Income Tax - Reassessment, Seized Material, Incriminating Documents, Jurisdiction - The assessee is a company of the Bestech Group and the seized documents were found from the corporate office of the Bestech Group during a search operation. The assessment year under consideration is 2011-12 which was an unabated assessment year. The AO initiated reassessment proceedings under section 153C based on the seized documents relating to the assessee's share application/allotment transactions - Whether the initiation of reassessment proceedings under section 153C was valid in the absence of any incriminating material found during the search - HELD - The satisfaction note recorded by the AO was vague and did not fulfill the requirements of section 153C to assume jurisdiction. The seized documents merely contained statutory records related to the assessee's share capital transactions which were already recorded in its books of accounts and financials. There was no material found during the search which could be considered as "incriminating" against the assessee. Merely possessing documents related to the assessee's transactions cannot be termed as incriminating material for the purpose of initiating reassessment proceedings under section 153C. Relying on the decisions in Saksham Commodities, Kabul Chawla and Abhisar Buildwell to hold that the initiation of reassessment proceedings was not valid in the absence of any incriminating material. It further distinguished the decision in K. Krishnamurthy relied upon by the Revenue, stating that it only dealt with the scope of "material found during search" and not the requirement of recording satisfaction under section 153C – The appeal of the assessee is partly allowed

 

2025-VIL-1570-ITAT-DEL

 

IN THE INCOME TAX APPELLATE TRIBUNAL

NEW DELHI

 

ITA No. 4620/DEL/2024

Assessment Year: 2011-12

 

Date of Hearing: 28.08.2025

Date of Pronouncement: 15.10.2025

HITESHI LEASING AND HOUSING PVT LTD

 

Vs

 

DCIT

 

Assessee by: Shri Pushpdeep Singh, Advocate

Revenue by: Shri Kailash Dan Ratnoo, CIT DR

 

BEFORE

SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER

SHRI VIMAL KUMAR, JUDICIAL MEMBER

 

ORDER

 

PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER:

 

1. This appeal preferred by the assessee is directed against the order of the ld. Commissioner of Income-tax (Appeals), Gurgaon-3 [for short ‘ld. CIT (A)] dated 04.081.2024 for Assessment Year 2011-12 raising following grounds of appeal :-

 

“(A) That on the facts & circumstances of the case the learned Assessing Officer and CIT(A), while passing the order erred in:

 

a. Passing the Assessment Order dated 26.03.2015 u/s 153A despite the fact the Assessee was not searched and the Assessee was issued notice under section 153C on 29.1 1.2013. This is a jurisdictional error which renders the whole Assessment liable to be quashed. Ld. CIT (A) has also failed to apply his judicious mind and overlooked the fact that the Assessee was not a searched entity therefore section 153A was not applicable.

 

b. Completing assessment made under section 153A(I)(b) of the Income Tax Act, 1961 at an income of Rs.32,03,83,800/- as against income of Rs.23,83,800/- returned by the Appellant, treating share application/share capital received during the year of Rs.31,80,00,000/- from M/s. Arrow Distribution Private Limited, Golden Mercantile Limited, Pine View Investment Private Limited, and M/s. Shalini Holdings Ltd as bogus/unexplained income u/s 68 of the Income Tax Act despite the fact that the Appellant has fully discharged its onus of proving identity, genuineness and creditworthiness of the persons from whom application money has been received by submitting all the relevant documents.

 

c. Arbitrarily treating the share application/l capital as bogus despite independently verifying the transaction by calling information from the share applicant by recording the statement of directors of M/s. Arrow Distribution Private Limited, Golden Mercantile Limited,. Pine View Investment Private Limited and M/s. Shalini Holdings Ltd on oath u/s 131 of Income Tax Act these transactions are genuine. They have even submitted relevant documents in support of the same.

