Section 153C addition based on mere Statement of 3rd party unsustainable

Kuber Products P Ltd Vs ACIT (ITAT Delhi)

Statement of 3rd party could not have been used for making an addition in the hands of the assessee in case of search U/S 153A in absence of any corroborative material

Delhi High court recent celebrated decision in case of Anand Kumar Jain HUF followed and held in an appeal filed by assessee against an assessment made under section 153A where it is succinctly held that Statement of 3rd party could not have been used for making an addition in the hands of the assessee in case of search in absence of any corroborative material. The learned departmental representative also could not produce any material other than the statement of  Mr Malu for making the above addition

FULL TEXT OF THE ORDER OF ITAT DELHI

1. These are the two appeals filed by the assessee for assessment year 2012 – 13 and assessment year 2013 – 14 involving the identical issue, the arguments of the parties are also same and the facts are also same, therefore both these appeals are disposed of by this common order.

2. ITA number 1123/del/2019 is filed by the assessee for Assessment Year 2012-13 against the order passed by the ld CIT(A)-30, New Delhi dated 01.01.2019, wherein the appeal filed by the assessee against the order passed by the ld ACIT, Central Circle-30, New Delhi passed u/s 153A read with section 153C of the Income Tax Act, 1961 dated 23.03.2017 was dismissed.

3. ITA number 1124/del/2019 is filed by the assessee for Assessment Year 2013-14 against the order passed by the ld CIT(A)-30, New Delhi dated 01.01.2019, wherein the appeal filed by the assessee against the order passed by the ld ACIT, Central Circle-30, New Delhi passed u/s 153A read with section 153C of the Income Tax Act, 1961 dated 23.03.2017 was dismissed.

4. The Assessee has raised the following grounds of appeal for Assessment Year 2012-13:-

“1 On the facts and in the circumstances of the case Ld. CIT (A) has erred both on facts and in law in upholding the impugned order passed by the respondent illegally, violating the principles of natural justice, without fair and objective application of mind to the facts of the case and the law applicable and without being guided by the binding decisions of courts and tribunals and hence liable to be set aside and quashed and declared non est in law.

2 On the facts and circumstances of the case, the learned Ld. CIT (A) has erred, both on facts and in law, in sustaining the action of AO in completion of proceedings u/s 153(A), of the IT Act, solely on the basis Unverified/ unratified/unsubstantiated/unconfirmed statement of Shri Mul Chand Malu.

3 That on the facts and circumstances of the case, the learned Ld. CIT (A) has erred, both on facts and in law, in sustaining the assessment by the Ld. AO and in making additions of Rs.l,32,00,000/- on account of share capital and share premium, ignoring the facts and circumstances of the case.

4 That on the facts and circumstances of the case, the learned Ld. CIT (A) has erred, both on facts and in law, in sustaining the assessment by the Ld. AO and in making addition of Rs. 1,32,00,000/- despite the fact that the assessee has discharged the onus cast upon it under section 68 of the Income-tax Act.

5 That on the facts and circumstances of the case, the learned Ld. CIT (A) has erred, both on facts and in law, in sustaining the assessment by the Ld. AO and in making addition of Rs. 1,32,00,000/- despite the fact that no incriminating documents were found during the course of search.

6 On the facts and in the circumstances of the case Ld. CIT (A) has erred both on facts and in law, in sustaining the action of AO violating the principle of natural justice by not providing opportunity for cross-examination of persons, whose statements have been relied upon by the AO, in spite of specific request made by the appellant in assessment proceedings as well as before CIT(A).

7 That the impugned assessment order is arbitrary, illegal, bad in law and in violation of rudimentary principles of contemporary jurisprudence.”

5. The Assessee has raised the following grounds of appeal for Assessment Year 2013-14:-

“1 On the facts and in the circumstances of the case Ld. CIT (A) has erred both on facts and in law in upholding the impugned order passed by the respondent illegally, violating the principles of natural justice, without fair and objective application of mind to the facts of the case and the law applicable and without being guided by the binding decisions of courts and tribunals and hence liable to be set aside and quashed and declared non est. in law.

