FLINT POWER TOOLS(P) LTD,GURUGRAM V. ACIT,CENTRAL, CIRCLE-1, FARIDABAD

ITA 2425/DEL/2025

AI Insights

The case involves Flint Power Tools (P) Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals) that upheld the disallowance of Rs. 17,50,000 paid as salary to its director, Smt. Sonia Singla. The disallowance was initially made by the Assessing Officer under section 143(3) of the Income Tax Act, 1961, based on a statement that was later found to be incorrectly attributed to another individual, Smt. Priti Singla. The Tribunal, referencing a similar case, found that the disallowance was not supported by any substantive evidence and thus allowed the appeal, deleting the disallowance.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 790221 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 11-04-2025
• Other Referred Cases: L. S. Tools Pvt. Ltd. Vs. ACIT in ITA No.5643/Del/2024
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: POOJA SWAROOP
• Assessee Lawyers: LALIT MOHAN; ANKIT KUMAR
• Keywords: Retraction; Search and seizure; Block assessment
• Section: 143(3); 68

Judgement Text

"1 ITA Nos. 2425/Del/2025 Flint Power Tools (P) Ltd Vs.ACIT IN THE INCOME TAX APPELLATE TRIBUNAL DELHI (DELHI BENCH ‘B’ NEW DELHI) BEFORE YOGESH KUMAR U.S., JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No. 2425/DEL/2025 (A.Y. 2021-22) M/s Flint Power Tools (P) Ltd. B-4, Sushant Lok Phase-1 Gurugram, Haryana, India- 122009 PAN: AADCN0078K Vs Assistant Commissioner of Income Tax, Central Circle- Faridabad 1, Appellant Respondent Assessee by Sh. Lalit Mohan, CA & Sh. Ankit Kumar, Adv Revenue by Ms. Pooja Swaroop, CIT (DR) Date of Hearing 17/11/2025 Date of Pronouncement 26/11/2025 ORDER PER YOGESH KUMAR, U.S. JM: The captioned appeal is filed by the Assessee against the order of Commissioner of Income Tax (Appeals)-, 3 Gurgaon [‘Ld. CIT(A)’ for short] dated 24/02/2025 pertaining to Assessment Year 2021-22. 2. Brief facts of the case are that, an assessment order came to be passed u/s 143(3) of the Income Tax Act, 1961 ('Act' for short) on 28/12/2022, wherein the Ld. A.O. disallowed Rs. 17,50,000/- u/s 40A(2)(b) of the Act paid by the Assessee company to its Director Smt. Sonia Singla. Aggrieved by the order dated 28/12/2022, Assessee preferred an Appeal before the Ld. CIT(A). The Ld. CIT(A) vide order dated 24/02/2025, dismissed the Appeal of the Assessee. Printed from counselvise.com 2 ITA Nos. 2425/Del/2025 Flint Power Tools (P) Ltd Vs.ACIT 3. The Ground No. 1 is general in nature which requires no adjudication. The Assessee has not pressed Ground No. 2 to 4, accordingly Ground No. 2 to 4 are dismissed as not pressed. 4. The Ld. Assessee's Representative arguing on Ground No. 5 submitted that the Ld. CIT(A) erred in both law and facts in upholding the disallowance of Rs. 17,50,000/- which being salary paid to the Director Smt. Sonia Singla. The Ld. Assessee's Representative further submitted that the A.O. by relying on the statement of one Ms. Priti Singla, disallowed the salary paid to Smt. Sonia Singla. Further submitted that, there is no material except the statement reproduced in the assessment order. Further relying on the order of the Tribunal dated 30/10/2025in an identical case in ITA No. 5643/Del/2024 in the case of L. S. Tools Pvt. Ltd., sought for allowing the Appeal. 5. Per contra, the Ld. Departmental Representative contended that the addition has been made on the basis of the statement given by Smt. Sonia Singla u/s 132(4) of the Act who has admitted that the salary received was without necessary qualification and experience and any active involvement in the functioning of concerned entity of which she claimed to be an employee, therefore, sought for dismissal of the Appeal of the Assessee. Printed from counselvise.com 3 ITA Nos. 2425/Del/2025 Flint Power Tools (P) Ltd Vs.ACIT 6. We have heard both the parties and perused the material available on record. The only basis for making the addition by the A.O. is the statement of the Director, the A.O. reproduced the statement at Page No. 3 of the assessment order claiming to be the statement of ‘Smt. Sonia Singla’, however, it is found that the said statement reproduced by the A.O. is the statement of ‘Smt. PritiSingla’, which is nothing to do with the Assessee. The said action of the A.O. cannot justify the disallowance so made. 7. Apart from the same, in an identical case, the Co-ordinate Bench of the Tribunal in the case of L. S. Tool Pvt. Ltd. Vs. ACIT in ITA No.5643/Del/2024 held as under:- “26. Considered the rival submissions and material placed on record. In regard to first issue which is common to both the years before us, we observe that PritiSingla is a Director in the assessee company and received salary from AY 2017-18 onwards as under :- S No. F.Y Salary received Commission received From concerned entity 1 2021-22 28,00,000 ------- LSL Tools Pvt. Ltd. 2 2020-21 44,10,000 ------- LSL Tools Pvt. Ltd. 3 2019-20 61,10,000 ------- LSL Tools Pvt. Ltd. 4 2018-19 26,00,000 -------- LSL Tools Pvt. Ltd. 5 2017-18 39,10,1000 ------- LSL Tools Pvt. Ltd. 6 2016-17 --- --------- ------- 7 2015-16 --- -------- ------- 26.1 It is also brought to our notice that in proceedings u/s 148A of the Act were initiated and