ITAT Quashes Sulthan Gold Search Assessments for Lack of Corroboration

Sulthan Gold Private Limited Vs DCIT (ITAT Bangalore)

Section 153A Additions Based on Uncorroborated Statements Unsustainable in Completed Assessment: ITAT Bangalore

The Income Tax Appellate Tribunal, Bangalore Bench, allowed appeals filed by Sulthan Gold group entities against search assessments after finding that the Assessing Officer relied on statements without corroborating them with documentary evidence. The Tribunal also noted that the assessee had not been provided an opportunity to cross-examine the persons whose statements were relied upon.

Applying the principles laid down by the Supreme Court in PCIT v. Abhisar Buildwell (P.) Ltd., the Tribunal held that the completed assessment could not be disturbed in the absence of corroborating incriminating material supporting the additions.

Facts of the Case

The consolidated proceedings involved Sulthan Gold Private Limited, Sulthan Gold Classic Private Limited, Sultan Retail LLP and Sulthan Gold International. The appeals covered assessment years ranging from 2014-15 to 2019-20, with Sultan Retail LLP’s appeals relating to Assessment Years 2015-16 to 2017-18.

The Tribunal considered ITA No. 1399/Bang/2025 for Assessment Year 2015-16 as the lead appeal.

In that case, the assessee, engaged in retail jewellery business, filed its return declaring a loss of ₹2,44,99,497. The scrutiny assessment under Section 143(3) was completed on 9 May 2017, accepting the returned loss.

A search under Section 132 was subsequently conducted in the Sultan Gold group on 26 June 2019. Following the search, the Assessing Officer issued notice under Section 153A. The assessee filed its return in response, declaring the same loss.

Addition Towards Alleged Suppression of Sales

The Assessing Officer relied on software data and statements recorded under Section 132(4) from employees and the managing partner to allege undisclosed turnover of approximately ₹208.45 crore over the period examined.

The officer estimated profits on the alleged undisclosed turnover and allocated the resulting income across different assessment years. For the lead Assessment Year 2015-16, an addition of ₹87,91,187 was made towards proportionate profits from alleged unrecorded sales.

The CIT(A) accepted that unrecorded cash sales had been unearthed during the search but granted partial relief. Aggrieved by the additions sustained, the assessees approached the Tribunal.

Assessee’s Contentions

The assessee argued that the additions were founded on statements of employees, the software provider and the managing partner, without adequate supporting documentary evidence.

It submitted that the data retrieved from the seized pen drive had not been corroborated with other documents. The assessee also disputed the nexus between the alleged incriminating material and the additions made for the respective assessment years.

Another objection was that copies of seized material and an opportunity for cross-examination had not been provided, despite requests.

The assessee emphasised that the lead assessment had already been completed before the search. Consequently, additions under Section 153A required incriminating material relating to the relevant assessment year.

An additional ground challenging approval under Section 153D was not pressed and was dismissed accordingly.

Revenue’s Submissions

The Revenue maintained that statements recorded under Section 132(4) carried significant evidentiary value. It contended that the disclosure followed recovery of electronic databases, parallel accounting records and digital evidence indicating suppressed turnover.

According to the Revenue, statements from accountants, software personnel and cashiers corroborated the manner in which concealed transactions were maintained. It also relied on the managing partner’s alleged voluntary disclosure of ₹5 crore as undisclosed income.

The subsequent retraction was characterised as belated and unsupported. The Revenue further defended the profit estimation and pointed out that the CIT(A) had already granted relief for double counting of turnover.

Tribunal’s Findings

The Tribunal recorded that the assessment in the lead case was completed and unabated on the date of search.

Referring to Abhisar Buildwell, it reiterated that completed assessments cannot be interfered with under Section 153A without incriminating material unearthed during the search. The decision also discussed the principles recognised in CIT v. Kabul Chawla and PCIT v. Saumya Construction (P.) Ltd.