2 On the facts and circumstances of the case, the learned Ld. CU (A) has erred, both on facts and in law, in sustaining the action of AO in completion of proceedings u/s 153(A), of the IT Act, solely on the basis Unverified/ unratified/unsubstantiated/unconfirmed statement of Shri Mul Chand Malu. Same as at Ground No. 3

3 That on the facts and circumstances of the case, the learned Ld. CIT (A) has erred, both on facts and in law, in sustaining the assessment by the Ld. AO and in making additions of Rs.l,45,00,000/-on account of share capital and share premium, ignoring the facts and circumstances of the case. Rs.42,69,336/-

4 That on the facts and circumstances of the case, the learned Ld. CIT (A) has erred, both on facts and in law, in sustaining the assessment by the Ld. AO and in making addition of Rs. 1,45,00,000/- despite the fact that the assessee has discharged the onus cast upon it under section 68 of the Income-tax Act.

5 That on the facts and circumstances of the case, the learned Ld. CIT (A) has erred, both on facts and in law, in sustaining the assessment by the Ld. AO and in making addition of Rs. 1,45,00,000/- despite the fact that no incriminating documents were found during the course of search.

6 On the facts and in the circumstances of the case Ld. CIT (A) has erred both on facts and in law, in sustaining the action of AO violating the principle of natural justice by not providing opportunity for cross-examination of persons, whose statements have been relied upon by the AO, in spite of specific request made by the appellant in assessment proceedings as well as before CIT(A).

7 That the impugned assessment order is arbitrary, illegal, bad in law and in violation of rudimentary principles of contemporary jurisprudence.

6. Brief facts of the case for assessment year 2013-14 shows that the original return of income declared loss of Rs. 13,41,315/- was filed by the company on 31.10.2013. No assessment was framed u/s 143(3) of the Act. A search took place u/s 132 of the Act on 09.04.2014 at Kuber Group of companies wherever certain documents pertaining to the assessee was found. Therefore, a satisfaction note was recorded in case of Mr. Mulchand Malu that documents pertaining to the assessee were found and same were handed over to the ld AO of the assessee. Based on this satisfaction note, notice u/s 153C of the Act was issued on 28.09.2016.

7. Assessee filed return declaring a loss of Rs. 42,50,821/- on 16.12.2016. The ld AO found that during the year the assessee has received total share capital and share premium of Rs. 1,45,00,000/- from M/s. Powmax Sales Pvt. Ltd. The ld AO asked the assessee to prove the genuineness of the company. The enquiry of the ld AO found that the investor company is not existing at the given address and therefore, he confronted to the assessee the same and asked to produce the directors and key persons of the investor. The assessee submitted share application forms, confirmation, bank statement, income tax returns, audited financial statement and master data of the company from the website of the Ministry of Corporate Affairs. However, directors were not produced. Based on this the ld AO held that the above investor company was not found at the address given and does not carry any business there, no compliance of summons were made and none of the directors were produced. The ld AO further relied on the admission of the promoters of Kuber group through Mr. Mulchand Malu and thereafter made an addition of Rs. 1,45,00,000/- and passed an order u/s 153C of the Act of Rs. 1,31,15,685/-. The assessee challenged the same before the ld CIT(A) unsuccessfully and therefore, has preferred this appeal.

8. Similar facts for Assessment Year 2012-13 shows that assessee filed original return of income on 29.09.2012 declaring loss income of Rs. 2,47,566/-which was processed u/s 143(1) of the Act on 09.12.2013. Consequent to the date of search on 09.10.2014 the assessment was passed by the ld AO on 23.03.2017 wherein he made an addition of Rs. 1,32,00,000/- u/s 68 of the Act with respect to the M/s. Powermax Pvt. Ltd for issuing share capital at a premium. Total income was assessed at Rs. 1,29,52,434/-. The assessee unsuccessfully contested the above addition before the ld CIT(A) and therefore, has preferred this appeal before us.

