TaxTMI 
TaxTMI 
2026 (1) TMI 1592
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....ection 132 of the Income-tax Act, 1961, on 18 December 2017, as per the panchnama drawn in his name. The search proceedings continued over multiple days and concluded on 21 December 2017. Simultaneously, survey proceedings under section 133A of the Act were also carried out at the business premises of the assessee. Consequent to the said search, assessments for Assessment Years 2012-13 to 2017-18 were framed under section 153A read with section 143(3) of the Act, while the assessment for Assessment Year 2018-19 was framed under section 143(3). 3. In the assessment orders so passed, the Assessing Officer made various additions, primarily on account of: ● alleged cash loans advanced to Shri Nilesh Bharani / Evergreen Enterprises, treated as unexplained investment under section 69 of the Act; ● notional interest computed thereon and brought to tax under section 56 of the Act; and ● for Assessment Year 2018-19, addition on account of alleged unexplained jewellery under section 69A of the Act. 4. The year-wise details of the additions made by the Assessing Officer are tabulated below: AY Reasons of Addition Amount (Rs.) 2012....
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....er incriminating material relating to the additions ultimately made were found or seized from the premises of the assessee. 6.1. It is also an undisputed fact that whatever material has been referred to by the Assessing Officer in the assessment orders was already available with the authorised officers at the relevant time, having been procured from independent income-tax searches conducted earlier in the cases of other persons, including Shri Nilesh Bharani / Evergreen Enterprises. In none of the panchnamas drawn in those searches did the name of the assessee figure, nor was there any common warrant or joint search covering the assessee and those third parties. 7. The Assessing Officer's primary reliance was on certain statements recorded under section 132(4) during the course of search on the assessee, wherein he was confronted with statements recorded elsewhere and with documents seized from the premises of third parties. These statements, according to the Assessing Officer, constituted incriminating material justifying the additions under section 153A. 8. It is further an admitted fact on record that the assessee, by way of a detailed communication dated 03 January....
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....rt in PCIT vs AbhisarBuildwell (P) Ltd [2023] 149 taxmann.com 399 (SC), no addition at all could be made in any assessment order passed u/s 153A of the Act. 10. It was further submitted that the questions put to the assessee during the course of recording of statement under section 132(4) were based entirely on statements recorded in the cases of third parties and on documents seized elsewhere. Such statements, even if assumed to be admissions, cannot override the settled legal position that for completed assessment years, additions under section 153A must be based on incriminating material found during the search on the assessee himself. The learned counsel also submitted that a bare reading of the questions and answers recorded under section 132(4) clearly demonstrates that the assessee never unequivocally admitted having advanced cash loans in the manner alleged by the Assessing Officer. On the contrary, the assessee repeatedly stated that details were to be verified from records maintained at the office and that recovery proceedings had already been initiated in respect of certain transactions. 11. The learned counsel then drew our attention to the specific questions and ....
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....s. Sir, they may be written by pencil. I don't rely on them. We have gone through court matter on few parties to whom we have given cash loans which I will give the details after referring to our books. Q.43 Please provide the names of the parties against which inflated purchases invoices have been generated. Ans. Sir, at this moment I don't remember the parties. However, if you give me some time I will refer from my office and produce the details. Statement of Mr Deepak Mehta resumed on 21/12/2017 at 12.30 p.m. (PB page no. 25, 29 and 30) Q.51 Please state the name of the parties to whom you have given cash loans as stated in reply to your Q. No. 50 above. Ans. Sir, I can provide you the names of the parties after verifying the records at my office. Q.67 Do you want to say anything else? Ans. Sir, in reply to Q. No. 40 I have stated that I could not recollect the names of two parties. Since, I could recollect the names of the two parties against whom cases were filed. The names of the two parties are M/s Uma Medical and other one is Dr. Sadiwala. I do not wish to say anything else. For Jewelle....
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....rised as per Annexure-J is seized by you for keeping in the custody of the Income tax department. 12. During the course of the search proceedings conducted at the residential premises of the assessee commencing on 18 December 2017 and concluding on 21 December 2017, the authorised officers recorded statements of the assessee under section 132(4) of the Act on multiple occasions. It is pertinent to note that the recording of statements continued over several days of the search, and the assessee was confronted with statements recorded earlier in the cases of third parties, as well as with certain documents and loose papers seized during independent income-tax searches conducted in the cases of those third parties. 13. The Assessing Officer has placed substantial reliance on certain questions and answers recorded during the course of such statements to support the additions made in the assessment orders. According to the Assessing Officer, these statements constitute incriminating material unearthed during the search, justifying the additions under section 153A of the Act. 14. At this juncture, it is necessary to record that the statements relied upon by the Assessing Officer....