The Tribunal examined the Assessing Officer’s reasoning concerning the evidentiary value of admissions under Section 132(4). It concluded that the officer had merely relied on statements recorded from various persons without corroborating them with documentary evidence.

It further noted that cross-examination had not been provided.

Although materials had been seized and investigated during the search, the Tribunal found that the Assessing Officer did not possess corroborating documents sufficient to disturb the unabated assessment.

Decision and Significance

The Tribunal set aside the CIT(A)’s order and allowed the assessee’s principal ground by setting aside the assessment. The remaining grounds became academic and were left open. The consolidated appeals were allowed.

The ruling underscores that search statements and turnover estimates require evidentiary support when used to disturb a completed assessment. On the facts before it, the Tribunal found the necessary documentary corroboration absent, while denial of cross-examination further weakened the basis of the additions.

Cases Discussed

• PCIT Vs Abhisar Buildwell (P.) Ltd. — (2023) 149 taxmann.com 399 (SC); completed assessments require incriminating search material.
• CIT v. Kabul Chawla — [2016] 380 ITR 573 (Delhi); cited and approved in Abhisar Buildwell.
• PCIT v. Saumya Construction (P.) Ltd. — [2016] 387 ITR 529 (Guj); cited and approved in Abhisar Buildwell.
• Shri Subhakar Dombayya Kotian — ITA Nos. 2254–2257/Bang/2019, dated 24 August 2020 (publication link not verified).
• Pullangode Rubber Produce Co. Ltd. Vs State of Kerala — (1973) 91 ITR 18 (SC).
• CIT Vs Abdul Razak — (2012) 20 taxmann.com 48 (Ker.).

FULL TEXT OF THE ORDER OF ITAT BANGALORE

These appeals are filed by the assessee against the order of Ld. CIT(A)-2, Panaji vide DIN, Order dated and Assessment Years as mentioned below. Since the assessee belongs to same group, the grounds raised are similar and identical in all the three appeals, these appeals are clubbed and heard together and a consolidated order is being passed. We will take up appeal in ITA No.1399/Bang/2025 for the Assessment Year 2015-16 as a lead appeal and the facts are culled out therefrom.

2. Briefly stated facts of the case are the assessee is a firm and is in the business of retail sale of jewellery. The assessee filed the return of income on 20.01.2016 for the Assessment Year 2015-16 admitting a total loss of Rs.2,44,99,497/-. The return was summarily processed under section 143(1) of the Act on 27.12.2014 accepting the returned income. Subsequently, the case was selected under scrutiny under CASS and the assessment proceedings under section 143(3) of the Act was completed assessing the total loss at Rs.2,44,99,497/- vide Order dated 09.05.2017. Subsequently, a search and seizure action under section 132 of the Act was carried out in the case of M/s. Sultan Gold Group on 26.06.2019 based on a warrant of authorization under section 132 of the Act. Thereafter, the learned AO issued notice under section 153A of the Act to the assessee on 02.09.2021. In response, the assessee filed return of income on 01.10.2021 declaring a loss of Rs. 2,44,99,497/-. Thereafter, notice under section 143(2) of the Act dated 23.02.2021(sic) requiring the assessee to produce evidence in support of return of income for the Assessment Year 2015-16. In response, assessee’s representative appeared and furnished the details called for. The learned AO, relying on the statements recorded under section 132(4) of the Act, from the employees and the Managing Partner computed the undisclosed sale of Rs 208,44,54,935/- from the said software data for the period 01.04.2012 to 25.02.2019. The learned AO arrived at the gross profit as per the weighted average of the various years and brought to tax the undisclosed income for the Assessment Year as detailed below:

3. Thus, the learned AO computed and made an addition of proportionate profits for the relevant AY, from undisclosed turnover at Rs.87,91,187/- for the impugned Assessment Year.

4. On being aggrieved by the Order of the learned AO, assessee carried the matter before the learned CIT(A). Before the learned CIT(A), the assessee raised various grounds challenging the Assessment Order passed under section 143(3) r.w.s. 153A of the Act. The learned CIT(A) observed that the assessee was indulging in unrecorded cash sales and there is suppression of sales which was unearthed during the search. The learned CIT(A), relying on the statements recorded under section 132(4) of the Act, granted partial relief to the assessee thereby partly allowing appeal of the assessee.

