₹100 Crore U/s 153A Addition Quashed: Seized Third-Party Paper Not Incriminating for Completed Year

DCIT Vs Gaurav Dalmia (ITAT Delhi)

For AY 2016-17, the assessee’s original scrutiny assessment had already been completed under section 143(3) in 2018, making it an unabated year on the date of search in March 2021. In the subsequent section 153A assessment, the AO added ₹100 crore under section 69A based on a loose sheet (Annexure A-1, page 14) seized not from the assessee but from the residence of an employee, treating entry no. 31 (“Others – 100,00,00,000”) as alleged cash received on sale of shares.

The Tribunal held that although material found from a third person can be considered as “found in the course of search”, for an unabated year any addition under section 153A must still be founded on truly incriminating material relatable to that year. Examining the seized sheet (reproduced on page 22), it noted that except entry 31, all other entries were accepted by the AO as duly recorded in the regular books. For the disputed ₹100 crore entry, the assessee produced bank and ledger evidence showing it represented investment in JM Financial Mutual Fund through banking channels, not cash. This explanation remained unrebutted by the AO.

The Revenue’s case relied heavily on statements under section 132(4) of three employees. However, those statements were retracted, only partially relied upon by the AO himself, and were unsupported by any independent corroborative evidence. The Tribunal reiterated that such statements, without corroboration, cannot by themselves constitute incriminating material.

Since the document did not reveal any undisclosed asset or off-books transaction and the alleged cash trail was neither proved nor linked to any deployment of funds, the seized paper was held to be non-incriminating for this completed year. Applying the Supreme Court ruling in Abhisar Buildwell, the Tribunal quashed the entire section 153A assessment for want of incriminating material in an unabated year.

Consequently, the Revenue’s appeal on merits was dismissed as infructuous and the assessee’s legal ground under Rule 27 was allowed, deleting the ₹100 crore addition in toto.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal by the Revenue is directed against the order of the ld. CIT(A)-23, Delhi dated 31.03.2025 pertaining to A.Y 2016-17.

2. The grievances of the Revenue read as under:

“1. The order of Ld. CIT(A) is not correct in law and facts.

2. Whether on the facts and circumstances of the case, the Ld. CIT(A) is justified in deleting the addition of Rs. 100 crores made under Section 69A, despite the presence of corroborative evidence in the form of a seized document (Annexure-Al, page no. 14) and statements recorded under Section 132(4) of the Act.3

3. Whether the retraction of statements recorded under Section 132(4) of the Act, made much later and without contemporaneous evidence, can override the evidentiary value of such statements in the absence of any allegation of coercion or mis-recording therein.

4. Whether the Ld. CIT (A) has erred in law in holding that nominal shareholding of the assessee precludes the addition of the entire amount of cash receipt of Rs. 100 crores in his hand u/s 69A of the Act, ignoring the factual matrix indicating beneficial ownership and control of Sh. Gaurav Dalmia on the entities involved in the transaction.

5. Whether the Ld. CIT (A) has erred in applying principles of consistency from other assessments, i.e., Rakesh Aggarwal’s case, contrary to the settled law that each assessment is to be judged independently based on specific evidence applicable to the assessee in question.

6. Whether the Ld. CIT (A) is correct in law in relying on the valuation report submitted by the assessee, valuation of the shares on DCF method, ignoring the fact that:

• • there were flaws in the valuation report as pointed out in the assessment order, and
  • the valuation report does not hold significance when the incriminating material relating to unaccounted cash component in the transaction of shares were found and corroborated by statements recorded u/s 132(4) of the key persons handling the transactions.

7. Whether on the facts and in the circumstances of the case, the Ld. CIT (Appeals) has erred in accepting the assessee’s explanation that the transaction of Rs. 100 crores recorded at Sl. No. 31 of Page No. 14 of Annexure-1 pertains to an investment made by Dalmia Group Holding in JM Financial Mutual Funds.”

3. The ld. counsel for the assessee has filed an application under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963 raising the following additional legal grounds of appeal in support of the order of the learned Commissioner of Income Tax (Appeals):

“Additional Ground No. 1. That the learned Commissioner of Income Tax (Appeals) has erred in law and on facts in overlooking the basic fact that no incriminating material was found during the course of search and the assessment as contemplated under section 153A is not a de novo assessment and as such, the additions so made by assessing officer are beyond the scope of assessment under section 153A of the Act and are liable to be deleted in totality.”

Additional ground no 2. That on the facts and circumstances of the case the approval accorded under section 153D of the Act (any) is a mechanical and arbitrary approval without there being any application of mind and also without satisfying the statutory preconditions of the Act and as such, the assessment so framed is null and void and deserves to be quashed.”

