Third-party statement recorded in accordance with Section 132(4) not a document that would violate Section 153A of the law

Fact and issue of the case

The captioned appeals are filed by the assessees, who are none other than mother and son, feeling aggrieved by the separate orders of Commissioner of Income Tax (Appeals) – 12, Hyderabad dt.22.09.2017 invoking proceedings under section 143(3) r.w.s. 153A of the Act for the assessment year 2013-14

The grounds raised by the assessee read as under

The order of the Ld. Commissioner of Income Tax (Appeals)-12 Hyderabad (‘CIT(A)’) in confirming the assessment of Long Term Capital Gains at Rs. 1,99,52,042 on sale of the Appellant’s 50% share in immovable property being a residential house property admeasuring 7200sq.ft or 64 areas of plot of land at Mooledam, near Nattakam, Govt. Guest House, Kottayam is totally contrary to the fact and evidence on record and is therefore wholly unsustainable both on facts and in law

The CIT(A) erred in upholding the sale price of 4.5 Crores as against 35 lakhs which was fully recorded in the sale document, and in the process erred in upholding the adoption of sale consideration of Rs.2.25 Crores being 50% of the Appellant’s share in the property while computing the Long Term Capital Gains

The CIT(A) failed to note that the was no incriminating material found during the search proceeding on 25/09/2014 u/s 132 of the Income Tax Act, 1961 to warrant the adoption of the sale price of Rs.4.5 Crores and consequently the Appellant’s share thereon at 50%

The entire price of Rs.4.5 Crores has been adopted solely on the basis of statement of the purchaser’s husband Mr.Mohammed Basheer who was not the Vendee when there was no incriminating material found during search proceedings

The CIT(A) failed to note that neither statement recorded of the vendee — Remla Basheer nor the statement of the husband of the Vendee Mr.Mohammed Basheer was made available to the Appellant nor was he/she produced for cross examination in spite of specific request of the appellant and therefore the CIT(A) erred in upholding the adoption of sale price of the immovable property at Rs.4.5 Crores as against 35 Lakhs which was the price fully recorded in the registered sale document

The CIT(A) failed to note that in the search proceedings, statement of a third party cannot be relied upon unless there is contemporaneous evidence to support the statement, and more so the denial by the Appellant to the contrary and therefore erred in upholding the adoption of sale price at Rs.4.5 Crores as against Rs.35 lakhs fully received in the registered sale document

The order of the CIT(A) in confirming the addition of Rs. 19.65 lakhs out of Rs.53.65 lakhs by investment in the firm of Mis BHIMA & BROTHERS is totally contrary to the facts and evidence on record and is therefore unsustainable

The CIT(A) erred in confirming the addition of Rs.20,04,000/- which was nothing but transfer of funds from one Bank a/c into another from disclosed sources

Entire assessment has been framed based on the statement of Mr. Mohammed Basheer without giving an opportunity to cross examine and thus violating the principles of natural justice and fair play and therefore entire assessment proceedings are without jurisdiction, invalid and bad in law calling for quashing the assessment

Entire remand report given by the Assessing officer that copies of the statement of Mohammed Basheer is totally contrary to the facts and evidences on record and therefore reliance placed on the evidences collected behind the back of the appellant is contrary to the principle of natural justice and therefore entire addition made needs to be deleted

The additional grounds raised by the assessee reads as under

The order of the CIT (A)-12, Hyderabad [‘CIT(A)’] while ordering the deletion of the addition of Rs. 61.18 lakhs at the concluding paragraphs, of Para no. 7.4 of the order, erred in linking it to the source to the alleged extra consideration on sale of immovable property from Bashir Mohd, while on the contrary the sources were proved as flowing from sale of jewellery belonging to the Appellant

The CIT(A) failed to note that no incrimination material was found during the search as seen from the Panchanama and seized material and therefore erred in making additions under various heads which are totally contrary to the evidence on records and therefore the income returned by the Appellant ought to have been accepted

Similar grounds and additional grounds were raised by the assessee in other appeal also i.e., ITA 2046/Hyd/2023 for A.Y. 2013-14 except the amounts involved

Before us, both the parties submitted that the issues raised in both the appeals are identical. In view of the aforesaid submission, we, for the sake of convenience proceed to dispose of both the appeals by a consolidated order but however refer to the facts in ITA No.2050/Hyd/2021