5. On being aggrieved by the Order of the learned CIT(A), the assessee is in appeal before us by raising the following grounds:

6. The assessee also raised the additional grounds challenging the approval accorded under section 153D of the Act mechanically and arbitrarily. During the course of hearing, the learned AR submitted that this ground is not pressed by the assessee and hence we dismiss the additional grounds as not pressed.

7. At the outset, the learned AR submitted that ground No.2 be adjudicated at first since it goes to the root of the matter challenging the assessment made under section 143(3) r.w.s. 153A of the Act. The learned AR submitted that no incriminating documents were found during the search and seizure operations but the learned AO has merely relied on the statements recorded under section 132(4) of the Act from the employees, software provider and the managing partner to make the impugned additions. She further submitted that no opportunity was provided to the assessee for cross-examining the witnesses. She also submitted that the data seized from the pen drive was not corroborated with any other documents by the Revenue. She also submitted that the AO has resorted to estimate the gross profit at 6% without rejecting the books of accounts. She further vehemently argued that there is no nexus between the incriminating material deemed to be seized and the additions made by the learned AO. She also submitted that in the case of unabated / completed assessments, no additions can be made without corroborated incriminating materials for the relevant Assessment Year. Further, she also submitted that if the allegation of unrecorded sales is to be accepted, the search party has not discovered cash or excess stock in the premises searched. Neither they could find any undisclosed investments by the assessee. She relied on the decision of the Co-ordinate Bench of Bangalore in the case of Shri. Subhakar Dombayya Kotian in ITA No.2254 to 2257/Bang/2019 dated 24.08.2020.

8. Per Contra, the learned DR Shri N.S.Shashidar and Shri S.Pradeep, submitted that the statement is recorded under section 132(4) of the Act possess significant evidentiary value. Further, he also submitted that the disclosure was made only after the search team had recovered electronic data base, parallel accounting records and digital evidence reflecting the suppression of turnover. It was also the submission that the disclosure was made after examination of the incriminating material maintained by the assessee. Further, it is also submitted that statements from the persons connected with the business of the assessee including accountants, software personnel and cashiers independently corroborated the manner in which concealed transactions were recorded and maintained. He also submitted that the managing partner voluntarily agreed to admit Rs 5 crores as undisclosed income. He further submitted that retraction of the statements made by the assessee is merely an afterthought and lacks credibility because it was done after a period of nearly 6 months and no immediate compliant was lodged alleging coercion and improper conduct by search officials. He also submitted that the gross profit ratio adopted by the learned AO based on previous year profits declared by the assessee is reasonable and moreover the learned CIT(A) has given partial relief for the double accounting of the turnover. The learned DR relied on the decision of the Hon’ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd., Vs. State of Kerala reported in (1973) 91 ITR 18 (SC) and CIT Vs. Abdul Razak reported in (2012) 20 taxmann.com 48 (Ker.). He therefore pleaded that the Order of the learned CIT(A) be upheld.

9. We have heard rival contentions of the parties and perused the material available on record including the written submissions by the Revenue and the decisions relied on by both the parties. Admittedly the assessment is unabated / completed on 09.05.2017. It is the case of the learned AO that the assessee has confessed during the course of search action by way of a statement under section 132(4) of the Act for not disclosing the true sales made by the assessee. Even though the statement was retracted at a subsequent date, the Revenue considered it to be an afterthought since it was unsupported and belated. In the instant case, the AO, by relying on the statements, has concluded that the assessee group of firms has suppressed turnover of Rs.208,44,54,935/- for the Assessment Years 2013-14 to 2019-20. The learned AO has adopted the gross profit rate of 8.144% on the alleged turnover and distributed the same to various Assessment Years. It was contention of the learned AR that assessee has not been provided with the copies of the seized materials even after repeated requests. Further, it was also alleged that assessee was not provided opportunity for cross- examination even though a request was made on behalf of the assessee. The AO has distributed the additions based on surmises and without corroborating any unrecorded sales to the respective years. The learned AO relied on the materials on which basis the addition was made by him are digital evidences retrieved from the computers and pen drives seized during the search operations.

