Facts of the Case

The Revenue filed appeals before the Income Tax Appellate Tribunal against the orders of the CIT(A) dated 12.05.2023 and 15.05.2023 for Assessment Years 2014-15, 2015-16 and 2017-18. The CIT(A) had allowed the appeals of the assessee and set aside the assessment orders on the ground that the additions made by the Assessing Officer were beyond the scope of Section 153C of the Income Tax Act.

During search proceedings conducted in the case of the J.P. Minda Group, certain original share certificates relating to the assessee company were found at the premises of the group. The Assessing Officer treated these share certificates and the statements of the alleged entry operator as incriminating material and made additions in the hands of the assessee.

The assessee challenged the additions before the CIT(A), who deleted the additions and quashed the assessment orders. The Revenue then filed appeals before the ITAT.

Issues Involved

  1. Whether original share certificates found during search proceedings can be treated as “incriminating material” for the purpose of initiating proceedings under Section 153C of the Income Tax Act.
  2. Whether statements recorded under Section 132(4) during search can independently constitute incriminating material to justify additions.

Petitioner’s Arguments (Revenue)

  • Original share certificates allotted by the assessee company were found during the search at the premises of J.P. Minda Group instead of the investor company.
  • The Assessing Officer made additions based on these share certificates and the statement of an alleged entry operator.
  • These documents and statements constituted incriminating material.
  • Therefore, the CIT(A) erred in deleting the additions made by the Assessing Officer.

Respondent’s Arguments (Assessee)

  • Incriminating material must relate to unaccounted transactions not recorded in the books of accounts.
  • The share certificates found during the search were already recorded in the books of accounts prior to the search.
  • Therefore, these documents cannot be treated as incriminating material.
  • Reliance was placed on judicial precedents including:
    • CIT vs Kabul Chawla (2016) 380 ITR 573 (Delhi High Court)
    • PCIT vs Abhisar Buildwell (P.) Ltd. (2023) 459 ITR 212 (Supreme Court)

Accordingly, the assessee argued that the CIT(A) had rightly deleted the additions.

Court Order / Findings

The ITAT dismissed the appeals of the Revenue and upheld the order of the CIT(A).

The Tribunal observed that:

  • The share certificates merely recorded details of shares issued and allotted by the assessee.
  • These transactions were already duly recorded in the books of accounts prior to the search.
  • Therefore, the share certificates could not be treated as incriminating material for the purpose of Section 153C.

The Tribunal further relied upon earlier Tribunal decisions and confirmed that original share certificates cannot be treated as incriminating documents to draw adverse inference regarding undisclosed income.

The Tribunal also referred to the Delhi High Court ruling which held that recovery of annual reports and share certificates cannot be considered incriminating material and cannot justify assumption of jurisdiction under Section 153C.

Accordingly, the Tribunal held that the assessments framed by the Assessing Officer were beyond the scope of Section 153C and were rightly quashed by the CIT(A).

The Revenue’s appeals were therefore dismissed.

Important Clarification

  • A statement recorded under Section 132(4) during search proceedings cannot by itself be treated as incriminating material.
  • Such statements must be supported by corroborative evidence found during the search.

Reliance was placed on the decision of the Delhi High Court in CIT vs Harjeev Aggarwal (2016), which held that statements recorded during search cannot be the sole basis for computing undisclosed income without supporting evidence.

Link to download the order -  https://itat.gov.in/public/files/upload/1735730662-qR9XFH-1-TO.pdf

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