Income Tax Appellate Tribunal - Indore
Shri Mukesh Kumar Jain, Indore vs Acit (Central)-1, Indore on 10 June, 2024
आयकर अपीलीय अिधकरण, इं दौर ायपीठ, इं दौर
IN THE INCOME TAX APPELLATE TRIBUNAL
INDORE BENCH, INDORE
BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER
AND
SHRI B.M. BIYANI, ACCOUNTANT MEMBER
IT(SS)A. Nos.62 & 63/Ind/2021
(AYs: 2016-17 & 2017-18)
ACIT(Central)-I, बनाम/ Shri Naveen Kumar Jain,
Indore. Vs. Prop. M/s. Bollywood
Collection,
29, Shiv Vilas Palace,
Rajwada, Indore
(PAN:ADSPJ6528M)
(Revenue/Appellant) (Assessee/Respondent)
Cross-Objection Nos. 38 & 39/Ind/2021
(Arising out of IT(SS)A. Nos.62 & 63/Ind/2021)
(AYs: 2016-17 & 2017-18)
Shri Naveen Kumar Jain, बनाम/ ACIT(Central)-I,
Prop. M/s. Bollywood Vs. Indore.
Collection,
29, Shiv Vilas Palace,
Rajwada, Indore
(PAN:ADSPJ6528M)
(Assessee/Cross-Objector) (Revenue/Respondent)
IT(SS)A. No.64/Ind/2021
(AY: 2016-17)
ACIT(Central)-I, बनाम/ Shri Mukesh Kumar Jain,
Indore. Vs. Pro. M/s. Mukesh Proteins,
Shop No. 6,
Gurunanak Market,
Mechanic Nagar, Indore.
(PAN: ACQPJ2797K)
(Revenue/Appellant) (Assessee/Respondent)
Cross-Objection No. 37/Ind/2021
(Arising out of IT(SS)A. No.64/Ind/2021)
(AY: 2016-17)
Shri Mukesh Kumar Jain, बनाम/ ACIT(Central)-I,
Pro. M/s. Mukesh Proteins, Vs. Indore.
Shop No. 6,
Gurunanak Market,
Mechanic Nagar, Indore.
(PAN: ACQPJ2797K)
(Assessee/Cross-Objector) (Revenue/Respondent)
Page 1 of 103
Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 IT(SS)A. No.65/Ind/2021 (AY: 2016-17) ACIT(Central)-I, बनाम/ Shri Sunil Kumar Jain, Indore. Vs. Prop. M/s Avani Proteins, Flat No. 1, Rasawa Gram, Chatribagh, Indore.
(PAN:ACWPJ3598E)
(Revenue/Appellant) (Assessee/Respondent)
Cross-Objection No. 36/Ind/2021
(Arising out of IT(SS)A. No.65/Ind/2021)
(AY: 2016-17)
Shri Sunil Kumar Jain, बनाम/ ACIT(Central)-I,
Prop. M/s Avani Proteins, Vs. Indore.
Flat No. 1,
Rasawa Gram, Chatribagh,
Indore.
(PAN:ACWPJ3598E)
(Assessee/Cross-Objector) (Revenue/Respondent)
Assessee by Shri Rakesh Gupta, Shri Somil Agrawal, Shri
Durgesh Khandelwal, Shri Harsh Vijaywargiya, CAs
Revenue by Shri Ram Kumar Yadav, CIT DR
Date of Hearing 14.05.2024
Date of Pronouncement 10.06.2024
आदे श / O R D E R
Per Bench:
This bunch of eight matters (four appeals and four cross-objections) in the matters of three different assessees arise from three separate appeal-orders dated 02.09.2020, 18.09.2020 and 11.09.2020 passed by Commissioner of Income-tax (Appeal)-3, Bhopal ["CIT(A)"], which in turn arise out of three separate assessment-orders all dated 29.12.2018 passed by ACIT, Central-1, Indore ["AO"] u/s 153A/143(3) of the Income-tax Act, 1961 ["the Act"] for Page 2 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 assessment-year ["AY"] 2016-17 / 2017-18. All appeals have been filed by revenue and cross-objections have been filed by assessee.
2. The background facts leading to these matters are such that a search u/s 132 was conducted on 12.07.2016 upon one 'Jain & Dixit Group' including three assessees viz. 'Shri Naveen Kumar Jain', 'Shri Mukesh Kumar Jain' and 'Shri Sunil Kumar Jain' who are brothers. Pursuant to search, the assessments of preceding six years and search-year (AYs 2011- 12 to 2017-18) were framed u/s 153A/143(3) and the AO passed assessment-orders after making certain additions. Presently, we are concerned with AY 2016-17 / 2017-18 in these cases. Aggrieved by assessment-orders, the assessee carried matters in their respective appeals before CIT(A) and succeeded partly. Now, both sides are aggrieved by the orders of CIT(A), accordingly the revenue has come in appeals and the assessee has come in cross-objections for redressal of their respective grievances.
3. Since all matters originate from a common search conducted by department u/s 132 of the Act and involve identical/inter-related issues, they were heard together and being disposed of by this consolidated order for the sake of brevity, convenience and clarity. For smoothness, we would adjudicate these matters under three categories in the names of respective assessees.
Page 3 of 103Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 (A) Shri Naveen Kumar Jain Assessee's C.O. No. 38 & 39/Ind/2021 - AY 2016-17 & 2017-18:
4. Since the assessee's twin cross-objections raise a legal issue which goes to the root of the proceedings and calls into question the validity of assessment-order passed by AO, we first take up cross-objections for adjudication. The grounds raised in both cross-objections are identical.
Although the assessee has raised as many as six grounds, the Ld. AR confined his pleadings qua Ground No. 3 reading as under:
"3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in passing the impugned assessment-order and that too without obtaining a valid approval u/s 153D in accordance with law."
5. The assessee's claim in this ground is such that the approval dated 28.12.2018 granted by Addl. CIT, Central, Indore to the AO u/s 153D for passing assessment-order is without application of mind, in a mechanical & hasty manner, merely a formality, an empty ritual and therefore invalid;
consequential the assessment-order passed by AO is also rendered invalid liable to be quashed.
6. Apropos to this ground, Ld. AR submitted that pursuant to the search u/s 132 conduced upon assessee on 12.07.2016, the assessment-order was required to be passed with the prior approval of the Joint Commissioner/ Addl. Commissioner u/s 153D. Therefore, in order to obtain such approval, the AO sent a proposal to Addl. CIT, Central, Indore ("Addl. CIT") on Page 4 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 26.12.2018 accompanied by draft assessment-order, copy of proposal-letter is filed at Page 68 of Paper-Book. The Addl. CIT granted approval on 28.12.2018, copy of approval-order issued by Addl. CIT filed at Page 69 of the Paper-Book is scanned and re-produced below:
Page 5 of 103Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18
7. Ld. AR referred Para 2 of above approval-order word by word and pointed serious infirmities in the approval given by Addl. CIT, namely (i) the Addl. CIT has merely gone through the draft-order put by AO and not examined any of the records or even the appraisal-report, (ii) the Addl. CIT has clearly mentioned that 'due to paucity of time', he has approved the AO to proceed to 'complete assessment as proposed', and (iii) the Addl. CIT has also mentioned that the assessee's case may be examined after completion of time-barring assessment and in case any further action is required, the AO shall propose remedial action as per law. Ld. AR submitted that these categorical mentions by Addl. CIT in his order clearly speak that the Addl.
CIT has given a perfunctory, technical, mechanical, performa, paper, contingent and provisional approval to AO. Ld. AR submitted with full force that the Addl. CIT is himself confessing in so many words that he has given approval to AO without application of his mind. Therefore, Ld. AR contended, the impugned approval is nothing but an empty formality or ritual done by Addl. CIT, which defies the very purpose of section 153D.
Therefore the impugned approval granted by Addl. CIT cannot be accepted as a valid approval in terms of section 153D in the light of various judicial decisions of ITAT benches, Hon'ble High Courts and Hon'ble Supreme Court.
8. Ld. AR has relied upon several decisions to support assessee's case.
However, we would like to quote a few out of them:
Page 6 of 103Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18
(i) The first decision referred by Ld. AR is given by this very Bench of ITAT in Prakash Assudani, Bhopal Vs. DCIT (Central)-1, Bhopal, IT(SS)A No. 279 to 285/Ind/2019 order dated 25.05.2023 which in turn considers various other significant decisions. We extract relevant paras of order as under:
"8. Then, the Ld. AR straightaway submitted that in the case of M/s Shri Gumukhdas Contractors Pvt. Ltd., another person/assessee who was one of the entities subjected to same search/assessment proceeding as well as part of the same proposal-letter dated 28.12.2018 by the same AO and approval dated 29.12.2018 by the same Addl. CIT, the ITAT Indore Bench has already decided this very issue in ITA No. 70 to 76/Ind/2020, DCIT Vs. M/s Shri Gurumukhdas Contractors Pvt. Ltd. order dated 14.12.2022 and categorically held that there was no application of mind by Ld. Addl. CIT who has carried out exercise in utmost haste; in mechanical manner; not in terms of the mandate prescribed u/s 153D of the Act. Therefore, the Co- ordinate Bench has quashed the entire proceeding. For the sake of immediate reference, the said order of Co-ordinate Bench is reproduced below:
"4.3 The proposal for obtaining approval of the draft order under Section 153D of the Act issued on 28.12.2018 by the DCIT has been perused by us and same is appearing at page 10 of the paper book filed before us, the contents whereof is as follows:
"F.No. DCIT-I/Central/BPL/1S3D/2018-19/3031 Date : 28/12/2018 To, The Addl. CIT (Central), Bhopal Sir, Sub:- Approval u/s 153D of the Income Tax Act, 1961 in assessment proceedings u/s 153A in the case of Vaswani Group - regarding-
Kindly find enclosed herewith the draft assessment order u/s 153A of the Income Tax Act, 1961 in the case of following assessee for your kind perusal and approval u/s 153D of the IT Act, 1961. A composite order for seven years is being passed in these cases. Due care has been taken to ensure that:-
1. Proper opportunity of being heard was given to the assessee on all the issues.
2. All the issues emanating from the material available on record have been examined properly and are incorporated in the draft orders.Page 7 of 103
Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18
3. Relevant seized documents were verified before passing the draft orders and are kept in safe custody.
S.NO. Name of the Assessee PAN A. Yrs.
1 Prakash Assudani AEFPA8202H 2011-12 to 2017-18
2 Lokesh Vaswani ADRPV6829J 2011-12 to 2017-18
3 Shri Gurumukhdas AAHCS4756R 2011-12 to 2017-18
Contractors Pvt. Ltd.
4 Suresh Vaswani AAKPV6009J 2011-12 to 2017-18
5 Sushil Vaswani AAKPV5987D 2011-12 to 2017-1 8
It is requested that approval may kindly be accorded."
4.4 In turn, on the very next day i.e. 29.12.2018, the Addl. CIT, Central, Bhopal granted approval under Section 153D of the Act appearing at page No.9 of the Paper Book filed before us; the contents whereof is as follows:
"F. No. Addl. CIT (C)/BPL/153D/2018-19/1290 Date: 29.12.2018 To The Dy. Commissioner of Income Tax (Central)-I, Bhopal Sub:- Approval u/s 153D of the Income Tax Act, 1961 in the case of - Vaswani Group - reg-
Please refer to your office letters in F.No. DCIT-I/Central/BPL/153D/2018- 19/3031 dated 28.12.2018 seeking approval u/s 153D of the IT Act, 1961.
2. The AO has certified that:
• Proper opportunity of being heard was given to the assessee on all the issues. • All the issues emanating from the material available on record have been examined properly and are incorporated in the draft orders. • Relevant seized documents were verified before passing the draft orders and are kept in safe custody.
3. Subject to the above observations, the draft assessment orders are hereby approved, as required under the provisions of section 153D of the Income Tax Act in the following cases;
S. Assessee PAN Draft A.Ys.
No. order
u/s
1 Prakash Assudani AEFPA8202H 153A 2011-12 to 2017-18
Page 8 of 103
Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 2 Lokesh Vaswani ADRPV6829J 153A 2011-12 to 2017-18 3 Shri Gurumukhdas AAHCS4756R 153A 2011-12 to 2017-18 Constractors Pvt. Ltd.
4 Suresh Vaswani AAKPV6009J 153A 2011-12 to 2017-18 5 Sushil Vaswani AAKPV5987D 153A 2011-12 to 2017-18
4. It should be ensured that the final assessment orders are passed and served on the assessees well in time. A copy of the final assessment orders should be submitted to this office for record."
4.5 From a bare reading of the approval granted by the Ld. Addl. CIT, Central, Bhopal, dated 29.12.2018, it appears that Ld. AO has certified before the said authority while sending the draft assessment order that; (i) proper opportunity of being heard was provided to the assessee on all the issues; (ii) These issues emanating from the materials available on record have been duly examined and were incorporated in the draft orders; & (iii) Further that, relevant seized documents were verified before passing the draft orders and are kept in safe custody. It was further mentioned in the said approval dated 29.12.2018 that subject to the above observation, the draft assessment order had been approved in terms of the provisions laid down under Section 153D of the Act. It was further mentioned that the final assessment orders are to be passed and served upon the assessee well in time.
5. We, therefore, do not find any recording of satisfaction of the Ld. Addl. CIT in the impugned approval order as to whether the assessment records/ assessment folders/files/seized materials or any incriminating documents or other connected documents and papers/various statements recorded under Section 132(4) and Section 131(1A) of the Act of the assessee or any other person/appraisal report of the Investigation Wing of the Department/ materials on hand with the Department at the time of initiation of search or material evidences gathered were placed for its verification and the same were duly verified and/or examined by him as mandated under Section 153D of the Act. In the absence of compliance of the above mandate, the approval order dated 29.12.2018 passed under Section 153D of the Act becomes an empty formality without due process of law and, thus, not sustainable. The learned Addl. CIT, in fact, abdicated his statutory functions and delightfully relegated the statutory duty to his subordinate being the DCIT, Central-1, Bhopal adopting a shortcut method. Merely, an undertaking given by the Ld. AO was considered to be adequate for the Addl. CIT to accord approval in all assessments involved without considering any merit in proposed adjustment with reference to appraisal report, incriminating material collected in search etc.; this is nothing but an approval by way of mere mechanical exercise accepting the draft order without any independent application of mind by the said Addl. CIT. It is clearly evident that the Addl. CIT has not verified and/or examined the relevant materials on record as already discussed by us hereinabove. The power to grant approval as mandated under Section 153D of the Act is not to be exercised casually or any routine manner rather the concerned authorities expected to grant approval upon examination of the entire materials before approving the draft order and the authority is legally required to apply due application of mind.
Page 9 of 103Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 5.1 On this aspect, we have considered followings judgments relied upon by the Ld. AR:
5.1.1 In case of Navin Jain & Ors. Vs. DCIT, reported in [2021] 91 ITR 682 (Luck.-Trib.):
The said Bench on identical issue has been pleased to observe as follows:
"7. It was submitted that the rationale of word 'each' as specifically referred to in s.153D and s.153A deserves to be given effective/proper meaning so that the underlying legislative intent as per the scheme of assessment of ss.153A to 153D is fulfilled. It was submitted that Addl. CIT in these cases has granted approval for all the assesses for all assessment years through a single approval letter which is against the intent of law and therefore, also the approval given by Addl. CIT is non-est and consequential assessment made on this basis of such approval is illegal and deserves to be annulled. Learned counsel for the assessee in this respect relied on a judgment of Hon'ble Allahabad High Court in the case of Mohd. Ayub vs. ITO 346 ITR 30 where non issue of separate notice under s.148 for each year were held to be invalid. Learned counsel for the assessee submitted that granting of approval under s.153D is a huge task which involves the verification by the approving authority to examine as to which year is unabated and which year is abated and the relevance vis-à-vis seized material. Learned counsel for the assessee further invited our attention to CBDT manual of Office Procedure Volume-II (Technical) placed at pp. 995 and 996 of paper book wherein the CBDT has directed that AO should submit the draft assessment order for approval from the approving authority to examine as to which year is unabated and which year is abated and the relevance vis-à-vis seized material. Learned counsel for the assessee further invited our attention to CBDT manual of Office Procedure Volume-II (Technical) placed at pages 995 and 996 of paper book wherein the CBDT has directed that Assessing Officer should submit the draft assessment order for approval from the approving authority well in time. Such manual says that the Assessing Officer should seek approval from the approving authority at least one month before the time barring date. While going through CBDT manual placed at paper book pages 995 & 996, it was observed that this manual was printed in February 2003 and therefore, Learned counsel for the assessee was asked as to how it is applicable to the provisions of section 153D of the Act which came into existence w.e.f.
01/06/2007. Learned counsel for the assessee in this respect submitted that this manual is applicable to the provisions of section 158BG of the Act and which are para materia to the provisions of section 153D of the Act. It was further submitted that Mumbai Tribunal in the case of Shreelekha Damani, vide order dated 19/08/2015, while deciding similar issue u/s 153D, has relied on the case laws relied for deciding the issue of approval u/s 158BG of the Act and therefore this manual is applicable to provisions of Section 153D also. Learned counsel for the assessee further placed reliance on Circular No. 3 of 2008 dated 12/03/2008 issued by CBDT whereby the CBDT has issued instructions regarding mandatory approval u/s 153D if the order is to be passed by Assessing Officer below the rank of Jt. CIT. It was submitted that the present cases were becoming time barring on 31/12/2018 and draft assessment orders has been made on 30/12/2018 and approval has been taken on 30/12/2018 and on the Page 10 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 same day final assessment order has been passed and, therefore, clearly the CBDT instructions have been violated. In view of these facts and circumstances, it was submitted that approval has been given in a most mechanical manner without any application of mind and without any independent examination of seized material and other material on record. There is no mention about any incriminating material forwarded to Jt. CIT and there is no mention of the statements recorded at the time of search. It was submitted that the approval is granted in a hurried manner without looking into the serious lapses committed by the Assessing Officer and therefore, the approval u/s 153D is invalid and bad in law and consequent assessment order needs to be quashed and reliance in this respect was placed on the order of Delhi Bench of the Tribunal in the case of Sanjay Duggal and Others vs. ACIT in I.T.A. No.1813/Del/2019 wherein vide order dated 19/01/2021 the entire law relating to section 153D has been discussed and after relying on a number of case laws, the Tribunal has allowed the appeals of the assessees and has quashed the assessment order. It was submitted that in that case also, through a single letter, the approval was granted in a number of cases. Further reliance was placed on the order of Ranchi Bench of the Tribunal in the case of Rajat Minerals Pvt. Ltd. vs. DCIT wherein sanction u/s 153D was granted in 28 cases and Tribunal allowed the appeals of the assessees by quashing the assessment orders. Further reliance was placed on the order of Mumbai Tribunal in the case of Pr. CIT vs. Shreelekha Damani wherein the provisions of section 158BG has been discussed and it was held by the Tribunal that approval granted u/s. 153D of the Act was de void of application of mind and without considering the material on record and hence Tribunal annulled the assessment. It was submitted that Hon'ble Bombay High Court has also dismissed the appeal of the Department filed against the above order of the Tribunal. Further reliance was placed on an order of Mumbai Bench of the Tribunal in I.T.A. No.4916 in the case of Sumer Associates wherein under similar circumstances, vide order dated 26/12/2018 the issue was decided in favour of the assessee. Reliance was also placed on the judgment of Tribunal in the case of Indra Bansal decided by Jodhpur Bench in I.T.A. No.321 to 324 vide order dated 23/02/2018. Reliance was also placed on the judgment of Cuttack Bench of Tribunal in I.T.A. No.01 and 02 in the case of Geeta Rani Poddar and Manju Simite Dash where vide order dated 05/07/2018 similar issue has been decided in favour of assessee.
7.1 In view of these facts and circumstances and judicial precedents, it was argued that the assessment orders passed in these cases are illegal and need to be quashed.
8. Learned CIT-D.R., on the other hand argued that proper approval, as required under the provisions of section 153D, has been obtained by the Assessing Officer. It was submitted that the approval was taken well within the time before limitation and the higher authority has fully applied his mind to grant approval. It was submitted that though the Jt. CIT has not written in so many words about his satisfaction for granting approval but the fact remains that he has granted approval to the draft assessment order and only after that the Assessing Officer has passed the final assessment order and therefore, ground No. 5 of the appeal be dismissed and appeals be heard on merits.
Page 11 of 103Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18
9. We have heard the rival parties and have gone through the material placed on record. We find that in these cases, in view of a search carried out on the Sigma Group, the assessments of various assessees were reopened and various assessees were required to file income tax returns as required under the provisions of section 153A of the Act. The search was conducted on 23/08/2016 which continued upto 25/08/2016 and therefore, assessment year 2017-18 became the search year and the years preceding the search year became the subject matter of reopening u/s 153A of the Act. The issue raised by Learned counsel for the assessee is that the approval granted by the Addl. CIT is bad in law as it is humanly impossible to go through documents exceeding 17,800 in a single day and then grant approval on the same day. Since the controversy involved here is with respect to approval u/s 153D of the Act, it would be appropriate to first visit the provisions of section 153D of the Act, which for the sake of completeness are reproduced below:
"SECTION 153D. Prior approval necessary for assessment in cases of search or requisition No order of assessment or reassessment shall be passed by an Assessing Officer below the rank of Joint Commissioner in respect of each assessment year referred to in clause (b) of [sub-section (1) of section 153A or the assessment year referred to in clause (b) of sub-section (1) of section 153B, except with the prior approval of the Joint Commissioner.
Provided that nothing contained in this section shall apply where the assessment or reassessment order, as the case may be, is required to be passed by the Assessing Officer with the prior approval of the Principal Commissioner or Commissioner] under sub-section (12) of section 144BA."
9.1 The above provisions of section 153D of the Act were inserted by Finance Act, 2007 with effect from 01/06/2007. In our humble understanding of the said provisions, we are of the opinion that the Legislature wanted the assessment/reassessment of the search cases should be made and order should be passed with the prior approval of superior authority. The word approval has not been defined in the Income Tax Act but the general meaning of word approval can be understood from Black Law of Dictionary which defines approval as:
"The Act of confirming, rectifying, sanctioning or consenting to some act or thing done by another. To approve means to be satisfied with, to confirm, rectify, sanction or 'consent to some act or thing done by another, to consent officially, to rectify, to confirm, to pronounce good, thing or Judgment of, admitting propriety or excels or to pleas with."
