DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(2) , MUMBAI vs. M/S CAPACIT'E INFRAPROJECTS LTD, MUMBAI

The present appeals have been filed by the Revenue challenging the separate impugned orders of even date 02/01/2023, passed under section 250 of the Income Tax Act, 1961 ("the Act") by the learned Commissioner of Income Tax (Appeals)–47, Mumbai, [“learned CIT(A)”], for the assessment years 2014–15, 2015–16 and 2016–17.

M/s. Capacit’e Infraprojects Ltd. ITAs no.904, 905 & 906/Mum./2023

2. In the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in placing reliance on various judicial pronouncements including in the cases of CIT Vs. Continental Warehousing Corporation, All Cargo Global Logistics Vs. DCIT, etc., without appreciating that these judgements have not been accepted by the Department and in fact, SLP filed by the Department against Bombay High Court's order in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd., has been admitted by the Hon'ble Apex Court [vide order dated 12.10.2015 in Special Leave to Appeal (C) CC 18506/2015] and is pending for adjudication 3. In the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not deciding the grounds of appeal

raised by the assessee on the merits of the case but has merely held that the additions made by the AO in the assessment order framed u/s 153A r.w.s 143(3) of the Act cannot survive de hors the incriminating evidences.”

4. In the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the A.O. to delete the disallowance made u/s 37(1) of the Income- tax Act, 1961 on account of unverified purchases of Rs. 2,70,47,191/-.

5. In the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the A.O. to delete the disallowance made on account of employee's contribution to welfare funds beyond the due date without considering the fact that the Apex Court in the latest judgement in the case of Checkmate Services (P.) Ltd. Vs CIT [2022] 143 taxmann.com 178 (SC) has decided this issue in favour of the Revenue.”

4. The issue arising in grounds no.1-3, raised in Revenue’s appeal, is pertaining to the existence of incriminating material for making additions under section 153A of the Act.

M/s. Capacit’e Infraprojects Ltd. ITAs no.904, 905 & 906/Mum./2023

M/s. Capacit’e Infraprojects Ltd. ITAs no.904, 905 & 906/Mum./2023 this issue in favour of the assessee and held that since in the year under consideration, the assessment was already concluded, the AO can make any addition under section 153A of the Act only on the basis of incriminating material found and seized during the course of the search, which aspect is absent in the present case. The relevant findings of the learned CIT(A), in this regard, are as under:-

“7.5 It has been observed from the assessment order that the AO has not highlighted any incriminating material found and/or seized during the search action, which can be relatable to the appellant, based on which the impugned additions are made. The appellant, on the other hand, has emphatically stated that the impugned additions are not based on any material found/seized during the course of search action at the premises of the appellant. The appellant has also relied on a no. of judicial decisions on this issue. 7.6 On perusal of the impugned assessment order, it is evident that the AO has not referred to any seized material found during the course of search to make the impugned additions. The due date for issuing notice u/s 143(2) had already expired on the date of search or the date of issue of notice u/s 143(2) in the current proceeding, which was issued on 09.12.2020. Since, the proceedings for A.Y. 2015-16 had not abated, the contention of the appellant that the AO was empowered to make additions based on the incriminating material found and seized during the course of search operation, appears to be true, as held in a no. of judicial decisions including the decision of jurisdictional High Court. 7.7 Before proceeding further, it is necessary to apprise with the legal principles settled by Hon'ble Jurisdictional High Court and other courts on this issue. The Hon'ble Bombay High Court in the case of CIT vs. Continental Warehousing Corporation [374 ITR 645]. has held that when the assessment has attained finality, then the AO while passing the independent assessment order u/s 153C of the Act can't disturb the assessment / reassessment order which has attained finality, unless the materials gathered in the course of the proceedings u/s 132 of the Act establish that the reliefs granted under the finalized assessment/reassessment were contrary to the facts unearthed during the course of search operation. 7.8 to 7.15 ............. 7.16 Conclusion- The aforesaid detailed discussion with respect to various Judicial decisions clearly laid down the following principles- (i) the assessments which have been concluded u/s 143(3) of the Act and not pending at the time of search proceedings, do not abate. (ii) for this purpose, intimation u/s 143(1) would constitute an assessment, relying on the decision of Hon'ble Bombay High Court in CIT v/s Gurinder Singh Bawa (79 taxmann.com 398). (iii) the proceedings u/s 153A/153C of the Act do not empower the Assessing officer to re-adjudicate the settled issues again, unless fresh incriminating material is found during the course of search proceedings. (iv) the Assessing officer does not have jurisdiction to make additions / disallowances which are not based on any incriminating material found during the course of search proceedings. Page | 4

