M/S SAHAJ ANKUR DEVELOPERS ,MUMBAI vs. DY CIT 3 (4), MUMBAI

Per contra, the Ld. CIT, DR appearing on behalf of the Revenue supported the order of the lower authorities. He urged that, the statements recorded u/s 132(4) carries sufficient evidentiary value and therefore any admission by the partner of the assessee to any wrong doing itself constitutes incriminating material to justify additions in unabated assessments. The Ld. CIT, DR further contended that, the decisions relied upon by the assessee in the case of Pr.CIT Vs Best Infrastructure (I) Pvt Ltd (397 ITR 82), CIT Vs Harjeev Aggarwal (241 Taxmann 199), amongst others, wherein it was held that statements recorded u/s 132(4) cannot alone constitute incriminating material to justify addition in unabated assessments, were distinguishable on facts from the present case. According to him, since the statement of one of the Partner, Shri Sunil Shah was also corroborated by the statements of entry operators, it was indeed incriminating enough to justify the additions made by the AO.

We have heard both the parties, perused the details, documents and submissions along with the judicial precedents relied upon by both sides. The first ground raised in the appeal is, whether in absence of any incriminating material found in the course of search at the premises of the assessee, the additions/disallowances made in the assessment of the assessee which were unabated on the date of search, could be held to be sustainable on facts and in law. As noted earlier, on the date of search i.e. 10-12-2013, income tax assessment for AY 2011-12 was unabated. We note that the provisions of Section 153A of the Act, forms part of Chapter XIV of the Act contains special provisions for completing assessments in case of search conducted u/s 132 of the Act or 7 to 332/Mum/2020 AYs. 2011-12 to 2013-14 Sahaj Ankur Developers requisition made u/s 132A of the Act. These provisions can be invoked only in cases where the Income-tax Department has exercised its extra ordinary powers of conducting search and seizure operations after complying with stringent pre- conditions prescribed in Section 132 of the Act. We do not deny the Revenue’s contention that, once a search u/s 132 is conducted against a person, then irrespective whether any incriminating material is found, the AO is required to proceed against such person for completing the assessments u/s 153A of the Act for the specified six assessment years. To this extent, there is no quarrel. However, we find that Section 153A itself creates the fine distinction/differentiation amongst specified six assessment years depending whether prior to the date of search, the assessment proceedings are pending or not before the AO. We note that the relevant section itself (second proviso to section 153A of the Act) clarifies that where an assessment was already completed against an assessee and any appeals or further proceedings are pending, then such appeals or other proceedings do not abate. We should keep in mind that merely because an assessee is subjected to search u/s 132 of the Act, such action by itself does not give carte blanche to the Department to subject such an assessee to the rigors of the assessment afresh for all the six years. It is for this reason that the Parliament in its wisdom has categorically created two classes among the six years, (a) un-abated assessment and (b) abated assessments. Consequent to a search conducted u/s 132 of the Act, the AO is required to issue notices u/s 153A of the Act to assess the income of the assessee for six assessment years preceding the date of search. These six assessment years comprise of assessments which are not abated (non-pending assessment before AO on the date of search); and assessments which are pending before the AO on the date of search, which would be treated as abated. In the case 8 to 332/Mum/2020 AYs. 2011-12 to 2013-14 Sahaj Ankur Developers of abated assessments, the AO is free to frame the assessment in regular manner and determine the correct taxable income for the relevant year inter alia including the undisclosed income un-earthed during search, having regard to the provisions of the Act. However, in relation to unabated assessments (AYs), which were not pending on the date of search, there is a restriction on the powers of the AO. In case of unabated assessments, the AO can re-assess the income only to the extent and with reference to any incriminating material which the Revenue has unearthed in the course of search. Merely because an assessee is subjected to search, he cannot be placed on a different pedestal or put in a more disadvantageous position than an assessee who is not subjected to search unless in the course of search some incriminating documents or evidence or information or material is gathered by the Investigating authorities so as to vest the AO with the necessary powers to make additions to the total income in relation to assessments which did not abate on account of search. This view finds support from the judgment of the Hon'ble Jurisdictional High Court in the case of CIT Vs Gurinder Singh Bawa (386 ITR 483) wherein it was held as follows: “3. For the Assessment Year 2005-06, the respondent-assessee had filed his return of income declaring an income of Rs.9.61 lakhs. The return of income as filed by the respondent- assessee was processed under Section 143(1) of the Act. Admittedly, no notice under Section 143(2) of the Act has been issued. Thereafter on 5 January 2007, a search was conducted on the respondent-assessee under Section 132 of the Act. Consequent thereto, proceedings under Section 153A of the Act were initiated. During the assessment proceedings for A.Y. 2005-06, the Assessing Officer added an amount of Rs.93.72 lakhs (declared as gifts) as being covered by Section 68 of the Act and an amount of Rs.43.67 lakhs (accumulated profits of the lendor) out of Rs.1.5 crores received as loan from one K.P. Developers Pvt. Ltd. as deemed dividend under Section 2(22)(e) of the Act. Undisputedly, respondent-assessee was a shareholder in M/s K.P. Developers (P) Ltd. The aforesaid additions are reflected in 9 to 332/Mum/2020 AYs. 2011-12 to 2013-14 Sahaj Ankur Developers an assessment order dated 31 December 2008 passed under Section 143(3) r/w 153A of the Act determining the respondent-assessee's total income at Rs.1.47 crores.