9.2 The Hon'ble Supreme Court of South Carolina in State vs. Duckett 133 SC 85 [SC 1925], 130 SE 340 decided on 05.11.1925 held that approval implies knowledge and, the exercise or discretion after knowledge.
...........................
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Page 12 of 103Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 Coming to the facts of the case, it is apparent from the documents on record that the approval was given by the Joint Commissioner in hasty manner without even going through the records as the records were in Jodhpur while the Joint Commissioner was camping at Udaipur. The entire exercise of seeking and granting of approval in all the 2 cases was completed in one single day itself i.e., 31-3-2013. Thus, it is I.T.(SS)A. Nos.639, 640, 641, 649, 642 & 651 apparent that the Joint Commissioner did not have adequate time to apply his mind to the material on the basis of which the assessing officer had made the draft assessment orders. Tribunal, Mumbai Bench and Tribunal, Allahabad Bench in their orders, as discussed in the preceding paragraphs, have laid down that the power to grant approval is not to be exercised casually and in routine manner and further the concerned authority, while granting approval, is expected to examine the entire material before approving the assessment order. It has also been laid down that whenever any statutory obligation is cast upon any authority, such authority is legally required to discharge the obligation by application of mind. In all the cases before us, the Department could not demonstrate, by cogent evidence, that the Joint Commissioner had adequate time with him so as to grant approval after duly examining the material prior to approving the assessment order. The circumstances indicate that this exercise was carried out by the Joint Commissioner in a mechanical manner without proper application of mind. Accordingly, respectfully following the ratio of the Co-ordinate Benches of Mumbai and Allahabad as afore- mentioned and also applying the ratio of the judgment of the Hon'ble Apex Court in the case of Sahara India (Firm) v. CIT (supra), we hold that the Joint Commissioner has failed to grant approval in terms of section 153D of the Act i.e., after application of mind but has rather carried out exercise in utmost haste and in a mechanical manner and, therefore, the approval so granted by him is not an approval which can be sustained. Accordingly, assessments in three COs and nineteen appeals of the assessee(s), on identical facts, are liable to be annulled as suffering from the incurable defect of the approval not being proper. Accordingly, we annul the assessment orders in CO Nos. 8 to 10/Jodh/2016 and ITA Nos. 325 to 331/Jodh/2016. Thus, all the three COs and the nineteen appeals of the assessee, as aforesaid, are allowed."
10. Similarly we find that Hon'ble Supreme Court in the case of 'Sahara India vs. CIT & Others' [2008] 216 CTR 303 (S.C.) : [2008] 7 DTR (SC) 27:
[2008] 300 ITR 403 (SC) while discussing the requirement of prior approval of Chief Commissioner or Commissioner in terms of provision of section 142(2A) of the Act, opined that the requirement of previous I.T.(SS)A. Nos.639, 640, 641, 649, 642 & 651 approval of the Chief Commissioner or Commissioner in terms of said provision being an inbuilt protection against arbitrary or unjust exercise of power by the assessing officer, casts a very heavy duty on the said high- ranking authority to see it that the approval envisaged in the section is not turned into an empty ritual. The Hon'ble Apex Court held that the approval must be granted only on the basis of material available on record and the approval must reflect the application of mind to the facts of the case.
11. In view of these facts and circumstances and in view of judicial precedents relied on by Learned A. R. Ground No.5 in appeals is allowed and the assessments orders are annulled. Rest of the grounds were not Page 13 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 argued by Learned A. R. therefore, rest of the grounds are dismissed as not pressed.
12. In nutshell, the appeals filed by the assessee are partly allowed."
5.1.2 In case of Sanjay Duggal (2021) (Del-Trib.) dt. 19.01.2021:
The said Bench on identical issue has been pleased to observe as follows:
"12. It may be noted that provisions of Section 153D provides for approval in case of "Each" assessment year. Therefore, each of the assessment year is required to be verified and approved by the JCIT being Approving Authority that it complies with Law as well as the procedure laid down. The assessee has filed details on record regarding returns filed under section 139(1) for A.Ys. 2010-2011 to 2015-2016. It is also explained that there are unabated assessments except A.Y. 2015-2016 in which the assessments have been abated. Therefore, for each unabated and abated assessments, the authorities below and the Approving Authority [JCIT] shall have to verify the incriminating material found during the course of search or the seized material if pertain to the same assessment year and its basis. The assessee has explained above that these cases are coming up because of the assessments framed in the case of M/s. JIL and others prior to the search in the case of assessee. Therefore, all material was within the knowledge of the Income Tax Authorities prior to the search in the cases of the assessees. Therefore, for granting approval under section 153D of the I.T. Act, the Approving Authority shall have to verify and consider each assessment year and shall have to apply independent mind to the material on record to see whether in each assessment year there are un-abated or abated assessments and their effect, if any. But, in the present case, the Approving Authority i.e., JCIT has granted common approval for all the assessment years in respect of the single assessee. Thus, there is no application of mind on the part of JCIT while granting approval for all the common years instead of granting approval under section 153D for each assessment years separately.
13. In the present cases various approvals were granted by the JCIT, Central Range-1, New Delhi, and forwarding letter of the A.O. are placed on record in all the cases. In all the cases as per the forwarding letter of the A.O. only assessment records were forwarded to the JCIT, Range-1, New Delhi at the time of granting approval. Therefore, it is evident that the JCIT being the Approving Authority was neither having seized material nor the appraisal report or other material at the time of granting approval. In the approval under section 153D there is a reference to the A.O. letter only. There is no reference to the seized material or record or notice under section 142 and reply of the assessee and if procedure for its inspection or perusal is there. There is no material considered by the JCIT. Learned Counsel for the Assessee has pointed out that assessee has suffered serious prejudice because of non-application of mind on the part of the JCIT while granting approval under section 153D of the I.T. Act because the A.O. has made several double or triple additions on account of share capital, investments, FDRs purchased, loans, capital gains because these were created out of bank deposits made in the bank accounts of the assessees after the money transferred from the account of M/s. Alfa India. No telescopic benefit have Page 14 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 been given as it was out of the source deposited in the bank accounts of the assessees. Netting of the money left have also not been considered and even the Ld. CIT(A) without considering the same has enhanced the assessments in some of the cases of the assessee. No steps have been taken by the A.O. for rectifying their mistakes when assessee filed petition for rectification under section 154 of the I.T. Act. Thus, there was inconsistencies and double additions made by the A.O. in various assessment years. It may also be noted that in the present case the facts stated in the impugned orders are that the sales of liquor are made by M/s. JIL to M/s. MAPSCO and Singla Group of cases and that part of the sale proceeds have been transferred to the account of M/s. Alfa India instead of paying the entire sale consideration to M/s. JIL. Thus, the nature of total receipt/addition is the sale proceeds originally to be received by M/s. JIL. If the part of the sale proceeds which were to be received by M/s. JIL and when transferred to the account of M/s. Alfa India Ltd., the entire part sale receipts cannot be the income either in the hands of M/s. JIL or M/s. Alfa India or the Assessees who may be the conduit as argued before us. The A.O. has failed to consider the concept of real income for the purpose of determining the correct tax liability and correct determination of income of the assessees. We rely upon the Judgment of the Hon'ble Supreme Court in the case of Godhra Electricity Co. Ltd., 225 ITR 746 (SC). This fact is also not verified and considered by the JCIT while granting approval under section 153D of the I.T. Act. It may be noted here that entire sale proceeds when cannot be added in the hands of M/s JIL as income which is also not done in the case of M/s. JIL, rightly so, how the same sale proceeds could be added as income in the hands of assessees under section 68 of the I.T. Act is not understandable. Thus, the Approving Authority without application of mind and in a most mechanical and technical manner granted approval under section 153D even without reference to any reason in the Order under section 153D of the I.T. Act. We, even, otherwise failed to understand that in search cases how an approval can be granted to an assessment year which is required to be based only on incriminating material without verification of those material and its reference in the appraisal report. The JCIT even in approval did not mention if assessment record is seen by him. Another interesting aspect that has come to the notice on the basis of various documents submitted for approval as well as request for approval by the A.O. to the JCIT. We make a specific reference to letter dated 29.12.2017 written by ACIT, Central Circle-4, New Delhi, which is placed at page-144 of the PB. This letter Dated 29.12.2017 is a request for obtaining approval under section 153D of the I.T. Act in the case of Shri Rajnish Talwar and family wherein the approval in the case of Shri Rajnish Talwar for A.Ys. 2010-2011 to 2016-2017 is sought for. The A.O. send the draft assessment order along with assessment records of the above named assessee. In paragraph-4 of the letter, A.O. stated as under:
"It is certified that all issues raised in the appraisal reports have been duly examined with reference to the seized impounded material."
15. Thus, the JCIT acted on certificate given by the A.O. without satisfying himself to the record/seized material etc., The A.O. sent only assessment records to the JCIT for appeals his approval. The identical is fact in the case of all the request for approval made by the A.O. but factual position noted above established that even assessment records have not been seen by the Page 15 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 JCIT. The A.O. sent draft assessment orders for 07 assessment years on 29.12.2017 which were got approved on 30.12.2017 merely on the basis of draft assessment order. The JCIT in the approval Order Dated 30.12.2017 also mentioned that A.O. to ensure all the assessment proceedings are conducted as per procedure and Law. It would show that even JCIT was not satisfied with the assessment proceedings conducted by the A.O. as per Law and records.
16. In some of the cases the approval was granted on the date the request was made for approval by the A.O. In all those cases merely draft assessment order and the assessment folders were available with the A.O. For example in the case of Shri Sanjay Duggal family, in the case of Ms. Kritika Talwar on the same date the approval was granted and that too merely on the basis of the assessment records and draft assessment order and in most of the cases approval has been granted either on the same day or on the next day. Further, there is no reference that seized material as well as appraisal report have been verified by the JCIT. It is not clarified whether assessment record is also seen by the JCIT. It may also be noted that even in some of the Talwar group of cases approval is granted prior to 30.12.2017 but in main cases of Shri Sanjay Duggal and Rajnish Talwar the approval is granted on 30.12.2017. Therefore, without granting approval in the main cases how the JCIT satisfied himself with the assessment orders in group cases which is also not explained. Therefore, the approval granted by the JCIT in all the cases are merely technical approval just to complete the formality and without application of mind as neither there was an examination of the seized documents and the relevance of various observations made by the Investigation Wing in appraisal report. Thus, we hold the approval under section 153D have been granted without application of mind and is invalid, bad in Law and is liable to be quashed. Since we have held that approval under section 153D is invalid and bad in law, therefore, A.O. cannot pass the assessment orders under section 153A of the I.T Act against all the assessees. Therefore, all assessment orders are vitiated for want of valid approval under section 153D of the I.T. Act and as such no addition could be made against all the assessees. In view of the above, we set aside the Orders of the authorities below and quash the assessment orders passed under section 153A of the I.T. Act as well as the impugned appellate Order. Resultantly, all additions are deleted. The additional grounds are allowed. In view of the above findings, the other issues on merits are left with academic discussion only. Accordingly, all the appeals of the Assessees are allowed."
5.1.3 In the case of Arch Pharmalabs Ltd. (2021) (Mum-Trib):
The Hon'ble Bench held as under:
"11. We have carefully considered the rival submissions and material placed on record and case laws cited. The legal objection of transgression of requirements of approval under section 153D is in controversy. Pursuant to search carried out in the premises of the Assessee and other connected group cases, the assessment was carried out under section 153A/143(3) of the Act. The Assessing officer has forwarded the draft assessment orders for 7 years (AY 2003-04 to AY 2009-10) for endorsement and approval of the superior authority at the fag end of the limitation period on 29/12/2010 Page 16 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 to meet the legal requirement imposed by section 153D of the Act. The Addl. CIT i.e. the superior authority has, in turn, granted a combined and consolidated approval for all 7 assessment years in prompt on 31/12/2010.
11.1 It may be pertinent to observe at this stage that the impugned assessment orders were passed u/s. 143(3) rws 153A of the Act for the AY 2003-04 to AY 2008-09 and for the AY 2009-10 u/s 143(3) of the Act pursuant to search carried out under s.132 of the Act. For passing such assessment orders, the Assessing Officer is governed by s.153D of the Act whereby the Assessing Officer should complete the assessment proceedings and prepare a draft assessment order which need to be placed before the approving authority i.e. Joint / Addl. Commissioner (designated authority giving approval to search assessments u/s. 153D of the Act). The approving authority is necessarily required to objectively evaluate such draft assessment order with due application of mind on various issues contained in such order so as to derive his/her conclusive satisfaction that the proposed action of AO is in conformity with subsisting law. The AO is obligated to pass the assessment order exactly, as per approval/directions of the designated authority. Inevitably, this evaluation is to be made on basis of material gathered at time of search as well as obtained in the course of the assessment proceeding. The requirement of law is to grant approval not merely as a formality or a symbolic act but a mandatory requirement.
11.2 In the backdrop of facts narrated in the preceding paras, it is the contention on behalf of the assessee that approval granted under S. 153D does not meet the requirement of law and hence assessment orders passed in consequence of such non-est approval is a nullity in law. The assessment orders thus passed is vitiated in law which illegality cannot be cured. In support of charge of nonest approval, several contentions have been raised viz (i) the approval accorded under section 153D is without any occasion to refer to the assessment records and seized material, if any, incriminating the assessee and hence such approval is in the realm of an abstract approval of draft assessment orders which was unsubstantiated and unsupported and consequently suffered from total non-application of mind (ii) approval granted hurriedly in a spur involving voluminous assessments spanning over 7 assessment years and thus only a symbolic exercise to meet the requirement of law (iii) Total lack of objectivity in drawing satisfaction on objective material while giving a combined approval for 7 assessments and also without evaluating the nuances of each assessment year involved (iv) the mundane action of Addl. CIT under S. 153D in a cosmetic manner gives infallible impression of approval on dotted line and thus defeats the purpose of supervision of search assessments (iv) initialed draft assessment orders not available in office records.
11.3 As observed, Section 153D bestows a supervisory jurisdiction on the designated authority in respect of search related assessment and thus enjoins a salutary duty of statutory nature. The designated superior authority is thus expected to confirm to the statutory requirement in letter and spirit. It is evident from the communication of AO and consequent approval thereon under S. 153D that no assessment record for any assessment year in question or any seized material had traveled to the Page 17 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 authority concerned for his objective consideration of the same qua the draft assessment orders. No reference in this regard is made in the approval note either which may discard such allegation as untrue. No other material or order sheet in assessment proceedings etc. were placed before us either to establish otherwise. Except these two documents namely, a solitary communication from AO to the Addl. CIT dated 29/12/2010 and an in turn approval by Addl. CIT dated 31/12/2010, there is nothing else before us to gauge the facts differently. A bare glance at the approval so accorded makes it evident that such approval is generic and listless and accorded in a blanket manner without any reference to any issue in respect of any of the 7 assessment years. Apparently, the approval has been granted on a dotted line without any availability of reasonable time which firms up the belief towards non application of mind. Besides, the approval has been granted in a consolidated manner for all assessment years for which voluminous assessment orders were prepared. The whole sequence of action apparently appears to be illusory to merely meet the requirement of law as an empty formality. It is also alleged on behalf of assessee that the draft assessment orders are not available on record which allegation has not been rebutted. The draft assessment orders showing some marking / initials etc. could have given a valuable input on the applicability of mind and could throw light on objectivity applied owing to total silence on any delineation on these aspects in the approval memo. The records before us are totally muted.
11.4 Based on solitary communication placed before us, it is ostensible that draft assessment orders were placed before the Addl. CIT on 29.12.2010 for the first time. It is axiomatic from the plain reading of approval memo that various assessment orders and the issues incorporated in the assessment orders, were never subjected to any discussion with the authority granting approval prior to 29.12.2010. It is evident from the CBDT Circular No. 3 of 2008 dated 12.03.2008 that the legislature in its highest wisdom made it obligatory that the assessments of search cases should be made with the prior approval of superior authority, so that the superior authority apply their mind on the materials and other attending circumstances on the basis of which the Assessing officer is making the assessment and after due application of mind and on the basis of seized materials, the superior authority is required to accord approval the respective Assessment order. Solemn object of entrusting the duty of Approval of assessment in search cases is that the Additional CIT, with his experience and maturity of understanding should at least minimally scrutinize the seized documents and any other material forming the foundation of Assessment. It is elementary that whenever any statutory obligation is cast upon any statutory authority, such authority is required to discharge its obligation not mechanically, not even formally but after due application of mind. Thus, the obligation of granting Approval acts as an inbuilt protection to the taxpayer against arbitrary or unjust exercise of discretion by the AO. The approval granted under section 153D of the Act should necessarily reflect due application of mind and if the same is subjected to judicial scrutiny, it should stand for itself and should be self-defending. There are long line of judicial precedents which provides guidance in applying the law in this regard.Page 18 of 103
Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 11.5 At the cost of repetition, it may be reiterated that in the instant case, approving authority did not mention anything in the approval memo towards his/her process of deriving satisfaction so as to exhibit his/her due application of mind. We may observe that Para 2 of the above approval letter merely says that "Approval is hereby accorded u/s. 153D of the Income-tax Act, 1961 to complete assessments u/s. 143(3) r.w.s. 153A of the I.T. Act in the following case on the basis of draft assessment orders..."which clearly proves that the Addl. CIT had routinely given approval to the AO to pass the order only on the basis of contents mentioned in the draft assessment order without any application of mind and seized materials were not looked at and/or other enquiry and examination was never carried out. From the said approval, it can be easily inferred that the said order was approved, solely relying upon the implied undertaking obtained from the Assessing Officer in the form of draft assessment order that AO has taken due care while framing respective draft assessment orders and that all the observations made in the appraisal report relating to examination/investigation of seized material and issues unearthed during search have been statedly considered by the AO seeking approval. Thus, the sanctioning authority has, in effect, abdicated his/ her statutory functions and delightfully relegated his/her statutory duty to the subordinate AO, whose action the Additional CIT, was supposed to supervise. The addl. CIT in short appears to have adopted a short cut in the matter and an undertaking from AO was considered adequate by him/ her to accord approval in all assessments involved. Manifestly, the Additional CIT, without any consideration of merits in proposed adjustments with reference to appraisal report, incriminating material collected in search etc. has proceeded to grant a simplicitor approval. This approach of the Additional CIT, Central has rendered the Approval to be a mere formality and cannot be countenanced in law.
11.6 There are several decisions, which supports the view that approval granted by the superior authority in mechanical manner defeats the very purpose of obtaining approval u/s 153D. Such perfunctory approval has no legal sanctity in the eyes of the law. The decision of the co-ordinate bench in Shreelekha Damani vs. DCIT 173 TTJ 332(Mum.) and approved by jurisdictional High Court subsequently as reported in 307 CTR 218 affirms the plea of the Assessee.
11.7 Very recently, the co-ordinate bench in Sanjay Duggal & ors (ITA 1813/Del/2019 & ors; order dated 19.01.2021 has also echoed the same view after a detailed analysis of similar facts and also expressed a discordant note on such mechanical exercise of responsibility placed on designated authority under section 153D of the Act. Hence, vindicated by the factual position as noted in preceding paras, we find considerable force in the plea raised by the Assessee against maintainability of hollow approval under S. 153D totally devoid of any application of mind. The approval so granted under the shelter of section 153D, does not, in our view, pass the test of legitimacy. The Assessment orders of various assessment years as a consequence of such inexplicable approval lacks legitimacy. Consequently, the impugned assessments relatable to search in captioned appeals are non-est and a nullity and hence quashed."Page 19 of 103
Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 5.1.4 The Ld. AR relied upon the judgment passed by the Raipur Bench in Goyal Energy & Steel (P) Ltd. vs. ACIT, reported in [2021] 214 TTJ (Asr) 058 (Amritsar-Trib.):
The said Bench on identical issue has been pleased to observe as follows:
"10. Now adverting to the adjudication of additional grounds of appeal and the Ground No. 3 of main grounds of appeal. The additional grounds of appeal relates to validity of approval under section 153D and Ground No. 3 of main grounds of appeal relates to validity of the additions under section 68 in absence of incriminating evidence found during search. The ld AR for the assessee submits that it is a matter of fact that the AO had passed a single consolidated order for all the years under assessment rather than passing separate orders for "each year" under section 153A.
Further, the AO sought a consolidated approval for about 14 different assessee from different groups under her single letter dated 14.12.2018. At the time of assessment, the assessee furnished its reply on 14.12.2018 before the AO, wherein the assessee raised several objections and contentions against the proposed additions in show cause notice. The assessee was directed to file reply by 07.12.2018. The assessee filed its reply on 14.12.2018, which was duly accepted by AO, which is otherwise clearly discernable in para 3.7 of the assessment order. In the said reply the assessee explained the concept of abated and unabated assessment, proof of identity and existence of the investor Company, importance of cross- examination, etc. The Ld. AR for the assessee further submits that mere perusal of contents of approval granted under section 153D, it can be inferred from the approval sought by AO, from the Ld. JCIT was without considering such reply of the assessee dated 14.12.2018. The copy of the same is placed on record before the Hon'ble bench. The ld.AR for the assessee submits that the Ld. Joint Commissioner of Income-tax (JCIT) granted approval for finalizing the assessment on the request of the assessing officer without indicating any perusal of records, replies and material gathered in the course of search. Rather JCIT categorically mentions that even with respect to orders to be passed by the assessing officer he has 'presumed' that necessary records have been perused and legal mandate had been complied.
11. The ld AR for the assessee submits that the material available on record would demonstrate that the JCIT has granted approval under section 153D in a casual and mechanical manner and without any application of mind. As evident from the communication made by A.O. to the JCIT dated 14.12.2018. The AO in the said letter neither makes any iota of reference as to what are the seized materials nor furnishes any assurance with respect to approval and appraisal of all evidences and corresponding reply filed by the assessee. The JCIT rather than confirming such lacunae at the part of the assessing officer, goes on to act in oblivion by "presuming" that the necessary opportunity has been given to the assessee and all the records, evidences and materials have been thoroughly verified. Thus, in a bulk approval of 95 assessment orders on a presumption basis proves the ritualistic approval to comply with the provisions of law which clearly defeat the intent and purpose behind insertion of section 153D brought in the statute by the Finance Act, 2007. The JCIT has granted a blanket approval Page 20 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 for 95 cases without giving any reasoning at all in a consolidated manner for all assessment years for different assessee for which voluminous assessment orders on a presumptive basis.