9. The ld AR submitted that for assessment year 2012-13 the return of income was filed on 29.09.2012. 30.09.2013 was the last date of issue of any notice u/s 143(2) of the Act and search took place on 09.10.2014. On 28.09.2016 documents pertaining to the assessee were received by the ld AO and framed the assessment. Accordingly, he submitted that this is the date of search in the case of the assessee. For Assessment Year 2013-14 return of income was passed on 31.10.2013 and the last date of issuing of any notice on 143(2) of the Act on 30.09.2014. The search took place on 09.10.2014. He submitted that the assessee challenged the order of the ld AO before the ld CIT(A) stating that there is no incriminating documents found during the course of search and further orders for both the assessment years not pending as on the date of search the addition cannot be made. It was further stated that statement of 3rd party cannot be relied upon and such statement alone cannot be treated as incriminating material. He submitted that the ld CIT(A) did not agree with the contentions of the assessee and pass an order dismissing the appeal. He submitted that no incriminating documents or material was found during the course of search. He therefore, submitted that in case of concluded assessment, which is not pending on the date search, no addition could be made. He further stated that the statement of 3rd party could not be relied upon for framing assessment u/s 153C. He relied upon the decision of the Hon’ble Delhi High Court in case of Anand Kumar Jain. He further stated that even otherwise statement alone cannot be treated as incriminating material based on which the addition cannot be made. For this proposition, he relied upon the decision of the Hon’ble Delhi High Court in case of Meeta Gutgutia. In the end, he submitted that even otherwise no addition based on the 3rd party could be made unless such party is allowed to be cross-examined by the ld AO. He submitted that the addition is solely made based on statement of Mr. Mulchand Malu who is neither the Director and nor the shareholder of the assessee and even the statement of Mr. Mulchand Malu did not name the assessee at all. Further, the statement of other parties also did not name the assessee. He further submitted that on identical facts and circumstances the coordinate bench in case of Kuber Khadayan has categorically held that the statement of the above person are not relevant as the assessee has not been given opportunity to cross examine them and those statements were recorded before the date of search.

10. On the merits of the issue, he submitted that the assessee has received share application money from Pawmmex Sales Pvt Ltd, which has been examined in the case of the group concern in case of Kuber Food Products, and the coordinate bench on an appeal has considered all the facts and deleted the addition. He submitted that there is no difference in the decision in case of Kuber Food Products as well as the assessee and also concerning same search. Therefore, he submitted that issue is squarely covered in favour of the assessee.

11. Countering the argument of the ld AR the ld CIT DR referred to page No. 47 para 7 of the order of the ld CIT(A). It was stated that addition has been made based on the statement of Sri Mulchand Malu who has since long expired and therefore, when the witness himself has passed away no cross-examination could have been given. She submitted that the entries have been obtained by the assessee in wrongful manner from entities and persons and therefore, it is clear-cut case that the unaccounted cash has been converted into the alleged genuine income which received by the assessee and therefore, there is no reason that the orders of the lower authorities suffer from any defect.

12. We have carefully considered the rival contentions and perused the orders of the lower authorities. First, we come to the fact of assessment year 2012-

13. In this case, the assessee filed original return of income declaring an income of Rs. 2,47,566/- on 29.09.2012 which was processed u/s 143(1) on 09.12.2013. The prescribed period for issuing the notice u/s 143(1) of the Act was expiring on 30.09.2013. On 09.10.2014 search took place in case of Kuber Group of cases where the assessee is one of the group companies. The search also took place at premises of Shri Mulchand Malu and Shri Vikash Malu where documents pertaining to the assessee were found. The satisfaction note was recorded by the ld AO of Mulchand Malu stating that documents pertaining to the assessee were found from his premises, which were handed over to the ld AO of the assessee who recorded the satisfaction and issue notice u/s 153C of the Act on 28.09.2016. The assessee filed return of income declaring a loss of Rs. 2,47,566/- and thereafter the ld AO proceeded to make an assessment. In paragraph, 6 of the assessment order the ld AO described statement recorded u/s 132(4) of the Act on 15.12.2014 of Shri Mulchand malu who has offered the declared undisclosed income of Kuber Group of companies. Undoubtedly Mr. Malu in answer to question No. 64 disclosed certain income of the group. Statement of Mr. Mulchand Malu was also recorded on oath u/s 131 of the Act on 02.01.2015 where he once again confirmed the disclosure of income. Further, during post search investigation summons were issued to the parties who have given allegedly accommodation entries to the assessee. The ld AO noted that the during the year the assessee has received share capital and premium of Rs. 1.32 crores and he was asked to furnish the details. The ld AO conducted the enquiries at the address and found that M/s. Powmex Sales Pvt. Ltd is not physically existing at the address given at 125/1, Cotton Street, Burra Bazar, Kolkata-7, the assessee has also confronted that the same and asked to produce the directors of the company. The assessee submitted the confirmation of share capital application form, confirmation, bank statement, ITR acknowledgement and balance sheet of the share holders along with master data from MCA website. However, it did not produce the directors. Thereafter, the ld AO passed an order u/s 153A read with section 153C of the Act on 23.03.2017 making an addition of Rs. 1,32,00,000/- to the return loss of Rs. 2,47,566/-. Admittedly, the ld AO did not have any evidence other than the statement of the parties. Even otherwise, what are the documents pertaining to the assessee received by the AO are also not mentioned in the assessment order except the above statement. The ld CIT(A) has also confirmed the addition. In para No. 6.4 of the order of the ld CIT(A) is the remand report placed by the ld AO dated 25.10.2018. In para 5 of that remand report at page 39 of the order of the ld CIT(A). The ld AO clearly stated that assessment order passed are based on the statement of Shri Mulchand Malu. In view of the above facts it is apparent that no evidence is available with the revenue with respect to the addition of Rs. 1.32 crores made during the year except the statement of Mr Malu. Naturally, merely the statement of third party cannot be considered an incriminating material unless is certain corroborative material substantiating or confirming the statement of that party is also found. Neither in the assessment order nor in the remand proceedings the learned assessing officer has stated that there is anything else against the assessee available corroborative the statement of Mr Malu. Admittedly, the assessment year 2012-13 is a concluded assessment and the date of issue of the notice u/s 153A read with section 153C is clearly dated 28.09.2016. In view of this, we constrain to hold that there is no incriminating material found during the course of search based on which the return income for the respective year can be disturbed. Such is the mandate of the decision of the Hon’ble Supreme Court in case of Shinghad Technical Education Society 397 ITR 344 and also of the Hon’ble Delhi High Court in case of CIT Vs Kabul Chawla 380 ITR 573. The Hon’ble Delhi High Court in its recent decision in case of Anand Kumar Jain has categorically held in that case that

