Isabella Mariam

The Gauhati High Court has dismissed an appeal filed by the Principal Commissioner of Income Tax, holding that the invocation of Section 153A of the Income Tax Act, 1961, in the absence of incriminating material, was not legally sustainable. The Division Bench comprising Chief Justice Vijay Bishnoi and Justice Kaushik Goswami stated that "the present appeal does not involve any substantial question of law and therefore, the same is dismissed, being devoid of merit." The court examined the findings of the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT), both of which had concluded that the addition of ₹4,23,30,000 to the respondent's assessed income was based solely on a retracted statement without corroborating material evidence.

The case arose from an appeal against an order dated April 7, 2022, passed by the Income Tax Appellate Tribunal (ITAT), Guwahati Bench, concerning the assessment year 2014-15. The respondent, Rohit Karan Jain, had originally filed his income tax return under Section 139(1) of the Income Tax Act on July 31, 2014, declaring an income of ₹2,00,080. However, a search and seizure operation under Section 132 of the Act was conducted at the respondent’s premises on June 2, 2016, followed by another search on July 11, 2016. Based on the search results, the case was selected for scrutiny under Section 153A, and the respondent was issued a notice requiring the filing of a fresh return.

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The respondent filed a return in compliance with the notice, and an assessment order dated December 31, 2018, was issued, determining the respondent’s total income at ₹4,25,30,080. The assessing officer based this addition primarily on a statement recorded under Section 132(4) of the Act from the chairman of CMJ Group, who admitted to routing unaccounted cash through fictitious long-term capital gains (LTCG). The chairman disclosed ₹14,21,00,000 in alleged pre-arranged capital gains in the hands of various family members, including the respondent.

The assessing officer observed that the respondent had not incorporated ₹4,23,30,000 of this amount in his income tax return. A show cause notice was issued on November 5, 2018, requiring the respondent to explain why this amount should not be added to his total income. The respondent submitted a retraction petition on December 7, 2018, stating that the original disclosure had been made under coercion. The assessing officer rejected the retraction, stating that "the assessee has not been able to produce any evidence, documentary or circumstantial, in support of the averment of coercion, threat, etc." The assessing officer then proceeded with the addition under Section 68 of the Income Tax Act.

The respondent challenged the assessment order before the Commissioner of Income Tax (Appeals), raising sixteen grounds of appeal. The Commissioner, in an order dated April 8, 2019, held that the invocation of Section 153A was not justified in the absence of incriminating material. The order recorded that "the present legal position is that, in an assessment under Section 153A, in absence of any 'incriminating material,' the completed assessment has to be reiterated." The Commissioner further stated that "even if documents are available pertaining to the assessment year in question, they must satisfy the requirement that 'there must be incriminating material' and not merely some material."

The Commissioner concluded that no addition could be made without such material, observing that "the assessing officer has not been able to refer to any material, much less any incriminating material, as would even remotely indicate that there was any documentary evidence in the possession of the revenue, other than the department’s own database or the confessional statement of the father of the appellant."

The Income Tax Department subsequently appealed to the ITAT, which upheld the Commissioner’s findings. The ITAT recorded that "only on the basis of retracted statements, the assessing officer has made the addition. From a perusal of the assessment order, it is noted that there is no other incriminating material seized during search." The Tribunal further observed that "other than the retracted statement, no other evidence/material was relied upon by the assessing officer to make the addition."

Citing precedents, including the Delhi High Court's judgment in Pr. CIT, Delhi-2 v. Best Infrastructure (India) P. Ltd., the Tribunal stated that "on the sole basis of the statement of the assessee when retracted subsequently, no addition should be made unless there is any material to support the addition." The Tribunal concluded that "in the absence of any incriminating material against the assessee in respect of the share transaction in question, no addition could have been made."

The Revenue then filed an appeal before the Gauhati High Court, contending that the assessing officer had invoked Section 153A based on incriminating material. The appellants argued that the Commissioner and the ITAT had erred in holding that no such material was available. The respondent countered that the assessment was completed before the search and that no incriminating material had been found to justify the reassessment under Section 153A.

The Gauhati High Court, after examining the material on record, concluded that the Commissioner of Income Tax (Appeals) and ITAT had correctly found that "other than the retracted statement, no other evidence/material was relied upon by the assessing officer to invoke the addition." The court observed that "the said piece of evidence, i.e., retracted statement, cannot be termed as incriminating material."

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The court noted that the Supreme Court, in Principal Commissioner of Income Tax, Central 3 v. Abhisar Buildwell (P) Ltd., had affirmed the position that "no addition can be made in respect of completed assessments in the absence of any incriminating material." The judgment also referred to the decisions in Principal Commissioner of Income Tax v. Saroj Sudhir Kothari and Principal Commissioner of Income Tax (Central) 2 v. Jay Ambey Aromatics, which held that a completed assessment could not be reopened under Section 153A unless incriminating material was found.

In light of these findings, the court held that "the present appeal does not involve any substantial question of law and therefore, the same is dismissed, being devoid of merit."

Advocates Representing the Parties

For the Appellants: Mr. S.C. Keyal, Advocate

For the Respondents: Ms. P. Jain, Mr. H. Betala,, Ms. P.K. Khakolia, Advocates

Case Title: The Principal Commissioner of Income Tax & Anr. v. Rohit Karan Jain
Neutral Citation: 2025:GAU-AS:2649-DB
Case Number: ITA/5/2023
Bench: Chief Justice Vijay Bishnoi, Justice Kaushik Goswami

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