12. To buttress his submissions the ld AR for the assessee relied on the following decision;
* Mumbai Tribunal in case of Arch Pharmalabs Ltd & Arch Impex P. Ltd. (I.T.A. No. 6656/Mum/2017 & others) (dated 07.04.2021), * Ranchi Tribunal in Rajat Minerals Pvt. Ltd. Vs DCIT (Central Circle 1) ([2020] 181 ITD 368 (Ranchi-Trib.), * Cuttack Tribunal in Dilip Constructions Private Limited Vs. ACIT IT(SS)A Nos. 66 to 71/CTK/2018.
13. In other alternative submissions the ld AR for the assessee submits that the AO passed a single order in a hasty manner to make the impugned addition, applying same facts to each of the assessment year without weighing the facts and legality of each assessment year under consideration, which is in complete violation of the statutory provisions of law and guidelines laid down by various courts and Special Bench of Tribunal.
14. The ld AR for the assessee submits that search action was carried out on assessee group on 17.01.2017. There was a marriage function in the Goyal family, which was at concluding stage. The search action continued till 2.00 am of 22.01.2017. The authorised officer obtained a confessional statement of Deepak Aggarwal, Director of the assessee company by putting pressure and coercion for surrender of share capital. The statement of the Deepak Aggarwal was not recorded in the presence of Panchas. Mr. Deepak Aggarwal retracted from his statement by filing affidavit before Sub- Divisional Magistrate, copy of which is filed. The ld.AR for the assessee retreated that no incriminating evidence qua the share capital was found during the search. The authorised officer has not recorded even single evidence on the Panchnama about such evidence. The assessment order stands void-ab-initio for unabated assessment years in absence of incriminating evidence. The ld AR for the assessee furnished the year wise last date for issuing notice under section 143(2) for all Assessment Years in the following manner;
AY Last date for issuing notice u/s 143(2) 2011-12 30.09.2012 2012-13 30.09.2013 2014-15 30.09.2015 2015-16 30.09.2016
15. The ld AR for the assessee submits that the statement under section 132(4) (obtained in absence of Panchas) cannot be treated incriminating evidence as held by Hon'ble Delhi High Court in PCIT Vs Best Infrastructure Page 21 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 (2017) 397 ITR 82 (Delhi). To support his submissions the ld AR for the assessee also relied on the following decisions;
* CIT Vs Kabul Chawla (Delhi High Court) (ITA Nos. 707, 709 and 713 of 2014), * M/s All Cargo Logistics Ltd. Vs DCIT (ITA 5018 to 5022 & 5059/M/10) (Special Bench), * R.R. Energy (ITA No. 225/RPR/2015 and * Sanjay Duggal vs. ACIT, ITA 1813/Del/2019 dated 19.01.2021
16. On the other hand the ld. CIT-DR for the revenue supported the order of the lower authorities. The ld. CIT-DR for the revenue submits that in the search matters the draft assessment order is always prepared under the guidance of Joint Commissioner of Income-tax (JCIT). The assessee was provided full opportunity during the assessment. The assessment proceedings are also supervised by JCIT to protect the interest of revenue.
The JCIT granted approval of the draft assessment after considering the material placed before him. There is no unwarranted thing in the order of assessing officer. There is no mandate in the statue to pass separate order for each and every assessment years as argued by AR of the assessee. The AO has made separate additions in each assessment year and ultimately assessed income for each year separately. The AO before making additions made investigation for each of the investor company, which are Kolkata based entity.
17. In the rejoinder submissions the ld. AR for the assessee submits that no such investigation report was provided to the assessee. The ld. AR retreated that the additions were made in the unabated assessment in absence of the incriminating material found during search; therefore, all such additions are liable to be deleted. The statement of the director of the assessee-company cannot be treated incrementing evidence. Even otherwise there is no evidentiary value of such statement, which was not recorded during the search proceeding.
18. We have considered the rival submissions of the parties and have gone through the order of the lower authorities. We have also perused the copy of the Panchnama dated 23.01.2017. There is no dispute that a search action was carried out on the assessee group on 17.01.2017. No incrementing evidence qua the share application money was found and recorded by the authorised officer in the Panchnama dated 22.01.2017 and 28.02.2017. A discloser statement of Director namely Deepak Aggarwal was recorded on 24.01.2017. The statement was retracted on 27.01.2017 by making sworn statement before Sub-divisional Magistrate. It is further admitted facts that on the date of search no assessment of AY 2011-12, 2012-13, 2014-15 & 2015-16 was pending and/ or time limit for issuing notice under section 143(2) has already elapsed. Thus, any addition in the unabated assessment can only be made on the basis of incriminating material found during the search. The assessee right from the beginning has raised plea that no incriminating evidence qua the alleged share application or premium was found in the search on 17.01.2017. We find there is no reference in the Page 22 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 Panchnama about incriminating evidence qua the share application money or share premium for all the impugned assessment years. We further find that the assessee while filing reply before AO on 14.12.2018, in response to the show cause notice dated 29.08.2018, clearly stated there is no incriminating evidences against the assessee for making the said additions. We find that the AO passed the assessment order on 14.12.2018 and placed the same before JCIT for his approval, thus there is no consideration of material facts by A.O. with regard to the assessee's reply dated 14.12.2018 filed before the AO in response to the show cause notice dated 29.11.2018. We further find that the assessee raised specific ground of appeal before ld CIT(A), vide ground No.4, that addition in the assessment is outside of search assessment as no incriminating material was seized in search. However, the ld CIT(A) has not discussed the ground of appeal raised by the assessee.
19. The Hon'ble Delhi High Court in PCIT Vs Best Infrastructure (India) Pvt. Ltd (supra) held that statement recorded under section 132(4) does not itself constitute incriminating material. Thus, the statement of Deepak Aggarwal cannot be treated as incriminating evidence for making basis for addition of share premium under section 68 of the Act.
20. Further, Delhi High Court in celebrated case of CIT Vs Kabul Chawla (supra) held that completed assessment can be interfered with by the AO while making assessment under section 153A only on the basis of some incriminating material unearthed during the course of search which was not produced or not already disclosed or made known in course of original assessment. The decision of Delhi High Court has been upheld by Hon'ble Apex Court in Singhad Technical Education Society (397 ITR 344 SC). In view of the aforesaid factual and legal discussions, no addition under section 68 was warranted in absence of incriminating evidence, in the abated assessment. We hold so. In the result the ground No. 3 raised by the assessee is allowed.
21. We further find that the assessee in response to the show cause notice dated 29.08.2018 filed its detail reply on 14.12.2018. In the said reply the assessee raised factual and legal issue. The reply of the assessee is duly acknowledged by AO in para 3.7 of his order. The AO sent the draft assessment order on 14.12.2018 itself to the officer of JCIT, vide reference No. F.No. ACIT (C) -2 RPR/153D/Goyel & Satya/2018-19 dated 14.12.2018, copy of which is placed on record. For proper appreciation of facts the contents of approval dated 22.12.2018 is extracted below:
Office of the Jt.CIT (Central), Raipur Aayakar Bhawan, Civil Lines, Raipur 492001 Email: [email protected] Tel/Fax 2331044 F.No.JCIT(C)/RPR/153D/2018-19 Dated: 22-12-2018 To, The Asst. CIT (Central)-2, Raipur Subject - Approval under u/s 153D of the I.T.Act - Goyal, Satya & Gumber Group - Regarding.Page 23 of 103
Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 Please refer to your letter in F.No. ACIT(C)-2/RPR/153D/Goyal & Satya/2018-19 dated 05/12/2018, F.No. ACIT(C)-2/RPR/153D/ Goyal & Sriram Gumber/2018-19 dated 07/12/2018 and F.No. ACIT(C)/RPR/ 153D/Goyal & Satya/2018-19 dated 14/12/2018.
2. The draft assessment orders u/s 153D and 143(3) in the following cases submitted vide above mentioned letter are hereby approved u/s 153D of the I.T.Act -
S.No. Name of the assessee PAN AY
1 Arun Agrawal ACJPA4642B 2011-12 to 2017-18
2 Deepak Agrawal ACJPA4646F 2011-12 to 2017-18
3 Goyal Energy and Steel P Ltd AACCG2758E 2011-12 to 2017-18
4 Goyal Traders AACFG1974F 2011-12 to 2017-18
5 Ratanlal Agrawal ACJPA4620R 2011-12 to 2017-18
6 Goyal Enterprises AAMFG4058J 2011-12 to 2017-18
7 Satya Power and Ispat Ltd AAHCS4472N 2011-12 to 2017-18
3. Further in view of this office letter no. F. No. JCIT(C)/RPR/Draft Asst.
Order/2016-17/dated 09.09.2016 it is presumed that the AO has:
Given proper opportunity of hearing has been given to the assessee thoroughly verified the seized material and that there are no adverse findings satisfied himself that all the issues emanating from the records have been verified and the additions wherever required have been proposed.
4. You may act accordingly. The copy of the final order may be submitted for record purpose in this office.
Encl: case records Sd/-
(R.M. Mujumdar) Joint Commissioner of Income tax, Range- Central, Raipur.
22. On careful perusal of the approval order of JCIT, we find that the JCIT while granting approval on 22.12.2018 recorded that "it is presumed that the AO has - given proper opportunity of hearing to the assessee, thoroughly verified the seized material and that there is no adverse finding, satisfy himself that all issues emanating from the record have been verified and additions wherever required have been proposed."
23. Before us, the ld AR for the assessee vehemently argued that JCIT has granted approval under section 153D in a casual and mechanical manner and without any application of mind and that from the communication made to the JCIT by AO vide letter dated 14.12.2018, the AO had not made any iota of reference as to what are the seized materials nor furnishes any assurance with respect to approval and appraisal of all evidences and corresponding reply by the assessee. And that ld. JCIT approved the assessment order by presuming that the necessary opportunity has been given to the assessee and all the records, evidences and materials have been thoroughly verified. The JCIT granted bulk approval of 95 assessment Page 24 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 orders which clearly defeats the intent and purpose behind insertion of section 153D brought in the statute by the Finance Act, 2007.
24. We find that the ld. JCIT while granting approval, presumed that Assessing Officer has given proper hearing to the assessee and thoroughly verified seized material and there are no adverse findings, satisfied himself that all the issues emanating from the records have been verified and additions wherever required have been proposed. We further find that there is no independent application of mind on the part of ld. JCIT while granting the approval.
25. We find that coordinate bench of Mumbai Tribunal while considering the similar ground of appeal in granting bulk approval of the assessment under section 153A, in case of Arch Pharmalabs Ltd Vs ACIT (supra) held that the approval accorded under section 153D is without any occasion to refer to the assessment records and seized material, if any, incriminating the assessee and hence such approval is in the realm of an abstract approval of draft assessment orders which was unsubstantiated and unsupported and consequently suffered from total non-application of mind. The relevant part of the order is extracted below:
"11.5 At the cost of repetition, it may be reiterated that in the instant case, approving authority did not mention anything in the approval memo towards his/ her process of deriving satisfaction so as to exhibit his/her due application of mind. We may observe that Para 2 of the above approval letter merely says that "Approval is hereby accorded u/s. 153D of the Income-tax Act, 1961 to complete assessments u/s. 143(3) r.w.s. 153A of the I.T. Act in the following case on the basis of draft assessment orders..."which clearly proves that the Addl. CIT had routinely given approval to the AO to pass the order only on the basis of contents mentioned in the draft assessment order without any application of mind and seized materials were not looked at and/or other enquiry and examination was never carried out. From the said approval, it can be easily inferred that the said order was approved, solely relying upon the implied undertaking obtained from the Assessing Officer in the form of draft assessment order that AO has taken due care while framing respective draft assessment orders and that all the observations made in the appraisal report relating to examination / investigation of seized material and issues unearthed during search have been statedly considered by the AO seeking approval. Thus, the sanctioning authority has, in effect, abdicated his/ her statutory functions and delightfully relegated his/her statutory duty to the subordinate AO, whose action the Additional CIT, was supposed to supervise. The addl. CIT in short appears to have adopted a short cut in the matter and an undertaking from AO was considered adequate by him/ her to accord approval in all assessments involved. Manifestly, the Additional CIT, without any consideration of merits in proposed adjustments with reference to appraisal report, incriminating material collected in search etc. has proceeded to grant a simplicitor approval. This approach of the Additional CIT, Central has rendered the Approval to be a mere formality and cannot be countenanced in law.
26. Similar view was taken by Coordinate bench of Delhi Tribunal in Sanjay Duggal & others (supra).
Page 25 of 103Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18
27. So far as the contention of ld CIT-DR that the assessment under section 153A is passed under the supervision of JCIT and that JCIT granted approval of the draft assessment after considering the material placed before him. We do not find any such satisfaction in the approval order that draft assessment after considering the material placed before him, rather the ld JCIT recorded that it is presumed that the AO granted proper opportunity to the assessee etc.
28. In view, of aforesaid discussion and respectfully following the decisions of coordinate benches in Sanjay Duggal & others (supra) and Archpharma Labs & Acrh Impex P Ltd (supra), we find convincing force in the submissions of the assessee that the approval granted by JCIT suffer from non-application of mind and depends on presumption of proper performance of duty by A.O. such per functionary approval under section 153D cannot termed as legitimate. The consequential assessment orders based on non-est approval under section 153D, thus are void-ab-initio on this ground alone. Considering the facts that we have allowed the appeal on the legal issues therefore, consideration of appeal on merit have become academic."
5.1.5 In the case of Inder International (2021) (Chandigarh-Trib) dtd. 7-6-21:
The said Bench held as under:
"14. In view of the above decision and the fact that in the present case before us also the Addl.CIT has accorded the approval u/s!53D only on 29- 6-17 when the AO placed the assessment order on that very date i.e., 29-6-
17. The relevant approval by the Addl. CIT reads as under:
"Necessary statutory approval u/s 153D is given to pass the above assessment order as such. Assessment record in this case is returned herewith."
15. From the above, it is clear that this is totally non application of mind by the Addl. CIT, who is the supervising authority of the AO while granting statutory approval u/s!53D, the issue stands covered in favour of the assessee by various decisions cited above. In the present case before us, we noted that the Addl. CIT did not mention anything in the approval memo towards his process of deriving satisfaction so as to exhibit his due application of mind. We noted that the Addl. CIT merely approved the letter and the relevant para is noted in above paras. We noted that the relevant para of the above approval letter merely says that "Necessary statutory approval u/s 153D is given to pass the above assessment order as such. Assessment record in this case is returned herewith..." which clearly proves that the Addl. CIT had routinely given approval to the AO to pass the order only on the basis of contents mentioned in the draft assessment order without any application of mind and seized materials were not looked at because that was not available before him at the time of granting of approval to the draft assessment order and other enquiry and examination was never carried out.
Page 26 of 103Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 From the said approval, it can be easily inferred that the said order was approved solely relying upon the implied undertaking obtained from the AO in the form of draft assessment order that AO has taken due care while framing respective draft assessment orders and that all the observations made in the appraisal report relating to examination/ investigation of seized material and issues unearthed during search have been statedly considered by the AO seeking approval.
Thus, the sanctioning authority has, in effect, abdicated his statutory functions and delightfully relegated his statutory duty to the subordinate AO, whose action the Addl.CIT was supposed to supervise. The Addl.CIT in short appears to have adopted a short-cut in the matter and an undertaking from AO was considered adequate by him to accord approval in all assessments involved.
Manifestly, the Addl. CIT, without any consideration of merits in proposed additions with reference to incriminating material collected in search etc. has proceeded to grant a simplicitor approval. This approach of the Addl. CIT, Central has rendered the approval to be a mere formality and cannot be considered as actual approval in law. Hence, we quash the assessment framed u/s!53A on this additional ground alone.
16. Needless to say that we need not adjudicate the grounds raised on merits by the assessee as we have already quashed the assessment on jurisdictional issue that the statutory approval granted u/s!53D is without application of mind by the Addl.CIT.
17. In the result, the appeal of the assessee is allowed."
5.1.6 We have further carefully considered the judgment in case of Dharampal Satyapal Ltd. vs. UOI, reported in (2019) 366 ELT 253. While dealing with the identical issue, the Hon'ble Gauhati High Court has been pleased to observe as follows:
"28. When an Authority is required to give his approval, it is also to be understood that such Authority makes an application of mind as to whether the matter that is required to be approved satisfies all the requirements of Law or procedure to which it may be subjected. In other words, grant of approval and application of mind as to whether such approval is to be granted must coexist and, therefore, where an Authority grants an approval it is also to be construed that there was due application of mind that the subject matter approved and satisfies all the legal and procedural requirements."
5.1.7 The crux of the judgment as relied upon as mentioned hereinabove is this that the required approval should satisfy all the statutory requirements having independent due application of mind and satisfy all the legal and procedural requirements which is in our considered opinion is absent in the case in hand.
5.1.8 We have further considered the judgment relied upon by the assessee in the case of Sahara India (Firm) (2008) 300 ITR 403 (SC), wherein, it is held that prior approval by the CIT or CCIT in terms of Section 142(2A) of Page 27 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 the Act is an inbuilt protection against arbitrary or unjust exercise of power by the Ld. AO. Casting upon a serious duty upon the high ranking authority to take care of this particular aspect of the matter on account of approval envisaged in Section has now turned into an empty ritual. The approval is required to be granted only on the basis of documents available on record and that must reflect proper application of mind on the facts and circumstances of the case as of the ultimate ratio laid down by the Hon'ble Supreme Court.
5.1.9 On this aspect, we have also relied upon the CBDT Circular No. 3/2008, dtd. 12.03.2008, whereby and whereunder, the CBDT has issued instructions regarding mandatory approval u/s153D of the Act in the event, the order is passed by an AO below the rank of JCIT. The same is also in reiterating the view taken by us. We would like to note that the essence of the judgment passed by the Hon'ble Supreme Court in the matter of Sahara India (supra) in regard granting of approval under Section 142(2A) of the Act is also applicable in the instant case in regard to granting approval under Section 153D of the Act. The statutory requirement as envisaged and further upheld by the Hon'ble Supreme Court in the said judgment is equally applicable in the case in hand.
5.2 The Revenue has failed to place any cogent evidence to the effect of granting approval of the draft assessment order upon exercising adequate time and upon examining the materials needs to be considered in terms of the statutory provision. We do not find any proper application of mind by the Addl. CIT rather he has carried out exercise in utmost haste and that too in mechanical manner, not in terms of the mandate prescribed under Section 153D of the Act. The same is, therefore, not found to be sustainable. We have also discussed different judgments passed by different judicial forums on the identical issue and has been inspired to come to the conclusion as made by us hereinabove. We, therefore, set aside the approval granted by the ACIT (Central), Bhopal. The consequential impugned assessment orders on this nonest approval under Section 153D of the Act are, thus, void-ab-initio and on this score alone, the entire proceeding is, thus, quashed. This covers both abated and unabated assessments. Cross Objection Nos. 13 to 17/Ind/2021 and IT(SS)A Nos. 36 & 37/Ind/2020 filed by the appellant stand allowed. Consequently, departmental appeals become infructuous and thus dismissed as infructuous. Since, the additions have been deleted by us on the ground of non-compliance of mandate prescribed under Section 153D of the Act, the other grounds raised by the assessee have become academic. No further adjudication is required."
[Emphasis supplied]
9. Ld. AR pointed out that the assessee's name 'Prakash Assudani' alongwith PAN 'AEFPA8202H' appears at S.No. 1 and the name of M/s Shri Gumukhdas Contractors Pvt. Ltd. appears at S.No. 3 in the aforesaid proposal- letter dated 28.12.2018 and approval dated 29.12.2018 u/s 153D, extensively dealt by Co-ordinate Bench of ITAT, Indore; therefore the case of assessee is fully covered by the decision of Hon'ble Co-ordinate Bench in the above order and nothing more is required to be examined or analysed. Accordingly, Ld. AR prayed to apply the same decision to the present appeals Page 28 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 of assessee and quash the entire assessment proceeding done by revenue- authorities.
10. We have carefully considered submissions of assessee and perused the documents filed in the Paper-Book as well as the aforesaid order of Co- ordinate Bench. On a careful consideration, we find that the assessee is also a part of the same search; same assessment-proceeding; same proposal letter dated 28.12.2018 sent by same AO to same Addl. CIT seeking approval u/s 153D; and same approval dated 29.12.2018 granted by same Addl. CIT u/s 153D, as in ITA No. 70 to 76/Ind/2020, DCIT Vs. M/s Shri Gurumukhdas Contractors Pvt. Ltd. (supra). Ld. DR representing the revenue could not contradict or rebut this finding expressed by us in the open court. Therefore, respectfully following the view already taken by Hon'ble Co-ordinate Bench, we too hold that there was no application of mind by Ld. Addl. CIT who has granted approval u/s 153D in a mechanical manner, not in terms of the mandate prescribed u/s 153D of the Act. Consequently, we too quash the assessment-orders passed by Ld. AO in all these appeals before us. The assessee succeeds in its claim."
11. Since we have quashed the assessment-orders, other grounds (original as well as additional) are left open and we do not adjudicate them at this stage."
(ii) The second decision relied by Ld. AR is a recent judgement dated 15.03.2023 of Hon'ble Orissa High Court in ACIT Vs. M/s Serajuddin & Co. (2023) 150 taxmann.com 146 (Orissa). The SLP filed by revenue against this judgement has already been dismissed by Hon'ble Supreme Court vide order dated 28.11.2023. Copy of order of Hon'ble Supreme Court is filed at Page 623 of Paper-Book. We extract below the relevant paras of the judgement of Hon'ble High Court as under:
"3. The background facts are that a search and seizure operation under Section 132 of the Act was conducted in the case of the Assessee and various persons and concerns of the Assessee on 28th May, 2008. Notice dated 11th March 2010 under Section 153A of the Act was served on the Assessee. Notices under Section 142 (1) of the Act dated 19th May 2010 and reminders dated 1st July and 21st July 2010 were also issued. On 30th December 2010, the Assistant Commissioner of Income Tax (ACIT) Circle-1(2), Bhubaneswar (hereafter, the Assessing Officer-AO) passed assessment orders under Section 143(3)/144/153A of the Act making various additions/ disallowances.Page 29 of 103
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4. The Assessee then filed appeals before the CIT (A). One of the grounds for challenge was the non-compliance with Section 153D of the Act which requires prior approval of the Additional Commissioner of Income Tax (Additional CIT). The stand of the Revenue was that such approval had been sought by the AO and granted by the Additional CIT prior to the passing of the assessment order.