4. It is submitted that it is well settled proposition of law that the respondent is entitled to raise a legal ground at any stage of the proceedings, even though he may not have filed an appeal against such an order and relied upon the following the Judicial pronouncements:

1. 83 ITR 223 (Bom) (B.R.Bamsi v/s CIT)

2. 129 ITR 475 (All) (Moralia & Sons v/s CIT)

3. 220 ITR 398 (Ker) (CIT v/s Cochin Refinieries Ltd)

5. Opposing vehemently, the ld. counsel for the Revenue, with regard to Additional Ground No. 1, submitted that during the course of search and seizure proceedings conducted in the Dalmia Group, incriminating document i.e. a sheet named “Aexited” (Page No.14 of ANNEXURE A-1) pertaining to the assessee was found and seized from the residence of Sh. Rakesh Aggarwal who is intricately connected with the Dalmia Group and who was covered under the same search on the same day. The scanned copy of the seized document is reproduced at Page 3 of the Assessment Order and it contains details of amounts received by various entities/persons of Dalmia Group.

6. The ld. counsel for the Revenue placed reliance on the decision in the case of Krishnamurthy V. Deputy Commissioner of Income-tax [2025] 171 taxmann.com 413 (SC) for the proposition that assessment u/s 153A can be based on the materials found anywhere in the search. In view of the above judgment of Hon’ble Apex Court, the seized documents “Aexited” (Page No.14 of ANNEXURE A-1), seized from the residence of Shri Rakesh Aggarwal, falls within the expression ‘found in the course of search’ and, therefore, assessment under section 153A of the Act is valid and legal as per the provisions of the Income-tax Act, 1961 [the Act, for short]. Thus, it was prayed that the additional ground raised by the assessee under rule 27 may not be admitted.

7. Regarding Additional Ground No. 2 the ld. counsel for the Revenue submitted that Rule 27 of the ITAT Rules enables a respondent (i.e., the assessee) to support the order appealed against on any ground decided against him, even if no separate appeal or cross-objection has been filed. However, notably, that it cannot be this enabling provision is subject to judicial limitations invoked to raise an entirely new ground unconnected with the order of the CIT(A).

8. The ld. counsel for the Revenue further submitted that in the present case, the assessee’s additional ground with respect to approval under section 153D of the Act without application of mind/mechanical approval was never raised before the ld. CIT(A). The same, therefore, cannot be introduced for the first time before this Hon’ble Tribunal under the garb of Rule 27 as the ground sought to be raised does not emanate from the order of the CIT(A). Judicial authorities have consistently held that Rule 27 permits only such grounds as were raised before CIT(A)/ decided against the respondent by the CIT(A). It does not permit the introduction of fresh grounds at the appellate stage under Rule 27 and prayed for its rejection.

9. We have heard the rival submissions on the additional grounds raised by the assessee and have perused the relevant material on record. We find that Additional ground 1 is with respect to the material found in the course of search on person other than assessee and reliance on it by the AO to make addition in the case of the assessee. We find that the material, whether found from the assessee or from person other than assessee, has to be taken into consideration as held by the hon’ble Supreme Court in its decision in the case of K. Krishnamurthy V. Deputy Commissioner of Income-tax [2025] 171 taxmann.com 413 (SC) wherein the Hon’ble Supreme Court has held as under:

“40. The argument that the said transactions had not been found in the search at the Appellant’s premises but had been found due to ‘copies of sale deeds collected from the society’ cuts no ice with this Court as the sale deeds had been collected as a result of the search and in continuation of the search. This Court is of the view that as the causation for collecting the sale deeds from the Society was the search at the Appellant’s premises. it cannot be said that the said documents were not found in the course of the search.

41. Further, this Court is of the opinion that the expression ‘found in the course of search’ is of a wide amplitude. It does not mean documents found in the assessee’s premises alone during the search. At times, search of an assessee leads to a search of another individual and/or further investigation/interrogation of third parties. All these steps and recoveries therein would fall within the expression ‘found in the course of search’.

10 In the above decision, the hon’ble Supreme Court widened the scope of expression ‘found in the course of search’ to include documents seized from person other than searched person. In view of the above judgment of Hon’ble Apex Court, the seized documents “Aexited” (Page No.14 of ANNEXURE A-1) seized from the residence of Shri Rakesh Aggarwal falls within the expression ‘found in the course of search’ especially when the said Shri Rakesh Aggarwal was an employee of the assessee and was covered under the same search. We therefore hold that the assessment under section 153A of the Act, made on the basis of document seized from Rakesh Agarwal, is valid and legal as per the provisions of the Income-tax Act, 1961 [the Act, for short]. We are of the view however, whether the material found is incriminating or not, goes to the root of the matter and since the additional ground 1 raises the incriminating nature of the seized document, hence the same is admitted.