subsequently dropped with previous approval of ld. PCIT, Delhi 4. The same is placed at paper book. Therefore, as per the record produced before us, PritiSingla is in receipt of salary regularly from the assessee company. However, a search was conducted on the premises of the assessee and a Printed from counselvise.com 4 ITA Nos. 2425/Del/2025 Flint Power Tools (P) Ltd Vs.ACIT statement was recorded u/s 132(4) of the Act in which PritiSingla has recorded her statement under oath and in her statement recorded on 10.11.2021 wherein at question no.7, she was asked to explain the role and designation and justify a salary received by her. In response, she answered that, “I do not have any specific role in M/s. LSL Tools Pvt Ltd. neither do I own anything regarding functioning of the company nor have I ever participated in the operation. The salary received from the company is for my expenses.” We further observe that ld. AR submitted that since there was no material found during the search, the statement recorded u/s 132(4) has no relevance and the same cannot be applied to make addition in search proceedings. After considering the findings of the lower authorities and detailed submissions of the assessee, we observe that the proceedings initiated u/s 148A and subsequently drop of the proceedings u/s 148A cannot be said to be irrelevant but where law requires principles of consistency to be maintained in tax matters then such conclusions drawn in quasi judicial proceedings after due application of mind, in previous years, then same cannot be disturbed on the basis of any statement recorded u/s 132(4) of the Act, being uncorroborated by any substantive evidences. At the same time we find that retracting her statement PritiSingla she has filed an affidavit subsequently on 23.11.2022 that she is a Director, is a graduate in commerce, she is graduate in computer application and was involved in various activities of the company including personnel management, administrative matters, assistance to other directors in carrying out various functions etc. Copies of Emails sent and received by Smt. PritiSingla as director of appellant company on behalf of company were provided in response to notice /s 142(2) of the Act. It is a case of oath against oath so that certainly needs some cogent material to hold that statement u/s 132(4) of the Act is more trustworthy. This view is supported by Hon’ble High Court decision in the case of PCIT (Central)-3 vs. PavitraRealcon Pvt. Ltd. reported in 340 CTR 225, wherein Hon’ble Court has held as under: “19. Undisputedly, during the period of search, no incriminating material appears to have been found. However, the Revenue proceeded to issue notice under Section 143(2) of the Act on the pretext of the statements of the Directors of the respondent-assessee companies recorded under Section 132(4) of the Act and material seized from the search conducted on Jain group of companies. The assessment order was also passed under Section 143(3) read with Section 153C of the Act making additions under Section 68 of the Act. 20. However, it is an undisputed fact that the statement recorded under Section 132(4) of the Act has better evidentiary value but it is also a settled position of law that Printed from counselvise.com 5 ITA Nos. 2425/Del/2025 Flint Power Tools (P) Ltd Vs.ACIT addition cannot be sustained merely on the basis of the statement. There has to be some material corroborating the content of the statements. 21. In the case of KailashbenManharlalChokshi v. CIT, the Gujarat High Court held that the additions could not be made only on the basis of admissions made by the assessee, in the absence of any corroborative material. The relevant paragraph no. 26 of the said decision has been reproduced herein below: - 26. In view of what has been stated hereinabove we are of the view that this explanation seems to be more convincing, has not been considered by the authorities below and additions were made and/or confirmed merely on the basis of statement recorded under section 132(4) of the Act. Despite the fact that the said statement was later on retracted no evidence has been led by the Revenue authority. We are, therefore, of the view that merely on the basis of admission the assessee could not have been subjected to such additions unless and until, some corroborative evidence is found in support of such admission. We are also of the view that from the statement recorded at such odd hours cannot be considered to be a voluntary statement, if it is subsequently retracted and necessary evidence is led contrary to such admission. Hence, there is no reason not to disbelieve the retraction made by the Assessing Officer and explanation duly supported by the evidence. We are, therefore, of the view that the Tribunal was not justified in making addition of Rs. 6 lakhs on the basis of statement recorded by the Assessing Officer under section 132(4) of the Act. The Tribunal has com mitted an error in ignoring the retraction made by the assessee. [Emphasis supplied] 22. Further, the position with respect to whether a statement recorded under Section 132(4) of the Act could be a standalone basis for making assessment was clarified by this Court in the case of CIT v. Harjeev