Assessments under the Income Tax Act cannot be validly made without incriminating material from the assessee's own search, and violations of natural justice, such as lack of cross-examination, render such assessments void.

Headnote:(A) Income Tax Act, 1961 - Sections 132, 153A, 153C - Jurisdictional issues in assessment proceedings based on search action - The court found that the assessment orders were framed without jurisdiction as they relied on materials from a third party's search, violating Section 153C. The absence of incriminating material from the assessee's own search rendered the assessment invalid. (Paras 1.2, 2, 10, 17)

(B) Natural Justice - The court emphasized that the lack of opportunity for cross-examination of witnesses constitutes a violation of natural justice, rendering the assessment order null and void. (Paras 14, 15)

(C) Judicial Precedent - The court noted that previous judgments established that no assessment could be made without incriminating material found during the search, reaffirming the principle of consistency in judicial decisions. (Paras 16, 17)

Facts of the case:
The assessee filed income tax returns for AY 2010-11 and 2011-12, which were subsequently reassessed based on search actions against third parties. The assessments were based on statements recorded during these searches, which the assessee contested as lacking direct incriminating evidence against them. (Paras 1, 2)

Findings of Court:
The court quashed the assessment orders due to the lack of incriminating material from the assessee's searches and the violation of natural justice principles. (Paras 17, 18)

Issues: The main issues involved the legality of assessments based on third-party statements and the violation of the right to cross-examine witnesses. (Paras 8, 10)

Ratio Decidendi: The court ruled that assessments based solely on third-party statements without corroborating evidence are invalid and that the right to cross-examine is fundamental to fair proceedings. (Paras 14, 15)

Result: Both appeals are allowed, and the assessment proceedings are quashed.

ORDER

PER SUDHIR PAREEK, JM:

Aforetitled two appeals are preferred by the Assessee against the order dated 22.10.2018 passed by the Commissioner of Income Tax (Appeals)-29, New Delhi, (hereinafter referred to as ‘Ld. CIT(A)’), for the Assessment Years (‘AY’) 2010-11 and 2011-12 . Since both these appeals are heard together and are being disposed of through this consolidated order for the sake of convenience and brevity.

1.2 The assessee has also raised the revised (abridged) Grounds in both appeals, which are read as under:

“1. Jurisdictional ground. That both the assessment orders of Ld AO and first appellate order of Id CIT-A are bad in law as entire asst, is framed without authority of law and ultra vires to provisions of the 1961 Act (income tax act, 1961) being without jurisdiction as it is mainly/chiefly based on stated material as emanating from search action w/s 132 on "other person", so it is framed in violation of mandate of special and specific provision of section 153C of 1961 Act,

2. No incriminating material unearthed from assessee's own search action u/s 132: That both the assessment orders of Ld AO and first appellate order of Id CIT-A are bad in law as entire asst. is framed u/s 153A, without any requisite "incriminating material" being unearthed from assessee's own search u/s 132 of 1961 Act for subject unabated year without which entire assessment order is invalid;

3. Total Violation of principle natural justice: That both the assessment orders of Ld AO and first appellate order of Id CIT-A are bad in law as entire asst. is framed in total violation of principle of natural justice for non-confrontation of relied upon material (statements etc) and lack of cross examination being offered to assessee as pleaded at asst. and first appeal stage.

4. Wrongful sustenance by ld CIT-A of impugned additions as made in impugned asst.: That both the assessment orders of Ld AO and first appellate order of Id CIT-A are bad in law in so far as impugned additions made /sustained are concerned same being based on invalid and perverse reasoning and without considering the detailed submissions and evidences placed from side of assessee;

5. Invalid approval u/s 153D: That both the assessment orders of Ld AO and first appellate order of Id CIT-A are bad in law being based on invalid approval u/s 153D of 1961 Act.

6. Non application of mind: That both the assessment orders of Ld AO and first appellate order of Id CIT-A are bad in law being passed without application of mind to material available on record.”

2. Brief facts of the case are that the assessee filed original return of income u/s 139(1) of the IT Act, 1961, on 14.09.2011 declaring income of Rs. 18,93,140/- and the same was processed u/s 143(1) of the IT Act, 1961. A search and seizure operation u/s 132 of the Income Tax Act, 1961 was carried out on Sh. Sajan Kumar Jain & Sh. Pradeep Kumar Jindal Group of cases including the assessee on 18.11.2015. Consequently notice u/s 153A of the Act was issued on 22.09.2017 asking assessee to file return within 15 days of receipt of the notice. The assessee filed return of Income U/s 153A of the Act on 09.10.2017 declaring income of Rs. 18,93,140/-. Thereafter notice u/s 143(2) and 142(1) along with questionnaire were also issued on 16.10.2017.

2.1 The director of the assessee company, Sh. Sajan Kumar Jain including his family members & Sajan Kumar Jain group of companies were show caused as to why their share premium/share capital/share forfeiture/ Long Term Capital Gain/Loss should not be treated as bogus as these entries were obtained through front companies which are controlled managed and run by Sh. Pradeep Kumar Jindal. On completion of said assessment proceedings, the Ld. AO computed the total income of assessee computed for AY 2010-11 Rs. 2,41,24,893/- and for the AY 2011-12 Rs. 2,41,31,432/- vide order dated 29.12.2017.

3. Aggrieved by the above order, assessee /appellant filed appeal, which was partly allowed by the Ld. CIT(A) vide

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2025 Supreme(Online)(ITAT) 2497

Assessments under the Income Tax Act cannot be validly made without incriminating material from the assessee's own search, and violations of natural justice, such as lack of cross-examination, render such assessments void.

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