11. With respect to the additional ground no 2 regarding approval u/s 153D being a legal ground and can be raised before the ITAT for the first time, we are of the considered view that the approval u/s 153D was without application of mind or was mechanical approval, is not borne out from the relevant facts on record. Furthermore, we agree with the Revenue, that under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963, that Rule 27 permits only such grounds as were raised before CIT(A)/decided against the respondent by the CIT(A). Rule 27 of ITAT Rules, 1963, reads as under:

“27. Respondent may support order on grounds decided against him – The respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him.”

In the instant case, the question of approval u/s 1 53D was not before the CIT(A) nor the CIT(A) decided the issue against the assessee. Moreover, the ld AR did not make any submission regarding the issue of approval u/s 153D. We therefore hold that the provision do not permit the introduction of fresh grounds whose relevant facts are not on record, at the appellate stage before us under Rule 27. The additional ground 2 is rejected.

12. Briefly stated, the facts of the case are that the assessee filed original return of income u/s 139(1) of the Act on 17.08.2016 declaring income at Rs. 6,39,54,250/- along with the current losses of Rs. 71,01,029/-. The assessee filed its revised return of income on 22.03.2017 without making any change in the original return of the income. Thereafter, the case was selected for complete scrutiny under CASS. Accordingly, notice u/s 143(2) of the Act dated 04.07.2017 was issued and the assessment was completed u/s. 143(3) of the Act vide order dated 19.12.2018 at returned income.

13. A Search and seizure action u/s. 132 of the Act was carried out at the premises of the assessee on 17.03.2021 and subsequently, the assessment u/s 153A r.w.s 143(3) of the Act was completed on 31.03.2023 at an income of Rs. 1,06,39,54,250/- u/s 69A of the Act. In the order passed u/s 153A of the Act dated 31.03.2023 the Assessing Officer made an addition u/s 69A of the Act of Rs 100,00,00,000/- by relying on document found from the residence of Shri Rakesh Aggarwal, an employee of the assessee who was searched along with the assessee. The AO held that the assessee has received unaccounted cash of Rs. 100,00,00,000/- on account of sale of shares of Landmark Hi Tech Development Private Limited(‘LHDPL’) to Uppal Chadha Hi Tech Developers Pvt Ltd. On appeal, the ld. CIT(A) vide order dated 31.03.2025, deleted the entire addition so made by Assessing Officer.

14. Aggrieved, the Revenue is in appeal before us. The assessee as well has filed additional ground as above under Rule 27. As the assessee’s additional ground 1 goes to the root of the matter, we take up the assessee’s issues first.

15. The assessee, in support of his ground has made the following submission on legal issues as well as on merits:

“2.1 It is now well settled law that no addition can be made in the proceeding u/s 153A of the Income Tax Act, unless any incriminating material qua each assessment year is found from the premises of the appellant. In the impugned order ld of the Income Tax Act on the basis of noting found during the course of search from the residence of Shri Rakesh Aggarwal (third party), kindly see pages 2 to 4 of assessment order. For the sake of completeness, the document so seized is extracted below i.e.

2.2. It is an undisputed fact that above noting relied upon in the impugned order have not been found from the premise of the appellant but have been found from the premise of Shri Rakesh Aggarwal. Further, the material found from the premise of third party cannot be used in the proceeding u/s 153A of the Income Tax Act. In this regard, it is submitted that it is the settled proposition of law that the reference to the incriminating material is with regard to incriminating material found as a result of search of assessee’s premises and not of any other assessee/ third person. For making addition on the basis of material including document found during the course of search at the premises of the third party, the procedure laid down under section 153C/148 of the Act is to be followed. Section 153C/ 148 of the Income Tax Act can be invoked on the basis of incriminating material found during the course of search from the premise of any other person different from the assessee. Reliance is placed on the judgment of Hon’ble High Court of Delhi in the case of PCIT (Central) 3 vs Anand Kumar Jain (HUF) reported in 432 ITR 384 on the aforesaid proposition and Hon’ble Supreme Court in the case of CIT vs Singhad Technical Education Society reported in 397 ITR 344.