M/s. Capacit’e Infraprojects Ltd. ITAs no.904, 905 & 906/Mum./2023

(v) in the case of completed/un-abetted assessments, where no incriminating material is found during the course of search, the assessment u/s 153A/153C of the Act is to be made on originally assessed/returned income and no addition or disallowance can be made de hors the incriminating evidences recovered during the course of search. (vi) Any admission or confession needs corroboration with evidences. In order to make a genuine and legally sustainable addition on the basis of admission or confession during search action, it is necessary that some incriminating material must have been found to correlate the undisclosed income with such statement. (vii) Any statement recorded under section 132(4) cannot be considered as incriminating material found in the course of search as these are recorded to elicit more information/explanation of the search person on the incriminating documents/gold/jewellery found during search. 7.17 Conclusion-As stated above, the AO has not brought on record either through the assessment order or through remand report any incriminating document or material found or seized during the Search and Seizure action u/s 132 of the Act in the group cases which can be connected with these additions. Considering the totality of the facts and circumstances, I am of the considered view that these additions cannot survive de hors the incriminating evidences as held in the above binding judicial decisions. The AO is accordingly directed to delete the impugned additions made in the assessment order. Thus, the additional ground of appeal no. 7 is allowed.”

Being aggrieved, the Revenue is in appeal before us.

M/s. Capacit’e Infraprojects Ltd. ITAs no.904, 905 & 906/Mum./2023 material found during the course of the search to support the addition made in the hands of the assessee vide order passed under section 153A of the Act. For reference, the remand report filed by the AO, which is taken note of in para 7.2 of the impugned order, is reproduced as under:-

“7. The assessee had contended that the assessments were already made in the case of the assessee for these assessment years and that additions made in the assessment order passed u/s 153A of the Act are not on the basis of any incriminating material/ evidences found during the course of search, ergo, these orders are bad in law.

8. The argument made by the assessee is not acceptable. The disallowances in the assessment order u/s 153A of the Act passed for A.YS. 2014-15, 2015-16 and 2016-17 were made in the light of facts and legal position narrated therein. As far as the issue of these disallowances being not based on incriminating material seized during the course of search is concerned, the language of section 153A of the Act is very much clear and unambiguous. While the triggering point may be the search, but the notice that is contemplated by section 153A and which is mandatory requires the Assessing Officer to assess the income of six years. That is independent of the search. The mandate is to issue the notice for six assessment years. The assessment or reassessment is of the total income of the assessee disclosed or undisclosed and pertaining to these six years. There is nothing in the language of the provisions which would indicate that the assessment is restricted to incriminating material or the basis of the assessment would be that which is discovered during the search or during the process contemplated by section 132A of the IT Act.

M/s. Capacit’e Infraprojects Ltd. ITAs no.904, 905 & 906/Mum./2023 referred to in the aforesaid sub-section on the date of initiation of the search under Section 132, the said proceeding shall abate. If such proceedings are already concluded by the assessing officer by initiation of proceedings under Section 153.4, the legal effect is the assessment gets reopened. The block assessment roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments. Under Section 153.4, however, the Assessing Officer has been given the power to assess or reassess the total income" of the stx assessment years in question in separate assessment orders. The Assessing Officer is empowered to reopen those proceedings and reassess the total income, taking note of the undisclosed income, if any, unearthed during the search. He has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by Section 1534, by even making reassessments without any letters. This means that there can be only one assessment order in respect of each of the six assessment years, in which both the disclosed and the undisclosed income would be brought to tax. When once the proceedings are initiated under Section 153A of the Act, the legal effect is even in case where the assessment order is passed it stands reopened. In the eye of law there is no order of assessment. Re-opened means to deal with or begin with again. It means the Assessing Officer shall assess or reassess the total income of six assessment years. Once the assessment is reopened, the assessing authority can take note of the income disclosed in the earlier return, any undisclosed income found during search or and also any other income which is not disclosed in the earlier return or which is not unearthed during the search, in order to find out what is the "total income" of each year and then pass the assessment order."

10. This view finds full support from the judgement of the Karnataka High Court in the case of Canara Housing Development Company Vs. DCIT, 274 CTR 122 (Kar), wherein, the stand taken by the Delhi High Court in its judgement cited supra, was endorsed.

9. We find that the learned CIT(A), vide impugned order, inter-alia followed the decision of the Hon’ble jurisdictional High Court in CIT v/s Continental Warehousing Corporation (Nhava Sheva) Ltd., (2015) 374 ITR 645 (Bom.), wherein it was held that no addition can be made in respect of assessments which have become final if no incriminating material is found during the search. We further find that recently the Hon’ble Supreme Court affirmed this M/s. Capacit’e Infraprojects Ltd. ITAs no.904, 905 & 906/Mum./2023 position in PCIT v/s Abhisar Buildwell (P.) Ltd., [2023] 149 taxmann.com 399 (SC), by observing as under:-

“14. In view of the above and for the reasons stated above, it is concluded as under: i) to iii) …….. iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved.”

11. In view of aforesaid findings, grounds no.4 and 5, raised in Revenue’s appeal, are rendered infructuous and therefore are dismissed.