5. By an order dated 28th February 2013, the CIT (A) partly allowed the appeals. The CIT (A), however, held that it is not necessary that the fact of approval of the Additional CIT was required to be mentioned in the body of the assessment order. The CIT (A) observed that there was a consolidated approval order dated 30th December 2010 given by the Additional CIT for AYs 2003-04 and 2009-10 and therefore, this ground had no merit.
6. The Assessee filed further appeals before the ITAT contending that the guidelines contained in Circular No.3 of 2008 dated 12th March 2008 issued by the Central Board of Direct Taxes (CBDT) had not been followed. It was further contended by the Assessee that the so-called approval of the Additional CIT under Section 153D of the Act had been granted in a mechanical manner without application of mind. Reference was made to the letter dated 29th December 2010 of the AO addressed to the Additional CIT Range-1 seeking approval under Section 153D of the Act and the letter dated 30th December 2010 of the Additional CIT addressed to the AO communicating the approval. Reference was also made to the decision dated 29th November 2019 of the ITAT in IT (SS) A Nos. 66 to 71/CTK/2018 (Dillip Construction Pvt. Ltd. v. ACIT) which held the guidelines contained in the aforementioned Circular to be mandatory and binding on the Department.
7. The ITAT has, in the impugned order, referred to the decision of the Bombay High Court in Akil Gulamali Somji and other decisions of the ITAT to come to the conclusion that the approving authority did not apply his mind to the relevant assessment records or to the draft assessment orders prior to granting approval to the AO under Sections 143(3)/144/153A. The assessment orders were accordingly set aside. As a result, the cross appeals of the Revenue were held to be infructuous and disposed of as such.
8. Mr. T.K. Satapathy, learned Senior Standing Counsel for the Revenue made the following submissions:
(i) In the present case, prior approval had in fact been taken by the AO from the Additional CIT and there was no illegality in that regard.
(ii) The approval of the superior officer was distinct from the assessment order. It was a mere administrative order and not open to challenge before a court of law.
In other words, it was submitted that the approval granted by the Additional CIT was not justiciable and could not form the basis for challenging the assessment order.
(iii) What could only be challenged is want of sanction. Reliance was placed on the decision of the ITAT, Mumbai in ITA No.3874/ Mumbai/2015 (Pratibha Pipes & Structural Limited v. DCIT).
(iv) There was no requirement for any hearing to be given to the Assessee by the supervisory officer prior to giving approval although Clause-9 of the Manual of Office Procedure stipulates it. This, therefore, cannot be said to be mandatory. Reliance was placed on the decisions of the Karnataka High Court in Gopal S. Page 30 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 Pandit v. CIT 96 taxmann.com 233 and Rishab Chand Bhansali v. DCIT 267 ITR 577 and of the Madras High Court in Sakthivel Bankers v. ACIT 255 ITR 144 which were all in the context of Section 158 BG of the Act.
(v) The mere irregularity in granting approval in the context of Section 158BG of the Act was held not to be fatal to the assessment order. Reliance was placed on the orders of the Kolkata ITAT in Shaw Wallace & Co. Ltd. v. ACIT, 68 ITD 148 and of the Delhi ITAT in Kailash Moudgil v. DCIT, 72 ITD 97. Reliance was also placed on the decision of the Karnataka High Court in Gayathri Textiles v. CIT, 111 taxman 123 where it was held that for the purpose of Section 271 (1) (c) of the Act, the failure to obtain prior permission from the IAC for imposing penalty was only a procedural error and not fatal to the order of penalty.
(vi) Since the entire documents were already available to the Additional CIT in the file sent for approval, there was no need for exchange of the said documents prior to the grant of formal approval under Section 153D of the Act.
(vii) Lastly, it was submitted that even if there had been a violation of the principles of natural justice, unless prejudice were shown by the Assessee, no interference with the assessment orders was warranted. Reliance was placed on the decisions in Dharampal Satyapal Limited v. Deputy Commissioner of Central Excise Gauhati (2015) 8 SCC 519; Managing Director, ECIL v. B. Karunakar (1993) 4 SCC 727; Haryana Financial Corporation v. Kailash Chandra Ahuja (2008) 9 SCC 31; State Bank of Patiala v. S.K. Sharma (1996) 3 SCC 364; P.D. Agrawal v. State of Bank of India (2006) 8 SCC 776 and State of U.P. v. Sudhir Kumar Singh. It was then submitted that where initiation was valid but completion was not correct, the order may not be invalid but only irregular because the intervening irregularity is a curable one. Reliance was placed on the decision of the Kerala High Court in Panicker (CGG) v. CIT, (1999) 237 ITR 443 and CIT v. M. Krishnan (N) (1999) 235 ITR 386. It was submitted that mere technicality should not defeat justice.
9. On behalf of the Assessee submissions were made by Mr. Ramesh Singh, Senior Advocate; Mr. Sidhartha Ray, Senior Advocate; Mr. Ashok Kumar Parija, Senior Advocate as well as Mr. S. Ganesh, Senior Advocate. They drew attention of the Court to the relevant clauses of the CBDT Circular dated 12th March 2008 and the decisions in Sahara India (Firm,) Lucknow v. Commissioner of Income Tax (2008) 14 SCC 151; Rajesh Kumar v. Deputy CIT, (2007) 2 SCC 181 and the decisions of the Delhi High Court in ESS Advertising (Mauritius) v. Assistant Commissioner of Income Tax, (2021) SCC OnLine Del 3613; Principal Commissioner of Income Tax-6 v. M/s. N.C. Cables Ltd., 2017 SCC OnLine Del 6533; Yum ! Restaurants Asia Pte.Ltd. v. Deputy Director of Income Tax, (2017) 397 ITR 665; Syfonia Tradelinks Private Limited v. Income Tax Officer; 2021 SCC OnLine Del 2692 and German Remedies Limited v. DCIT 2006 (1) Maharashtra Law Journal 517.
10. At the outset, it requires to be noticed that many of the decisions referred to both on the side of the Revenue as well as the Assessee do not directly refer to Section 153D of the Act which was inserted with effect from 1st June, 2007. There is no doubt about the applicability of the said provision since the proceedings under Section 153A of the Act was initiated in the present case after that date.
Page 31 of 103Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18
11. Among the changes brought about by the Finance Act 2007 was the insertion of Section 153D of the Act. The CBDT circular dated 12th March 2008 refers to the various changes and inter alia also to the change brought about by the insertion of a new Section 153D of the Act. Paragraph 50 of the said circular is relevant and reads as under:
"50. Assessment of search cases--Orders of assessment and reassessment to be approved by the Joint Commissioner.
50.1 The existing provisions of making assessment and reassessment in cases where search has been conducted under section 132 or requisition is made under section 132A, does not provide for any approval for such assessment.
50.2 A new section 153D has been inserted to provide that no order of assessment or reassessment shall be passed by an Assessing Officer below the rank of Joint Commissioner except with the previous approval of the Joint Commissioner. Such provision has been made applicable to orders of assessment or reassessment passed under clause (b) of section 153A in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A. The provision has also been made applicable to orders of assessment passed under clause (b) of section 153B in respect of the assessment year relevant to the previous year in which search is conducted under section 132 or requisitioned is made under section 132A.
50.3 Applicability- These amendments will take effect from the 1st day of June, 2007."
12. It must be noted at this stage that even prior to the introduction of Section 153D in the Act, there was a requirement under Section 158BG of the Act, which was substituted by a Finance Act 14 of 1997 with retrospective effect from 1st January 1997, of the AO having to obtain a previous approval of the JCIT/Additional CIT by submitting a draft assessment order following a search and seizure operation.
13. The CBDT issued the Manual of Office Procedure in February 2003 in exercise of the powers under Section 109 of the Act. Para 9 of Chapter 3 of Volume-II (Technical) of the Manual reads as under:
"9. Approval for assessment: An assessment order under Chapter XIV-B can be passed only with the previous approval of the range JCIT/ADDL.CIT (For the period from 30-6-1995 to 31-12-1996 the approving authority was the CIT.). The Assessing Officer should submit the draft assessment order for such approval well in time. The submission of the draft order must be docketed in the order-sheet and a copy of the draft order and covering letter filed in the relevant miscellaneous records folder. Due opportunity of being heard should be given to the assessee by the supervisory officer giving approval to the proposed block assessment, at least one month before the time barring date. Finally once such approval is granted, it must be in writing and filed in the relevant folder indicated above after making a due entry in the order-sheet. The assessment order can be passed only after the receipt of such approval. The fact that such approval has been obtained should also be mentioned in the body of the assessment order itself."Page 32 of 103
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14. The requirement of prior approval under Section 153D of the Act is comparable with a similar requirement under Section 158BG of the Act. The only difference being that the latter provision occurs in Chapter-XIV-B relating to "special procedure for assessment of search cases" whereas Section 153D is part of Chapter-XIV.
15. A plain reading of Section 153D itself makes it abundantly clear that the legislative intent was to be obtaining of "prior approval" by the AO when he is below the rank of a Joint Commissioner, before he passes an assessment order or reassessment order under Section 153A(1)(b) or 153B(2)(b) of the Act.
16. That such an approval of a superior officer cannot be a mechanical exercise has been emphasized in several decisions. Illustratively, in the context of Section 142 (2- A) which empowers an AO to direct a special audit. The obtaining of the prior approval was held to be mandatory. The Supreme Court in Rajesh Kumar v. Dy. CIT (2007) 2 SCC 181 observed as under:
"58. An order of approval is also not to be mechanically granted. The same should be done having regard to the materials on record. The explanation given by the assessee, if any, would be a relevant factor. The approving authority was required to go through it. He could have arrived at a different opinion. He in a situation of this nature could have corrected the assessing officer if he was found to have adopted a wrong approach or posed a wrong question unto himself. He could have been asked to complete the process of the assessment within the specified time so as to save the Revenue from suffering any loss. The same purpose might have been achieved upon production of some materials for understanding the books of accounts and/ or the entries made therein. While exercising its power, the assessing officer has to form an opinion. It is final so far he is concerned albeit subject to approval of the Chief Commissioner or the Commissioner, as the case may be. It is only at that stage he is required to consider the matter and not at a subsequent stage, viz., after the approval is given."
17. It is therefore not correct on the part of the Revenue to contend that the approval itself is not justiciable. Where the approval is granted mechanically, it would vitiate the assessment order itself. In Sahara India (Firm) Lucknow v. Commissioner of Income Tax (supra), the Supreme Court explained as under:
"8. There is no gainsaying that recourse to the said provision cannot be had by the Assessing Officer merely to shift his responsibility of scrutinizing the accounts of an assessee and pass on the buck to the special auditor. Similarly, the requirement of previous approval of the Chief Commissioner or the Commissioner in terms of the said provision being an inbuilt protection against any arbitrary or unjust exercise of power by the Assessing Officer, casts a very heavy duty on the said high ranking authority to see to it that the requirement of the previous approval, envisaged in the Section is not turned into an empty ritual. Needless to emphasise that before granting approval, the Chief Commissioner or the Commissioner, as the case may be, must have before him the material on the basis whereof an opinion in this behalf has been formed by the Assessing Officer. The approval must reflect the application of mind to the facts of the case."Page 33 of 103
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18. The contention of the Revenue in those cases that the non- compliance of the said requirement does not entail civilconsequences was negatived. Reiterating the view expressed in Rajesh Kumar (supra), the Supreme Court in Sahara India (Firm) Lucknow v. Commissioner of Income Tax (supra) held as under:
"29. In Rajesh Kumar (2007) 2 SCC 181 it has been held that in view of Section 136 of the Act, proceedings before an Assessing Officer are deemed to be judicial proceedings. Section 136 of the Act, stipulates that any proceeding before an Income Tax Authority shall be deemed to be judicial proceedings within the meaning of Sections 193 and 228 of Indian Penal Code, 1860 and also for the purpose of Section 196 of I.P.C. and every Income Tax Authority is a court for the purpose of Section 195 of Code of Criminal Procedure, 1973. Though having regard to the language of the provision, we have some reservations on the said view expressed in Rajesh Kumar's case (supra), but having held that when civil consequences ensue, no distinction between quasi judicial and administrative order survives, we deem it unnecessary to dilate on the scope of Section 136 of the Act. It is the civil consequence which obliterates the distinction between quasi judicial and administrative function. Moreover, with the growth of the administrative law, the old distinction between a judicial act and an administrative act has withered away. Therefore, it hardly needs reiteration that even a purely administrative order which entails civil consequences, must be consistent with the rules of natural justice. (Also see: Maneka Gandhi v. Union of India (1978) 1 SCC 248 and S.L. Kapoor v. Jagmohan (1980) 4 SCC 379).
30. As already noted above, the expression "civil consequences" encompasses infraction of not merely property or personal rights but of civil liberties, material deprivations and non-pecuniary damages. Anything which affects a citizen in his civil life comes under its wide umbrella. Accordingly, we reject the argument and hold that since an order under Section 142 (2A) does entail civil consequences, the rule audi alteram partem is required to be observed."
19. To the same effect, are the decisions of the Delhi High Court in Yum! Restaurants Asia Pte. Ltd. v. Deputy Director of Income Tax (supra) which dealt with the requirement under Section 151 (2) of the Act for initiating proceedings under Section 147 read with 148 of the Act. It was observed as under:
"11. The purpose of Section 151 of the Act is to introduce a supervisory check over the work of the AO, particularly, in the context of reopening of assessment. The law expects the AO to exercise the power under Section 147 of the Act to reopen an assessment only after due application of mind. If for some reason, there is an error that creeps into this exercise by the AO, then the law expects the superior officer to be able to correct that error. This explains why Section 151 (1)requires an officer of the rank of the Joint Commissioner to oversee the decision of the AO where the return originally filed was assessed under Section 143 (3) of the Act. Further, where the reopening of an assessment is sought to be made after the expiry of four years from the end of the relevant AY, a further check by the further superior officer is contemplated."
20. The non-compliance of the requirement was held to have vitiated the notice for reopening of the assessment. Likewise, inSyfonia Tradelinks Private Limited v. Income Tax Officer (supra) the Delhi High Court disapproved of the rubber stamping by the superior officer of the reasons furnished by the AO for issuance of the sanction.
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21. It is seen that in the present case, the AO wrote the following letter seeking approval of the Additional CIT:
GOVERNMENT OF INDIA OFFICE OF THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1(2), BHUBANESWAR No. ACIT/C-1(2)//Approval/2010-11/5293 Dated, Bhubaneswar, the 27/29th December, 2010 To The Addl. Commissioner of Income-tax, Range-1, Bhubaneswar.
Sub: Approval of draft orders u/s 153D of the I.T. Act 1961 in the case of M/s. Serajuddin & Co. 19A, British India Street, Kolkata (in Serajuddin Group of Cases)- matter regarding.
Sir, Enclosed herewith kindly find the draft orders u/s 153A of the I.T.Act, 1961 along with assessment records in the case of M/s Serajuddin & Co., 19A, British India Street, Kolkata for kind perusal and necessary approval u/s.153D.
No. Name of the Section under which order passed Asst. Year assessee
1. M/s. Serajuddin & 19A,u/s 153A/143(3)/144/145(3) 2003-04 Co.,British India Street, Kolkata
2. -do- -do- 2004-05
3. -do- -do- 2005-06
4. -do- -do- 2006-07
5. -do- -do- 2007-08
6. -do- -do- 2008-09
7. -do- U/s.143(3)/144/153B(B)/145(3) 2009-10
3) The above cases will be barred by limitation on 31.12.2010.
Encl: As above Yours faithfully, Sd/-
Asst. Commissioner of Income-tax, Circle-1(2), Bhubaneswar Government of India OFFICE OF THE ADDL. COMMISSIONER OF INCOME TAX, 3 Floor, Range-1, Bhubaneswar No. Addl. CIT/R-1/BBSR/SD/2010-11/5350 Dated, Bhubaneswar, the 30th December, 2010 To The Assistant Commissioner of Income Tax, Circle-1(2), Bhubaneswar.
Sub: Approval u/s 153D-in the case of M/s Serajuddin & Co., 19A, British India Street, Kolkata-Matter regarding.
Page 35 of 103Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 Ref: Draft Orders u/s 153A/143(3)/144 for the A.Y. 2003- 04 to 2008- 09 u/s.143(3)/153B (b)/144 of the A.Y.2009-10 in the case of above mentioned assessee.
Please refer to the above.
The draft orders u/s 153A/143(3)/144 for the A.Y. 2003-04 to 2008-09 and u/s. 143(3)/153B(b)/144 for the A.Y. 2009-10 submitted by you in the above case for the following assessment years are hereby approved:
Assessment Year Income Determined (Rs)
2003-04 11,66,22,771
2004-05 36,46,80,016
2005-06 65,70,12,805
2006-07 60,02,65,791
2007-08 130,03,13,307
2008-09 274,68.87,069
2009-10 301,17,05,952
You are requested to serve these orders expeditiously on the assessee, submit a copy of final order to this office for record.
Sd/-
Addl. Commissioner of Income Tax, Range-1, Bhubaneswar
22. As rightly pointed out by learned counsel for the Assessee there is not even a token mention of the draft orders having been perused by the Additional CIT. The letter simply grants an approval. In other words, even the bare minimum requirement of the approving authority having to indicate what the thought process involved was is missing in the aforementioned approval order. While elaborate reasons need not be given, there has to be some indication that the approving authority has examined the draft orders and finds that it meets the requirement of the law. As explained in the above cases, the mere repeating of the words of the statute, or mere "rubber stamping"
of the letter seeking sanction by using similar words like 'see' or 'approved' will not satisfy the requirement of the law. This is where the Technical Manual of Office Procedure becomes important. Although, it was in the context of Section 158BG of the Act, it would equally apply to Section 153D of the Act. There are three or four requirements that are mandated therein, (i) the AO should submit the draft assessment order "well in time". Here it was submitted just two days prior to the deadline thereby putting the approving authority under great pressure and not giving him sufficient time to apply his mind; (ii) the final approval must be in writing; (iii) The fact that approval has been obtained, should be mentioned in the body of the assessment order.Page 36 of 103
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23. In the present case, it is an admitted position that the assessment orders are totally silent about the AO having written to the Additional CIT seeking his approval or of the Additional CIT having granted such approval. Interestingly, the assessment orders were passed on 30th December 2010 without mentioning the above fact. These two orders were therefore not in compliance with the requirement spelt out in para 9 of the Manual of Official Procedure.
24. The above manual is meant as a guideline to the AOs. Since it was issued by the CBDT, the powers for issuing such guidelines can be traced to Section 119 of the Act. It has been held in a series of judgments that the instructions under Section 119 of the Act are certainly binding on the Department. In Commissioner of Customs v. Indian Oil Corporation Ltd. 2004 (165) E.L.T. 257 (S.C.) the Supreme Court observed as under:
"Despite the categorical language of the clarification by the Constitution Bench, the issue was again sought to be raised before a Bench of three Judges in Central Board of Central Excise, Vadodara v. Dhiren Chemicals Industries:
2002 (143) ELT 19 where the view of the Constitution Bench regarding the binding nature of circulars issued under Section 37B of the Central Excise Act, 1944 was reiterated after it was drawn to the attention of the Court by the Revenue that there were in fact circulars issued by the Central Board of Excise and Customs which gave a different interpretation to the phrase as interpreted by the Constitution Bench. The same view has also been taken in Simplex Castings Ltd. v. Commissioner of Customs, Vishakhapatnam 2003 (5) SCC
528. The principles laid down by all these decisions are: (1) Although a circular is not binding on a Court or an assessee, it is not open to the Revenue to raise the contention that is contrary to a binding circular by the Board.
When a circular remains in operation, the Revenue is bound by it and cannot be allowed to plead that it is not valid nor that it is contrary to the terms of the statute.
(2) Despite the decision of this Court, the Department cannot be permitted to take a stand contrary to the instructions issued by the Board.
(3) A show cause notice and demand contrary to existing circulars of the Board are ab initio bad.
(4) It is not open to the Revenue to advance an argument or file an appeal contrary to the circulars."
25. For all of the aforementioned reasons, the Court finds that the ITAT has correctly set out the legal position while holding that the requirement of prior approval of the superior officer before an order of assessment or reassessment is passed pursuant to a search operation is a mandatory requirement of Section 153D of the Act and that such approval is not meant to be given mechanically. The Court also concurs with the finding of the ITAT that in the present cases such approval was granted mechanically without application of mind by the Additional CIT resulting in vitiating the assessment orders themselves.
26. The question of law framed is therefore answered in the affirmative i.e., in favour of the Assessee and against the Department.
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27. The appeals are accordingly dismissed, but in the circumstances, with no order as to costs."
(iii) The third decision relied by Ld. AR is Geetarani Panda Vs. ACIT, IT(SS)A No. 01/CTK/2017 order dated 05.07.2018 of ITAT, Cuttack Bench, the relevant paras are as under:
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(iv) The fourth decision relied by Ld. AR is M/s Rishabh Buildwell Pvt.
Ltd. & Ors. Vs. DCIT, ITA No. 2122 & others, order dated 04.07.2019 of ITAT, Delhi, the relevant paras are as under:
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9. Ld. AR lastly pointed out that the assessee also raised this issue in first-appeal but the CIT(A) has rejected assessee's claim merely stating that the AO has taken a prior approval of the Addl. CIT. The CIT(A) has not addressed the claim of assessee that the impugned approval taken/given was not a 'valid approval' in terms of section 153D.
10. Replying to above submissions of Ld. AR, the Ld. DR for revenue made a limited submission that the Addl. CIT has given approval in such a manner only to take care of other additions, if any. Therefore, the approval cannot be said to be contingent or provisional. He contended that a perfect and valid approval has been given by Addl. CIT for which no adverse view can be taken.
11. We have heard arguments of both sides peacefully and at length. We have also carefully perused the documents held in the Paper-Book in the light of section 153D and various judicial rulings, to which our attention has been drawn. After a mindful consideration, we firstly find that the conclusion coming out of various judicial rulings is very strong and clear i.e. the approval u/s 153D has to be a well analysed, considered and with due diligence; it cannot be a mere perfunctory, technical, mechanical, performa or paper approval. Further, the approval cannot be a contingent or provisional approval also, it has to be a clear-cut final approval. In the light of the judicial view, when we look at the approval given by Addl. CIT, we find some critical points as mentioned by Ld. AR as under:Page 44 of 103
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(i) In first sentence of para 2 of approval-order, the Addl. CIT has mentioned that he has gone through the draft-order. There is no whisper, much less any kind of satisfaction, about the examination of any of the record or even the appraisal-report which would of course be a minimum necessity.