2.3 In view of the above ld AO wrongly assumed the jurisdiction u/s 153A of the Income Tax Act on the basis of notings found from the residence of Shri Rakesh Aggarwal (third party) and as such impugned order passed u/s 153A of the Income Tax Act is liable to be quashed, furthermore, there is no basis as to how the amount mentioned in “others” (in the aforesaid seized document) has been attributed to the assessee neither any investigation or enquiry was made by learned AO to prove the same, whereas, the assessee submitted necessary and requisite documentary evidences in order to prove that the said amount mentioned in “others” of Rs. 100 crores is nothing but investments made by Dalmia Group Holdings in JM Financial Mutual Fund which has not been rebutted by learned AO (kindly see pages 54 to 55 of CIT (A) order) – (Emphasis Supplied).

2.4 It may also be observed that the original assessment was completed u/s. 143(3) of the Act vide order dated 19.12.2018 at returned income and in the original assessment there was no addition to returned income. Since it is an unabated assessment and as such addition cannot made in the impugned order in the absence of incriminating material found during the course of search. Reliance is placed in this regard on the following judicial ruling: –

a) PCIT vs Abhisar Buildwell (P) Ltd. (SC) reported in 454 ITR 212

b) Commissioner of Income Tax, (Central) III Vs Kabul Chawla ITA no 707/2014, (Delhi High Court) reported in 380 ITR 573.

c) CIT Vs Singhad Technical Education Society (SC) 397 ITR 344

d) Principal Commissioner of Income Tax Central-2, New Delhi v. Meeta Gutgutia (Delhi HC) reported in 395 ITR 526.

2.5 The aforesaid judgments have also been noted by learned CIT (A) at pages 60 and 61 of his order, further, even the fact that the entries so mentioned in the alleged seized document are recorded in the books of accounts of various entities of Dalmia groups have been noted by learned CIT (A) at pages 40 to 55 of his order, even then the learned CIT(A) failed in his duty in quashing the impugned assessment order so made, however, gave full relief on merits.

2.6 As such, the assessee-respondent prays that it be held that additions so made by the learned AO are beyond the scope of assessment in view of the aforesaid judgments. In effect, it is prayed that Additional Legal Ground No. 1 as per Rule 27 Application be allowed.

3. Submissions on merits with regards to department’s ground nos. 1 to 8 so raised in memo of appeal: Heavy reliance is placed on the findings of learned CIT (A) recorded at pages 61 to 78 of the order, wherein, addition has been deleted on merits by holding that addition u/s 69A is also not sustainable in view of the facts of the case and further, by holding that allegation of Id AO that the appellant received unaccounted cash of Rs. 100,00,00,000 on sale of shares of Landmark Hi Tech Development Private Limited (‘LHDPL’) to Uppal Chadha Hi Tech Developers Pvt Ltd., has not been substantiated or investigated by learned AO and as such, the addition so made by learned AO was deleted.

3.1 In support of the findings of learned CIT (A), it is submitted that it is an admitted fact (as also accepted by ld CIT (A) at pages 75 and 76 of his order) that the appellant has nominal investment in shares of Landmark Hi Tech Development Private Limited and in this regard shareholding of andmark Hi Tech Development Private Limited as on 31/03/2013 is being given below: –

3.2 From the perusal of the above it may be observed that as on 31.03.2013 Banyan Real Estate Fund (BREF) held 94.7% stake in Landmark Hi Tech Development Private Limited. After 6 years of making investment, Banyan Real Estate Fund (BREF) intended to exit the investment made in LHTDPL. Accordingly, on 06.06.13, Landmark Realtech Pvt Ltd (LRTPL) purchased shareholding from BREF @ Rs. 500 per share i.e. for an aggregate consideration of Rs 321.659 crores. As such shareholding of Landmark Hi Tech Development Private Limited before transfer of shares to Uppal Chadha Hi Tech Developers Pvt Ltd is being given below: –

3.3 It may be observed that vide agreement dated 12.06.2013, LRTPL and others (Gaurav Dalmia, Sharmila Dalmia and Plus One Realtors Pvt Ltd) were to sell 67,93,430 shares of LHTDPL during FY 13-14, in a phased manner, to Uppal Chadha Hi-Tech Developers Pvt. Ltd at Rs. 515.20 per share having an aggregate consideration of Rs 350 crores. In pursuance to the aforesaid agreement, LRTPL and others (Gaurav Dalmia, Sharmila Dalmia and Plus One Realtors Pvt Ltd) sold shares and offered the resulting income in AY 2014-15 to AY 2016-17. The sale of shares took place as under:

3.4 From the perusal of the above it is important to note the following facts: –

i) Landmark Realtech Pvt Ltd (LRTPL) purchased 6,433,180 shares of Landmark Hi Tech Development Private Limited from BREF @ Rs. 500 per share on 06.06.13 for Rs 321.659 crores

ii) Landmark Realtech Pvt Ltd entered into agreement to sale dated 12.06.2013 with Uppal Chadha Hi-Tech Developers Pvt. Ltd for sale of shares of Landmark Hi Tech Development Private Limited@ Rs. 515.20 per share.

