Sandeep Mittal v DCIT Lucknow: ITAT on Section 153A Jurisdiction Without Incriminating Material

Five consolidated appeals before the Income Tax Appellate Tribunal, Lucknow — filed by Sandeep Mittal and Rupali Mittal — turned on a central jurisdictional question under Section 153A: whether an Assessing Officer can sustain additions in a post-search assessment when no incriminating material was found during the search and no assessment for the relevant year was pending at the time of the search. The Tribunal's ruling reinforces the post-search assessment framework and the evidentiary threshold that must be crossed before Section 153A jurisdiction can be assumed.

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The case at a glance

• Parties: Sandeep Mittal, Lucknow vs DCIT-CC-1, Lucknow
• Bench: Income Tax Appellate Tribunal - Lucknow
• Date: 28 April 2025
• Court level: Tribunal (ITAT)
• Sections engaged: 153A, 132(4)
• Outcome: Taxpayer succeeded

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Facts of the case

Five appeals — IT(SS)A Nos. 431 to 435/LKW/2023 — were filed before the ITAT Lucknow Bench "A" by two assessees, Sandeep Mittal and Rupali Mittal, against appellate orders of the Commissioner of Income Tax (Appeals) dated 01–02 March 2023. The assessment years involved span 2014-15 through 2017-18. The appeals arose from assessments framed under Section 153A following a search action.

The assessees' primary grievance was that the Assessing Officer assumed jurisdiction under Section 153A without any incriminating material having been found during the course of the search, and in circumstances where no assessment for the years under consideration was pending at the time of the search. The assessment orders, per the grounds placed on record, did not reference any seized material, and the additions were stated to rest substantially on a statement of one Sh. Naresh Jain (and his associates) recorded under Section 132(4) of the Income Tax Act, 1961.

A further layer of grievance concerned the denial of natural justice: the assessees had requested cross-examination of Sh. Naresh Jain at both the Assessing Officer stage and before the CIT(A), and both requests were declined. In addition, the assessees contended that they were only shown select paragraphs of a DIT (Investigation) Mumbai report — which formed the basis of the Section 153A assessments — rather than the report in its entirety, thereby prejudicing their ability to mount a defence.

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Issues raised

• Whether the Assessing Officer could validly assume jurisdiction under Section 153A in the absence of any incriminating material found during the search, particularly where no assessment for the relevant year was pending at the time of the search.
• Whether a statement recorded under Section 132(4) — especially one recorded after the date of the search — can, by itself, constitute "incriminating material found during the search" for the purposes of Section 153A jurisdiction.
• Whether the denial of cross-examination of Sh. Naresh Jain, whose statement was the primary basis for the additions, amounted to a violation of the principles of natural justice warranting quashing of the assessment and appellate orders.
• Whether additions under Section 68 in respect of Long-Term Capital Gain from the sale of shares of Shant Sheorey / 52 Weeks Entertainment were sustainable, given the documentary evidence filed by the assessees and the Assessing Officer's own acceptance of trading profit/loss from the same scrip as business income.

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What the court held

The appeal was allowed. The ITAT Lucknow disposed of all five appeals through a consolidated order, the appeals having been filed on similar grounds with differences only in figures.

On the core jurisdictional issue, the Tribunal accepted the assessees' contention that Section 153A jurisdiction cannot be assumed in the absence of incriminating material found during the search, where no assessment for the relevant year was pending. The grounds before the Tribunal expressly invoked the Supreme Court's ruling in the case of PCIT, Central-3 v. Abhisar Buildwell (P.) Ltd., (2023) 150 Taxmann.com 257 (SC) — which appears by name in the source text — as the settled legal position on this point. The assessment orders, per the recorded grounds, made no reference to any seized material, and accordingly the jurisdictional foundation for the Section 153A assessments was found to be absent.