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....the aforesaid statements and on material seized during independent searches conducted in the cases of third parties, the Assessing Officer proceeded to allege that the assessee had advanced substantial cash loans to Shri Nilesh Bharani / Evergreen Enterprises over multiple assessment years. 19.2. According to the Assessing Officer, the alleged cash loans were not recorded in the regular books of account of the assessee and represented unexplained investments liable to be brought to tax under section 69 of the Act. The Assessing Officer further alleged that the assessee had earned interest on such cash loans, which was also not disclosed and was liable to be assessed as income under section 56 of the Act. 19.3. In support of the above allegations, the Assessing Officer relied upon certain loose papers, cash ledgers, and notings seized from the premises of Shri Nilesh Bharani during the course of a search conducted earlier in October 2017. These documents, according to the Assessing Officer, reflected cash transactions allegedly involving the assessee. 20. It is an admitted and undisputed fact that none of these documents were found or seized from the premises of the assesse....
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.... 1,96,30,917 1,96,30,917 2016-17 1,96,30,917 1,96,30,917 2017-18 1,70,18,783 1,70,18,783 2018-19 1,61,51,250 1,61,51,250 Total 1,37,55,700 9,48,61,117 10,86,16,817 22. Similarly, the working of notional interest allegedly earned on the aforesaid cash loans, as reproduced by the Assessing Officer in paragraph 5.31 of the assessment order, is placed on record and is reproduced hereunder. 5.31 Further the interest earned / receivable on cash loan lent by you amounting to Rs. 10,86,16,817/- for the AYs 2012-13 to 2018-19, is to added to the total income of the assessee AY wise as detailed below: Assessment year Interest of Current Year Loans Interest of earlier year loans Total Interest for the Year Amt in Rs. Amt in Rs. Amt in Rs. A B C 2012-13 30,01,167 30,01,167 2013-14 77,39,533 60,83,333 1,38,22,866 2014-15 30,15,000 1,63,45,917 1,93,60,917 2015-16 1,96,30,917 1,96,30,917 2016-17 1,96,30,917 1,96,30,917 2017-18 1,70,1....
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....hasised that despite the search and survey proceedings continuing over several days, and despite the presence of multiple officers at the premises of the assessee, no incriminating material whatsoever was found. This, according to the learned counsel, itself demonstrates the absence of any undisclosed activity on the part of the assessee. 29. The learned Departmental Representative supported the orders of the authorities below. It was contended that the statement recorded under section 132(4) constituted incriminating material and that the assessee had admitted the fact of cash lending, at least to some extent. It was further argued that the materials found in the case of Mr. Nilesh Bharani, read together with the assessee's statement, were sufficient to justify the additions. 30. We have carefully considered the rival submissions, examined the material placed on record, and perused the assessment orders and appellate orders in the light of the statutory scheme governing assessments pursuant to a search under section 132 of the Act. Before embarking upon an examination of the merits of the additions, we consider it necessary to adjudicate the jurisdictional challenge rais....
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.... inextricably linked to the discovery of incriminating material during the search conducted at the premises of the assessee. Absent such material, the jurisdiction itself fails. 34. The expression "incriminating material" has not been defined in the Act. Its contours, therefore, have been shaped and refined through consistent judicial exposition. Broadly speaking, incriminating material must be material which is discovered as a direct result of the search under section 132, found at the premises of the assessee or under his control, relatable to the assessment year in question, and indicative of undisclosed income or assets not disclosed in the regular books of account or returns of income. It is equally well settled that mere suspicion, conjecture, or inference drawn from material found in the case of a third party does not satisfy the test of incriminating material. Nor does a post- search analytical exercise, howsoever elaborate, elevate itself to the status of incriminating material if it is not founded on something tangible unearthed during the search at the assessee's premises. 35. When the facts of the present case are examined through the prism of the above legal ....
