Search assessment and section 68 proof: retracted statements cannot sustain additions without corroboration or cross-examination.

In an abated search assessment under section 153A, additions are not confined to incriminating material alone, and jurisdiction may be upheld where the search covers the assessee through a warrant issued in the name of the group. For section 68 additions, primary evidence such as confirmations, bank records, audited financials, income-tax returns and share allotment documents can establish identity, creditworthiness and genuineness. Reliance solely on retracted third-party statements, without corroboration and without affording effective cross-examination, is insufficient and violates natural justice. On identical facts, share capital and unsecured loan from the same source should be treated consistently.

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Issues: (i) Whether jurisdiction under section 153A of the Income-tax Act, 1961 was validly assumed and additions could be made in the absence of incriminating material. (ii) Whether the addition under section 68 on account of share capital and unsecured loan from the same company was sustainable when the assessee furnished documentary evidence and relied upon statements were retracted and not subjected to cross-examination.

Issue (i): Whether jurisdiction under section 153A of the Income-tax Act, 1961 was validly assumed and additions could be made in the absence of incriminating material.

Analysis: The search was held to cover the assessee's premises through the warrant issued in the name of the group entity and others, so the jurisdictional objection failed. The assessment year was treated as an abated year, and therefore the assessment was not confined only to incriminating material found during search. On that basis, the assumption of jurisdiction under section 153A was upheld.

Conclusion: The jurisdiction under section 153A was validly assumed, and the assessee's challenge on this ground failed.

Issue (ii): Whether the addition under section 68 on account of share capital and unsecured loan from the same company was sustainable when the assessee furnished documentary evidence and relied upon statements were retracted and not subjected to cross-examination.

Analysis: The assessee produced confirmation, bank statements, audited financial statements, income-tax returns, and share allotment records, thereby establishing the identity, creditworthiness, and genuineness of the transactions. The loan was repaid in the same year through banking channels. The additions were founded mainly on third-party statements recorded under section 131, which were later retracted, and no corroborative material was brought on record. The denial of cross-examination was treated as a serious violation of natural justice. The distinction drawn by the lower authority between share capital and loan from the same source was found inconsistent on identical facts.

Conclusion: The addition for share capital was deleted and the deletion of the unsecured loan addition was affirmed; the section 68 additions were ultimately unsustainable.

Final Conclusion: The assessee succeeded on the substantive tax issue and the Revenue's challenge failed, resulting in deletion of the impugned share capital addition and confirmation of relief for the unsecured loan.

Ratio Decidendi: In an abated search assessment, additions under section 68 cannot rest solely on retracted third-party statements or suspicion when the assessee has produced primary evidence establishing the transaction and the assessee is denied effective cross-examination of the persons whose statements are relied upon.

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