(ii) In the immediate next sentence, the Addl. CIT has clearly confessed that due to 'paucity of time', he has 'approved the AO to proceed to complete assessment as proposed', and
(iii) Yet in next sentence, the Addl. CIT has also mentioned that the assessee's case may be examined after completion of time-barring assessment and in case any further action is required, the AO shall propose remedial action as per law.
These clear-cut mentions/confessions by Addl. CIT clearly reveal that the approval given in present case is only a perfunctory, technical, mechanical, performa or paper approval just to give a 'green signal' or 'go ahead' to the draft assessment-order prepared by AO. Further, it is also discernible that the approval is contingent or provisional, it is not a final approval for the reason that the AO has been asked to 'examine' or rather we may say 're-
examine' assessee's case after completion of time-barring assessment. If we go into the timeline of events, the AO mooted proposal to Addl. CIT vide letter dated 26.12.2018, the Addl. CIT granted approval vide letter dated Page 45 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 28.12.2018 and the AO passed assessment-order on 29.12.2018. The Addl.
CIT has also mentioned "Considering the paucity of time, the AO is approved to proceed to complete the assessment as proposed." This shows that everything has been done at the feg end only to meet or cross the legal hurdle of section 153D on paper. In our considered view, the provision enshrined in section 153D as enacted by the Parliament cannot be treated as an empty formality or a mere ritual, the provision has an avowed objective. It is apparent that the objective behind enactment of section 153D must be at least two-folds, namely (i) the approval of senior officer like JCIT/Addl. CIT would ensure that the assessee is not prejudiced by undue or irrelevant additions or high-pitched assessment by AO and (ii) the senior officer would also ensure that the revenue is also not prejudiced by under-
assessment. Therefore, the section 153D involves a mindful consideration by senior officer to safeguard interest of both sides i.e. assessee as well as revenue. That is why this important provision of section 153D was subsequently introduced in law through Finance Act, 2007 w.e.f.
01.06.2007. In present case, it is quite clear that the senior officer has failed to perform such duty. The factum of serious prejudice caused to the assessee is prima facie manifest from the very fact that the CIT(A) has deleted all additions made by AO on merit and it is the revenue which has filed appeals on merits. On other side, the Ld. DR for revenue is himself, while dutifully defending the approval which he is required to, submitting Page 46 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 that the approval was given in such a manner to take care of any additional income. This submission of Ld. DR is itself a clear pointer that even revenue's interest was not verified by Addl. CIT due to paucity of time. In such a case, how can we accept that the approval was not a perfunctory, technical, mechanical, performa or paper approval or a mere formality done by authorities? We note that the Hon'ble Orissa High Court in ACIT Vs. M/s Serajuddin & Co. (supra) has, after an extensive discussion, clearly held that the approval is not meant to be given mechanically and upheld ITAT's order quashing the assessment-order framed by AO. The revenue's SLP challenging the decision of High Court has already been dismissed by Hon'ble Supreme Court. In Para 22 of its order, the Hon'ble High Court, taking note of essential requirements of taking/giving approval from "Technical Manual of Office Procedure" published by Income-tax Department, also observed thus "the AO should submit the draft assessment-
order "well in time", Here it was submitted just two days prior to the deadline thereby putting the approving authority under great pressure and not giving him sufficient time to apply his mind." In the present case also, the AO has given just 2 days to the Addl. CIT and that is why the Addl. CIT had to mention it as a situation of "paucity of time". Thus, in the light of various decisions, we hold that the approval given by Addl. CIT is not a valid approval as mandated by section 153D and consequently the assessment-
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order passed by AO. Ground No. 3 is thus allowed.
12. Since we have already quashed the assessment-order itself while adjudicating Ground No. 3, we need not go into other grounds of cross-
objection. Even otherwise, there is no submission by either side on other grounds. Therefore, all other grounds do not require any adjudication from us being non-pressed/non-pleaded.
13. In view of above discussion, the twin cross-objections of assessee are allowed.
14. Now we take up revenue's appeals.
Revenue's appeal - IT(SS)A No. 62/Ind/2021 for AY 2016-17:
15. The revenue has raised following grounds:
(1) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of Rs. 2,20,00,000/- made by the AO on account of undisclosed business income.
(2) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of Rs. 13,20,000/- made by the AO on account of unaccounted interest income.
(3) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of Rs. 2,30,00,000/- made by the AO on account of unexplained cash credits u/s 68 of the Income-tax Act, 1961.
Ground No. 1 & 2:
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16. In Ground No. 1, the revenue claims that the CIT(A) has erred in deleting the addition of Rs. 2,20,00,000/- made by AO on account of undisclosed business income and in Ground No. 2, the revenue claims that the CIT(A) has erred in deleting the addition of Rs. 13,20,000/- made by AO on account of unaccounted interest income. Both additions and therefore grounds are related.
17. The AO has dealt these additions in Para 8 & 9 of assessment-order.
He has noted that during the course of search on 12.07.2016 at the premise of Shri Keshrimal Jain (father of assessee) at 7/1, Yashwant Niwas Road, a diary inventorised as 'BS-1 (Page 1 to 8)' was found and seized which contained certain calculations of loans given and interest received. When the assessee was confronted qua this diary, he stated in statements recorded u/s 132(4) on 14.07.2016 that (i) all entries were made by his employees under his direction and (ii) the entries were not recorded in books. The AO has further noted that the assessee surrendered a total business income of Rs. 6,95,00,000/- in the names of three persons, namely (i) Rs.
2,20,00,000/- in his name (Shri Naveen Kumar Jain), (ii) Rs. 1,75,00,000/-
in the name of Shri Mukesh Kumar Jain and (iii) Rs. 3,00,00,000/- in the name of Shri Sunil Kumar Jain. The AO has re-produced statement of assessee in Para 8.2 of assessment-order. However, the assessee did not disclose surrendered income in his return. Therefore, the AO show-caused assessee vide notice dated 31.10.2018 in response to which the assessee Page 49 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 filed a reply dated 26.11.2018 contending that the authorities had obtained a 'forced surrender' from him and that he had already retracted his statement vide letter dated 29.08.2017. However, the AO rejected assessee's submission/retraction on these reasons, namely (i) the retraction-letter was filed after more than one year of recording statements, (ii) the retraction is not supported by any corroborative evidence, (iii) the assessee has not been able to produce any evidence in support of the claim that the surrender was 'under pressure' and (iv) no affidavit of panchas (witnesses of search) has been filed. Ultimately, vide Para 8.10 of assessment-order, the AO made addition of Rs. 2,20,00,000/- in assessee's hands on account of unexplained loans given (and respective additions are also made in two persons).
Further, in next Para 9, the AO made addition of estimated interest income of Rs. 13,20,000/- alleged to have been earned by assessee on the impugned loans of Rs. 2,20,00,000/-.
18. During first-appeal, the CIT(A) dealt this issue in Para 4.2 wherein he deleted both additions fully.
19. Before us, Ld. DR for revenue strongly supported the order of AO and opposed the order of CIT(A). He submitted that the assessee has made a surrender in statements recorded u/s 132(4) during search, therefore it was a statutory obligation of assessee to honour surrender, declare income in return and pay due tax. He submitted that since the assessee failed to do so, the AO has rightly made addition while framing assessment. Drawing our Page 50 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 attention to the order of first-appeal, he submitted that the CIT(A) has deleted addition made by AO for three reasons which are not valid:
(a) The CIT(A) has noted that the AO made addition on suspicion, surmise and conjecture without having incriminating material. This is contrary to the record because a diary inventorised as "BS-1" was found and seized during the search which revealed financial transactions.
(b) The CIT(A) has noted that the AO made addition on the basis of material found at third-party premise i.e. premise of Shri Keshrimal Jain. This is again contrary to the fact because the diary was seized from premise at 7/1, Yashwant Niwas Road, Indore which is also address of assessee.
(c) The CIT(A) has noted that the AO erred in making addition on the basis of retracted-statement. This is also wrong because the statements of assessee were recorded on 14.07.2016 whereas the retraction was made on 29.08.2017. Thus, the retraction is after about 13 months which is not acceptable. Further, the retraction was made by a letter sent through post only which is without any oath and without giving any basis. There is no complaint made by assessee to the higher authorities regarding the force or duress, if any, exercised by authorities during search.Page 51 of 103
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20. Per contra, Ld. AR for assessee strongly defended the order of CIT(A) and made following submissions to show that the CIT(A) has properly dealt every aspect of assessee's case and passed a perfect order which must be upheld:
20.1 The first point accepted by CIT(A) that no incriminating material was found during search is very much correct as is clear from following vital facts:
(a) In so far as the alleged seizure of diary "BS-01" is concerned, the assessee filed a detailed retraction-letter dated 29.08.2017 to the authorities, copy at Page 11-16 of Paper-Book which is scanned and re-produced below:Page 52 of 103
Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 Page 53 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 Page 54 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 Page 55 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 Page 56 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 Page 57 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 Page 58 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 Referring to the contents of above retraction-letter, Ld. AR submitted that in Para 4, the assessee clearly informed that the surrender had been obtained by pressurizing assessee for making declaration of undisclosed income in spite of the fact that no incriminating document/evidence was recovered by department during the course of action under section 132. Further, in Para 11, the assessee also submitted that the searching party has recorded surrender in respect of noting in the diary but no such transaction had ever taken place and no such person named in the diary really existed. In the same para, the assessee also made a specific request to the Deputy Director of Income-tax (Investigation)-I, Indore to get forensic report for determining the creation of diary. The assessee submitted that forensic report will prove that the diary was created at one single sitting within a span of just 10 minutes during search. The assessee repeated this very request again to AO vide letter dated 26.11.2018, copy at Page 33-34 of Paper-Book. But none of the authorities have acted upon assessee's request. Had the authorities acted, the truth would have surfaced. Ld. AR also submitted that the AO, for the reasons best known to him, has not made any whisper qua assessee's request of forensic opinion in assessment-order also. Thus, Ld. AR contended, the assessee's strong claim is such that the impugned diary was made during search itself.Page 59 of 103
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(b) That no incriminating material was found or seized from assessee which could have corroborated the contents of diary even remotedly. It is highly improbable that if the assessee would have been doing money lending work on interest, there would certainly be some piece of evidence or traces of that activity with assessee but no iota of evidence was found by authorities despite extensive investigation.
(c) That the contents of the alleged diary, copy at Page 54-58 of Paper-
Book, themselves speak the incredible and unbelieve quality. At Pages 54-56, there are just three entries of loans of hefty sums having been given to three parties on 04.03.2016 / 05.03.2016 / 22.03.2016 with vague narrations without any detail of the address of debtor, no security, no witness in whose presence the said loan was given, etc. (in one case, a vague narration of a land transaction). Then, Pages 57- 58 are alleged to contain the notings of recoveries made from parties with interest on 30.06.2016 / 01.07.2016. These Pages 57-58 not only pertain to the financial year 2016-17 / AY 2017-18 but also majority of interest-period falls in financial year 2016-17 / AY 2017-18 but the AO has not made any addition in AY 2017-18.
(d) That no enquiry was made from any of the persons named in the diary.
Page 60 of 103Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 20.2 The second point accepted by CIT(A) that the impugned diary BS-1, even if authentic, was not seized from possession and control of assessee but was seized from Shri Keshri Mal, is also correct and valid. In fact, the AO has himself acknowledged in Para 8 of assessment-order "During the course of search at the premises of Shri Keshrimal Jain, 7/1, Yeshwant Niwas Road, Indore, a Goyal Deluxe Diary was seized and marked as BS-1 (Pages 01 to 08)." Therefore, the CIT(A) is correct in finding that the diary was not seized from assessee and there can be no presumption against assessee as to the contents of diary.
20.3 The third point accepted by CIT(A) regarding retraction of statements by assessee is also valid. Ld. AR submitted that the statements of assessee were in fact recorded under threatening and force. Therefore, the assessee had to file retraction. Ld. AR submitted that it is known to everyone and also accepted by judicial forums that during search undue pressure is mounted by authorities. In ITO Vs. Naresh Kumar Agarwal 369 ITR 171 (AP), the Hon'ble Court has made following observation:
"17. The circumstances under which a statement is recorded from an assessee, in the course of search and seizure, are not difficult to imagine. He is virtually put under pressure and is denied of access to external advice or opportunity to think independently. A battalion of officers, who hardly feel any limits on their power, pounce upon the assessee, as though he is a hardcore criminal. The nature of steps, taken during the course of search are sometimes frightening. Locks are broken, seats of sofas are mercilessly cut and opened. Every possible item is forcibly dissected. Even the pillows are not spared and their acts are backed by the powers of an investigating officer under Section 94 of Cr.P.C by operation of sub-section (13) of Section 132 of the Act. The objective may be genuine, and the exercise may be legal. However, the freedom of a citizen that transcends, even the Constitution cannot be treated as non-existent."Page 61 of 103
Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18
19. At the cost of repetition, we observe that if the statement made during the course of search remains the same, it can constitute the basis for proceeding further under the Act, even if there is no other material. If, on the other hand, the statement is retracted, the Assessing Officer has to establish his own case. The statement that too, which is retracted from the assessee, cannot constitute the basis for an order under Section 158BC of the Act."
Ld. AR went on submitting that the department's contention that the retraction was unduly delayed is not correct. The following facts would show that the retraction was not unduly delayed:
(a) After search on 12.07.2016, the assessee filed return u/s 139 on 31.03.2017 declaring income of Rs. 51,63,570/- without disclosing any income on account of surrender. Non-disclosure of surrendered income by assessee was the first step of retraction by assessee.
(b) After search, the department re-recorded statements of assessee u/s 131 on 14.06.2017, copy of statements at Page 59-62 of Paper-Book re-produced below:
Page 62 of 103Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 Page 63 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 Page 64 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 Page 65 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 Page 66 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 In reply to Q.No. 3, the assessee categorically mentioned about wrong surrender of income of long-term capital gain (LTCG). Thereafter, in reply to Q.No. 4 & 5 which were specific questions qua the impugned diary 'BS-1', the assessee clearly denied knowing any of the persons mentioned in the diary and even knowledge of the transactions mentioned in the diary. When the assessee stated so, the authorities abruptly closed taking statements because had they continued further questioning, the assessee would have stated about fabrication of diary during search. This was the second step of retraction by assessee.
(c) Then, the assessee filed retraction-letter 29.08.2017 which was third step of retraction. Ld. AR drew our attention to various paras of retraction-letter re-produced in earlier para of this order, more particularly Para 4 to 16, wherein the assessee has made a complete disclosure as to how the surrender was obtained under threat, force and pressure of authorities. This letter was filed to the Deputy Director of Income-tax (Investigation)-I, Indore with a copy to the Principal DIT (Investigation), Bhopal and also submitted to AO.
(d) Ld. AR further submitted that in pursuance to search, the AO issued notices u/s 153A to assessee on 09.10.2017 and prior to that, the assessee had made retraction on 31.03.2017 by way of non-disclosure of income in the return; on 14.06.2017 by way of denial in the statement u/s 131 and lastly by way of filing a specific letter on Page 67 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 29.08.2017. In such a situation, how can it be said that there was undue delay in retraction? Ld. AR submitted that right from beginning, the assessee took steps for retracting surrender.
(e) Then, Ld. AR relied upon order of ITAT, Indore in ACIT, Central-1, Indore Vs. M/s Shri Krishna Devcon Ltd. in IT(SS)A No. 8 to 10 & 11/Ind/2022 order dated 21.08.2023 wherein the ITAT upheld CIT(A)'s order deleting addition made by AO on the basis of similar retraction made by this very assessee in assessee's group concern 'M/s Shri Krishna Devcon Ltd.'. The relevant portion of order is re-
produced below:
"1...... ..The revenue has raised following grounds:
(3) Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in accepting retraction made by the assessee made after more than a year as genuine even though there was strong evidence on record about accommodation entries provided by companies controlled by Sharad Darak, a known entry provider; and whether CIT(A) has erred in accepting the retraction of assessee as genuine ignoring the decision of Hon'ble SC in the case of Bannalal Jat Construction Pvt. Ltd. Vs. ACIT (2019) 106 Taxmann.com 128 (SC).
*** 3.6 Thus, the Hon'ble High Court was of the view that the statement recorded u/s 132(4) would certainly constitutes information and if such information is relatable to the evidence or material found during search, the same could be used as evidence in any proceedings under the Act. However, such statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the AO to make a block assessment merely because any admission was made by the Assessee during search operation. In the Instruction No. E.No.286/2/2003 dated 10.03.2003, the C.B.D.T. have issued the guidelines to the tax authorities that during the investigation they should focus to discover the material and evidence revealing the undisclosed income instead of merely recording the statements. The Hon'ble Delhi High Court in case of Pr. CIT vs. Anand Kumar Jain (HUF) & Ors. 432 ITR 384 has reiterated this view in para 8 to 10 as under:
XXX (not reproduced for brevity) Page 68 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 3.7 The Hon'ble High Court has observed that the statement recorded during the course of search conducted in case of third person cannot be used without handing over the said statement and giving opportunity of cross examination to the assesse.
Even in this case the statement of Shri Naveen Jain recorded u/s 132(4) was subsequently retracted. The reasons were also explained for retraction of the statement that he was only a non-executive director of the assessee company and did not look after the day to day activities of the assessee company and therefore, were not well versed with all the transactions recorded in the books of account. It is pertinent to note that when there was no incriminating material found or seized during the course of the search and seizure action and statement of Shri Naveen Jain also does not relate to discovery of any new evidence or material revealing any undisclosed income not already recorded in the books of account then the possibility on extracting the statement at the time of search proceedings by exerting undue influence cannot be ruled out and therefore, the retraction made subsequently cannot be said to be without basis. Once it is found that the additions were made by the AO based on the transactions recorded in the books of account and not on the basis of any incriminating material found or seized during the course of search proceedings then the addition so made in the proceedings u/s 153A for assessment years which are not abated due to search and seizure action is not sustainable as held in a series of the decisions of Hon'ble High Courts including the decision of Hon'ble Delhi High Court in case of CIT vs. Kabul Chawla (supra) in para 37 & 38 as under:
XXX (not reproduced for brevity)
4.1 Thus, it is clear from the finding of the AO that apart from show cause notice issued to the assesse dated 31.10.2018 no other material or evidence is referred in the above finding of the AO. The AO has assumed that the entries of unsecured loans in the books of the assesse as well as in the books of lender companies are bogus accommodation entries based on some personal knowledge of the AO of investigation report of DIT (Investigation, Kolkata) as well as survey proceedings in respect of third party which are not brought on record by the AO. The AO then referred various case laws on the issue of addition made u/s 68 of the Act and also relied upon the statement of Shri Naveen Jain director of the assesse company recorded u/s 132(4) of the Act in support of his decision to make the addition on account of unsecured loans. The Assessing officer has not even considered and examined the documentary evidence filed by the assesse consisting of financial statements of lender company, confirmation of the lender companies, return of income filed by the lender companies and then the assessment orders framed u/s 143(3) in some of the lender companies. The assessing officer has even not pointed out any flaw or defect or abnormality in the financial statements of the lender companies produced by the assesse. The statement of Shri Naveen Jain recorded u/s 132(4) does not disclose any new fact or leading to any material not already recorded in the books of account and therefore, the addition cannot be made solely on the basis of the statement which was subsequently retracted by giving reasons therein....."
21. Having submitted thus, Ld. AR carried us to the following documents filed in the Paper-Book to show the high-handed attitude of authorities against assessee:
Page 69 of 103Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18
(a) Page 17-30 of Paper-Book - Copies of various newspaper cutting to show that the authorities have given a wide publicity in media to mount pressure upon assessee.
(b) Page 63 of Paper-Book - Letter dated 07.06.2017 sent by Deputy Director of Income-tax (Inv)-I, Indore to the Chief Secretary, Govt. of Madhya Pradesh, Mantralaya, Bhopal informing about alleged unsecured loans taken by M.P. Agro Nutri Foods Ltd. (assessee's concern) from paper-companies.
22. Lastly, Ld. AR raised one more important contention. He submitted that Shri Naveen Jain made a surrender of Rs. 6.95 Crore but how could the AO break-up surrender of Rs. 6.95 Crore in three persons (including assessee) and make additions of part amounts in the assessments of three persons without any basis? He submitted that the AO has no basis at all for break-up and make such additions.
23. In re-joinder, Ld. DR made following submissions:
(i) That the statement made u/s 132(4) is final and does not require any further investigation.
(ii) Retraction was after thought and it was done by Shri Naveen Jain only and not by others.Page 70 of 103
Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18
(iii) Reliance by assessee on ITAT's order in M/s Shri Krishna Devcon Ltd. (supra) is mis-placed because in that case, the assessee was not an executive director of that concern and therefore the surrender made by assessee in the hands of that concern was not upheld by ITAT. But in present case, the assessee has made surrender in his own case. Further, the assessee has made surrender for two other persons, namely Shri Mukesh Kumar Jain and Shri Sunil Kumar Jain who are brothers of assessee. Those two persons have acknowledged and signed the surrender made by assessee.
(iv) Media publicity was done by media. Nowhere it is mentioned by media that any reporting was done by authorities.
(iv) The sharing of information with other departments is not with the intention to pressurize the assessee and it is a part of normal working of Govt. that the information has to be shared by one arm of Govt. to another. There is nothing unusual or wrong to infer.
24. Reply to above, Ld. AR pointed out that the other two persons have made separate retractions; their retraction-letters are filed at Page 57-59 and 74-76 respectively in their Paper-Books.
25. We have considered rival contentions of both sides. At first, we extract the order passed by first-appellate authority as under:
Page 71 of 103Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 "4.2 Ground No 4 to 7 for AY 2016-17:-Through these grounds of appeal, the appellant has challenged addition of Rs. 2,20,00,000/- on account of undisclosed business and Rs. 13,20,000/- on account of unaccounted interest u/s 68 of the Act.