 

d. Making addition of share application money/ share capital received from M/is. Arrow Distribution Private Limited. Golden Mercantile Limited, Pine View Investment Private Limited. and M/s. Shalini Holdings Ltd merely on the basis of observation/ allegation by Investigation Wing. Delhi that one of the director of Shalini Holdings Limited is a relative of S.K. Jain who was allegedly engaged in the activities of providing accommodation entries whereas no paper was seized during the course of search operation and also on post search investigations made by the investigating officer as well as enquiries made by learned Assessing Officer, which suggests that share capital received by the Appellant company is accommodation entry.

 

e. Making these additions on the basis that the Directors of share applicant companies have failed to provide documentary evidence to prove the sources of funds during recording of statement u/s 131 of Income Tax Act although the Learned Assessing Officer only asked for the sources of funds and has never asked/ insisted on the furnishing of documentary evidences. Nevertheless these documentary evidences have been duly furnished by the appellant company during the course of assessment proceedings. It is pertinent to note that as per the prevailing law, for A Y 2011-12, Assessee was not required to prove "source of source" therefore, no negative inference could be drawn.

 

f. Not relying upon the judgment laid down by Hon'ble Supreme Court in the case of Lovely Exports simply on the ground that facts and circumstances of the case are different and appellant company is a private limited company although the fact and circumstances of the Lovely Exports is in line with facts of the Appellant company and this judgment very well applies to Private limited company as Plaintiff in that case was a Private Limited company i.e. Lovely Export Private Limited.

 

g. Not recognizing that the learned Assessing Officer has erred in making addition by relying judgment of Nova Promoters & Finlease (P) Ltd. & NR Portfolio Pvt. Ltd. although the facts and circumstances in these cases were totally different from the case of appellant company.

 

h. Not recognizing that the assessment order is erroneous and unsustainable in law as well as on merits and so that addition made therein needs to be quashed.

 

i. That the orders passed by learned A.O. & CIT are bad in law and against the principles of natural justice.

 

2. At the outset of the hearing, ld. AR for the assessee submitted that assessee has filed additional ground of appeal under Rule 11 of the Income Tax (Appellate Tribunal) Rules and it is purely legal issue and the same is reproduced below :-

 

“1. That on the facts & circumstances of the case, the Assessment Order passed by Ld. DCIT needs to be quashed because this is a case of unabated assessment which has been reopened U/S I53C based on the information received in the search & seizure operations on Bestech Group. A plain reading of the documents seized do not reveal anything which have a bearing on the determination of total income.

 

2. That the Ld. A.O. erred in invoking section I53C in the case of the Appellant on the satisfaction that the material seized represents undisclosed income of the Appellant, without appreciating that the material seized includes Share Application documents, the introduction of share capital is duly recorded in the books of Accounts of the Appellant, and there is nothing incriminating in these documents that would give the DCIT the license to reopen the Assessment U/S I53C of the Income Tax Act, 1961.

 

3. That the approval granted under section I53D is mechanical and without application of mind.”

 

3. Since the above grounds of appeal are purely legal, do not require fresh facts to be investigated and go to the root of the matter, ld. AR of the assessee prayed that the same may be admitted in view of the judgement of NTPC Ltd. vs. CIT, (1998) 229 ITR 0383 (SC).

 

4. On the other hand, ld. DR for the Revenue has no objection of admitting the additional ground of appeal being purely legal issue.

 

5. In view of the reliance made by the ld. AR for the assessee on the judgment of Hon’ble Supreme Court in the case of NTPC Ltd. (supra) and issue being purely legal, we proceeded to admit the additional ground of appeal being a legal issue.

 

6. At the time of hearing, ld. AR of the assessee pressed only the jurisdictional issue before us and the Bench proceeded to decide the jurisdictional issue. The relevant facts are, a search and seizure operation under section 132 (1) of the Income-tax Act, 1961 (for short ‘the Act’) was carried out on 04.07.2012 at the residential/business premises of M/s. Bestech Group. During the search at the corporate office of M/s. Bestech Group at Plot No.90, Sector 44, Gurgaon, documents relating to introduction of share capital were found which gives certain details of share capital/share applications money received by M/s. Hiteshi Leasing & Housing Pvt. Ltd., 1/2873, Ram Nagar Extension, Shahdara, Delhi during the year under consideration. He submitted that in accordance with the provisions of section 153 read with section 153A of the Act, a notice was issued to the assessee after duly recording the reasons for opening the assessment u/s 153C of the Act referring the assessee to file its return of income. The AO has recorded reasons/satisfaction which is reproduced at page 2 of the assessment order. For the sake of brevity, the same are reproduced below :-

 

“Reasons Satisfaction note for taking up the case of M/s Hiteshi Leasing & Housing Pt Lid, I2873, Ram Nagar Extension Shahdra, Delhi under section 153C of the Income-tax Ac, I961.