(i) that the statement of PKJ recorded under section 132(4) alone could not justify the additions made by the Assessing Officer. Even if the Department’s contention that the failure to cross-examine the witness did not prejudice the assessee, apart from the statement of PKJ the Department had failed to produce any corroborative material to justify the additions. On the contrary during the course of the search, in the statement made by the assessee, he had denied having known PKJ. Since there was insufficient material to support the additions, the Tribunal had deleted them. This finding of fact, based on evidence did not call for interference, as evidence could not be reappreciated while exercising jurisdiction under section 260A .

(ii) That the statement of PKJ had evidentiary value and relevance as contemplated under the Explanation to section 132(4) it could not on a stand alone basis without reference to any other material discovered during the search and seizure empower the Assessing Officer to make the block assessment. According to the mandate of section 153C if such statement was to be construed as an incriminating material belonging to or pertaining to a person other than the person in respect of whom the search was conducted, the only legal recourse available to the Department was to proceed under section 153C by handing the case over to the Assessing Officer who had jurisdiction over such person. But the assessment had been made under section 153A on the basis of the statement recorded under section 132(4) of a third person and the assessee had no opportunity to cross-examine the witness. That apart, the mandatory procedure under section 153C had not been followed. There was no perversity in the view taken by the Tribunal that the provisions of section 153A were wrongly applied.

13. Thus, statement of 3rd party could not have been used for making an addition in the hands of the assessee in case of search in absence of any corroborative material. The learned departmental representative also could not produce any material other than the statement of Mr Malu for making the above addition.

14. For Assessment Year 2013-14 the chronology of events shows that the assessee filed its return of income on 31.10.2013 declaring loss of Rs. 13,14,315/- and returned income was processed on 12.12.2014. Admittedly no assessment u/s 143(3) of the Act was took place. Accordingly, the time line of issuance of notice u/s 143(2) expired on 30.09.2014. Admittedly, search on Kuber Group of cases took place on 09.10.2014 and admittedly, the date of issuance of notice or recording of satisfaction of the ld AO in case of assessee is 28.12.2016 for that year the addition of Rs. 1,45,00,000/-was made in the hands of the assessee on the basis of statement of Mr. Mulchand Malu. The name of the company who was issued share is also the same. There is no other material available that the ld AO accepts the statement issues shares is also the same. There is no other material available with the ld AO except the statement of Shri Mulchand Malu. The fact of the case for Assessment Year 2013-14 is also identical. Therefore, for Assessment Year 2013-14 also the addition has been made on the basis of statement of Mulchand Malu only no other incriminating documents were either placed in the assessment order and no such evidences were further placed in the remand report before the ld CIT(A). In view of this, we do not find any reason to uphold the orders of the lower authorities. Even otherwise, in both the cases, the assessee has sought the cross examination of the persons whose statement are used by the ld AO. Naturally the persons is passed away and therefore, the cross examination could not be given. Even in that case also no fault can be found with the assessee and therefore, the statement recorded of that person could not have been used for making any addition in the hands of the assessee when the assessee has sought cross-examination of that person.