iii) The Id AO has not disputed the purchase rate @ Rs. 500 per share on 06.06.13

iv) However, the sale rate @ Rs. 515.20 per share vide agreement to sale dated 12.06.2013 has been disputed by the ld AO

v) The Id AO worked out sale rate @ 651.22 which shows lack of application of mind as the rate per share cannot increase from Rs 500 per share to Rs 651.22 per share within few days.

vi) The Id AO wrongly relied upon the DCF method of valuation in respect of transfer of shares. However DCF method of valuation cannot be applied in respect of transfer of shares as per section 56(2)(viia) of the Income Tax Act.

vii) In view of the above i.e. based on reading of provisions of the Section 56(2)(viia) read with Rule 11UA, it can be observed that, the valuation of the equity shares is to be done based on the Book Value of Assets and Liabilities. The relevant formula is given hereinabove i.e. Net Asset Value which means the Book value for the purpose of this particular section of the Act.

viii) In view of the above Id AO wrongly relied upon DCF method of valuation for working out rate per share of Rs 651.22 and estimating the sale consideration of Rs 450 crore as against sale consideration of Rs 350 crore as per books of accounts and made the entire addition in AY 2016-17, whereas, the transaction of sale of shares was scattered in three different assessment years (kindly see para 3.3. above and finding of Id CIT (A) at page 76 para 94). Further, substitution of value as per DCF method is also outside the scope of assessment under section 153A of the Act, since AY 2016-17 was a completed assessment on the date of search and addition can only be made on the basis of incriminating material and not on the basis of estimated difference in valuation under section 56(2)(viia). Reliance is placed in this regard on the following judicial ruling: (Emphasis supplied) –

a) PCIT vs Abhisar Buildwell (P) Ltd. (SC) reported in 454 ITR 212

b) Commissioner of Income Tax, (Central) – III Vs Kabul Chawla ITA no 707/2014, (Delhi High Court) reported in 380 ITR 573.

c) CIT Vs Singhad Technical Education Society (SC) 397 ITR 344

d) Principal Commissioner of Income Tax Central-2, New Delhi v. Meeta Gutgutia (Delhi HC) reported in 395 ITR 526.

ix) On merits and as per Section 56(2)(viia) read with Rule 11UA(1)(c)(b), Net Asset Value is required to be worked out and NAV of share is Rs 200 per share.

x) As such the rate of share of Rs 515.20 per share at which shares of Landmark Hi Tech Development Private Limited have been sold by Landmark Realtech Pvt Ltd is above the fair market value of share worked out as per section 56(2)(viia) read with Rule 11UA and as such, substitution of value by learned AO on DCF basis is unjustified and untenable in law.

3.5 It may also be observed that the Id AO relied upon the following statements recorded during the course of search of Mr Rakesh Agarwal, Mr SN Pareekh and Mr. Naresh Ghai, who all retracted the statements recorded during search and explained the circumstances under which the statements were recorded during the course of search i.e. under extreme duress and coercion. Learned CIT (A) has held in the order that even learned AO has partly relied on the statements and not fully, as no addition on account of commission was ever made in the hands of Sh. Rakesh Aggarwal, whereas, he was assessed by same assessing officer (kindly see pages 64 to 75 of CIT (A) order). Reliance is placed on the judgment of Hon’ble Supreme Court in the case of CIT vs Jindal Steel & Power Ltd. reported in 460 ITR 162 on the proposition that “statement cannot override evidences more so when the same is retracted”.

3.6 Valuation report submitted during assessment proceedings not accepted by the AO: At the outset, it is imperative to give a background as to why the appellant had obtained the impugned valuation report. In this regard, following would be pertinent- LRTPL had purchased shares of LHTDPL from BREF (i.e. a foreign company). As and when it was required to make foreign payments, LRTPL was required to file Form FC-TRS with RBI, as a compliance. These Forms were filed for remittances made for the period July 2013 to September 2015 (valuation report dated 06.06.2013 and 28.09.2015. It is pertinent to note that such valuation report was obtained purely for FEMA purposes, wherein DCF method was used for arriving at the Fair market value (FMV) and to ensure that there was no FEMA violation at the time of making foreign payments. This valuation report showing FMV of Rs 517.02 per share was being filed and was being accepted by the RBI. This shows that the true underlying and inherent value of such share was around Rs. 500 only and by no means it could derive an additional value as is being alleged by the Id AO in the assessment order.Hence, the working of IdAO to arrive at FMV of Rs 651.22 per share is to be disregarded.

