessee was 'Happy Ji' and that out of the opening balance, an amount of Rs. 6,01,36,695/- tallied with an opening balance of M/s HM Overseas in the books of M/s ASC Builders Pvt. Ltd. (a concern related to the assessee) and treated the remaining as unexplained cash credit in the assessee's hands. 4.8 The Tribunal noted that: - the Assessing Officer accepted part of the transactions appearing in the seized ledger as not related to the assessee or as reflecting accounted transactions, while treating only the opening balance portion as unexplained credit of the assessee; - the same document could not be selectively accepted in part and rejected in part without corroboration, especially when other entries (e.g. APEX HDFC Bank 'receipt', Malhotra Group etc.) had no established nexus with the assessee. (b) Findings of the first appellate authority approved by the Tribunal 4.9 The Tribunal endorsed the detailed reasoning and summary of the Commissioner (Appeals), including that: - the Assessing Officer had inconsistently interpreted the same seized document by accepting part of the transactions as not related to the assessee while treating only the opening balance as unexplained cash credit, without any corroborative evidence; - once part of the transactions in a seized ledger are found to be unconnected with the assessee, the same uncorroborated ledger could not be relied upon to treat the opening balance as the assessee's unexplained credit; - the Assessing Officer failed to identify or establish who or what 'BTD 2011' was; - no additions were made based on this ledger either in the assessee's case for other relevant years, in related concerns such as ASC Builders Pvt. Ltd., or in the case of another person (Jagjeet Chawla) whose ledger was also referred to, which, on principles of consistency, militated against singularly taxing the assessee for the current year on the same uncorroborated material. 4.10 The Commissioner (Appeals) had further held, and the Tribunal agreed, that the seized ledger was 'not a genuine document' for the purpose of fastening tax liability in the assessee's hands in the absence of supporting evidence. (c) Limitation of presumptions under sections 132(4A) and 292C 4.11 The Tribunal accepted the reasoning that the statutory presumptions under sections 132(4A) and 292C attach only vis-à-vis the person from whose possession the books/documents are found, i.e. the searched person, and cannot automatically be extended to a third party. 4.12 Since 'BTD 2011' was seized from the premises of the third person, any presumption of truth or ownership could at best operate against that third person (Shri Kapil Romana) and not against the assessee. (d) Requirement of incriminating material for additions under section 153A 4.13 The Tribunal noted that no incriminating material relating to the impugned addition was found at the assessee's own premises during the search. 4.14 Relying on Abhisar Buildwell, the Tribunal reiterated that an assessment under section 153A is linked to undisclosed income found on the basis of incriminating material unearthed during the search on the assessee, and that undisclosed income in completed assessments cannot be brought to tax in the absence of such incriminating material. 4.15 Since the addition was founded entirely on a document seized from a third party (without validly invoking section 153C) and there was no incriminating material found at the assessee's premises, the jurisdictional foundation for the addition under section 153A was held to be absent. (e) Absence of corroboration, authorship, and denial of cross-examination 4.16 The Tribunal noted that: - the authorship of the ledger 'BTD 2011' was not established; - it was not shown whether, and if so how, the maker of the document (or the searched person) was confronted with the ledger entries in his statement under section 132(4); - though the Assessing Officer mentioned that the third person accepted the ledger 'on oath', such admission could bind only the maker/holder, not the assessee as a third party. 4.17 The assessee sought cross-examination of the third person (and effectively of the author of the ledger), which was not afforded. 4.18 The Tribunal applied the principle that any statement or evidence collected at the back of the assessee, without granting opportunity of cross-examination, cannot be used against the assessee, relying inter alia on: - Andaman Timber Industries (Supreme Court); - decisions of High Courts including Ashwani Gupta, Pradeep Kumar Gupta, and Gargi Din Jwala Prasad. 4.19 The Tribunal also referred to CBI v. V.C. Shukla regarding the limited evidentiary value of entries in diaries or documents seized from third parties, particularly when used against persons other than the maker or possessor of such documents. (f) Cumulative assessment of facts and evidence 4.20 The Tribunal emphasised that the assessee's explanation and defence, supported by various factual circumstances, had to be evaluated cumulatively, not by isolating each fact. 4.21 Taking the entire circumstances together-third-party origin of the document, absence of corroboration, inconsistent use of the same ledger, lack of incriminating material at the assessee's premises, non-availability of cross-examination, and the statutory limits on presumptions-the Tribunal held that the material relied upon by the Revenue was not worthy of credence for invoking section 68 against the assessee. Conclusions: 4.22 The Tribunal held that the addition of Rs. 9,65,71,414/- under section 68 read with section 115BBE, based solely on the third-party ledger 'BTD 2011', was unsustainable in law and on facts. 4.23 The Tribunal concurred with and affirmed the Commissioner (Appeals)'s deletion of the entire addition, both on the jurisdictional ground (improper use of third-party seized material without following section 153C) and on the merits (lack of admissible, reliable incriminating evidence against the assessee). 4.24 Consequently, the appeal of the Revenue was dismissed on merits and the cross objection of the assessee was partly allowed to the extent indicated.