Aggarwal, wherein, it was held that merely because an admission has been made by the assessee during the search operation, the same could not be used to make additions in the absence of any evidence to corroborate the same. The relevant paragraph of the said decision is extracted herein below:- “20. In our view, a plain reading of section 158BB(1) of the Act does not contemplate computing of undisclosed income solely on the basis of a statement recorded during the search. The words \"evidence found as a result of search\" would not take within its sweep statements recorded during search and seizure operations. However, the statements recorded would certainly constitute information and if such information is relatable to the Printed from counselvise.com 6 ITA Nos. 2425/Del/2025 Flint Power Tools (P) Ltd Vs.ACIT evidence or material found during search, the same could certainly be used in evidence in any proceedings under the Act as expressly mandated by virtue of the Explanation to section 132(4) of the Act. However, such statements on a stand alone basis without reference to any other material discovered during search and seizure operations would not empower the Assessing Officer to make a block assessment merely because any admission was made by the assessee during search operation. [Emphasis supplied] 23. In our opinion, the Act does not contemplate computing of undisclosed income solely on the basis of statements made during a search. However, these statements do constitute information, and if they relate to the evidence or material found during the search, they can be used in proceedings under the Act, as specified under Section 132(4) of the Act. Nonetheless, such statements alone, without any other material discovered during the search which would corroborate said statements, do not grant the AO the authority to make an assessment.” 26.2 Further Hon’ble High Court of Delhi in the case of Pr. CIT v. M/s Moon Beverages Ltd. in ITA 645/2019 (Del) dated 23.9.2024has held as under: “ 10. It is thus found on facts that the additions which were made by the Assessing Officer were not based on any incriminating material unearthed in the course of the search and rested solely on the statement that had been recorded under Section 132(4) of the Act. 11. We note that the significance of a solitary statement and whether that would be sufficient to sustain an addition being made absent any incriminating material was one which had directly fallen for our consideration in Principal Commissioner of Income Tax (Central)-3 vs. PavitraRealcon Pvt. Ltd. 12. We had in PavitraRealcon while answering the aforesaid questions observed as follows:- …. 13. We find that the Tribunal has on facts found that but for the statement, no other material had been borne in consideration to sustain the additions which were made. This becomes further apparent from a reading of the following observations which appear in para 37 of the order impugned herein: “37. We further find from the order of the ld. CIT(A) that there was no surrender of income for the impugned assessment Printed from counselvise.com 7 ITA Nos. 2425/Del/2025 Flint Power Tools (P) Ltd Vs.ACIT year and the surrender was only for the assessment year 2008-09 which too was retracted within two months. He has also observed that the statement was non descriptive and vague and subject to cross checking of fact to be explained after access to books of accounts. We, therefore, find merit in the submissions of the ld. counsel for the assessee that the addition made by the Assessing Officer u/s 68 of the I.T. Act is not based on any incriminating material and is based on statements recorded during search u/s 132( 4) and post- search enquiries.” 14. On an overall conspectus of the above, the Tribunal has ultimately found that the addition which rested solely on a statement recorded under Section 132(4) would not sustain.” 27. Then, we find that once Smt. PritiSingla has included the director’s remuneration in her return of income for year under consideration and it is evident from comparative chart placed at page 152 of Paper Book that in situation when remuneration is paid to her, tax burden is higher in comparison to tax saving in the hands of appellant company by making deduction of director’s remuneration, then the allegation of department of making fictitious payments to reduce liability looses ground. Infact there is no loss to revenue, on the contrary there is higher tax collection. Making it a revenue neutral situation. Thus relevant ground to this issue in both the AY stand sustained.” 8. In view of the above discussion, by respectfully following the order of the Tribunal, in the case of L. S. Tools Pvt. Ltd. (supra), we allow the Grounds of Appeal and delete the disallowance made by the A.O. which has been confirmed by the Ld. CIT(A). 9. In the result, Appeal of the Assessee is allowed. Order pronounced in the open court on 26th November, 2025 Sd/- Sd/- (MANISH AGARWAL) (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER JUDICIAL MEMBER Date:- 26 .11.2025 R.N, Sr.P.S* Printed from counselvise.com 8 ITA Nos. 2425/Del/2025 Flint Power Tools (P) Ltd Vs.ACIT Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI Printed from counselvise.com "