2025 (4) TMI 410 - HC - Income Tax

Tax Law Triumph: Search Evidence, Surcharge Rules, and Precedent Interpretation Protect Taxpayer Rights Under Section 143

HC ruled on three key tax law issues, finding in favor of the assessee. The court held that search statements require corroborating evidence, surcharge ... Addition of undisclosed income - reliance on statement given by a assessee during search - Whether a statement given by a assessee during search is admissible in the absence of any material or evidence found during the search? - HELD THAT:- Based on the statement, the assessing authority brings to tax a sum of Rs. 9 lakhs. At the outset, it is unclear as to why, when statement refers to a sum of Rs. 25 lakhs as loan, the assessing authority has brought to tax only a sum of Rs. 9 lakhs. In any event, the order of assessment does not reveal the existence of any incriminating material barring the statement recorded, to confirm on the basis on which the addition could have been made. Section 158BC requires that any addition made as undisclosed income must flow from the incriminating materials found in the course of search. While undisputedly, a statement recorded under Section 132(4) would constitute evidence, and a valuable one at that, it cannot be the sole basis upon which an addition may be made in the context of block assessment. For the aforesaid reasons, the appeal succeeds and substantial question of law qua no.1 is answered in favour of the assessee. Surcharge u/s 113 - Whether the provision to Sec. 113 of IT Act providing for surcharge is prospective or retrospective? - HELD THAT:- Issues covered in the case of Vatika Township (P) Ltd [2014 (9) TMI 576 - SUPREME COURT (LB)] to the effect that surcharge under Section 113 of the Income-Tax Act, 1961 will stand attracted only in respect of searches that have taken place post 01.06.2002. Decided in favour of the assessee. Issues: Whether (a) 'a statement given by a assessee during search is admissible in the absence of any material or evidence found during the search?'; (b) whether the provision to Sec. 113 providing for surcharge is prospective or retrospective; and (c) whether the decision in 221 ITR (SC) 409 is binding on the Tribunal. Facts and holdings: A search (06.07.2000) led to a statement under Section 132(4) admitting loans of Rs.20-25 lakhs; the assessing officer added Rs.9 lakhs as undisclosed income in a block assessment framed under Section 158BC read with Section 143(3). On surcharge, the court follows the Supreme Court in Commissioner of Income Tax v. Vatika Township [367 ITR 466]: surcharge under Section 113 'will stand attracted only in respect of searches that have taken place post 01.06.2002,' answering those questions for the assessee. On the statement, the court held that while a 'statement recorded under Section 132(4) would constitute evidence,' it 'cannot be the sole basis' for additions in block assessment; and that 'Section 158BC requires that any addition made as undisclosed income must flow from the incriminating materials found in the course of search.' Result: appeal allowed. No costs.