2025 (7) TMI 1417 - AT - Income Tax

Assessment completed u/s 153A - Non referring to incriminating material unearth during the course of search carried out in the case of each respective assessee when the assessment year involved is unabated year - HELD THAT - In the instant case as could be seen from the conclusions drawn by the AO as summarized by ld. CIT(A) it is an admitted position that no loose paper or document or any money bullion jewellery valuable article or thing was found and seized from the possession of the assessee based on which additions could be made in the order passed u/s 153A of the Act in the hands of assessee company. Since in the present case no incriminating material was found from the possession of the assessee company and its directors with regard to the unsecured loan of Rs. 75.00 lacs from M/s M/s Sukuma Infosolutions Pvt. Ltd. therefore by respectfully following the ratio laid down by Hon ble Apex Court in the case of Abhisar Buildwell 2023 (4) TMI 1056 - SUPREME COURT we hold that no addition could be made in the order passed u/s 153A of the Act. Accordingly the addition is hereby deleted. Under category A B above the additions were made on the basis of the statements of Shri Raj Kumar Modi and Shri Jagdish Purohit recorded u/s 132(4) during the course of search carried out in their own cases by the department. It is also relevant to state that such statements were retracted by both Sh. Raj Kumar Modi and Shri Jagdish Purohit within a short period of time during the post search investigation proceedings. It is also seen that both Shri Raj Kumar Modi and Shri Jagdish Purohit are not at all related to the assessee company in any manner and therefore they are foreign parties with respect to the assessee company. In the instant case as observed above the statements of two independent and non-related parties i.e. of Sh. Raj Kumar Modi and Sh. Jagdish Purohit were used by the AO for making additions in the order passed u/s 153A in the hands of the assessee company. These two persons are neither the servants of the assessee company as they were not the employees nor the Director nor related to the assessee company in any manner therefore the ratio laid down in the case of Tapasya Projects 2007 (12) TMI 563 - ALLAHABAD HIGH COURT is not applicable to the instant case. In the instant case the best course of action would be u/s 153C after following the procedure of recording of satisfaction to this effect as provided by the Hon ble Supreme Court in the case of Calcutta Knitwears (supra). The assessing officer should have completed the proceedings initiated in terms of the notice issued u/s 153A of the Act for the year under appeal since it is an unabated assessment year and then must followed the procedure as laid down by the hon ble supreme court in the case of Calcutta Knitwears 2014 (4) TMI 33 - SUPREME COURT which was not followed by the AO thus now no action could be taken u/s 153C of the Act also for the year under appeal.

Summary

ISSUES:

Whether additions under section 153A of the Income Tax Act, 1961 can be made in respect of unabated assessment years without reference to incriminating material found during the search in the possession of the assessee.Whether statements recorded under section 132(4) from third parties, unrelated to the assessee and retracted thereafter, can constitute incriminating material to justify additions under section 153A in the assessee's case.Whether the proper procedure under section 153C of the Act must be followed for making additions based on incriminating material found during search of third parties.What constitutes "incriminating material" under sections 132(1)(c) and 132(4) of the Income Tax Act, 1961.Whether additions can be sustained solely on the basis of statements of third parties without any corroborative material found during search in the assessee's premises.

RULINGS / HOLDINGS:

Additions under section 153A in respect of unabated assessment years must be made "solely on the basis of incriminating material unearthed during the course of the Assessee's search" and not on material found from third parties.Statements recorded under section 132(4) from third parties, especially if retracted and without corroborative incriminating material found in the assessee's possession, do not constitute incriminating material for the purposes of section 153A assessments.The procedure prescribed under section 153C, including recording of satisfaction by the AO of the searched person and transfer of seized material to the AO of the other person, must be followed before initiating assessment proceedings based on incriminating material found in searches of third parties."Incriminating material" under section 132(1)(c) is limited to money, bullion, jewellery, valuable articles or things, or books of account and documents seized which represent undisclosed income or property, and must have a direct nexus with undisclosed income or property of the assessee.Additions cannot be sustained merely on statements of third parties without tangible evidence or direct link to undisclosed assets or income found during the search of the assessee.

RATIONALE:

The Court applied the statutory framework of sections 132, 132(1)(c), 132(4), 153A, and 153C of the Income Tax Act, 1961, as well as judicial precedents including the Supreme Court decision in Abhisar Buildwell Pvt. Ltd. and the decision in CIT vs. Calcutta Knitwears.The Court emphasized the restricted scope of "incriminating material" under section 132(1)(c), requiring actual discovery of undisclosed money, bullion, jewellery, valuable articles, or relevant books of account/documents from the searched premises of the assessee for additions under section 153A.The Court noted that statements recorded under section 132(4) must be linked to such incriminating material to have evidentiary value; mere statements without corroboration are insufficient.The Court highlighted that additions based on third-party statements without following the mandatory procedure under section 153C are legally unsustainable, as section 153C is the exclusive remedy for utilizing incriminating material found in the search of a person other than the assessee.The Court followed the principle that in unabated assessment years, completed assessments cannot be disturbed under section 153A without incriminating material found in the assessee's search, preserving the sanctity of completed assessments unless reopened under sections 147/148.The Court distinguished prior rulings where searches on servants or agents of the assessee were considered searches on the assessee, noting that unrelated third parties' statements do not fall within this scope.The Court relied on various High Court and Tribunal decisions reinforcing the necessity of direct nexus between incriminating material and the assessee's undisclosed income for additions under section 153A.The Court underscored the legislative intent and procedural safeguards mandated by the CBDT Circular No. 24/2015 and the Finance Bill 2015 amendments to section 153C, requiring strict compliance with procedural steps before invoking section 153C assessments.