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....lar manner for doing a thing, it must be done in that manner alone, or not at all. Any deviation from the statutory mandate vitiates the action at its very inception. 39. Considerable reliance has been placed by the Revenue on the statements recorded under section 132(4) of the Act. It therefore becomes necessary to examine, with some degree of doctrinal clarity, the evidentiary value of such statements in the context of search assessments. 39.1. There can be no quarrel with the proposition that a statement recorded under section 132(4) has evidentiary value and may be used in proceedings under the Act. However, it is equally well settled that a statement, by itself and in the absence of corroborative incriminating material, cannot constitute incriminating material for the purposes of section 153A. 40. Courts have repeatedly cautioned against placing blind or mechanical reliance on statements recorded during search proceedings, particularly when such statements are recorded over extended hours, under circumstances of mental stress, and without reference to contemporaneous documentary evidence. A statement recorded in such circumstances is, at best, a piece of information, ....
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....ng Officer under section 132(4) of the Act. The Tribunal has com mitted an error in ignoring the retraction made by the assessee. 22. Further, the position with respect to whether a statement recorded under Section 132(4) of the Act could be a standalone basis for making assessment was clarified by this Court in the case of CIT v. Harjeev Aggarwal, wherein, it was held that merely because an admission has been made by the assessee during the search operation, the same could not be used to make additions in the absence of any evidence to corroborate the same. The relevant paragraph of the said decision is extracted herein below: "20. In our view, a plain reading of section 158BB(1) of the Act does not contemplate computing of undisclosed income solely on the basis of a statement recorded during the search. The words "evidence found as a result of search" would not take within its sweep statements recorded during search and seizure operations. However, the statements recorded would certainly constitute information and if such information is relatable to the evidence or material found during search, the same could certainly be used in evidence in any proceedings unde....
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....diction to make an assessment. The relevant paragraph is reproduced herein below: - "36.4. 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." 42. Similarly, the Hon'ble Delhi High Court in the case of PCIT vs. Anand Kumar Jain (HUF) in ITA No. 23/2021 and other appeals vide judgment and order dated 12/02/2021 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 ld. AO. Similarly, other judgments which have been referred and relied upon by the ld. Counsel and 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 an ....
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....ration of the facts on record, we are of the considered view that no incriminating material was found during the search conducted at the premises of the assessee which could justify the additions made in respect of the completed assessment years. 47.1. The additions made by the Assessing Officer are founded entirely on third-party material and uncorroborated statements, which, by no stretch of legal reasoning, can be treated as incriminating material for the purposes of section 153A of the Act. 47.2. Consequently, the assumption of jurisdiction by the Assessing Officer to make additions in respect of Assessment Years 2012-13 to 2017-18 under section 153A is vitiated in law and cannot be sustained. 48. Having held so, the additions made for these years are liable to be deleted on this jurisdictional ground alone. Nevertheless, since the Assessing Officer and the learned Commissioner (Appeals) have dealt with the merits of the additions at considerable length, and since extensive submissions have been advanced before us on merits as well, we proceed to examine the substantive sustainability of the additions, so as to render a complete and conclusive adjudication and to avoid....
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....l capacity to advance such loans in cash. 52. Equally important is the conduct of the alleged borrower. The record reflects that the statements recorded during the search proceedings in the case of Shri Nilesh Bharani were subsequently retracted. The alleged borrower denied the transactions and furnished explanations regarding the entries appearing in the seized documents. Once such retractions are on record, the burden squarely shifts to the Revenue to establish, through cogent and affirmative evidence, that the original statements represented the true state of affairs. That burden has remained undischarged. 53. The Assessing Officer, however, proceeded to draw adverse inferences without undertaking any meaningful enquiry. No attempt was made to trace the alleged flow of cash, to examine bank withdrawals corresponding to the alleged cash advances, or to verify the recovery proceedings stated to have been initiated by the assessee or his family members. The assessment orders thus rest on inference piled upon inference, without a firm evidentiary foundation. 54. It is also relevant to note that during the course of the statement recorded under section 132(4), the assessee c....
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....ss of finance, particularly in cash lending and borrowing, and has earned income in cash. However, based on the statement of the assessee, it is evident that the assessee merely advanced a loan of Rs. 35 lakhs to Mr. Nilesh Bharani through banking channels. The assessee was also subjected to a search under section 132 of the Act on 18/12/2017, but no incriminating documents or material were found at the premises of the assessee. The entire addition in the present case is based solely on presumptions and pertains to third parties involved in the same search proceedings. Factually, the same issue has already been adjudicated in favour of the assessee. We respectfully rely on the decisions of the Coordinate Bench of the ITAT-Mumbai in the cases of RajeshkumarRameshchandra Shah vs. DCIT (supra) and Rupal Kashyap Mehta (supra), and observe that the Hon'ble Supreme Court's ruling in AbhisarBuildwell (P.) Ltd. is squarely applicable to the facts of the present case. 14. Accordingly, as there is no incriminating material found in the possession of the assessee during the search, the additions made for AYs. 2012-13 to 2016-17 are beyond the jurisdiction of the Ld. AO under ....
