Facts of the Case

The Revenue filed appeals before the Income Tax Appellate Tribunal (ITAT), Delhi Bench, challenging the orders of the Commissioner of Income Tax (Appeals) [CIT(A)] dated 12.05.2023 and 15.05.2023 for Assessment Years 2014-15, 2015-16 and 2017-18.

During a search conducted on the Minda Group, certain documents including original share certificates issued by the assessee company, Pioneer Finest Ltd., were found at the premises of another group company. Based on these documents and statements of an alleged entry operator, the Assessing Officer made additions in the hands of the assessee.

The CIT(A) 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, 1961. Aggrieved by this decision, the Revenue filed appeals before the ITAT.

Issues Involved

  1. Whether share certificates found during a search operation can be considered “incriminating material” for initiating proceedings under Section 153C of the Income-tax Act.
  2. Whether additions can be sustained solely on the basis of share certificates and statements recorded during the search without corroborative evidence.
  3. Whether the Assessing Officer was justified in making additions when the material found during the search was already recorded in the books of accounts.

Petitioner’s Arguments (Revenue)

The Department contended that the additions made by the Assessing Officer were justified because original share certificates issued by the assessee company were found during the search at the premises of the Minda Group companies.

It was argued that the discovery of these documents along with statements of an entry operator constituted incriminating material. According to the Revenue, the CIT(A) erred in deleting the additions since the seized documents and statements were sufficient to establish the undisclosed nature of the transactions.

Respondent’s Arguments (Assessee)

The assessee argued that incriminating material refers to evidence relating to unaccounted transactions that are not recorded in the books of accounts.

It was submitted that the share certificates merely reflected details of shares issued and allotted by the company and were already duly recorded in the books prior to the search. Therefore, they could not be treated as incriminating material.

The assessee relied on judicial precedents including:

  • CIT v. Kabul Chawla (2016) 380 ITR 573 (Delhi HC)
  • PCIT v. Abhisar Buildwell (P.) Ltd. (2023) 459 ITR 212 (SC)

It was contended that additions in completed assessments can only be made based on incriminating material found during the search, which was absent in the present case

Court Findings

The ITAT examined the material on record and observed that the share certificates found during the search only contained details of shares issued and allotted by the assessee company. These details were already recorded in the books of accounts prior to the search.

The Tribunal held that such documents cannot be treated as incriminating material for the purpose of assuming jurisdiction under Section 153C.

The Tribunal also relied on earlier decisions of the coordinate bench and noted that the Delhi High Court had already confirmed that recovery of share certificates and annual reports cannot be considered incriminating documents when they are otherwise part of regular records.

Further, the Tribunal observed that statements recorded under Section 132(4) during search cannot by themselves constitute incriminating material unless supported by corroborative evidence.

Court Order

The ITAT held that the Assessing Officer had framed assessments beyond the scope of Section 153C of the Income-tax Act.

Accordingly, the Tribunal affirmed the order of the CIT(A) and dismissed the appeals filed by the Revenue for Assessment Years 2014-15, 2015-16 and 2017-18.

Important Clarification

  • Share certificates found during search cannot automatically be treated as incriminating material.
  • Documents already recorded in the books of accounts prior to the search do not constitute incriminating evidence.
  • Statements recorded under Section 132(4) cannot be the sole basis for additions unless supported by independent corroborative evidence.

 

Blog Description (Meta Description)

ITAT Delhi in DCIT vs Pioneer Finest Ltd held that share certificates found during search cannot be treated as incriminating material for invoking Section 153C. The Tribunal followed precedents including Kabul Chawla and Abhisar Buildwell and dismissed Revenue appeals where additions were made without incriminating evidence.

Link to download the order -  https://itat.gov.in/public/files/upload/1735730610-ajA2ZQ-1-TO.pdf

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