 

By virtue of the authorization of the Director of Income-tax (Investigation), Chandigarh, a search and seizure operation u/s 132(1) of the Act was carried out on 04.07.-2012 at the residential business premises of the persons associated with M/s Bestech Group.

 

During the search at corporate office M/s Bestech Group concerns at, Plot No. 90, Sec. 44, Gurgaon, documents related to introduction of share capital were found and seized at page No. 139-122 of Annexure A-4 to the Panchnama dated 04.07.2012 from the corporate office at Plot No. 90, Sec, 44, Gurgaon,. of M/s Bestech Group which gives certain the details of share capital share applications money received by M/s Hiteshi Leasing & Housing Pvt Ltd, I2873, Ram Nagar Extension Shalhdra, Delhi

 

The source, genuineness, creditworthiness and identity of the persons/company from whom share capital/share application money has been received by the assessee company from issue also needs to be examined in the light of provisions of the Income- tax Act.

 

In view of the above and as per the provisions of sub-section (1) of Section 153C of the Act, I am satisfied that the document seized from the business premises of M/s Bestech Group belongs to a company other than the company referred to in section 153A. Accordingly it is directed to issue such company M/s Hiteshi Leasing & Housing Pvt Ltd, l2873, Ram Nagar Extension Shahdra, Delhi notice and reassess income in accordance and the provisions of section 153C read with section 153A of the Act "

 

7. At the time of hearing, ld. AR of the assessee brought to our notice reasons recorded by the AO which are reproduced in the assessment order and he submitted that the assessee has moved an application on 10.03.2025, taken up for hearing for the first time on 19.03.2025, for raising additional grounds, which are purely legal, to challenge the initiation of the proceedings under section 153C of the Income Tax Act, 1961. He further submitted that the year under consideration is an unabated assessment year as the time limit for issuing a notice under section 143(2) expired on 30.09.2012 whereas the satisfaction note is dated 29.11.2013 and the seized material was received by the A.O. of the Assessee on 23.07.20l3 and referred Para 1 & 2 of the Assessment Order. He submitted that the search action was on Bestech Group on 04.07.2012. As per the satisfaction note reproduced in the Assessment Order, there were certain documents seized which are related to share application/allotment transaction undertaken during the year under consideration and the documents are as follows:

 

Particulars

Annexure A-4 Page No.

Paper book Page No.

Shareholders agreement dated 29.07.2010

122-133

38-49

Offer from Share Applicant for acquisition of Shares dated 07.07.2010.

134

34

Reply to offer from Appellant company dated 12.07.2010

135

35

Acceptance letter from share applicant dated 20.07.2010

136

36

Application for 10,00,000/1- Equity Shares dated 10.08.2010

137-138

50-51

Copy of Minutes Book of Board meeting of Share Applicant

139

94

 

8. Ld. AR further submitted that the Assessee company is an entity of Bestech Group, this fact is undisputed and referred to Page 4 Para 3 of the Assessment Order. He submitted that the Assessee is a company of the Bestech Group and the seized documents are found from the corporate office of Bestech Group, which is stated in the satisfaction note on Page 2 of Assessment Order. He submitted that the return of income of Ay 2011-12 was filed by the assessee on 30.09.2011 vide acknowledgment number 300950421300911 and referred to Page 1 of the Paper book i.e. prior to the date of search. He further submitted that the transactions undertaken during the year, i.e. share application, allotment and forfeiture, all are duly recorded in the financials of the Assessee Company for FY 2010-11 relevant to Assessment year under consideration and the Audit Report, Balance Sheet, P&L A/c Annexures etc are on Pages 5 to 18 of Paper book. He draw out attention to Schedule A to balance Sheet "Share Capital" where it is stated as follows:

 

10,00,000 Partly paid-up equity shares of Rs. 10/- each, Rs. 3/- each paid up Forfeited during the Year

3,000,000

 

9. Ld. AR further submitted that the list of documents mentioned in para 3 hereinabove, cannot be regarded as incriminating as they don't suggest any income escaping assessment as the effect of those documents have been duly incorporated in the books and balance sheet of the Assessee Company. He further submitted that the DCIT Central Circle (1) passed a detailed order of 12 pages but has nowhere stated what was in these documents which are used to reopen the Assessment Proceedings u/s 153C and how they were incriminating documents.

 

10. Ld. AR of the assessee in view of his above submission prayed that the impugned order and Impugned proceedings for an unabated assessment year may please be quashed for being initiated in the absence of Incriminating documents, following the ratio as per Saksham Commodities [2024 SCC OnLine Del 2551], Kabul Chawla [(2016) 380 ITR 573] and Abhisar Buildwell [(2024) 2 SCC 433].”

 

11. Further ld. AR submitted that the facts in the assessee’s case are exactly similar to the decision of ITAT Delhi Bench in the case of DCIT vs. DMG Finance Investment Private Limited in ITA No.3432/Del/2023 order dated 28.11.2024. He relied on the same.

 

12. On the other hand, ld. DR of the Revenue accepted the fact that from the date of recording of decision, the assessment year under consideration is unabated assessment year and he submitted that the incriminating material found during the search in the case of Bestech Group is in fact incriminating material found relating to the assessee and he relied on the decision of Hon’ble Supreme Court in the case of K. Krishnamurthy vs. DCIT (2025) 473 ITR 557 (SC) and he drew our attention para 41 of the order, submitted that the incriminating document found in the case of search is of wide amplitude. It does not mean document found in the assessee’s premises alone during the search. At times search of an assessee leads to search of another individual and/or further investigation/interrogation of third party. All these steps and recoveries therein would fall within the expression found in the course of search. He relied on the same and findings of the lower authorities.

 

13. Considered the rival submissions and material available on record. We observe that the coordinate Bench in the case of DMG Finance Investment Private Limited order dated 28.11.2024 (supra), wherein the facts and circumstances are identically similar to the present case, has dealt the similar legal issue and decided the same in favour of the assessee. The relevant findings of the Coordinate Bench are reproduced as under:-

 

“9. Accordingly, we first take up the merits of the grounds and for that we have carefully gone through the material before us and the submissions of learned representatives of both the sides. To be fair to the Shri. Debesh Panda, Ld. Spl. Counsel for the department, we have reproduced his written submissions, in totality. We find that the learned Spl. counsel for the Department has made strenuous efforts to defend the order of ld. AO and to point out the shortcomings in the order of ld. CIT(A), however, when the ld. Spl. Counsel for the Department was requested to explain as to how the disputed documents fall into that category of ‘incriminating material’, he was not able to, point out from the contents of the disputed documents itself, as to if there was anything in the form of any absolute admission against the interest of the assessee, that any of the investor companies or anyone operating these companies had received any funds, by any means, from the assessee company or anyone operating the assessee company. He was unable to cite from the disputed documents that there was any evidence emanating from the documents themselves which show that cash was given by the assessee company or anyone operating the assessee company in lieu of the share capital receipts.

 

10. All that was attempted to be canvassed by the Ld. Spl. Counsel for the Department was to draw inferences after inferences, from the existence of these documents themselves and from the fact of having been found at the time of search and that as possibly these disputed documents were prepared contemporaneous to the application for subscribing to the share capital, in a way, that these disputed documents will enable the assessee company or its operators to subsequently deal with the allotted shares, without any intervention of the investor companies or their operators. Meaning thereby, that the application for subscription of the shares and the payment of share capital, was a sham transaction, of which the assessee company was beneficiary and therefore for the purpose of section 68 of the Act, the assessee company has failed to rebut the onus of explaining the genuineness of the transaction.