During the course of search at the premises of Shri Keshrimal Jain located at 7/1, Yeshwant Niwas road, Indore a deluxe diary was found and seized containing pages 01 to 08 of BS-1. Shri Naveen Jain was confronted with the said diary and statement was recorded on oath on 14.07.2016. Shri Naveen Jain admitted that all the entries in the diary are relating to cash transaction of different persons and are not recorded in regular books of accounts. The name of the three family members and brief details of total transactions are as under:-
S.No Name of Person Head of Income FY Amount 1 Naveen Kumar Jain Business income 2015-16 22000000 2 Sunil Kumar Jain Business income 2015-16 30000000 3 Mukesh Kumar Jain Business income 2015-16 17500000
Therefore, the AO during the course of assessment proceedings required the assessee to explain the transaction mentioned in the seized diary and reconcile the same with regular books of accounts. The assessee in reply submitted that no income as mentioned on the impuged diary has been earned and statement given by Shri Naveen Jain has already been retracted. The AO after considering reply of the assessee did not find the same acceptable and stated that the letter for retraction has been filed after one year and only by Shri Naveen Jain and not by the assessee. The AO further held that cash was given by assessee as loan and as per prevailing market rates the interest rate being charged is @ 1.5 % to 2% per month and the period of loan is generally 3 months. Thus, the AO making all presumptions made addition of Rs. 2,33,20,000/- to the income of the assessee in AY 2016-17.
4.2.1 I have considered the facts of the case, material evidences on record & written submissions filed by the ld AR of the appellant. I have also given my thoughtful consideration to the facts and findings of the AO inter alia material brought on record. At the outset there is no denying of the fact a diary with page no 1 to 8 of BS-1 was found and seized during the course of search. The Ld AR has vehemently challenged the arbitrary approach of the AO mainly on four major Counts:
(a) The AO erred in making additions on suspicion, surmise and conjecture basis and without having any incriminating material on record found from the residential premises of the appellant relating to the year in which additions have been made;
(b) The AO erred in making addition on the basis of loose paper(diary) found and seized from third party premises;
(c) The AO erred in making addition based on a retracted statement and when no incriminating material was found during search.
(a) The AO erred in making additions on suspicion, surmise and conjecture basis and without having any incriminating material on record found from the residential premises of the appellant relating to the year in which additions have been made:-
The AO has grossly erred in making addition simply on the basis of guess work, assumption and presumption. It is well settled that no addition can be made as a leap Page 72 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 in the dark. The AO is not entitled to make a guess without evidence. The assessment of any particular year cannot be based on mere suspicion or bare guess, but on a legitimate material from which a reasonable inference of any unexplained cash credit can be made. Hon'ble Supreme Court in the case of Dhakeshwari Cotton Mills Ltd. v/s CIT (1954) 26 ITR 775 (SC) has held that although strict rules of Evidence Act do not apply to income tax proceedings, still assessment cannot be made on the basis of imagination and guess work. It has been held in the case of Umacharan Saha & Bros co. v/s CIT 37 ITR 21 (SC) that suspicion, however strong cannot take place of evidence. Similar views have been expressed by Apex court in the case of Dhiraj Lal Girdharilal v/s CIT (1954) 26 ITR 736 (SC). Also, once the assessee has discharged its onus of proving that the parties under consideration are genuine, now the ball lies in the court of AO to prove that the claim of appellant is false. The statements which forms the sole basis of the impugned additions have already been retracted before completion of assessment proceedings.
It is utmost important to mention that a search u/s 132 of the Act was carried out on the premises of the appellant and during the course of search not a single iota of doubt and evidence was found regarding the appellant's engagement in earning unaccounted business/undisclosed interest income as alleged by the AO. Nonetheless, no incriminating material relevant to the additions made has been referred by the AO which pertains to the cash loans given by the appellant. It is seen that during the course of impugned assessment proceedings, the AO called for information from the assessee and the assessee in reply has filed all the desired information as sought by the AO. However, the AO took an adverse view solely on the basis of statements recorded of the appellant and on the basis of findings and observations of Investigation Wing. This is now a settled principle which has also been categorically held in favor of the assessee that additions made in absence of incriminating material are unjustified. It is important to note that assessee was covered under the search operation carried out at residential and business premises of the assessee from where nothing incriminating was found during the course of said search relating to the additions made by the AO. The plethora of judgments supporting the statements are as under:-
The Hon'ble High Court of Delhi in the case of CIT vs. Kabul Chawla (2015) 9 TMI 80 (Del.), after considering all the available decisions on the issue has held that in respect of the completed assessment, additions can be made only on the basis of incriminating documents. The Hon'ble High Court was pleased to observe as under:
"37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:
i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.
ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.Page 73 of 103
Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax.
iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material."
v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings.
vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.
vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment."
Hon'ble High Court of Rajasthan in the case of Jai Steel (India) vs. CIT (2013) 259 CTR 281 (Raj.) has also held that in respect of the assessment years which have got abated due to initiation of the search, an AO is free to make addition on any ground but in respect of the assessment years which have got completed before the date of the search, the assessment has to be made on the basis of the material seized during the course of search. The Court was pleased to observe as under:
"22. In the firm opinion of this Court from a plain reading of the provision along with the purpose and purport of the said provision, which is intricately linked with search and requisition under Sections 132 and 132A of the Act, it is apparent that:
(a) the assessments or reassessments, which stand abated in terms of II proviso to Section 153A of the Act, the AO acts under his original jurisdiction, for which, assessments have to be made;Page 74 of 103
Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18
(b) regarding other cases, the addition to the income that has already been assessed, the assessment will be made on the basis of incriminating material and
(c) in absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made."
XXXX XXXXXXXXXXXX
26. The plea raised on behalf of the assessee that as the first proviso provides for assessment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context of the entire section. The words 'assess' or 'reassess' have been used at more than one place in the Section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word assess has been used in the context of an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents."
In the case of Commissioner of Income Tax v. Continental Warehousing Corporation (Nhava Sheva) Ltd. [2015] 58 Taxmann.Com 78 (Bom)the question addressed by the Hon'ble Bombay High Court was whether the scope of assessment under Section 153A encompasses additions, not based on any incriminating material found during the course of search? It was held that no addition could be made in respect of the assessments that had become final in the event no incriminating material was found during search. The Bombay High Court relied on the earlier decision in CIT v. M/s. Murli Agro Products Ltd.and discussed the scope and ambit of the proceedings for assessment and reassessment of total income under Section 153A (1) of the Act and the provisos thereto. One of the specific pleas taken by the Assessee was that if no incriminating material was found during the course of search in respect of an issue then no addition in respect of any issue can be made to the assessment under Sections 153A and 153C. It was observed that the assessment or reassessment under Section 153A arises only when a search has been initiated and conducted and, therefore, "such an assessment has a vital link with the initiation and conduct of the search." The Court then reproduced and affirmed the decision of the Special Bench of the ITAT in All Cargo Global Logistics Ltd. v. Deputy Commissioner of Income Tax [2012] 23 taxmann.com 103 (Mum.) (SB)and answered the question as regards the scope of the assessment of total income as under:
"53. ....We are of the view that for answering this question, guidance will have to be sought from section 132(1). If any books of account or other documents relevant to the assessment had not been produced in the course of original assessment and found in the course of search in our humble opinion such books of account or other documents have to Page 75 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 be taken into account while making assessment or reassessment of total income under the aforesaid provision. Similar position will obtain in a case where undisclosed income or undisclosed property has been found as a consequence of search. In other words, harmonious interpretation will produce the following results:
(a) Insofar as pending assessments are concerned, the jurisdiction to make original assessment and assessment u/s 153A merge into one and only one assessment for each assessment year shall be made separately on the basis of the findings of the search and any other material existing or brought on the record of the AO,
(b) in respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search"
Your Honour, the decision of the Hon'ble Delhi High Court in the case of Kabul Chawla has been followed by the Hon'ble Gujarat High Court in the case of Pr. CIT vs. Saumya Construction Pvt. Ltd. (2016) 387 ITR 529 (Guj.) and again in the case of Pr. CIT vs. Deepak Jashwantlal Panchal (2017) 397 ITR 153 (Guj.). In the case of Saumya Construction supra, the Hon'ble High Court was pleased to observe as under :
"18. In this case, it is not the case of the appellant that any incriminating material in respect of the assessment year under consideration was found during the course of search. At the relevant time when the notice came to be issued under section 153A of the Act, the assessee filed its return of income. Much later, at the fag end of the period within which the order under section 153A of the Act was to be made, in other words, when the limit for framing the assessment as provided under section 153 was about to expire, the notice has been issued in the present case seeking to make the proposed addition of Rs.11,05,51,000/- on the basis of the material which was not found during the course of search, but on the basis of a statement of another person. In the opinion of this court, in a case like the present one, where an assessment has been framed earlier and no assessment or reassessment was pending on the date of initiation of search under section 132 or making of requisition under section 132A, while computing the total income of the assessee under section 153A of the Act, additions or disallowances can be made only on the basis of the incriminating material found during the search or requisition. In the present case, it is an admitted position that no incriminating material was found during the course of search, however, it is on the basis of some material collected by the Assessing Officer much subsequent to the search, that the impugned additions came to be made.
19. On behalf of the appellant, it has been contended that if any incriminating material is found, notwithstanding that in relation to the year under consideration, no incriminating material is found, it would be permissible to make additions and disallowance in respect of all the six assessment years. In the opinion of this court, the said contention Page 76 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 does not merit acceptance, inasmuch as, the assessment in respect of each of the six assessment years is a separate and distinct assessment. Under section 153A of the Act, an assessment has to be made in relation to the search or requisition, namely, in relation to material disclosed during the search or requisition. If in relation to any assessment year, no incriminating material is found, no addition or disallowance can be made in relation to that assessment year in exercise of powers under section 153A of the Act and the earlier assessment shall have to be reiterated. In this regard, this court is in complete agreement with the view adopted by the Rajasthan High Court in the case of Jai Steel (India), Jodhpur v. Assistant Commissioner of Income Tax (supra). Besides, as rightly pointed out by the learned counsel for the respondent, the controversy involved in the present case stands concluded by the decision of this court in the case of Commissioner of Income-tax-1 v. Jayaben Ratilal Sorathia (supra) wherein it has been held that while it cannot be disputed that considering section 153A of the Act, the Assessing Officer can reopen and/or assess the return with respect to six preceding years; however, there must be some incriminating material available with the Assessing Officer with respect to the sale transactions in the particular assessment year."
Hon'ble jurisdictional Indore Bench of ITAT in case of Kalani Brothers in IT(SS)A No. 71/Ind/2014 and again in the case of Anant Steel Pvt. Ltd. in IT(SS)A Nos. 31, 28, 29 & 30/Ind/2010 and in many other cases, has held that in respect of the completed assessment years, in absence of any incriminating documents found and seized during the course of search, no addition can be made.
Reliance is also placed on the following judicial pronouncements:
i) Pr. CIT vs. Smt. Kusum Gupta (2015) 9 TMI 1406 (DelHC)
ii) CIT vs. RRJ Securities Ltd. (2016) 380 ITR 612 (DelHC)
iii) Pr. CIT vs. Mrs. Lata Jain (2016) 384 ITR 543 (DelHC)
iv) Pr. CIT vs. Jai Infrastructure & Properties Pvt. Ltd. (2016) 10 TMI 1022 (Guj HC)
v) CIT vs. Anil Kumar Bhatia 211 Taxman 453 (Del)
vi) Amandeep Singh Bhatia vs. Addl. CIT (2016) 29 ITJ 1 (Indore-
Trib)
vii) Bhatia International Ltd. vs. Addl. CIT (2016) 29 ITJ 109 (Trib-
Indore)
viii) Pr. CIT vs. DharampalPremchand Ltd. (2018) 408 ITR 0170 (Del. HC)
ix) Pr. CIT &Ors. vs. MeetaGutgutia&Ors. (2017) 295 CTR 0466 (Del.)
x) Pr. CIT vs. Dipak J Panchal (2017) 397 ITR 0153 (Guj.) Page 77 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18
xi) Pr. CIT vs. Devangi Alias Rupa (2017) 98 CCH 0051 (Guj.)
xii) Rakesh Kumar Jain vs. DCIT (2019) 57 CCH 0098 (Jaipur Trib.)
xiii) DCIT vs. SMS SME Ltd. (2019) 57 CCH 0031 (Gau. Trib.)
xiv) Rashmi Metaliks Ltd. and ANR vs. DCIT and ANR (2019) 72 ITR (Trib.) 0226 (Kolkata)
xv) Amitbhai Manubhai Kachadiya and Ors. vs. DCIT (2019) 56 CCH 0189 (Surat Trib.) xvi) Smt. Sanjana Mittal vs. DCIT (2019) 55 CCH 0644 Asr Trib.
xvii) SVM Buildcon Pvt. Ltd. vs. DCIT [IT(SS) A no. 71/Ind/2016 Order dated 26-10-2017] xviii) Chugh Real Estate Pvt. Ltd. vs. DCIT [IT(SS) A no.
60&61/Ind/2016 Order dated 26-10-2017] xix) Kamta Prasad Dwivedi vs. ACIT-1(1), Bhopal 2018 (9) TMI 1746 -
ITAT Indore xx) Smt. Rashmi Mujumdar vs. DCIT(Central)-1, Bhopal 2018 (12) TMI 688 - ITAT Indore xxi) ACIT vs. Sudeep Maheshwari [ITA No. 524/Ind/2013, Order dated 13-02-2019] xxii) M/s. Ultimate Builders vs. ACIT [ITA No. 134/Ind/2019, Order dated 09-08-2019] xxiii) Sainath Builders vs. ACIT (2019) 35 ITJ 77 (Trib.-Indore) xxiv) DCIT-2(1), Indore vs. Shri Satish Neema [IT(SS) 149, 150 & 152/Ind/2016; Order dated 07-02-2020] The AO ought to have brought independent cogent evidences having direct nexus with the appellant of earning unaccounted business and interest income and which could prove that the claim of appellant is incorrect, which is completely missing in the present case. Thus, there lies no locus standi with the AO to assume that the appellant has earned unaccounted business and interest income.
(c) The AO erred in making addition on the basis of loose paper(diary) found and seized from third party premises;
It is also worth mentioning that no incriminating material was found from the residential premises of the appellant during the course of search suggesting earning of unaccounted business and interest income. As far as legality of the addition, it is settled position of law that no addition/ disallowance can be made to the total income of the appellant in absence of any incriminating documents in the case of non-abate assessment year. Accordingly, the scope of assessment u/s.153A would be restricted to incriminating material found during the course of search from premises of Page 78 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 appellant. In the instant case the loose papers/diary (page no 1 to 8 of BS-1) were found and seized from the premises of Shri Keshrimal Jain located at 7/1, Yeshwant Niwas Road, Indore (third party) as mentioned by the AO in para 8 of the impunged assessment order. Hon'ble Delhi Tribunal in the case of Trilok Chand Chaudhary (2019) 33 NYPTTJ 610 (Del-Trib) dt.20-8-19 has held as under:-
"5.4 ...it is evident that the material relied upon for making addition was not found from the premises of the assessee.
5.5 We also find that during relevant period, i.e., FY14-15, for using any material found from the premises of the third party during the course of the search in assessment proceeding of the assessee, the AO of the third party was required to record satisfaction as the material belong to the assessee in terms of sec153C and then was required to proceed as per the sec153C. In the instant case, it is evident that addition in dispute has been made in the assessment completed u/s 153A. The assessee raised this issue before the ld CIT(A), however, the ld CIT(A) rejected the arguments of the assessee observing as under:
"6.3 Another argument of the appellant, if understood correctly, is that in reference to the document u/c, the AO ought to have initiated proceedings u/s153C and that in no case this can be considered u/s153A. This argument has no legs to stand for the simple reason that it is patently absurd. Undisputedly, a search u/s132 was conducted in the appellant's case and therefore, the assessment was to be completed u/s153A and the ld AO was under a statutory obligation to consider entire material irrespective of the place from where it was found (i.e. appellant's own place or some other place). There cannot be 2 assessments one u/s153A and other u/s153C. In short, the argument of the appellant that document seized from the premises of Shri Ashok Chaudhary cannot be considered u/s153A is absurd and is accordingly rejected."
5.6. In our opinion, the finding of the ld CIT(A) is not based on correct appreciation of law. The reasoning of the ld CIT(A) is that there cannot be 2 simultaneous assessment u/s153A and other u/s153C. This reasoning is faulty. The assessment u/s153C could have been made after completion of the assessment u/s153A. The Act has provided separate provisions for making assessment in case of material found in the course of the search from the premises of the assessee as well as the material found in the course of search at the premises of the third party. The AO is required to follow the procedure laid down in the Act for making the assessment and he cannot devise his own procedure for shortcut methods. In our considered opinion, when the case of the assessee is covered u/s153A and if reliance is placed on the incriminating material found during the course of search of third party, then sec153C would be applicable and have to be adhered to. Thus, in the instant case, the AO was required to first complete the proceedings u/s153A in hand, which were initiated by way of notice dt.30-6-14 and thereafter, he was at liberty to take action u/s153C for bringing the material found from the premise of Shri Ashok Choudhary to tax in the hands of the assessee.
Page 79 of 103Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 5.7. In Shivani Mahajan (Del-Trib) dt.19-3-19 ITA No.5585/Del-Trib/2015, identical que was raised before the Tribunal as under:
"9. we find that in these appeals, following 2 questions arise for our consideration:
(i) Whether any material found in the search of any other person than the assessee in appeal, can be considered in the assessment u/s153A of the assessee.
5.8. The Tribunal after considering arguments of the parties held as under:
"14. From a reading of the above decisions of Hon'ble jurisdictional HC, it is evident that completed assessment can be interfered with by the AO on the basis of any incriminating material unearthed during the course of search. If in relation to any AY no incriminating material is found, no addition or disallowance can be made in relation to that year in exercise of power u/s153A. Obviously, the reference to the incriminating material in the above decisions of Hon'ble Jurisdictional HC is in regard to incriminating material found as a result of search of the assessee's premises and not of any other assessee. The legislature has provided sec153C by invoking the same the Revenue can utilise the incriminating material found in the case of search of any other person to the different assessee. Sec153C is reproduced below for ready reference:
15. Thus, when during the course of search of an assessee any books, document or money, bullion, jewellery etc. is found which relates to a person other than the person searched, then the AO of the person searched shall hand over such books of account, documents, or valuables to the AO of such other person and thereafter, the AO of such other person can proceed against such other person. However, in the case under appeal before us, admittedly, sec153C is not invoked in the case of the assessee and the assessment is framed u/s153A.
We, respectfully following the above decisions of Hon'ble jurisdictional HC, hold that during the course of assessment u/s153A, the incriminating material, if any, found during the course of search of the assessee only can be utilised and not the material found in the search of any other person.
5.9 ...in the instant case, separate search warrant has been issued in the case of the assessee as well in the case of Shri Ashok Chowdhary and the AO has used the material found in the course of search at the premise of Shri Ashok Chowdhary, which is not permitted in view of the express provision of the law.
5.10 The addition made by the AO in violation of the procedure provided in the Act is bad in law and void ab initio and cannot be sustained. Accordingly, the addition of Rs.3.3 crores, made protectively on the basis of the documents found from the premises of the third party, by the AO and upheld by the ld CIT(A) on substantive basis, is deleted. The ground No.6.2 is accordingly allowed.
Page 80 of 103Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 Further Hon'ble Kolkata Tribunal in the case Krishna Kumar Singhania (2018) 168 ITD 271 (Kol-Trib) dt.6-12-17, where in Para 10 it was held that:
"10. We find that it is not in dispute that there were no documents that were seized from the premises of the assessee except loose sheets vide seized document reference KKS/1 comprising of 8 pages, for which satisfactory Explanation has been given by the assessee and no addition was made by the ld AO on this seized document. The seized document used by the ld AO for making the addition in sec153A assessment is CG/1 to 11 and CG/HD/1 which were seized only from the office premises of 'Cygnus group' of companies in which assessee is a director. In this regard, it would be pertinent to note that as per sec292C, there is a presumption that the documents, assets, books of accounts etc found at the time of search in the premises of a person is always presumed to be belonging to him/them unless proved otherwise. This goes to prove that the presumption derived is a rebuttable presumption. Then in such a scenario, the person on whom presumption is drawn, has got every right to state that the said documents does not belong to him/ them. The ld AO if he is satisfied with such Explanation, has got recourse to proceed on such other person (i.e., the person to whom the said documents actually belong to) in terms of sec153C by recording satisfaction to that effect by way of transfer of those materials to the AO assessing the such other person. This is the mandate provided in sec153C.
In the instant case, if at all, the seized documents referred to in CG/1 to 11 and CG/HD/1 is stated to be belonging to assessee herein, then the only legal recourse available to the deptt is to proceed on the assessee herein in terms of sec153C. In this regard, we would like to place reliance on Pinaki Misra & Sangeeta Misra (2017) (Del HC) dt.3-3-17, wherein it was held that, no addition could be made on the basis of evidence gathered from extraneous source and on the basis of statement or document received subsequent to search. Hence, we hold that the said materials cannot be used in sec153A against the assessee. This opinion is given without going into the merits and veracity of the said seized documents implicating the assessee herein."
In view of the above, it is clear that the impunged loose papers (diray) was found from third party premises, therefore, the AO was not justified in making addition u/s 153A of the Act. Therefore, judiciously following the decision of Trilok Chand Choudhay (supra) addition made by the AO are not sustainable in the eyes of law. I find it very appropriate to reproduce the decision of Hon'ble Panaji Tribunal in the case of Abhay Kumar Bharamgouda (2018) 96 taxmann.com 377 (Panji Tribunal) having similar facts of the case, wherein a diary was seized from bank premises and on the basis of third party additions were made. Hon'ble Tribunal deleted entire additions stating as under:-
"During the course of survey, the revenue impounded a Diary marked as Anne-G 1/SACSSL/1. The Chairman of the society explained that the Diary has been written by the AGM (Deposits and Loans) named Shri SK Terdale. Accordingly a statement was recorded from Shri SK Terdale u/s131 by Page 81 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 ADIT on 6-1-12. In the statement, he admitted that the diary was maintained by him and entries therein were written by him. From the noting made in the diary, it was noticed that details of receipt of deposits have been recorded against name of certain persons. When queed about the same, Shri SK Terdale submitted that the moneys were received from the persons named therein which, inter alia, included the name of the assessee herein. He further submitted that the money received from those persons was deposited in fictitious names in various branches in order to hide the identity of the real depositors. The amount of deposits alleged to have been received from the assessee was worked out at Rs.885 lakhs in aggregate in the 3 years u/c as detailed below:*. Shri SK Terdale submitted the name and address of the assessee and also identified him as MLA of Belgaum South. He however submitted that he does not have FD account opening forms of any of the depositors. He confirmed his statement again on 23-1-12.