3.7 AO has nothing on record to show deployment of 100 crores or identify an undisclosed asset worth Rs.100 crores. In the para no 5 of the impugned order it has been observed by the ld AO that unaccounted cash of Rs 5.50 crore was seized which has remained unexplained. As per ld AO, the assessee claimed that the cash seized belongs to Shri Mridu Hari Dalmia and belong to Shri Mridu Hari Dalmia. In this regard it is submitted that during the course of search cash of Rs 5.50 crore were found. In respect of cash so found addition of RsRs 5.50 crore were made by the ld AO in the hands of Shri Mridu Hari Dalmia in the order passed u/s 143(3) for A Y 2021-22.

3.8 From the perusal of the order for A Y 2021-22 (para no 7.4 of order) of Shri Mridu Hari Dalmia it may be observed that it has been admitted by ld AO that:

i) Cash found during search pertains to A Y 2021-22

ii) The cash found is not related to wave group as the addition has been made by Id AO in respect of cash found during search separately.

In view of the above the Id AO wrongly made adverse observation on the basis of cash found during search the addition in respect of which has been made separately in the A Y 2021-22 in the hands of Shri Mridu Hari Dalmia. On analysis of the entire assessment order nowhere it is brought by the IdAO that if such huge amount was received by the assessee in cash, where and how it was deployed. Had the assessee actually received such huge sum of cash, it would have deployed it somewhere which IdAO has not been able to evidence by way of any cogent material or supporting documents. This also supports that no such cash receipt of 100 crores was made by the assessee. 3.9 Without prejudice to above, reliance is placed on the findings of learned CIT (A) (kindly see pages 75 to 76 of CIT (A) order) that it is not correct to add entire alleged suppressed income in AY 2016-17 and in the hands of the appellant as the shareholding of Landmark Hi Tech Development Private Limited before transfer of shares to Uppal Chadha Hi Tech Developers Pvt Ltd is being given below: -****

3.10 From the perusal of the above it may be observed that Shri Gaurav Dalmia was holding only 5000 shares and as such the ld AO wrongly made the addition in respect of transfer of entire shares of 6793430 shares in the hands of the appellant (kindly see finding of ld CIT (A) page 75 para 93).

4. That further, reliance placed by learned CIT DR on the judgment of K. Krishnamurthy vs DCIT reported in 473 ITR 557 in misconceived as the same is clearly distinguishable on the facts of the assessee, since the said judgment dealt with issue of penalty under section 271AAA(2) of the Act, wherein, in that case the assessee admitted undisclosed income and paid taxes thereon, however, in the case of assessee the additions have been made by learned AO purely on the basis of suspicion and surmises without there being any incriminating material or any admission on the part of assessee. Reliance is placed on the judgment of Hon’ble Supreme Court in the case of CIT vs Singhad Technical Education Society reported in 397 ITR 344.

5. In view of the aforesaid, it is most humbly submitted that the appeal of Revenue be dismissed and the Rule 27 so filed by the assessee – respondent be allowed”.

16. Per contra, the ld DR vehemently relied on the order of the AO. The ld reiterated that the document seized are incriminating in nature and reflect the receipt of cash as corroborated by the statements of Rakesh Agarwal, Mr SN Pareekh and Mr Naresh Ghai. The retraction of statement made u/s 132(4) cannot alter the fact as the statement was recorded out of free will and no coercion was involved.

17. We have heard the rival submissions and have perused the relevant material on record. The foundation on which the assessing Officer has built his edifice of addition of Rs 100 crore is a document seized as “Aexited” : Annexure A-1, Page No. 14, seized from the residence of Shri Rakesh Aggarwal and the statements made u/s 132(4) of Shri Rakesh Aggarwal; Mr SN Pareekh and Mr Naresh Ghai, all employees of the assessee working in various capacity. On the basis of this document and the statements recorded during the course of search of Mr Rakesh Agarwal, Mr SN Pareekh and Mr. Naresh Ghai, the AO related the addition of Rs. 100,00,00,000/- to unaccounted cash received, on the sale of shares of Landmark Hi Tech Development Private Limited (‘LHDPL’) to Uppal Chadha Hi Tech Developers Pvt Ltd.

18. For the purpose of adjudication on the issue, it is necessary to first ascertain certain facts of the instant case. We find the assessee for AY 2016-17, had filed its original return on 17.08.2016 which was revised on 22.03.2017. The return was scrutinized and an order u/s 143(3) was passed on 19.12.2018 accepting the returned income.