 

11. Thus the first question to be determined is as to find if the disputed documents fall into the scope of ‘incriminating material’? To be precise whether in spite of their being nothing emanating in the form of an admission of fact disclosing incorrect reporting of income or undisclosed income, merely the circumstances surrounding the existence of certain documents found during search, alone can be considered as ‘incriminating material’.

 

12. In regard to this controversy, we find that the learned Spl. counsel for the Department has relied the ratio of Hon’ble jurisdictional High Court, in the case of Dayawanti v. CIT (2017)390 ITR 496, to argue that once the seized material gives rise to ‘belief’ in the mind of the assessing officer, then that is sufficient to consider the ‘seized material’ to be ‘incriminating material’ and that CIT(A) was wrong in the approach having presuppositions that unless a document carries a stamp of incrimination on its forehead, its contents need not be examined and the belief created thereby, is wholly irrelevant.

 

13. In this context only, it was argued, that this ‘belief’, was sufficient to transfer the onus of rebuttal of this ‘belief’ on the assessee for the purpose of section 68 of the Act. Despite being very generous to all the contentions of ld. Spl. Counsel for the Department, we fail to agree with the same. We are of the considered view that the ‘seized material’ can be considered to be ‘incriminating material’ for the purpose of section 153A of the Act, when the fact in issue, is established by the direct evidence from some of the content of the document itself. If it is a question of establishing the fact in issue by circumstantial evidence then the same can be only when the complete chain of events are independently established by direct evidence. ‘Incriminating material’ for the purpose of 153A of the Act, has to be distinguished from ‘inculpating material’ or ‘any material that may implicate the assessee’. Implicating circumstances surrounding a document are not sufficient to label it as ‘incriminating material’. The latter two material, inculpating or implicating, may be dependent or outcome of inferences drawn from the content of the document, surrounding circumstance or the existence of the document and may be relevant for forming a ‘belief’ of escapement of income or for discrediting any claim of the assessee with regard to any income or expenses during any other form of assessment or reassessment, except where the assessment is supposed to be on the basis of incriminating material found during search.

 

14. In that case by drawing inferences or any process of reasoning, preponderance of probabilities or circumstances should first explore how the seized material reflects on total income for the search assessment. Thus, where the seized material is sought to be considered as incriminating material, it has to have in its body some narration or even omission of facts which lead to instant conclusion that there may be a source of undisclosed income of assessee and the incriminating document establishes the same without any necessity of an exercise of drawing inferences beyond the content.

 

15. The fact in issue, to ascertain if the seized material is incriminating in nature, may vary according to the nature of alleged act of misreporting or concealment of income, its source, investment etc.. Thus it is in accordance with the nature of allegations the seized material has to be examined and then based on the contents of the seized material a conclusion has to be drawn that the content establishes the fact in issue.

 

16. Like in case in hand the allegations are of introduction of own funds by way of bogus share capital receipt through shell companies. This fact in issue, certainly required that the disputed documents had some information about some trail of transaction which is of incriminating nature so as to constitute incriminating material. However, as we go through the assessment order we find that the ld. AO has not spelt out any information of incriminating nature spilling out of the disputed documents. The assessing officer seems to have been convinced himself on his understanding of the seized documents that as the seized documents are generally used for transactions of bogus share capital receipt so they are incriminating material for the purpose of search assessment.

 

17. It can be observed from the impugned assessment order that same is marred by use of language which in no manner would suggest that any document was specifically examined in its nature or contents to give the finding that as to how that seized document is ‘incriminating material’. Except for inferences and presumptions, drawn on assessing officer’s own prudence, the conclusion was arrived.