4. Thereafter, the ADIT summoned the assessee and confronted the statement so given by Shri SK Terdale. The assessee, however, disowned the alleged deposits and stated that none of the transactions are related to him. The assessee further submitted that he does not have any deposits with the above said Society and is not associated with it in any manner. The AO offered the assessee an opportunity of cross-examining Shri SK Tardale and the Chairman of Society, but the assessee refused to avail the same.
10. The ld AR further submitted that the assessee has categorically denied the statements given by Shri Terdale and also the entries made in the diary. He submitted that the diary was seized from the premises of the society/ bank and hence, presumption prescribed u/s292C will apply to the society/ bank only and not to the assessee. He submitted that the revenue has not brought any material on record to link the assessee with the diary, but has merely placed reliance on the statements given by Mr.Tardale, which have not been corroborated with any other credible materials. Accordingly he submitted that the AO could not have made these additions on the basis of Statements of Shri SK Terdale, which were self-serving statements."
In the instant case also, the additions have been made on the basis of documents found from third party premises (Shri Keshimal Jain) and therefore, presumption u/s 292C will apply to Shri Keshimal Jain only and not to the assessee.
(d) The AO erred in making addition based on a retracted statement and when no incriminating material was found during search.
During the course of search, statement of Shri Naveen Jain was recorded on oath on 14.07.2016, wherein he admitted that the impunged diary seized from premises of Shri Keshimal Jain contain cash transaction not recorded on books of accounts and made voluntary surrender of sum of Rs. 6.95 crores on behalf of himself, Shri Sunil Jain and Shri Mukesh Jain. The A.O during the course of assessment proceedings observed that the assessee has not offered surrendered income of Rs. 2,20,00,000/- to tax and confronted the assessee. During the assessment proceedings u/s 143(3)/153A of the Act, assessee made the retraction by submitting that no such undisclosed income was earned and therefore no such income was required to be Page 82 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 offered to tax. However, the A.O giving reference to the statement of Mr. Naveen Jain. However, no specific reference was made to any incriminating material having its bearing on the surrendered income. However, Shri Naveen Jain vide letter dated 29.08.2017 has retracted the statement given on 14.07.2016 stating that the said statements were made under pressure of revenue authorities and widespread negative media reports of his family. He has further highlighted that he is not authorized to speak/ surrender on behalf of appellant and any other member of his family for that matter.
These seized diary was found from premises of Shri Keshrimal Jain and the A.O has only mentioned the details of the seized document without uttering a word about their nexus with the assessee or business transaction carried out by the assessee or by pointing out assessee's connection with the seized document in name or otherwise. Thus, it can be safely concluded that the addition made by the A.O was not on the basis of the incriminating material found during the course of search but only on the basis of statement of Mr. Naveen Jain given on 14.07.2016. Even in post search enquiries no irregularity has been brought on record and the only addition made is towards income declared in the statement recorded u/s 132(4). Hon'ble ITAT Indore in the case of ACIT(1) VS. Sudeep Maheshwari ITA No 524/Ind/2013 dated 13.02.2019 has held as under:-
"6. It is the case of the assessee that during the course of search & seizure, no incriminating material or undisclosed income or investments were found. It is stated that the assessee was under mental pressure and tired. Therefore, to buy peace of mind, he accepted and declared Rs.3 crores in personal name. It is also stated that the case laws as relied by the A.O. are not applicable on the facts of the present case. The assessee has relied on the decision of the Hon'ble Supreme Court rendered in the case of Pullangode Rubber Produce Co. Ltd. 91 ITR 18 (SC), wherein the Hon'ble Court has held that admission cannot be said that it is conclusive. Retraction from admission was permissible in law and it was open to the person who made the admission to show that it was incorrect. However, reliance is placed on the judgement of the Hon'ble Gujarat High Court rendered in the case of CIT Vs. Chandrakumar Jethmal Kochar (2015) 55 Taxmann.com 292 (Gujarat), wherein it has been held that merely on the basis of admission that few benami concerns were being run by assessee, assessee could not be basis for making the assessee liable for tax and the assessee retracted from such admission and revenue could not furnish any corroborative evidence in support of such evidence. It was further urged by the assessee that admission should be based upon certain corroborative evidences. In the absence of corroborative evidences, the admission is merely a hollow statement. We have given our thoughtful consideration to the rival contentions of the parties. It is undisputed fact that the statement recorded u/s 132(4) of the Act has a better evidentiary value but it is also a settled position of law that the addition cannot be sustained merely on the basis of the statement. There has to be some material corroborating the contents of the statement. In the case in hand, revenue could not point out as what was the material before the A.O., which supported the contents of the statement. In the absence of such material, coupled with the fact that it is recorded by the Ld. CIT(A) that the assessee himself had surrendered a sum of Rs.69,59,000/-
and Rs.75,00,000/- in A.Y. 2008-09 and 2009-10 respectively. The A.O. failed to co-relate the disclosures made in the statement with the incriminating material gathered during the search. Therefore, no inference is called for in the Page 83 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 finding of the Ld. CIT(A) and is hereby affirmed. Ground raised by the revenue is dismissed."
Hon'ble Gujarat High Court in the case of Kailashben Mangarlal Chokshi vs. CIT - (2008) 14 DTR 257 (Guj.) has held that merely on the basis of admission, the assessee could not have been subject to additions, unless and until some corroborative evidence is found in support of such admission.
Hon'ble Jharkhand High Court Shree Ganesh Trading Co. V/s Commissioner of Income-tax, Tax Case No.8 of 1999 order dated 03.01.2013 held as under;
"4. We considered the submissions of the learned counsel for the parties and perused the reasons given in the impugned orders as well as reasons given in the case of Kailashben Manharlal Chokshi (supra).
5. It appears from the statement of facts that there was a search in the business premises of the petitioner's firm as well as in the residential premises of its partner, Shri Sheo Kumar Kejriwal, on 24th September, 1987. During the course of search, the statement of Shri Sheo Kumar Kejriwal had been recorded under section 132(4) of the Income Tax Act and in the statement, he stated that he was partner in the Ganesh Trading Company, i.e. the present assessee-firm in his individual status and that he surrendered Rs. 20 lacs for the assessment year 1988-89 as income, on which tax would be paid. He further stated that other partners would agree to the same; otherwise it would be his personal liability. However, in the returns filed after search, the income of Rs. 20 lacs surrendered by Shri Sheo Kumar Kejriwal was not declared by the assessee-firm. On being asked to explain the reason for not showing the surrendered amount in the returns, it was submitted by the assessee that declaration made by the partner was misconceived and divorced from real facts. It was contended that the declaration was made after persuasion, which, according to the learned counsel for the assessee, Shri Binod Poddar, in fact, was because of coercion exerted by the search officers. In explanation, it was submitted that the firm or the individual had no undisclosed income. The assessee's said retraction was not accepted by any of the authorities below on the ground that the statement given by the assessee appears to be voluntarily given statement disclosing undisclosed income of Rs. 20 lacs. According to the learned counsel for the assessee, Shri Binod Poddar, the Assessing Officer had full jurisdiction to proceed for further enquiry and could have collected evidence in support of alleged admission of undisclosed income of the assessee.
6. We are of the considered opinion that statement recorded under section 132(4) of the Income Tax Act, 1961 is evidence but its reliability depends upon the facts of the case and particularly surrounding circumstances. Drawing inference from the facts is a question of law. Here in this case, all the authorities below have merely reached to the conclusion of one conclusion merely on the basis of assumption resulting into fastening of the liability upon the assessee. The statement on oath of the assessee is a piece of evidence as per section 132(4) of the Income Tax Act and when there is incriminating admission against himself, then it is required to be examined with due care and caution. In the judgment of Kailashben Manharlal Chokshi (supra), the Division Bench of Gujarat High Court has considered the issue in the facts of that case and found the explanation given by the assessee to be more convincing and that was not considered by the authorities below. Here in this case also, no specific reason has been given for Page 84 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 rejection of the assessee's contention by which the assessee has retracted from his admission. None of the authorities gave any reason as to why Assessing Officer did not proceed further to enquire into the undisclosed income as admitted by the assessee in his statement under section 134(2) in fact situation where during the course of search, there was no recovery of assets or cash by the Department. This fact also has not been taken care of and considered by any of the authorities that in a case where there was search operation, no assets or cash was recovered from the assessee, in that situation what had prompted the assessee to make declaration of undisclosed income of Rs. 20 lacs.
Mere reading of statement of assessee is not the assessment of evidentiary value of the evidence when such statement is self-incriminating. Therefore, we are of the considered opinion that in the present case, a wrong inference had been drawn by the authorities below in holding that there was undisclosed income to the tune of Rs. 20 lacs.
7. In view of the above reasons, without answering the question about retrospective operation of the proviso to section 134(4), we are holding that the authorities below have committed error of law in drawing inference from the materials placed on record, i.e. admission of the assessee coupled with its retraction by the assessee. The Revenue may now proceed accordingly".
Further, Hon'ble ITAT in the case of M/s Ultimate Builders vs ACIT Central-II, Bhopal ITA No 134/Ind/2019 dated 09.08.2019, wherein it has been held that the statement given by the assessee was without any specific reference to any incriminating material therefore, addition on account of undisclosed income offered in statement was deleted. Besides this, decision of Hon'ble Gujarat High Court in the case of Kailashben Manharlal Choksi 328 ITA 411 (2008) also supports the contention that merely on the basis of admission, the assessee could not be subjected to addition unless & until some corroborative evidences is found in support of such addition.
4.2.2 In view of the above discussion & facts stated above, I come to unescapable conclusion that the AO was not justified in making addition of Rs.13,20,000/- & Rs. 2,20,00,000/- as unaccounted interest and business income based on disclosure made during the search because no specific reference has been made by the AO to any incriminating material found during the course of search suggesting earning of such unaccounted income. Therefore, judiciously following the decision cisted above, additions made by the AO amounting to Rs.13,20,000/- & Rs. 2,20,00,000/- are Deleted. Therefore, appeal on these grounds is Allowed.
26. When we carefully peruse the order passed by CIT(A) vis-à-vis the submissions made by learned representatives of both sides as discussed in foregoing paragraphs. After a careful consideration, we find certain vital factors in this case. To narrate in precise terms, we find that the assessee has been consistently claiming that the seized diary was prepared during Page 85 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 search itself. Therefore, in Para 11 of retraction-letter dated 29.08.2017 addressed to Deputy Director of Income-tax (Investigation)-I, Indore and again in letter dated 26.11.2018 addressed to AO, the assessee has not only mentioned so but also made a specific request to get the forensic report on the diary to determine the creation of diary during search. However, the request of assessee has neither been acted nor been negated by authorities.
Ld. AR has also stated that the AO has not even whispered anywhere in the assessment-order about the request of assessee. The assessee claims that there are just three transactions of Rs. 4 Crore + Rs. 0.20 Crore + Rs. 2.75 Crore = 6.75 Crore given to three persons as per alleged diary and each transaction has a hefty amount but without any detail of the address of debtor, no security, no witness in whose presence the said loan was given, etc. (in one case, a vague narration of a land transaction is jotted). This is highly improbable that if the assessee had given loans like 2.75 crore to a debtor, he would have not mentioned the details like address of debtor or the assessee would not have taken the signature of witnesses or any kind of security from debtor. Therefore, a strong possibility of creation of diary as being claimed by assessee during search, cannot be denied. In any case, we also find that there are just three transactions of hefty amounts alleged to have been given to three persons and still neither the investigating authorities nor the AO has made any attempt to enquire from those persons and in this context, the assessee's claim that no such person existed Page 86 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 becomes credible and acceptable. Then, the assessee's claim that no incriminating material was found or seized from assessee which could have corroborated the transactions in diary, is also meritorious. The assessee is right in claiming that if at all the assessee had been doing money lending work on interest, there would certainly be some piece of evidence or traces of that activity in possession of assessee but nothing of that kind was found by authorities. We also find much weightage in Ld. AR's point that although Pages 57-58 relate to the financial year 2016-17 / AY 2017-18 and the majority of interest-period falls in financial year 2016-17 / AY 2017-18 but the AO has not made any addition in AY 2017-18, which shows a bad approach of AO. We find that once the impugned diary "BS-01" is excluded from consideration, there is no material available with AO to justify addition.
The CBDT has issued guidelines to the tax authorities in Instruction No. E.No. 286/2/2003 dated 10.03.2003 that during investigation, they should focus to discover the material and evidence revealing the undisclosed income instead of merely recording the statements. Therefore, the addition has to be based on some genuine and tangible material discovered during search. The judicial forums have also held vehemently that no addition can be made merely on the basis of statement without any material. So far as retraction is concerned, we find (i) that the assessee filed return u/s 139 on 31.03.2017 without disclosing any income on account of surrender, (ii) that, in the statements re-recorded u/s 131 on 14.06.2017 while replying to Page 87 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 Q.No. 3, the assessee has mentioned about wrong surrender (although for another issue of long-term capital gain) and while replying to Q.No. 4 and 5 relating to the impugned diary 'BS-1', the assessee clearly denied knowing any of the persons mentioned in the diary and even knowledge of the transactions mentioned in the diary and thereafter the authorities have closed the statements without questioning further, and (iii) that the assessee has also filed a retraction-letter dated 29.08.2017 making a complete disclosure as to how the surrender was obtained under threat, force and pressure of authorities. This letter was submitted to the Deputy Director of Income-tax (Investigation)-I, Indore with a copy to the Principal DIT (Investigation), Bhopal and also filed to AO. All these steps were before issuance of notices u/s 153A by AO on 09.10.2017. We also find that the ITAT, Indore in M/s Shri Krishna Devcon Ltd. (supra), a case of assessee's group concern being part of same search, has recognised the retraction made by this very assessee after more than a year. Therefore, in the light of these facts elaborately noted by us, the CIT(A) is very much correct in concluding "These seized diary was found from premises of Shri Keshrimal Jain and the A.O has only mentioned the details of the seized document without uttering a word about their nexus with the assessee or business transaction carried out by the assessee or by pointing out assessee's connection with the seized document in name or otherwise. Thus, it can be safely concluded that the addition made by the A.O was not on the basis of Page 88 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 the incriminating material found during the course of search but only on the basis of statement of Mr. Naveen Jain given on 14.07.2016. Even in post search enquiries no irregularity has been brought on record and the only addition made is towards income declared in the statement recorded u/s 132(4)."
27. Lastly, we cannot ignore an important contention raised by Ld. AR. He submitted that the assessee Shri Naveen Jain made a total surrender of Rs.
6.95 Crore for three persons but how could the AO come to break-up of (i) Rs. 2,20,00,000/- in assessee, (ii) Rs. 1,75,00,000/- in Shri Mukesh Kumar Jain and (iii) Rs. 3,00,00,000/- in Shri Sunil Kumar Jain? The AO had absolutely no material, evidence or basis to arrive at break-up. Ld. DR for revenue has not addressed this point of Ld. AR. Faced with this situation also, we find no basis for upholding the additions made by AO.
28. In view of above discussion and for the reasons stated therein, we do not find any reason to make interference with the order of first-appeal passed by CIT(A). Consequently, we find no merit in the grounds raised by revenue, the same are hereby rejected.
Ground No. 3:
29. In this ground, the revenue claims that the CIT(A) has erred in deleting the addition of Rs. 2,30,00,000/- in AY 2016-17 made by AO on account of unexplained cash credit u/s 68.
Page 89 of 103Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18
30. The AO has dealt this addition in Para 11 of assessment-order. He has noted that in the statements of assessee u/s 132(4), in reply to Q.No. 14 when the assessee was asked to whether he wanted to state anything else, the assessee replied that on the basis of various incriminating documents found from business/residential premises, he surrenders an income of Rs.
2,30,00,000/- in AY 2016-17 (and Rs. 2,40,00,000/- in AY 2017-18).
However, the assessee did not declare surrendered income in return. When the AO show-caused assessee, the assessee submitted that he had not made any voluntary disclosure and the statement was recorded by search-team forcefully and under pressure. The assessee also submitted that he had retracted statement vide letter dated 29.08.2017. However, the AO rejected assessee's submission/retraction for the very same reasons as in Ground No. 1 & 2 discussed in earlier part of this order. Ultimately, the AO made addition of Rs. 2,30,00,000/- in AY 2016-17 (and Rs. 2,40,00,000/- in AY 2017-18).
31. During first-appeal, Ld. CIT(A) deleted addition by passing following order:
"4.3 Ground No 8 & 9 for AY 2016-17 and Ground No 4 & 5 for AY 2017-18:-
Through these grounds of appeal, the appellant has challenged addition of Rs. 2,30,00,000/- in AY 2016-17 and Rs. 2,40,00,000/- in AY 2017-18 on account of unexplained income u/s 68 of the Act. During the course of search, statement of appellant was recorded on oath and at Q.No 14 the assessee was asked whether he wants to state anything else. The assessee in reply stated that he would made a surrender of Rs. 2,30,00,000/- in AY 2016-17 and Rs. 2,40,00,000/- in AY 2017-18 on the basis of various incriminating documents found during the course of search. The AO during assessment proceedings found that the assessee has retracted from his voluntary surrender of Rs. 2,30,00,000/- in AY 2016-17 and Rs. 2,40,00,000/- in AY 2017-18 and the same has not been shown in return filed u/s 153A/139(1) of the Page 90 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 Act. Therefore, the AO required the assessee to show cause as to why no addition should be made on this account. The assessee in reply submitted that the statement given during the course of search has already bee retracted on 29.08.2017. The AO placing reliance on the statement of the appellant made additions to the income of the appellant for respective assessment year.
4.3.1 I have considered the facts of the case, plea of the appellant, case laws relied upon by the appellant and AO and findings of the AO. During the course of search, statement of appellant was recorded on 14.07.2016, wherein he offered voluntary surrender of Rs. 2,30,00,000/- in AY 2016-17 and Rs. 2,40,00,000/- in AY 2017-18.
However, the said statement has been retracted before the AO on 29.08.2017. The appellant has made retraction from his statement stating that no such income has been earned and the same was given under pressure. As a matter of fact the AO has failed to make a reference of even a single incriminating document which could establish that the income has been earned by appellant as per his statement. Thus, it can be safely concluded that the addition made by the A.O was not on the basis of the incriminating material found during the course of search but only on the basis of statement of appellant given on 12.07.2016 which has been later on retracted on 29.08.2017. Even in post search enquiries no irregularity has been brought on record and the only addition made is towards income declared in the statement recorded u/s 132(4).
Hon'ble ITAT Indore in the case of ACIT (1) VS. Sudeep Maheshwari ITA No 524/Ind/2013 dated 13.02.2019 has held as under:-
"6. It is the case of the assessee that during the course of search & seizure, no incriminating material or undisclosed income or investments were found. It is stated that the assessee was under mental pressure and tired. Therefore, to buy peace of mind, he accepted and declared Rs.3 crores in personal name. It is also stated that the case laws as relied by the A.O. are not applicable on the facts of the present case. The assessee has relied on the decision of the Hon'ble Supreme Court rendered in the case of Pullangode Rubber Produce Co. Ltd. 91 ITR 18 (SC), wherein the Hon'ble Court has held that admission cannot be said that it is conclusive. Retraction from admission was permissible in law and it was open to the person who made the admission to show that it was incorrect. However, reliance is placed on the judgement of the Hon'ble Gujarat High Court rendered in the case of CIT Vs. Chandrakumar Jethmal Kochar (2015) 55 Taxmann.com 292 (Gujarat), wherein it has been held that merely on the basis of admission that few benami concerns were being run by assessee, assessee could not be basis for making the assessee liable for tax and the assessee retracted from such admission and revenue could not furnish any corroborative evidence in support of such evidence. It was further urged by the assessee that admission should be based upon certain corroborative evidences. In the absence of corroborative evidences, the admission is merely a hollow statement. We have given our thoughtful consideration to the rival contentions of the parties. It is undisputed fact that the statement recorded u/s 132(4) of the Act has a better evidentiary value but it is also a settled position of law that the addition cannot be sustained merely on the basis of the statement. There has to be some material corroborating the contents of the statement. In the case in hand, revenue could not point out as what was the material before the A.O., which supported the contents of the statement. In the absence of such material, coupled with the fact that it is recorded by the Ld. CIT(A) that the assessee himself had surrendered a sum of Rs.69,59,000/-Page 91 of 103
Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 and Rs.75,00,000/- in A.Y. 2008-09 and 2009-10 respectively. The A.O. failed to co-relate the disclosures made in the statement with the incriminating material gathered during the search. Therefore, no inference is called for in the finding of the Ld. CIT(A) and is hereby affirmed. Ground raised by the revenue is dismissed."
Hon'ble Gujarat High Court in the case of Kailashben Mangarlal Chokshi vs. CIT - (2008) 14 DTR 257 (Guj.) has held that merely on the basis of admission, the assessee could not have been subject to additions, unless and until some corroborative evidence is found in support of such admission.
Hon'ble Jharkhand High Court Shree Ganesh Trading Co. V/s Commissioner of Income-tax, Tax Case No.8 of 1999 order dated 03.01.2013 held as under;
"4. We considered the submissions of the learned counsel for the parties and perused the reasons given in the impugned orders as well as reasons given in the case of Kailashben Manharlal Chokshi (supra).
6. It appears from the statement of facts that there was a search in the business premises of the petitioner's firm as well as in the residential premises of its partner, Shri Sheo Kumar Kejriwal, on 24th September, 1987. During the course of search, the statement of Shri Sheo Kumar Kejriwal had been recorded under section 132(4) of the Income Tax Act and in the statement, he stated that he was partner in the Ganesh Trading Company, i.e. the present assessee-firm in his individual status and that he surrendered Rs. 20 lacs for the assessment year 1988-89 as income, on which tax would be paid. He further stated that other partners would agree to the same; otherwise it would be his personal liability. However, in the returns filed after search, the income of Rs. 20 lacs surrendered by Shri Sheo Kumar Kejriwal was not declared by the assessee-firm. On being asked to explain the reason for not showing the surrendered amount in the returns, it was submitted by the assessee that declaration made by the partner was misconceived and divorced from real facts. It was contended that the declaration was made after persuasion, which, according to the learned counsel for the assessee, Shri Binod Poddar, in fact, was because of coercion exerted by the search officers. In explanation, it was submitted that the firm or the individual had no undisclosed income. The assessee's said retraction was not accepted by any of the authorities below on the ground that the statement given by the assessee appears to be voluntarily given statement disclosing undisclosed income of Rs. 20 lacs. According to the learned counsel for the assessee, Shri Binod Poddar, the Assessing Officer had full jurisdiction to proceed for further enquiry and could have collected evidence in support of alleged admission of undisclosed income of the assessee.