15. The statement alone cannot be said to be any incriminating material based on which any addition can be made in the hands of the 3rd parties. Therefore on the solitary ground of appeals of the assessee are deserves to be allowed.

16. In the case of the group concern in case of ACIT Vs. Kuber Khdhyan Pvt. Ltd in ITA No.4223/Del./2018 Assessment Year: 2009-10, 4225/Del./2018 Assessment Year: 2011-12, 4226/Del./2018 Assessment Year: 2013-14 dated 26.03.2021 identical issue has been decided as under:-

“9. We have heard rival submission of the parties on the issue in dispute and perused the relevant metal on record. As far as decision of the Hon’ble Delhi High Court in the case of the Kabul Chawla (supra) is concerned, no addition could have been made in any assessment years if-

(i) no incriminating material is found during the course of the search from the premises of the assessee.

(ii) No assessment was pending as on the date of the search.

9.1 As far as second condition above is concerned, the assessee had filed his original return of income on 30/09/2009 declaring total income of ? 1,89,72,710/-. No notice under section 143(2) of the Act was issued till 30/09/2010, which was the limitation under which notice u/s 143(2) of the Act could have been issued. The search action in the case of assessee was carried out on 09/10/2014, therefore, no assessment proceeding was pending in the case of the assessee as on date of the search. This position has not been disputed by the Revenue also.

9.2 The only dispute is regarding whether there was any incriminating material found during the course of the search. According to the Learned DR statement of Sh. Mulchand Malu recorded under section 132(4) constitute incriminating material and therefore decision of the Kabul Chawla (supra) is not applicable over the facts of the assessee.

9.3 We find that Hon’ble Delhi High Court in the case of PCIT Vs Best Infrastructure Private Limited, 397 ITR 82 has held that statement under section 132(4) in the itself does not constitute incriminating material. The relevant finding of the Hon’ble High Court is reproduced as under:

“38. Fifthly, statements recorded under Section 132 (4) of the Act of the Act do not by themselves constitute incriminating material as has been explained by this Court in Commissioner of Income Tax v. Harjeev Aggarwal (supra). Lastly, as already pointed out hereinbefore, the facts in the present case are different from the facts in Smt. Dayawanti Gupta v. CIT (supra) where the admission by the Assessees themselves on critical aspects, of failure to maintain accounts and admission that the seized documents reflected transactions of unaccounted sales and purchases, is non-existent in the present case. In the said case, there was a factual finding to the effect that the Assessees were habitual offenders, indulging in clandestine operations whereas there is nothing in the present case, whatsoever, to suggest that any statement made by Mr. Anu Aggarwal or Mr. Harjeet Singh contained any such admission. ”

9.4 The relevant paragraph of the decision of the Hon’ble Hon’ble Delhi High Court in the case of Harjeev Agrawal (supra) also reproduced as under:

“20. In our view, a plain reading of Section 158BB(1) of the Act does not contemplate computing of undisclosed income solely on the basis of a statement recorded during the search. The words “evidence found as a result of search” would not take within its sweep statements recorded during search and seizure operations. However, the statements recorded would certainly constitute information and if such information is relatable to the evidence or material found during search, the same could certainly be used in evidence in any proceedings under the Act as expressly mandated by virtue of the explanation to Section 132(4) of the Act. However, such statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the AO to make a block assessment merely because any admission was made by the Assessee during search operation.