 

18. In this context we note that the assessing officer has drawn an inference on the basis of some shareholders being common with another company to make it ‘evident’ that both the company’s investments bear the same colour and nature. Ld. AO has also half heartedly relied the statement of Sh. Sushen Mohan Gupta recorded under section 132(4), but without actually bringing on record of assessment order as to what was incriminating against the assessee company. The relevant part is reproduced from Page No. 3 and 4 of the assessment order as follows;

 

“Thus, the shareholders/share capital subscribers of M/s Spiral ESystems Private Limited being same as that of M/s American Hotels and Restaurants Pvt. Ltd, it is evident that the share application/ share capital subscription received by M/s Spiral E-Systems Private Limited from these very/same share capital applicants/subscribers bears the same color and nature as that of the share capital subscription received by American Hotels and Restaurants Pvt. Ltd. from these very/same share capital subscribers.”

 

“During the course of search proceedings, the documents found and seized as Annexure A-29 (i.e. pertaining to share capital subscription in M/s Spiral E-Systems Private Limited), were also confronted to Sh. Sushen Mohan Gupta, who in his statement recorded on oath (as aforesaid) on 04.01.2020 had stated that his brother Sh. Sushant Mohan Gupta is aware about these transactions.”

 

18.1 Regarding allegation of common share subscribers, Ld. Counsel of assessee has submitted that only two share subscribers are common l.e. Madhav Fincap Pvt. Ltd. and M/s Ladliji Enterprises Pvt. Ltd. which subscribed the share capital in M/s Spiral E Systems Pvt. Ltd. as well as American Hotels and Restaurants Pvt. Ltd. Thus, it cannot be said that share capital subscription in Spiral E Systems Pvt. Ltd. bears the same colour as that of American Hotels and Restaurant Pvt. Ltd.

 

18.2 It can be observed that infact Sh. Sushen Mohan Gupta in his statement merely stated that his brother, Sushant Mohan Gupta is aware about the share capital subscription of Spiral E Systems Pvt. Ltd and did not make any adverse remark about the share capital subscription of Spiral E System Pvt. Ltd. Besides, none of the statements of Sh. Sushen Mohan Gupta was provided to the assessee company during the course of assessment proceedings before utilizing the same against it. Otherwise too, in Best Infrastructure (India) (P.) Ltd [2017] 397 ITR 82 (Delhi HC), Hon'ble Delhi High Court has held that Statements recorded under section 132(4) do not by themselves constitute incriminating material.

 

19. It can next be observed from the assessment order that the assessee’s submission that seized material as Annexure A-29 are not of incriminating nature and there was no evidence of any cash given for share capital subscription was outrightly discarded by the assessing officer by following observations at the concluding part of page No. 10 and beginning of page No. 11 as follows:-

 

“ As per para 4(a) of the above submissions, the assessee has contended that the documents seized as annexure A-29 are not incriminating in nature and there was no evidence of any cash given for share capital subscription.

 

In this regard, the issue is being elaborately discussed in subsequent paras. However, to give a quietus to the aforesaid contention of the assessee, the very fact that original blank unexecuted share transfer deeds/share transfer forms, original blank power of attorney to sell shares of share capital subscribers signed by their directors were found as part of the seized annexure A-32. If, these are not incriminating, what else is incriminating In the present case, as already and subsequently discussed, there were specific and clear incriminating material which in light of circumstantial evidence and human probability would only render the assessee (lest there is lack of prudence), answerless.

 

As per para 4(b) of the above submissions, the assessee has contended that the documents seized as annexure A-29 contains the confirmations from the shareholders and therefore, the assessee need not give any further confirmations in the matter since all these copies, share capital documents, receipts etc are seized.

 

In this regard, while there is no denial to the fact that the seized annexure A-29 contains the purported documents as aforesaid, yet the fact that neither the assessee could adduce these documents afresh, nor any of the purported share applicant furnished any details wrt notices issued under Section 133(6) of the Act itself proves that these documents were merely a smoke screen and there was a pre-arranged agreement/understanding under which these documents were provided to the assessee company at the time of Availment/receipt of bogus capital. Clearly, neither primary onus has been discharged, nor the assessee could ensure compliance of notices under Section 133(6) of the Act from these so called share applicants despite being specifically asked to do so.

 

Lastly, as per para 4(c) of the above submissions, the assessee has contended that there is no direct evidence of any cash given for share capital subscription.