The brief facts of the case are that assessee is an individual, who filed his return of income for A.Y. 2013-14 on 31.10.2013, returning a total income of Rs.72,03,990/-. A search and seizure operation u/s 132 of the Act was carried out in the residential premises of the assessee on 25.09.2014. Accordingly, notice u/s 153A of the Act was issued to the assessee on 14.09.2016. In response thereto, assessee filed his return of income for A.Y. 2013-14 on 20.10.2016. Thereafter, the Assessing Officer completed the assessment on 30.12.2016 by making an addition of Rs.1,99,52,042/- towards capital gains and Rs.1,14,82,651/- towards unexplained investment in the form of capital contribution and Rs.20,04,000/- towards unexplained cash deposits in bank accounts. Thus, determined the total taxable income at Rs.4,06,42,683/-

Feeling aggrieved with the order passed by the assessing officer, assessee filed appeal before the Ld. CIT(A) who partly allowed the appeal of assessee

Aggrieved with the order of ld.CIT(A), assessee is now in appeal before us

Observation of the court

We have heard the rival submissions and perused the material on record. Admittedly, in the present case, a search and seizure operation were carried out in the residential premises of the assessee on 25.09.2014 and thereafter, the statements of the assessee were recorded u/s 132(4) of the Act on 25.09.2014, 29.04.2014 and 01.10.2014 and in the said statements, the assessee had denied to have received any ‘on money’ over and above the registered value mentioned in the sale deed. The additions were made in the hands of the assessee on the basis of the statement of Mohd. Basheer recorded by the DDIT, Investigation, Kottyagudem on 10.10.2014 without providing the copy of the said statement to the assessee. In the statement, the said Mohd. Basheer had mentioned in reply to Q.No.51 that a sum of Rs.4.15 crore was paid in cash over and above the registered value of Rs.35 lakhs which was transferred through NEFT. For the purpose of invoking jurisdiction u/s 153A of the Act, it is essential that the Assessing Officer in case of an abated assessment can make the addition on the basis of material available with him. In the present case, no document was found which shows that ‘on money’ of Rs.4.15 crore was paid to the assessee over and above the registered value mentioned in the sale deed and there is only statement of Mohd. Basheer, who is not even the purchaser of the property

In our considered opinion, for the purpose of making the addition, it is essential that statement of wife of Mohd. Basheer namely, Smt. Remla Basheer is required to be recorded and along with that some cogent and corroborative evidence should have been relied upon by the Assessing Officer to show that the said amount was paid by the said person to the assessee. However, nothing has been brought on record by the Revenue and therefore, in our view, no addition can be made in the hands of the assessee based on the statement recorded by the Investigating Wing by a third party. The statement of a third party already recorded u/s 132(4) of the Act cannot be considered as an incriminating document for the purpose of making the addition u/s 153A of the Act. If at all the addition can be made based on the documents found in the premises of a third party pertaining to the assessee, then the addition can only be made u/s 153C of the Act. Admittedly, no documents etc., were found and seized from the premises of Mohd. Basheer, husband of the purchaser, which pertains to the assessee. Further, more recently, the Hon’ble Delhi High Court in the case of PCIT Vs. Anand Kumar Jain (HUF) (supra) on identical facts and circumstances, allowed the appeal of assessee by holding as under

Now, coming to the aspect viz the invocation of section 153A on the basis of the statement recorded in search action against a third person. We may note that the AO has used this statement on oath recorded in the course of search conducted in the case of a third party (i.e., search of Pradeep Kumar Jindal) for making the additions in the hands of the assessee. As per the mandate of Section 153C, if this statement was to be construed as an incriminating material belonging to or pertaining to a person other than person searched (as referred to in Section 153A), then the only legal recourse available to the department was to proceed in terms of Section153C of the Act by handing over the same to the AO who has jurisdiction over such person. Here, the assessment has been framed under section 153A on the basis of alleged incriminating material (being the statement recorded under 132(4) of the Act). As noted above, the Assessee had no opportunity to cross-examine the said witness, but that apart, the mandatory procedure under section 153C has not been followed. On this count alone, we find no perversity in the view taken by the ITAT. Therefore, we do not find any substantial question of law that requires our consideration

Accordingly, the present appeals, along with all pending applications, are dismissed

Hence, respectfully, following the said decision, we do not find any reason to sustain the addition made by the Assessing Officer and accordingly, the addition made in the hands of the assessee is deleted. Thus, the appeal of the assessee is allowed

In the result, the appeal of assessee is allowed

As far as the other appeal i.e., ITA No.2046/Hyd/2017 is concerned, in view of the submission of both the parties that the issues raised in both the appeals are identical, except the amounts involved, we for the reasons stated hereinabove while deciding the appeal in ITA No.2050/Hyd/2017 and for similar reasons, allow the other appeal

In the result, the appeal of assessee in ITA No.2046/Hyd/2017 is allowed

To sum up, both the appeals of assessees are allowed. A copy of the same may be placed in respective case files

Order pronounced in the Open Court on 28th April, 2023