21. A plain reading of Section 132 (4) of the Act indicates that the authorized officer is empowered to examine on oath any person who is found in possession or control of any books of accounts, documents, money, bullion, jewellery or any other valuable article or thing. The explanation to Section 132 (4), which was inserted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1st April, 1989, further clarifies that a person may be examined not only in respect of the books of accounts or other documents found as a result of search but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Act. However, as stated earlier, a statement on oath can only be recorded of a person who is found in possession of books of accounts, documents, assets, etc. Plainly, the intention of the Parliament is to permit such examination only where the books of accounts, documents and assets possessed by a person are relevant for the purposes of the investigation being undertaken. Now, if the provisions of Section 132(4) of the Act are read in the context of Section 158BB( 1) read with Section 158B(b) of the Act, it is at once clear that a statement recorded under Section 132(4) of the Act can be used in evidence for making a block assessment only if the said statement is made in the context of other evidence or material discovered during the search. A statement of a person, which is not relatable to any incriminating document or material found during search and seizure operation cannot, by itself, trigger a block assessment. The undisclosed income of an Assessee has to be computed on the basis of evidence and material found during search. The statement recorded under Section 132(4) of the Act may also be used for making the assessment, but only to the extent it is relatable to the incriminating evidence/material unearthed or found during search. In other words, there must be a nexus between the statement recorded and the evidence/material found during search in order to for an assessment to be based on the statement recorded.

22. In CIT v. Sri Ramdas Motor Transport Ltd.: (1999) 238 ITR 177 (AP), a Division Bench of Andhra Pradesh High Court, reading the provision of Section 132(4) of the Act in the context of discovering undisclosed income, explained that in cases where no unaccounted documents or incriminating material is found, the powers under Section 132(4) of the Act cannot be invoked. The relevant passage from the aforesaid judgment is quoted below:

”A plain reading of sub-section (4) shows that the authorised officer during the course of raid is empowered to examine any person if he is found to be in possession or control of any undisclosed books of account, documents, money or other valuable articles or things, elicit information from such person with regard to such account books or money which are in his possession and can record a statement to that effect. Under this provision, such statements can be used in evidence in any subsequent proceeding initiated against such per son under the Act. Thus, the question of examining any person by the authorised officer arises only when he found such person to be in possession of any undisclosed money or books of account. But, in this case, it is admitted by the Revenue that on the dates of search, the Department was not able to find any unaccounted money, unaccounted bullion nor any other valuable articles or things, nor any unaccounted documents nor any such incriminating material either from the premises of the company or from the residential houses of the managing director and other directors. In such a case, when the managing director or any other persons were found to be not in possession of any incriminating material, the question of examining them by the authorised officer during the course of search and recording any statement from them by invoking the powers under section 132(4) of the Act, does not arise. Therefore, the statement of the managing director of the assessee, recorded patently under section 132(4) of the Act, does not have any evidentiary value. This provision embedded in sub- section (4) is obviously based on the well established rule of evidence that mere confessional statement without there being any documentary proof shall not be used in evidence against the person who made such statement. The finding of the Tribunal was based on the above well settled principle. ”

23. It is also necessary to mention that the aforesaid interpretation of Section 132(4) of the Act must be read with the explanation to Section 132(4) of the Act which expressly provides that the scope of examination under Section 132(4) of the Act is not limited only to the books of accounts or other assets or material found during the search. However, in the context of Section 158BB(1) of the Act which expressly restricts the computation of undisclosed income to the evidence found during search, the statement recorded under Section 132(4) of the Act can form a basis for a block assessment only if such statement relates to any incriminating evidence of undisclosed income unearthed during search and cannot be the sole basis for making a block assessment.

24. If the Revenue’s contention that the block assessment can be framed only on the basis of a statement recorded under Section 132(4) is accepted, it would result in ignoring an important check on the power of the AO and would expose assessees to arbitrary assessments based only on the statements, which we are conscious are sometimes extracted by exerting undue influence or by coercion. Sometimes statements are recorded by officers in circumstances which can most charitably be described as oppressive and in most such cases, are subsequently retracted. Therefore, it is necessary to ensure that such statements, which are retracted subsequently, do not form the sole basis for computing undisclosed income of an assessee.

25. In Commissioner of Income Tax v. Naresh Kumar Aggarwal: (2014) 3699 ITR 171 (T & AP), a Division Bench of Telangana and Andhra Pradesh High Court held that a statement recorded under Section 132(4) of the Act which is retracted cannot constitute a basis for an order under Section 158BC of the Act. The relevant extract from the said judgement is quoted below:

“17. The circumstances under which a statement is recorded from an assessee, in the course of search and seizure, are not difficult to imagine. He is virtually put under pressure and is denied of access to external advice or opportunity to think independently. A battalion of officers, who hardly feel any limits on their power, pounce upon the assessee, as though he is a hardcore criminal. The nature of steps, taken during the course of search are sometimes frightening. Locks are broken, seats of sofas are mercilessly cut and opened. Every possible item is forcibly dissected. Even the pillows are not spared and their acts are backed by the powers of an investigating officer under section 94 of the Code of Criminal Procedure by operation of sub-section (13) of section 132 of the Act. The objective may be genuine, and the exercise may be legal. However, the freedom of a citizen that transcends, even the Constitution cannot be treated as non­existent. ”

“18. It is not without reason that Parliament insisted that the recording of statement must be in relation to the seized and recovered material, which is in the form of documents, cash, gold, etc. It is, obviously to know the source thereof, on the spot. Beyond that, it is not a limited licence, to an authority, to script the financial obituary of an assessee.”