 

In this regard, I pose a question to myself as to whether a tax evader would ever keep evidence against himself. The fact that under civil law circumstantial evidence is vital alone is sufficient for making an addition. In the present case, even at the cost of repetition, it is stated that shares subscribed at Rs. 382/- per share (out of money received form the tainted share applicants) were sold to a sister concern of the assessee during AY 2016-17 at Rs.10/- per share (i.e. Rupees ten per share).

 

20. This is defended, by the Ld. Spl. Counsel as ‘belief’ of the Ld. AO and which accordingly to Ld. Spl Counsel was not appreciated by the Ld. CIT(A), making impugned order, not sustainable. On this aspect, on going through the assessment order we find that the ld. AO has merely raised questions to himself which as per the ld. Spl Counsel, was the belief of ld. AO, which has not been accepted by ld. CIT(A), however, we are of view that this ‘belief’ of ld. AO was of some consequence and relevant had the ld. AO based it on some finding of fact by discussion of disputed documents. Merely posing questions to oneself without reference to facts does not form a belief. The foundation of belief is acceptance of something which is true or correct. Else it is merely surmises and conjectures which cannot be basis to hold the seized material be incriminating and which fails to pass the rigour of tests for completing a search assessment on basis of incriminating material.

 

21. It can be observed from the impugned assessment order that assessing officer has laid more emphasis on the examination of the reasons for investment, financials of the investor companies, their assets, taxable income etc., for drawing a conclusion that investor companies were shell companies and based upon this conclusion a backward flip is taken to draw an inference that existence of the disputed documents and the possession with the assessee makes these disputed documents ‘incriminating material’ for purpose of section 68 of the Act.

 

22. We are of considered view that it is only after establishing that seized material is incriminating the same can be relied for the purpose of seeking an explanation from an assessee for the purpose of section 68 of the Act. However, here in the case in hand the assessing officer has first examined the veracity of the investment and then concluded that the seized material is incriminating material.

 

23. Thus, whatever submissions the learned spl. counsel for the Department has made bringing forth as to how the disputed documents have in themselves certain contents which make them incriminating material has not at all been examined and brought on record in the assessment order. On the contrary the assessing officer has preferred to complete the search assessment on the basis of principles of preponderance of probabilities and circumstantial evidence. The findings of Ld. AO in that regard on page No. 28 are required to be reproduced below:-

 

…………………..

 

33.5 This establishes that the assessing officer seems to have been driven by a ‘borrowed belief’ arising out of the examination of transactions by the Enforcement Directorate. Nothing was found specifically implicating the Spiral E-Systems Pvt. Ltd. or any investor company or Shri Susant Mohan Gupta. The fundamental principle of assessment being of taxing real income even if under the deeming provisions seems to have been ignored and on a principles of alchemy, all the transactions around Shri Sushen Gupta and M/s American Hotels and Restaurants Pvt. Ltd. were considered tainted.

 

33.6 Accordingly we also find no merit in application dated 18.10.2024, filed under section 254(1) of the Act on 18.10.2024, by the appellant department and same is hereby dismissed.

 

34. We are equally inclined to accept that the seized materials which included the alleged incriminating material were primarily statutory records required to be maintained under the relevant Companies law provisions. These alleged incriminating material were also of the nature which any assessee would have kept as record of past transactions or for future convenience references. Indeed there may be suspicion for having certain documents in the blank form or in pre-mediated arrangement, but in the absence of any material coming forth at the time of seizure showing there was any cash transacted in lieu of share capital receipt, merely on suspicion, an incriminating circumstance could not have been metamorphosed, by the intervention of learned 1st appellate authority.

 

34.1 We observe that ld. Spl. Counsel in written submissions has mentioned that the seized share transfer forms admittedly do not carry any endorsement reflecting the payment of stamp duty. These could not thus have been acted upon by any statutory authority, given the statutory bar under the Indian Stamp Act, 1899and could not thus be the “statutory record” of the assessee or investor companies. Similarly the ld. Spl. Counsel has submitted that to the extent the Affidavit (for instance, at Pg. 34 of Paper Book (Seized Material) Vol-I) is shorn of material particulars, such as Share Certificate No./Distinctive No., etc.,it could not have been used for any statutory proceedings, which demonstrates yet again, the utter perversity of the impugned order passed by the Ld. CIT (A). We are of considered view then how such documents become incriminating. That somehow, only fortifies the findings of ld.CIT(A), as such documents turn out to be a dumb documents, having no legal sanctity on their own.