10. The Hon’ble Supreme Court in PCIT Vs. Abhisar Buildwell (P) Ltd., reported in (2023) 149 taxmann.com 399 (SC), the scope of assessment under Section 153A of the Act was considered. In this case, the Revenue’s contention was to the effect that the Assessing Officer was competent to consider all the materials which were available on record, including the materials found during search so as to make an assessment of the total income. Some of the High Courts had accepted such propositions. However, the assessee had contended that there were also decisions of the High Courts to the effect that if assessment proceedings were not pending on the date of initiation of the search, the Assessing Officer needs to consider only the incriminating material found during the search, and was precluded from considering any other material derived from any other source. It is in such context, the Hon’ble Supreme Court considering the purport of the provisions of Section 153A of the Act, vis a vis its applicability qua the provisions of Section 147, and the applicability of Section 132, 132A and notably the decision of the Hon’ble Delhi High Court in CIT v. KabulChawla [2015] 61 taxmann.com 412/234 Taxman 300/[2016] 380 ITR 573 (Delhi) inter alia held that the provisions of Section 153A(1) need to be mandatorily resorted once a search takes place. The Hon’ble Supreme Court held as under:

“7.1 In the case of Kabul Chawla (supra), the Delhi High Court, while considering the very issue and on interpretation of Section 153A of the Act, 1961, has summarised the legal position as under:

38. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:

i. Once a search takes place under Section 132 of the Act, notice under Section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.

ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.

iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the ‘total income’ of the aforementioned six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six AYs “in which both the disclosed and the undisclosed income would be brought to tax”.

iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material.

v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word ‘assess’ in Section 153 A is relatable to abated proceedings (i.e., those pending on the date of search) and the word ‘reassess’ to completed assessment proceedings.

vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.

vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.”

11. The Supreme Court held that it was in complete agreement with the view taken by the Delhi High Court in Kabul Chawla (supra) and of the Gujarat High Court in Pr.CIT v. Saumya Construction (P.) Ltd [2017] 81taxmann.com 292/[2016] 387 ITR 529 (Guj) taking the view that no addition can be made in respect of the completed assessments in absence of any incriminating material.

12. The learned AO in Para 15.19 of the assessment order observed as follows:

“15.19 In view of this the admission made in statement under section 132(4) has great evidentiary value and is binding on a person who makes it. Therefore, the assessment can be made based on such admission by using the same in evidence. If in the course of such search. the assessee makes some admission. he debars the authorised officer from making further investigation. The sanctity of such provision would be lost if the assessee is allowed to contend that no addition can be made based on such admission. It was. therefore, not open to the assessee to retract from the earlier statement at the time of adjudication.”

13. From the observation of the learned AO in para 15.19, which clearly indicates that AO merely relied on the statements recorded from various persons without corroborating with documentary evidences. Moreover, cross examination was also not provided to the assessee.

14. In the light of discussions hereinabove, and by respectfully following the principles of law as discussed hereinabove, we are of the clear opinion that the foundation of the present case was certainly a search action which was undertaken by the Revenue against Sultan Group and in such search and seizure action, materials were seized and such materials were further explored and enquired. Such enquiry revealed significant information in regard to unaccounted sales. The learned AO is not in possession of any corroborating documents to re-open an unabated assessment. We therefore set aside the order of learned CIT(A) and allow ground No 2 raised by the assessee.

15. Since ground No 2 is adjudicated in favour of the assessee by setting aside the assessment, adjudication of the other grounds of appeals are academic and hence left open.

16. In the result the appeals of the assessee are allowed.

Pronounced in the open court on the date mentioned on the caption page.