2. In the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in placing reliance on various judicial pronouncements including in the cases of CIT Vs. Continental Warehousing Corporation, All Cargo Global Logistics Vs. DCIT, etc., without Page | 8

M/s. Capacit’e Infraprojects Ltd. ITAs no.904, 905 & 906/Mum./2023 appreciating that these judgements have not been accepted by the Department and in fact, SLP filed by the Department against Bombay High Court's order in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd, has been admitted by the Hon'ble Apex Court [vide order dated 12.10.2015 in Special Leave to Appeal (C) CC 18506/2015) and is pending for adjudication 3. In the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not deciding the grounds of appeal raised by the assessee on the merits of the case but has merely held that the additions made by the AO in the assessment order framed u/s 153A r.w.s 143(3) of the Act cannot survive de hors the incriminating evidences.

4. In the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the A.O. to delete the disallowance made w/s 37(1) of the Income- tax Act, 1961 on account of unverified purchases of Rs.12,42,36,888/-.

5. In the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO. delete the to disallowance made w/s 37(1) of the Income- tax Act, 1961 on account of unverified sub- contract expenses of Rs.34,28,598/-.

6. In the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the 4.0. delete the to disallowance made us 37(1) of the Income- tax Act, 1961 on account of unverified sub- contract expenses of Rs.64,20,793/- on protective basis without first deciding the appeal on substantive addition made in the hands of M/s Bhupati Infrabuild Services Pvt Ltd.

7. In the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the A.O. to delete the disallowance made on account of employee's contribution to welfare funds beyond the due date without considering the fact that the Apex Court in the latest judgement in the case of Checkmate Services (P.) Ltd. Vs CIT [2022] 143 taxmann.com 178 (SC) has decided this issue in favour of the Revenue.”

14. In the assessment year 2015-16 also we find that on the date of the search and seizure action under section 132 of the Act on 20/08/2019, the assessment under section 143(3) of the Act was already completed on 16/08/2017. Therefore, no assessment for this year was pending on the date of search and thus the same is also not abated as per the second proviso to section 153A of the Act. We further find that vide order dated 27/07/2021 passed under section 153A of the Act the additions made by the AO are not based on any incriminating material found during the course of the search rather the same are either based on pre-search/post-survey enquiries, perusal of information available on ITBA/ITD database or information already available on record in terms of delayed payment of employee’s contribution to Provident Fund/ ESIC. Further, it is pertinent to note that the remand report furnished by the AO, as sought during the appellate proceedings before the learned CIT(A), is common for all the assessment years under consideration, which as noted above does not highlight the existence of any incriminating material Page | 9

M/s. Capacit’e Infraprojects Ltd. ITAs no.904, 905 & 906/Mum./2023 found/seized during the course of search. Thus, in view of the above, our findings/conclusion rendered in Revenue’s appeal for the assessment year 2014-15 shall apply mutatis mutandis to the present appeal. Accordingly, grounds no.1-3 raised in Revenue’s appeal are dismissed.

2. In the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in placing reliance on various judicial pronouncements including in the cases of CIT Vs. Continental Warehousing Corporation, All Cargo Global Logistics Vs. DCIT, etc., without appreciating that these judgements have not been accepted by the Department and in fact, SLP filed by the Department against Bombay High Court's order in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd., has been admitted by the Hon'ble Apex Court [vide order dated 12.10.2015 in Special Leave to Appeal (C) CC 18506/2015] and is pending for adjudication.

3. In the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not deciding the grounds of appeal

raised by the assessee on the merits of the case but has merely held that the additions made by the AO in the assessment order framed u/s 153A r.w.s 143(3) of the Act cannot survive de hors the incriminating evidences.

4. In the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO to delete the disallowance made us 37(1) of the I.T.Act on account of unverified purchases of Rs.14,49,12,290/-. In the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the A.O to delete the disallowance made u/s 37(1) of the Income- tax Act, 1961 on account of unverified sub- contract expenses of Rs.2,82,92,430/- on protective basis without first deciding the appeal on substantive addition made in the hands of M/s Bhupati Infrabuild Services Pvt Ltd.

M/s. Capacit’e Infraprojects Ltd. ITAs no.904, 905 & 906/Mum./2023

6. In the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the A.O. delete the to disallowance made us 37(1) of the Income- tax Act, 1961. on account of unverified sub- contract expenses of Rs. 2,97,27,657/-.

7. In the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the A.O. delete the 10 disallowance made u/s 37(1) of the Income- tax Act, 1961. on account of unallowable educational expenses claimed of Rs.42,00,762/–. 8. In the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the A.O. to delete the addition made u/s 69C of the Income-tax Act, 1961 on account of unexplained expenditure of Rs. 58.31,600/-. 9. In the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in directing the A.O. to delete the disallowance made u/s 40A(2)(a) of the Income-tax Act, 1961 on account of excessive and unreasonable expenses of Rs. 11,94,445/-. 10. In the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the A.O to delete the addition made u/s 23(1) rows. 23(4) of the Income-tax Act 1961 on account of deemed rent of Rs. 4,69,700/-.”