 

34.2 Here we find substance in the contention of Ld. Counsel of the assessee that the judicial decisions seems to be more in favour of the assessee to hold that Balance Sheets. Profit & Loss account, ITRs and ROC data and blank share transfer forms and Power of Attorney of investor companies cannot be termed as incriminating material. Reliance in this regard as placed by ld. Counsel of assessee on following judgements, bolsters his submissions:-

 

a) M/s Prakash Industries Ltd. bearing ITA nos. I.T.As. No.4039, 4040, 4041, 4042 & 4043/DEL/2017; Delhi bench of ITAT order dated 18.06.2021.

 

b) M/s. Gee Ispat Pvt. Ltd., New Delhi US Acit4256-4259/Del/2014 and M/s Gee Ispat Pvt. Ltd., V ACIT ITA No. 5424.5425.5475.5476/Del/2014

 

c) PCIT v. Sunway Realtech (P.) Ltd. [2022] 142 taxmann.com 477 (Delhi)

 

d) PCIT v. Panchmukhi Management Services Pvt. Ltd. (Delhi IIC)2022] Taxscan (HC) 712

 

e) Sunny Infraprojects Ltd. - ITA No. 502 of

 

f) Index Securities Pvt. Ltd. (86 taxmann.com 84)

 

g) Therapeutic India Pvt. Ltd. (ITA No. 4515/Del/2012

 

h) M/S. Brahamputra Finlease (P) Ltd. V DCIT, ITA No. 3332/Del/2017 59

 

35. There is no substance to allege that the learned CIT (A) proceeded on a predetermined notion to hold there was nothing unusual about the documents. Learned sr. counsel for the Department has vehemently stressed that on the point that on the basis of seized material a belief had formed in the mind of assessing officer, however, when such belief is not exhibited in the form of reasoning such belief is of no consequence and learned 1st appellate authority was justified to hold that merely because of possession these disputed documents will not become incriminating material. The findings of learned 1st appellate authority cannot be said to be on conjectures and surmises rather the same applies to the assessment order as framed. There is no substance in the contention of learned counsel appearing for the Department that the learned 1st appellate authority has proceeded to make out a better case for the assessee and for that reason the impugned order should be held to be erroneous. Rather we are of view that being the 1st appellate authority, ld. CIT(A) was supposed to consider all the pleas of the assessee which were brushed aside by the assessing officer without any sound reasoning, but on his belief alone.”

 

8. Respectfully following the above decision, we are inclined to come to a conclusion that satisfaction note recorded by the AO is vague and not as per the provisions of section 153C of the Act in order to assume the jurisdiction. Further, we observe that ld. DR relied on the decision of K. Krishnamurthy (supra) and we observe that the Hon’ble Supreme Court observed that the material found during the search at any place, whether at the premises of the searched person or third person are all considered to be found in the course of search. This is only to indicate the material found during the search and how it has to be treated. It does not mean that the Assessing Officer can treat the same as incriminating material without following the due process of law as indicated u/s 153A r.w.s. 153C in the case of material found during the search. It is the duty of Assessing Officer to verify the documents found during the search, if it is related to the searched person, he has to record satisfaction even it is found from third person. Similarly if any material found with the searched person relating to other person, he has to forward the same to the Assessing Officer of other person. The Assessing Officer of other person also has to follow the due process of law to record his satisfaction before proceeding to initiate the proceedings. Therefore, the case law relied by the ld. DR is distinguishable. Therefore, we are inclined to allow the additional grounds raised by the assessee.

 

9. We are refrained from adjudicating the other grounds of appeal and at this stage, we keep the other grounds of appeal open.

 

10. In the result, the appeal filed by the assessee is partly allowed.

 

Order pronounced in the open court on this 15th day of October, 2025.

 

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