Third-Party Statements and Documents Insufficient for S. 153A Jurisdiction: ITAT Quashes Assessments for Multiple Unabated Years [Read Order]

The Delhi Bench of the Income Tax AppellateTribunal ( ITAT ) quashed search assessments for four assessment years and ruled that third-party statements or documents, even if seized during a search, did not constitute incriminating material for Section 153A of income tax act,1961. without a direct and corroborated nexus emanating from the assessee’s own search.

Orris Infrastructure Pvt. Ltd. (assessee) was subject to a search and seizure action under Section 132 on January 16, 2013. As a result of the search, the Assessing Officer (AO) issued notices under Section 153A for six assessment years, from 2008-09 to 2013-14.

The AO made substantial additions for these years totalling to ₹97.88 crores primarily on account of unaccounted interest expenditure on loans from various lenders like U.K. Paints, Shahi Group, and Span Group, unaccounted cash expenditure and business receipts (forfeited advances).

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Aggrieved by the AO’s order, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) restricted the additions to ₹13.41 crores. Aggrieved by the CIT(A)’s, both the assessee and the Revenue filed cross-appeals before the ITAT.

The assessee argued that the additions were based entirely on material found during a search on a third party, the U.K. Paints Group, for whom search was conducted on the same day. The assessee submitted that no incriminating diaries, cash ledgers, or statements from Orris officials were recorded during the search at the assessee's own premises.

The assessee submitted that the emails and Excel sheets found on the assessee's hard disks were authored by lenders, not the assessee, and constituted "dumb documents" lacking independent corroboration.

The two-member bench comprising Mahavir Singh (Vice President) and Krinwant Sahay (Accountant Member) observed that the law regarding Section 153A was well settled by the Supreme Court in PCIT Vs. Abhisar Buildwell Pvt. Ltd.

The tribunal found that the Revenue relied on material diaries AA-1 and AA-2 and statements (Naveen Choudhary) that were seized from third-party premises. It noted that additions in unabated years must be based on incriminating material found during the search of the assessee.

The bench observed that in the cases of the lenders (U.K. Paints and Span Holdings), the tribunal had already deleted the alleged cash interest income and so the assessee could not be taxed as the alleged payer.

It was held that If additions are based on third-party material, the AO must strictly comply with Section 153C, including recording a satisfaction note, which was not done in this case.

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The tribunal quashed the assessments for AY 2008-09 to 2011-12 as invalid. The appeals of the assessee were allowed in part, and the Revenue's appeals were dismissed.

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