19. Subsequently, a search in the case of the assessee was conducted on 17/03/2021. As the assessment in the instant case was completed u/s 143(3) of the Act vide order dated 19.12.2018 at returned income, and no notice 148 was issued, no proceedings were pending and therefore the AY 2016-17 becomes an unabated assessment. With the law laid down by the hon’ble Supreme Court in PCIT vs Abhisar Buildwell (P) Ltd, it is no longer res-integra that in the case of unabated assessment year, the addition u/s 153A of the Income Tax Act can be made only on the basis of incriminating material unearthed during the course of search. The first and foremost issue for adjudication in the instant case therefore, is whether the addition is based on any incriminating material.

20. The second issue to be ascertained is the nature of incriminating material of the document seized. The term ‘incriminating material’ has not been defined in the Act. The Courts however, have judicially interpreted the meaning of ‘incriminating material’ as including any record, item, or information that, when discovered during a search or requisition which directly indicates and/or effectuates a direct link or causal nexus to undisclosed income or assets, which is inconsistent with the assessed person’s declared returns. Such material may be in the form of documents demonstrating mismatches between actual and declared asset values (land, jewellery, cash, deposits, etc.); records evidencing off-books or concealed transactions; or any other credible data indicative of concealment of real income. In Kabul Chawala (supra), the hon’ble Delhi High Court interpretated incriminating material as evidences unearthed during the course of search which were not produced or not already disclosed or made known in the course of original assessment. The Hon’ble High court of Delhi in the case of SSP Aviation Ltd vs DCIT reported in 346 ITR 177 has observed that for the year to which the seized documents belonged, Assessing officer will verify whether the transaction reflected by the seized documents are duly accounted for in the books of accounts. We therefore, examined the seized document i.e., Annexure A 1 page 14 to ascertain its ‘incriminating’ nature from the perspective of the ‘document’ seized and the statements recorded u/s 132(4). For better understanding, the Annexure A 1 page 14 is reproduced as under:

21. We find that there are 32 entries in the seized document. The AO has chosen the entry no 31 which reads as follows “Sr No. 31.Nature of entity : Others- Amount:1,00,00,00,000” for making the said addition. The AO has held that the entry at Sr. 31 reflects payment of Rs 1,00,00,00,000/-, in cash, to the assessee for sale of shares of Landmark Hi Tech Development Private Limited (‘LHDPL’) to Uppal Chadha Hi Tech Developers Pvt Ltd. It is the case of the AO that the shares of LHDPL was sold @ Rs 515.20 per share totaling to Rs 350 crore whereas the sales price of the shares of LHDPL should have been Rs. 651.22 per share totaling to 450 crore. The AO has considered this difference of Rs 100 crore as cash received by the assessee which is reflected in the said entry no 31 of the seized document. Such a conclusion is based on statement of Rakesh Agarwal who stated u/s 132(4) that the entry reflects payment to Dalmia group in cash from Wave Group. As per the statements, this amount was received by Rakesh Agarwal and given to SN Pareekh, cashier of the Dalmia Group and confirmed by Naresh Ghai, GM Finance of Dalmia Group.

22. On examination of the various entries on the said page, we find that the AO has accepted amount received vide entries from Sr no 1 to Sr no. 30 and Sr no. 32 as explained and duly reflecting in the assessee books of account. With respect to entry at sr. no. 32, the assessee explained that the same is on account of investment in JM Financial Mutual Fund which was made through banking channel and is not unaccounted transaction. As evidence for the same, the assessee submitted copy of account statement and the relevant portion of bank statement in respect of investment of Rs 100 crore. The AO however, without controverting the assessee’s submission, rejected the explanation of the assessee on the ground that other entries on the same seized paper are regarding receipts and entry at sr. no. 32 reflecting transaction of Rs. 100 Crores, is about investment. In this regard, the assessee explained that the seized sheet are not regular books of account and hence it reflects both receipts and investment which are all duly recorded in books which remained uncontroverted.

23. In so far as validity of the statement of Mr Rakesh Agarwal. Mr SN Pareekh and Mr Naresh Ghai is concerned, we find that all these person retracted their statement as the same being given under pressure and not out of free will. While Shri Satya Narayan Pareek and Shri Naresh Ghai retracted their statement soon after the search vide letter dated 31/03/2021 along with affidavit, Shri Rakesh Agarwal retracted his statement in March 2023.

24. We also find that the CIT(A) has exhaustively dealt with the relevance and validity of these statements. The CIT(A) concluded that the AO himself believed that these statements are not reliable. The CIT(A) found that Shri Naresh Ghai had stated that at question 24 to 20, that Rs 27 to 20 crores were received from ATS; similarly at question 31, 34 & 35 he had stated that Rs 28 Crores was received from Ansal and at question 32 & 33, he had admitted that cash of Rs 95-100 crores were received from Wave Group. The AO however, did not consider receipt of Rs 27 to 28 crore from ATS or receipt of Rs 28 crore from Ansal for addition in the hands of the assessee. The only addition made is with respect to question no. 32 & 33 on account of cash of Rs 95-100 crore received from Wave Group. Thus the AO himself only partially relied on the statement of Shri Naresh Ghai.