“19. At the cost of repetition, we observe that if the statement made during the course of search remains the same, it can constitute the basis for proceeding further under the Act even if there is no other material. If, on the other hand, the statement is retracted, the Assessing Officer has to establish his own case. The statement that too, which is retracted from the assessee cannot constitute the basis for an order under section 158BC of the Act. ”

9.5 In view of the above finding of the Hon’ble Delhi High Court statement of Sh. Mulchand Malu under section 132(4) of the Act alone cannot be considered as incriminating material unless any corroborating incriminating material is found during the course of the search from the premises of the assessee.

9.6 As far as the decision in the case of Sh. B Kishore Kumar (supra) is concerned Hon’ble Supreme Court has dismissed the SLP filed by the assessee against the decision of Hon’ble Madras High Court (decision reported in 52 taxmann.com 449), wherein the Hon’ble Court has held that where the assessee himself has stated in sworn statement during search and seizure about his undisclosed income, tax was to be levied on the basis of the admission without be scrutinizing documents. The relevant finding of the Hon’ble High Court is reproduced as under:

“6. With regard to the undisclosed income of Rs.52,73,920/-supported by printouts, in the sworn statement dated 29.8.2006, the assessee says that he had separate business income which was not included in his income tax returns. Therefore, admission of undisclosed income of Rs.52,73,920/- is categoric and undisputed.

The assessee in the sworn statement made on 10.10.2006, stated that outstanding loans to the tune of Rs.25 Lakhs to 30 Lakhs are to be recovered with interest at the rate of 18%. This is a clear admission. This amount has also been calculated and added as undisclosed income. When there is a clear and categoric admission of the undisclosed income by the assessee himself, in our considered opinion,, there is no necessity to scrutinize the documents. The document can be of some relevance, if the undisclosed income is determined higher than what is now determined by the department. Moreover, it is not the case of the assessee that the admission made by him was incorrect or there is mistake. In fact, when there is a clear admission, voluntarily made, by the assessee, that would constitute a good piece of evidence for the Revenue.

7. The learned counsel for the assessee relied upon a decision of the Delhi High Court in C1T v. Girish Chaudhary, [2008] 296 1TR 619/163 Taxman 608 to plead that loose sheets of papers should not be taken as a basis for determining undisclosed income. However, in the case on hand, loose sheets found during the search are not the sole basis for determining the tax liability. It is a piece of evidence to prove undisclosed income. The printout statements of undisclosed income is not disputed by the assessee and in his sworn statements it is accepted. In fact, he admitted that outstanding loans to be recovered are in the range of Rs.25 Lakhs to 30 Lakhs. We find no error in the procedure followed by the Assessing Officer on admitted facts. The entire exercise by the department to bring to tax undisclosed income, we find has been generous and simple. There appears to be no confusion in the quantification of the tax liability and we uphold the order of the Tribunal. ”

9.7 Thus, we find that in the above decision addition has been sustained on the basis of the statement recorded of the assessee himself and not based on the statement of any third-party. The facts of above case are distinguishable from the facts of the assessee.

9.8 In view of the above facts and circumstances, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute. Following the finding of the Hon’ble Delhi High Court in the case of Kabul Chawla (supra), we, accordingly, uphold the same. The ground No. 1 of the appeal of the Revenue is accordingly dismissed.”

17. Therefore, respectfully following the decision of the coordinate bench we also hold that there was no incriminating material found during the course of search and both the assessment years are concluded the date on which the satisfaction is recorded by the ld AO of the assessee and therefore, no addition could have been made by the ld AO. Thus, on this ground the appeal of the assessee for both the years is allowed and orders of the lower authorities are reversed.

18. Accordingly, both the appeals of the assessee are allowed. Order pronounced in the open court on 13/09/2021.