7. We are of the considered opinion that statement recorded under section 132(4) of the Income Tax Act, 1961 is evidence but its reliability depends upon the facts of the case and particularly surrounding circumstances. Drawing inference from the facts is a question of law. Here in this case, all the authorities below have merely reached to the conclusion of one conclusion merely on the basis of assumption resulting into fastening of the liability upon the assessee. The statement on oath of the assessee is a piece of evidence as per section 132(4) of the Income Tax Act and when there is incriminating admission against himself, then it is required to be examined with due care and caution. In the judgment of Kailashben Manharlal Chokshi (supra), the Page 92 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 Division Bench of Gujarat High Court has considered the issue in the facts of that case and found the explanation given by the assessee to be more convincing and that was not considered by the authorities below. Here in this case also, no specific reason has been given for rejection of the assessee's contention by which the assessee has retracted from his admission. None of the authorities gave any reason as to why Assessing Officer did not proceed further to enquire into the undisclosed income as admitted by the assessee in his statement under section 134(2) in fact situation where during the course of search, there was no recovery of assets or cash by the Department. This fact also has not been taken care of and considered by any of the authorities that in a case where there was search operation, no assets or cash was recovered from the assessee, in that situation what had prompted the assessee to make declaration of undisclosed income of Rs. 20 lacs.
Mere reading of statement of assessee is not the assessment of evidentiary value of the evidence when such statement is self-incriminating. Therefore, we are of the considered opinion that in the present case, a wrong inference had been drawn by the authorities below in holding that there was undisclosed income to the tune of Rs. 20 lacs.
8. In view of the above reasons, without answering the question about retrospective operation of the proviso to section 134(4), we are holding that the authorities below have committed error of law in drawing inference from the materials placed on record, i.e. admission of the assessee coupled with its retraction by the assessee. The Revenue may now proceed accordingly".
Further, Hon'ble ITAT in the case of M/s Ultimate Builders vs ACIT Central-II, Bhopal ITA No 134/Ind/2019 dated 09.08.2019, wherein it has been held that the statement given by the assessee was without any specific reference to any incriminating material therefore, addition on account of undisclosed income offered in statement was deleted. Besides this, decision of Hon'ble Gujarat High Court in the case of Kailashben Manharlal Choksi 328 ITA 411 (2008) also supports the contention that merely on the basis of admission, the assessee could not be subjected to addition unless & until some corroborative evidences is found in support of such addition.
4.3.2 In view of the above discussion & facts stated above, I come to unescapable conclusion that the AO was not justified in making addition of Rs. 2,30,00,000/- in AY 2016-17 and Rs. 2,40,00,000/- in AY 2017-18 as unaccounted income based on disclosure made during the search because no specific reference has been made by the AO to any incriminating material found during the course of search suggesting earning of such unaccounted income. Therefore, judiciously following the decision of hon'ble ITAT, Indore in the case of M/s Ultimate Builders (supra), the addition made by the AO amounting to Rs. 2,30,00,000/- in AY 2016-17 and Rs. 2,40,00,000/- in AY 2017-18 is Deleted. Therefore, appeal on these grounds is Allowed."
32. Before us, Ld. DR supported the assessment-order of AO. He made the very submissions as made in Ground No. 1 & 2 discussed in earlier part of Page 93 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 this order to contend that the retraction is not acceptable to department. Per contra, Ld. AR defended the order of first-appeal passed by CIT(A).
33. We have perused the orders of lower-authorities and the documents held in case-record. After a careful consideration, we find that the CIT(A) has reversed AO's action by finding that (i) the statement was retracted on 29.08.2017, (ii) the AO has failed to make a reference of even a single incriminating document which could establish that the income was earned by appellant as per statement, (iii) no irregularity has been brought on record even in post-search enquiries, and (iv) the addition made merely on the basis of statement is not sustainable as per various judicial rulings. The Ld. DR could not rebut these observations and conclusion made by CIT(A).
The only objection of Ld. DR against acceptance of retraction made by assessee, is not tenable in view of a detailed discussion made by us while adjudicating Ground No. 1 & 2 in earlier part of this order. Being so, we subscribe to the order passed by Ld. CIT(A) and finding no perversity or infirmity therein, we uphold the same. Consequently, this ground of revenue is also rejected being devoid of any merit.
34. In the end, the Revenue's appeal for AY 2016-17 is dismissed.
Revenue's appeal - IT(SS)A No. 63/Ind/2021 for AY 2017-18:
35. The revenue has raised following ground:
Page 94 of 103Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 "1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of Rs. 2,40,00,000/- made by the AO on account of unexplained cash credits u/s 68 of the Income-tax Act, 1961."
36. This ground is identical to Ground No. 3 of Revenue's appeal for AY 2016-17 on facts and in law. Since we have already rejected Revenue's aforesaid Ground No. 3 in earlier part of this order, following the same adjudication this solitary ground of AY 2017-18 is also rejected.
Consequently, the Revenue's appeal for AY 2017-18 raising this solitary ground is dismissed.
(B) Shri Mukesh Kumar Jain Assessee's C.O. No. 37/Ind/2021 - AY 2016-17:
37. This Cross-Objection by assessee is identical to the C.O. No. 38 & 39/Ind/2021 in the case of Shri Naveen Kumar Jain on grounds, facts and in law, the only difference is that the AO sent proposal dated 22.12.2018 and the Addl. CIT granted approval vide order dated 24.12.2018. Since we have already allowed cross-objection of Shri Naveen Kumar Jain in earlier part of this order, following the same adjudication the C.O. No. 37/Ind/2021 is also allowed.
Revenue's appeal - IT(SS)A No. 64/Ind/2021 for AY 2016-17:
38. The revenue has raised following grounds:
(1) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of Rs. 1,75,00,000/- made by the AO on account of undisclosed business income.Page 95 of 103
Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 (2) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of Rs. 10,50,000/- made by the AO on account of unaccounted interest income.
39. These grounds are identical to Ground No. 1 & 2 of Revenue's appeal No. IT(SS)A No. 62/Ind/2021 for AY 2016-17 in the case of Shri Naveen Kumar Jain on facts and in law. Since we have already rejected Revenue's grounds in earlier part of this order, following the same adjudication these Ground No. 1 & 2 are also rejected. Consequently, the Revenue's appeal raising only these two grounds, is dismissed.
(C) Shri Sunil Kumar Jain Assessee's C.O. No. 36/Ind/2021 - AY 2016-17:
40. This Cross-Objection by assessee is identical to the C.O. No. 38 & 39/Ind/2021 in the case of Shri Naveen Kumar Jain on grounds, facts and in law, the only difference is that the AO sent proposal dated 27.12.2018 and the Addl. CIT granted approval vide order dated 28.12.2018. Since we have already allowed cross-objection of Shri Naveen Kumar Jain in earlier part of this order, following the same adjudication the C.O. No. 36/Ind/2021 is also allowed.
Revenue's appeal - IT(SS)A No. 65/Ind/2021 for AY 2016-17:
41. The revenue has raised following grounds:
Page 96 of 103Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 (1) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of Rs. 3,00,00,000/- made by the AO on account of undisclosed business income.
(2) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of Rs. 18,00,000/- made by the AO on account of unaccounted interest income.
(3) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of Rs. 25,000/- made by the AO on account of unaccounted expenditure u/s 69C of the Income-tax Act, 1961.
Ground No. 1 & 2:
42. These grounds are identical to Ground No. 1 & 2 of Revenue's appeal No. IT(SS)A No. 62/Ind/2021 for AY 2016-17 in the case of Shri Naveen Kumar Jain on facts and in law. Since we have already rejected Revenue's grounds in earlier part of this order, following the same adjudication these Ground No. 1 & 2 are also rejected.
Ground No. 3:
43. In this ground, the revenue claims that the CIT(A) has erred in deleting the addition of Rs. 25,000/- made by AO on account of unexplained expenditure u/s 69C.
44. We have heard learned representatives of both sides and carefully perused the orders of lower-authorities as also the documents held on record. The arguments of learned representative for or against the addition are on the same lines of reasoning as considered by AO and CIT(A) in their respective orders.
Page 97 of 103Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18
45. At first, we extract the order passed by CIT(A) giving the facts and deleting the addition made by AO:
"4.3 Ground No 8:- Through these grounds of appeal, the appellant has challenged addition of Rs. 25,000/- on account of unexplained expenditure u/s 69C of the Act. During the course of search at mittal group of Indore, certain loose papers (Hudis and cheque) were found and seized from premises of Shri Dinesh Mittal. Statement of Shri Dinesh Mittal was recorded on oath and he admitted that sum of Rs. 10 lakhs was given as cash loan to M/s Avani Protiens. The relevant extract of seized documents is also scanned on page no 12 of the assessment order. Shri Dinesh Mittal in his statement failed to explain the period for which the said cash loan was given and also failed to provide details of rate of interest being charged on the said cash loan. The AO required the assessee to explain the transaction. The assessee in reply submitted that only documentation was done and no loan was taken. The AO after considering reply of the assessee presumed that the loan would have been taken for a period of 3 months @ 10% per annum and made addition to the income of the assessee.
4.3.1 I have considered the facts of the case, material evidences on record & written submissions filed by the ld AR of the appellant. I have also given my thoughtful consideration to the facts and findings of the AO inter alia material brought on record. At the outset there is no denying of the fact that various loose papers were found and seized from premises of Shri Dinesh Mittal during the course of search at Mittal Group of Indore on 04.09.2015. The Ld AR has vehemently challenged the arbitrary approach of the AO mainly on two major Counts:
(a) The AO erred in making additions merely on the basis of statements of third parties recorded by the Investigation Wing and without providing opportunity of their cross examination before making the impugned addition;
(b) The AO erred in making additions on suspicion, surmise and conjecture basis;
(c) The AO erred in making addition on the basis of loose paper(diary) found and seized from third party premises;
(a) The AO erred in making additions merely on the basis of statements of third parties recorded by the Investigation Wing and without providing opportunity of their cross examination before making the impugned addition:-
During the course of search in Mittal Group of Indore on 04.09.2015 statement of Shri Dinesh Mittal (third party) was recorded on oath u/s 132(4) on 04.09.2015, wherein, he has admitted that a loan of Rs. 10 lakhs was given to M/s Avani Protiens and a signed cheque was taken as security deposit. However, Shri Dinesh Mittal failed to provide details of exact tenure and rate of interest for which the said loan was given to appellant. The relevant extract of statement is also scanned on page no 12 of the assessment order. The AO presuming that the loan was given for a period of 3 months and @ 10% p.a and relying to the statement of Shri Dinesh Mittal made addition of the income of the appellant. From the findings of the AO one thing which is very clear is that the statement on the basis of which the AO has made entire addition, were Page 98 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 recorded behind the back of appellant and no opportunity of cross examination of the concerned third party i.e. Shri Dinesh Mittal was provided to the appellant. Hon'ble Supreme Court in the case of Andaman Timber Industries Vs. Commissioner of Central Excise Kolkata in Civil Appeal No.248 of 2006 has held that in absence of cross-examination of parties, the assessment proceedings to be quashed. Further, the Hon'ble Gujarat High Court in the case of Praful Chunilal Patel Vs. M.J. Makwana [236 ITR 832 (Guj)] and JCIT & Ors. Vs. George Willimson (Assam) Ltd. [258 ITR 126 (Guj)] has held that statement of third party cannot be relied upon without having any corroborative evidence. Similarly, Hon'ble Supreme Court in the case of Kishanchand Chellaram V/s. CIT 125 ITR 713 (SC) has held that adverse inference cannot be drawn against the assessee from the statement of third parties. Similarly, Ld. AR of the assessee has relied upon the decision of Hon'ble High Court in the case of CIT V/s. Indrajit Singh Suri (2013) 33 Taxmann 281 (Guj.) that where additions were made on the basis of statements of persons who were not allowed to be cross examined by the appellant, additions were not sustainable. It is a serious flaw on principles of natural justice which renders the order a nullity.
(b) The AO erred in making additions on suspicion, surmise and conjecture basis and without having any incriminating material on record found from the residential premises of the appellant relating to the year in which additions have been made:-
The AO has grossly erred in making addition simply on the basis of guess work, assumption and presumption. It is well settled that no addition can be made as a leap in the dark. The AO is not entitled to make a guess without evidence. The assessment of any particular year cannot be based on mere suspicion or bare guess, but on a legitimate material from which a reasonable inference of any unexplained cash credit can be made. Hon'ble Supreme Court in the case of Dhakeshwari Cotton Mills Ltd. v/s CIT (1954) 26 ITR 775 (SC) has held that although strict rules of Evidence Act do not apply to income tax proceedings, still assessment cannot be made on the basis of imagination and guess work. It has been held in the case of Umacharan Saha & Bros co. v/s CIT 37 ITR 21 (SC) that suspicion, however strong cannot take place of evidence. Similar views have been expressed by Apex court in the case of Dhiraj Lal Girdharilal v/s CIT (1954) 26 ITR 736 (SC). Also, once the assessee has discharged its onus of proving that the parties under consideration are genuine, now the ball lies in the court of AO to prove that the claim of appellant is false. The statements which forms the sole basis of the impugned additions is incomplete and does not reflect all the details of transaction. Even basic details of transactions are missing. The AO ought to have brought independent cogent evidences having direct nexus with the appellant of making expenditure on interest and which could prove that the claim of appellant is incorrect, which is completely missing in the present case. Thus, there lies no locus standi with the AO to assume that the appellant has earned unaccounted business and interest income.
(c) The AO erred in making addition on the basis of loose paper(diary) found and seized from third party premises;
It is also worth mentioning that no incriminating material was found from the residential premises of the appellant during the course of search suggesting expenditure on interest on cash loans. As far as legality of the addition, it is settled position of law that no addition/ disallowance can be made to the total income of the appellant in absence of any incriminating documents in the case of non-abate assessment year. Accordingly, the scope of assessment u/s.153A would be restricted Page 99 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 to incriminating material found during the course of search from premises of appellant. In the instant case the loose papers/diary (page no 10 & 11 of LPS-1) were found and seized from the premises of Shri Dinesh Chand Mittal (third party) as mentioned by the AO in para 10 of the impunged assessment order. Hon'ble Delhi Tribunal in the case of Trilok Chand Chaudhary (2019) 33 NYPTTJ 610 (Del-Trib) dt.20-8-19 has held as under:-
5.4 ...it is evident that the material relied upon for making addition was not found from the premises of the assessee.
5.5 We also find that during relevant period, i.e., FY14-15, for using any material found from the premises of the third party during the course of the search in assessment proceeding of the assessee, the AO of the third party was required to record satisfaction as the material belong to the assessee in terms of sec153C and then was required to proceed as per the sec153C. In the instant case, it is evident that addition in dispute has been made in the assessment completed u/s153A. The assessee raised this issue before the ld CIT(A), however, the ld CIT(A) rejected the arguments of the assessee observing as under:
"6.3 Another argument of the appellant, if understood correctly, is that in reference to the document u/c, the AO ought to have initiated proceedings u/s153C and that in no case this can be considered u/s153A. This argument has no legs to stand for the simple reason that it is patently absurd. Undisputedly, a search u/s132 was conducted in the appellant's case and therefore, the assessment was to be completed u/s153A and the ld AO was under a statutory obligation to consider entire material irrespective of the place from where it was found (i.e. appellant's own place or some other place). There cannot be 2 assessments one u/s153A and other u/s153C. In short, the argument of the appellant that document seized from the premises of Shri Ashok Chaudhary cannot be considered u/s153A is absurd and is accordingly rejected."
5.6. In our opinion, the finding of the ld CIT(A) is not based on correct appreciation of law. The reasoning of the ld CIT(A) is that there cannot be 2 simultaneous assessment u/s153A and other u/s153C. This reasoning is faulty. The assessment u/s153C could have been made after completion of the assessment u/s153A. The Act has provided separate provisions for making assessment in case of material found in the course of the search from the premises of the assessee as well as the material found in the course of search at the premises of the third party. The AO is required to follow the procedure laid down in the Act for making the assessment and he cannot devise his own procedure for shortcut methods. In our considered opinion, when the case of the assessee is covered u/s153A and if reliance is placed on the incriminating material found during the course of search of third party, then sec153C would be applicable and have to be adhered to. Thus, in the instant case, the AO was required to first complete the proceedings u/s153A in hand, which were initiated by way of notice dt.30-6-14 and thereafter, he was at liberty to take action u/s153C for bringing the material found from the premise of Shri Ashok Choudhary to tax in the hands of the assessee.
Page 100 of 103Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 5.7. In Shivani Mahajan (Del-Trib) dt.19-3-19 ITA No.5585/Del-Trib/2015, identical que was raised before the Tribunal as under:
"9. we find that in these appeals, following 2 questions arise for our consideration:
(i) Whether any material found in the search of any other person than the assessee in appeal, can be considered in the assessment u/s153A of the assessee."
5.8. The Tribunal after considering arguments of the parties held as under:
"14. From a reading of the above decisions of Hon'ble jurisdictional HC, it is evident that completed assessment can be interfered with by the AO on the basis of any incriminating material unearthed during the course of search. If in relation to any AY no incriminating material is found, no addition or disallowance can be made in relation to that year in exercise of power u/s153A. Obviously, the reference to the incriminating material in the above decisions of Hon'ble Jurisdictional HC is in regard to incriminating material found as a result of search of the assessee's premises and not of any other assessee. The legislature has provided sec153C by invoking the same the Revenue can utilise the incriminating material found in the case of search of any other person to the different assessee. Sec153C is reproduced below for ready reference:
15. Thus, when during the course of search of an assessee any books, document or money, bullion, jewellery etc. is found which relates to a person other than the person searched, then the AO of the person searched shall hand over such books of account, documents, or valuables to the AO of such other person and thereafter, the AO of such other person can proceed against such other person. However, in the case under appeal before us, admittedly, sec153C is not invoked in the case of the assessee and the assessment is framed u/s153A. We, respectfully following the above decisions of Hon'ble jurisdictional HC, hold that during the course of assessment u/s153A, the incriminating material, if any, found during the course of search of the assessee only can be utilised and not the material found in the search of any other person."
5.9 ...in the instant case, separate search warrant has been issued in the case of the assessee as well in the case of Shri Ashok Chowdhary and the AO has used the material found in the course of search at the premise of Shri Ashok Chowdhary, which is not permitted in view of the express provision of the law.
5.10 The addition made by the AO in violation of the procedure provided in the Act is bad in law and void ab initio and cannot be sustained. Accordingly, the addition of Rs.3.3 crores, made protectively on the basis of the documents found from the premises of the third party, by the AO and upheld by the ld CIT(A) on substantive basis, is deleted. The ground No.6.2 is accordingly allowed.
Further Hon'ble Kolkata Tribunal in the case Krishna Kumar Singhania (2018) 168 ITD 271 (Kol-Trib) dt.6-12-17, where in Para 10 it was held that:
Page 101 of 103Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 "10. We find that it is not in dispute that there were no documents that were seized from the premises of the assessee except loose sheets vide seized document reference KKS/1 comprising of 8 pages, for which satisfactory Explanation has been given by the assessee and no addition was made by the ld AO on this seized document. The seized document used by the ld AO for making the addition in sec153A assessment is CG/1 to 11 and CG/HD/1 which were seized only from the office premises of 'Cygnus group' of companies in which assessee is a director. In this regard, it would be pertinent to note that as per sec292C, there is a presumption that the documents, assets, books of accounts etc found at the time of search in the premises of a person is always presumed to be belonging to him/them unless proved otherwise. This goes to prove that the presumption derived is a rebuttable presumption. Then in such a scenario, the person on whom presumption is drawn, has got every right to state that the said documents does not belong to him/ them. The ld AO if he is satisfied with such Explanation, has got recourse to proceed on such other person (i.e., the person to whom the said documents actually belong to) in terms of sec153C by recording satisfaction to that effect by way of transfer of those materials to the AO assessing the such other person. This is the mandate provided in sec153C.
In the instant case, if at all, the seized documents referred to in CG/1 to 11 and CG/HD/1 is stated to be belonging to assessee herein, then the only legal recourse available to the deptt is to proceed on the assessee herein in terms of sec153C. In this regard, we would like to place reliance on Pinaki Misra & Sangeeta Misra (2017) (Del HC) dt.3-3-17, wherein it was held that, no addition could be made on the basis of evidence gathered from extraneous source and on the basis of statement or document received subsequent to search. Hence, we hold that the said materials cannot be used in sec153A against the assessee. This opinion is given without going into the merits and veracity of the said seized documents implicating the assessee herein."
In view of the above, it is clear that the impunged loose papers were was found from third party premises, therefore, the AO was not justified in making addition u/s 153A of the Act. Therefore, judiciously following the decision of Trilok Chand Choudhay (supra) addition made by the AO are not sustainable in the eyes of law. 4.3.2 In view of the above discussion, the addition made by the AO is purely on assumption and presumption basis. Clearly the incriminating document does not reflect entire period or rate of interest of loan and presuming/assuming period and rate of loan is purely on guess work laced with figment of imagination. Thus, addition made by the AO amounting to Rs. 25,000/- is Deleted. Therefore, appeal on this ground is Allowed."
46. On perusal, we find that the CIT(A) has adequately and properly dealt the issue and passed a proper order having regard to judicial rulings. There is no infirmity or perversity in the order passed by CIT(A) which could require us to deviate from his view. Being so, we do not have any basis to Page 102 of 103 Shri Naveen Kumar Jain, Mukesh Kumar Jain and Sunil Kumar Jain, IT(SS)A. Nos. 62 to 65/Ind /2021 and C.O. Nos. 36 to 39/Ind/2021 A.Y. 2016-17 & 2017-18 upset the same. The same is hereby upheld and the revenue's ground is rejected.
47. In the end, the Revenue's appeal is dismissed.
48. Resultantly, the Revenue's appeals are dismissed and Assessee's cross-objections are allowed.
Order pronounced in open court on 10.06.2024.
sd/- sd/-
(VIJAY PAL RAO) (B.M. BIYANI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Indore
िदनां क/ Dated : 10.06.2024.
CPU/Sr. PS
Copies to: (1) The appellant
(2) The respondent
(3) CIT
(4) CIT(A)
(5) Departmental Representative
(6) Guard File
By order
UE COPYAssistant Registrar
Income Tax Appellate Tribunal
Indore Bench, Indore
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