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....her illegal activity. In fact, it is relevant to observe, in the statement recorded u/s. 132(4) of the Act, Shri Jagdish T Ramani, who allegedly was assisting Shri Nilesh Shamji Bharani in his work, had stated that Shri Nilesh Shamji Bharani had instructed him to follow up with the lender, i.e., the assessee, to determine the modality of payment. He had stated that he instructed one of the office boys to collect money from the lender and after the money is collected, it is given to the borrower on execution of a promissory note. He had further stated that after the money is delivered to the borrower and promissory note is obtained, he had instructed the office boy to deliver the promissory note to the lender. It is quite surprising that considering the magnitude of the alleged cash loan transaction appearing in the seized document, not a single piece of incriminating material relating a cash loan transaction was recovered from the assessee during the search and seizure operation conducted on assessee. If the version of Mr. Jagdish T Ramani that the promissory note given by the borrower is delivered to the lender is to be taken on face value, then at least if not all few such promis....
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.... loan received back during the year Balance outstanding cash loan Amt in Rs Amt in Rs Amt in Rs Amt in Rs 2012-13 0000 0000 0000 0000 2013-14 0000 0000 0000 0000 2014-15 0000 0000 0000 0000 2015-16 0000 0000 0000 0000 2016-17 000 2,05,00,000 2,05,00,000 2017-18 2,05,00,000 27,29,00,000 29,34,00,000 2018-19 29,34,00,000 0000 29,34,00,000 Total 29,34,00,000 Para 5.34 for estimated interest earned on the above loans 5.34 Further the interest earned / receivable on cash loan lent by you amounting to Rs. 6,33,67,134/- for AY 2012-13 to 2018-19, is to added to the total income of the assessee AY wise as detailed below: Assessment year Interest of Current Year Loans Interest of earlier year loans Total Interest for the year Amt in Rs Amt in Rs Amt in Rs A B C 2012-13 0000 0000 0000 2013-14 0000 0000 0000 2014-15 0000 0000 0000 2015-16 0000 0000 0000 2016-17 12,05,425 0000 ....
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.... Tribunal in several matters involving identical allegations and evidentiary foundations. He specifically drew our attention to the decisions of the Tribunal in the cases of: ● Ms. Rupal Kashyap Mehta vs. DCIT in ITA Nos. 6191 to 6196/Mum/2024 (order dated 27.02.2025), ● Rajesh Kumar Rameshchandra Shah vs. DCIT in ITA Nos. 5568 to 5573/ Mum/ 2024 (order dated 31.01.2025), and ● Nilesh Bharani vs. DCIT in ITA No. 612/Mum/2020 (order dated 28.02.2023). In each of these matters, the additions made under Sections 69 and 56 were based exclusively on the so-called "incriminating" material seized from the premises of Mr. Nilesh Bharani, which included handwritten ledgers, coded entries, and statements recorded during investigation. The Co-ordinate Benches, after a meticulous examination of the evidentiary trail and the legal framework governing search assessments, unequivocally held that such third-party material howsoever incriminating it may appear cannot be used to make additions in the hands of another assessee under Section 153A, unless the procedural mandate of Section 153C is duly followed. 12. This Tribunal in Nilesh B....
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.... presumption of unexplained investments having been made, and hence, cannot stand once the substantive additions under Section 69 have been found to be unsustainable. There is neither any primary transaction nor any independently discovered evidence which could justify the estimation of such income. In the absence of any corroborative or incriminating material found during the search, such additions are wholly speculative and deserve to be deleted. Accordingly, all the grounds of appeal pertaining to the additions made under Sections 69 and 56 across the assessment years in question are allowed, and the impugned additions are directed to be deleted in full. 58. Judicial discipline thus mandates that in the absence of any distinguishing feature brought on record by the Revenue, a consistent view taken by coordinate benches on identical facts ought to be followed. We see no reason to depart from the settled position. 59. Accordingly, even on merits, the additions made under section 69 of the Act on account of alleged cash loans are unsustainable and are liable to be deleted. 60. The Assessing Officer has further brought to tax notional interest allegedly earned on the afores....