25. Similarly, Shri S N Pareek, in question no 31, apart from admitting receipt of cash of 100 crore from Wave Group, had also stated that Rs 4 crore annually was received from some real estate companies like Unitech and Ansal and others. The AO however, accepted the statement regarding 100 crore but did not make any addition in respect of Rs 4 crore annually received from some real estate companies like Unitech and Ansal and others and cash received from S M Saraf(Forum Group). Thus the AO himself only partially relied on the statement of Shri S N Pareek.

26. As far as statement of Rakesh Agarwal is concerned, we find from the statement of Rakesh Agarwal that he had prepared the impugned seized document for calculation of bonus/commission income for arranging the various deals as reflected in entry 31 of the said document. The AO of Rakesh Agarwal, who was the same AO as that of the assessee, did not consider the bonus/commission part of the statement as income in the hands of Rakesh Agarwal. Thus the AO again only partially relied on the statement of Shri Rakesh Agarwal. We therefore are inclined to endorse the CIT(A)’s view that the AO himself was convinced that the statements given u/s 132(4) by Rakesh Aggarwal; SN Pareekh and Naresh Ghai were given under undue pressure and without free will and therefore were not reliable. We also add that the AO nowhere demonstrated that statement given by Rakesh Aggarwal; SN Pareekh and Naresh Ghai are backed by any cogent/corroborative evidence. The only evidence relied upon by the AO, is the seized document A-1 which contrary to the AO’s assessment, contains entries which are all duly recorded as part of the books of account of the assessee.

27. The judicial interpretation of statement recorded u/s 132(4) shows that it has evidentiary value but only if the same is corroborated by any evidence/material. Such statement by themselves do not constitute incriminating material as held by the hon’ble Delhi Court in PCIT v Best Infrastructure India P Ltd in ITA 13/2017 dated 01.08.2017. In the case of CIT V Harjeev Agarwal in ITA/8/2004 dated 10.03.2016 the hon’ble Delhi High Court further elaborated the significance of statement recorded u/s 132(4) by holding that the such statement cannot be used on a standalone basis and it must be in context of other evidence or material discovered during the search. In the factual matrix of the instant case therefore, we are of the view that the AO has failed to establish any nexus between the statements of Rakesh Aggarwal; SN Pareekh and Naresh Ghai with any materials/materials found during the search.

28. Coming to the entry itself of Rs 100 crore in the said seized document, the assessee explained with cogent evidence that the same corresponds to an investment made by Dalmia Group Holdings in JM Financial Mutual Funds. As evidence the assessee produced the ledger account and the bank statement reflecting the transaction involved. We find that the explanation offered by the assessee has neither been rebutted by the AO with any evidence showing the assertion is false/unsatisfactory nor the Revenue could controvert the assertion of the assessee that the said transaction is reflected in its books of account. This failure of the AO to not even controvert the assessee’s assertion that the said entry of 100 crore is investment in J M Financial Mutual Fund, is fatal to his theory of cash receipt from Wave Group.

29. In view of the above discussion, we have come to the conclusion that the document seized as “Aexited” (Page No.14 of ANNEXURE A-1), seized from the residence of Shri Rakesh Aggarwal, is not proved to be an incriminating material/document. With such a finding with regard to absence of any incriminating material to disturb the unabated assessment year u/s 153A, the foundation on which the assessing Officer built his edifice of addition of Rs 100 crore, has now crumbled. Applying the well-established legal maxim of Sublato fundamento cadit opus which is used to state that if the initial, foundational, or triggering action is invalid or illegal, all subsequent actions, orders, or proceedings stemming from it are automatically null and void, we hold that the assessment framed u/s 153A in the instant case is invalid and bad in law as the same is devoid of any incriminating material. This finding, it is needless to add, is in accordance with the decision of the Hon’ble Supreme Court in PCIT vs. Abhisar Buildwell (P) Ltd (supra). Accordingly, the Additional Ground 1 raised under Rule 27 is allowed.

30. The assessment u/s 153A has been held as bad in law herein above on legal ground therefore, the grounds of appeal of the Revenue on merits is not adjudicated upon and is dismissed as academic and infructuous.

31. In the result, additional ground 1 under Rule 27 of the assessee is allowed and appeal of the Revenue in ITA No.4162/DEL/2025 is dismissed.

Order pronounced in open court on 29.01.2026.