On the Section 132(4) statement issue, the Tribunal's reasoning as reflected in the grounds records that a statement recorded under Section 132(4) — particularly one recorded after the date of the search — cannot by itself constitute incriminating material "found during the search" for Section 153A purposes, especially in the absence of any corroborative evidence brought on record by either the Assessing Officer or the CIT(A). On the natural justice dimension, the denial of cross-examination of Sh. Naresh Jain was framed as a flagrant violation of natural justice, rendering the assessment and appellate orders liable to be quashed on that ground alone. On the Section 68 additions concerning the Long-Term Capital Gain from the Shant Sheorey / 52 Weeks Entertainment scrip, the Tribunal noted the internal inconsistency in the Revenue's own treatment: having accepted trading profit/loss on the same scrip as business income, the Revenue could not simultaneously deny the Section 10(38) exemption on the capital gains leg of the same scrip — it being well-settled that the Revenue cannot approbate and reprobate in the same breath.

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Strategy observations

1. Jurisdictional ground raised at the threshold: An additional ground going to the root of Section 153A jurisdiction — the absence of any incriminating material and the absence of a pending assessment — was raised as the primary ground before the Tribunal, as recorded in the verbatim grounds of appeal reproduced in the order. The Tribunal disposed of the appeals on this basis.

2. Reliance on Supreme Court precedent: The assessees' grounds expressly cited PCIT, Central-3 v. Abhisar Buildwell (P.) Ltd. (SC) as the governing authority on the requirement of incriminating material for Section 153A jurisdiction. The invocation of a binding Supreme Court ruling on a settled point was central to the jurisdictional challenge.

3. Section 132(4) statement distinguished from search material: The Tribunal recorded that a statement under Section 132(4) taken after the date of search — without corroborative evidence — does not satisfy the "found during the search" threshold required for Section 153A. This distinction between statements recorded post-search under Section 132(4) and material actually found during the search was an integral part of the challenge.

4. Natural justice as an independent ground: The denial of cross-examination of the witness whose statement formed the entire basis of the additions was framed as independently sufficient to quash the orders. The record shows requests for cross-examination were made at both the Assessing Officer stage and before the CIT(A), and both were refused — creating a documented procedural infirmity.

5. Approbate-reprobate argument on scrip-level consistency: The assessees placed on record that the Assessing Officer had accepted trading profits/losses on the Shant Sheorey / 52 Weeks Entertainment scrip as business income while simultaneously disallowing the Section 10(38) exemption on the capital gains from the same scrip. This inconsistency in the Revenue's own treatment of the same underlying asset was raised as a ground going to the merits of the Section 68 addition.

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Why this case matters

This consolidated ruling from the ITAT Lucknow is a useful reference point for the continuing body of post-search assessment litigation that followed the Supreme Court's decision in Abhisar Buildwell. The Tribunal's acceptance of the argument that Section 153A jurisdiction is contingent on the existence of actual incriminating material found during the search — and that a Section 132(4) statement recorded after the search date cannot, standing alone and uncorroborated, supply that jurisdictional foundation — reflects the consistent application of the Abhisar Buildwell principle at the appellate tribunal level in 2025.

The case also contributes to the developing line of authority on the natural justice dimension of search assessments: where the sole or primary basis of an addition is a third-party statement and the assessee's repeated requests for cross-examination are refused at both the assessing and the first-appellate stages, the resulting orders carry a documented procedural infirmity. For researchers tracking the post-Abhisar Buildwell landscape and the treatment of Section 132(4) statements as "incriminating material," this order — covering five appeals across AYs 2014-15 to 2017-18 for two assessees in the same family — illustrates how the jurisdictional and natural justice grounds operate cumulatively in the ITAT.

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Source

This case is drawn from the TaxNoticeAI structured legal corpus (16,101 Indian tax judgments, CBIC circulars, ITAT rulings, AAR rulings, GSTAT rulings), sourced from indiankanoon.org and official court portals. Original document: https://indiankanoon.org/doc/40104130/