On further appeal before the Tribunal, the assessee interalia challenged the validity of the assessment made under Section 153A of the Act. This on account of the fact that no assessment in respect of the six assessment years were pending so as to have abated. The impugned order accepted the aforesaid submission of the respondent- assessee by interalia placing reliance upon the decision of the Special Bench of the Tribunal in Al-Cargo Global Logistics Ltd. rendered on 6 July 2012. The Tribunal in the impugned order further held that no incriminating material was found during the course of the search. Thus the entire proceedings under Section 153A of the Act were without jurisdiction and therefore the addition made had to be deleted on the aforesaid ground. The impugned order also thereafter considered the issues on merits and on it also held in favour of the respondent-assessee.

In view of the above, on issue of jurisdiction itself the issue stands concluded against the revenue by the decision of this Court in Continental Warehousing Corpn. (Nhava Sheva) Ltd. (supra). In the appeal before us, the revenue has made no grievance with regard to the impugned order of the Tribunal holding that in law the proceedings under Section 153A of the Act are without jurisdiction. This in view of the fact that no assessment were pending, so as to abate nor any incriminating 10 to 332/Mum/2020 AYs. 2011-12 to 2013-14 Sahaj Ankur Developers evidence was found. The grievance of the revenue is only with regard to finding in the impugned order on the merits of the individual claim regarding gifts and deemed dividend. However once it is not disputed by the revenue that the decision of this Court in Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra) would apply to the present facts and also that there are no assessments pending on the time of the initiation of proceedings under Section 153A of the Act. The occasion to consider the issues raised on merits in the proposed questions becomes academic.

Identical view was expressed by the Hon’ble jurisdictional Bombay High Court in the case of CIT Vs SKS Ispat & Power Ltd (398 ITR 584) wherein it was held as follows: “5. We have considered the arguments canvassed by the learned counsel for the respective parties. On perusal of section 153A of the Act, it is manifest that it does not make any distinction between assessment conducted under section 143(1) and 143(3). This court had occasion to consider the scope of section 153A of the Act in the case of Gurinder Singh Bawa and in the case of Continental Warehousing Corpn. (Nhava Sheva) Ltd. (referred to supra). It has been observed that section 153A cannot be a tool to have a second inning of assessment either to the Revenue or the assessee. Even in the case of Gurinder Singh Bawa (referred to supra) the assessment was under section 143(1) of the Act and the court held that the scope of assessment after search under section 153A would be limited to the incriminating evidence found during the search and no further. In the said judgment, the judgment of this court in Continental Warehousing Corpn. (Nhava Sheva) Ltd. (referred to supra) has been followed.

Considering the authoritative pronouncements of this court in the above referred cases one of which is also with regard to assessment under section 143(1), the issue is no longer res integra and stands concluded in the above referred judgments.”

In light of the above judicial precedents, and particularly the judgment of the Hon’ble Bombay High Court (supra) which is binding upon this Tribunal, we hold that in the case of unabated assessments of an assessee, no addition is permissible in the order u/s 153A of the Act unless it is based on any relevant incriminating material found during the course of search qua the assessee and qua the AY.

In our view, a plain reading of Section 158BB(1) of the Act does not contemplate computing of undisclosed income solely on the basis of a statement recorded during the search. The words “evidence found as a result of search” would not take within its sweep statements recorded during search and seizure operations. However, the statements recorded would certainly constitute information and if such information is relatable to the evidence or material found during search, the same could certainly be used in evidence in any proceedings under the Act as expressly mandated by virtue of the explanation to Section 132(4) of the Act. However, such statements on a 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 25. (...) However, as stated earlier, a statement on oath can only be recorded of a person who is found in possession of books of accounts, documents, assets, etc. Plainly, the intention of the Parliament is to permit such examination only where the books of accounts, documents and assets possessed by a person are relevant for the purposes of the investigation being undertaken. Now, if the provisions of Section 132(4) of the Act are read in the context of Section 158BB(1) read with Section 158B(b) of the Act, it is at once clear that a statement recorded under Section 132(4)

We also took into notice of the CBDT Circular F No. 286/2/2003-IT(Inv) dated 10.03.2003 addressed to all the Chief Commissioners of income Tax (Cadre Contra) and Directors Generals of Income Inv, relied by the Ld. Representative of the assessee wherein the emphasis was given to collection of incriminating materials rather than obtaining confession of additional income during the course of search and seizure proceedings. No doubt, the Ld. DR placed reliance upon the case of B. Kishore Kumar (T.C.A 738 to 744 of 2014, dated 3.11.2014) of Hon'ble Madras High Court for considering the statement given by the assessee has good evidence value, does not override the contentions of the Ld. AR, as the facts of the said case of B Kishore Kumar are distinguished with the facts of the case of the Assessee mainly on the ground that the sworn statement of B Kishore Kumar was taken by showing him the three print outs of the amount of loan given found during the search and not recorded in his regular books of accounts and in response to the same he admitted in his statement that there is a separate business carried out by him the income of which is not included in his return of income. In the case of the assessee, the statement was not recorded on the basis of any incriminating materials found during the search. The assessee relied upon the case law of the Hon’ble Bombay High Court in the case of CIT v. Continental Warehousing Corporation (NhavaSheva) Ltd. [2015] 58 taxmann.com 78 (Bom) wherein it is held that for assessment under section 153A in case of unabated assessment, if no incriminating material was found during the course of search in respect of an issue, then no additions in respect of any issue can be made to the assessment under Section 153A and 153C of the Act. The relevant extract of the order is reproduced as under:

Ld. Representative of the assessee also relied upon the case titled as All Cargo Global Logistic [374 ITR 645 (2015) (BOM)], wherein the Hon'ble Bombay High Court held that that no addition can be made in respect of completed assessment u/s.153A without incriminating materials found during the search. We are of the view that the original assessment for the Assessment Year 2008-2009 was completed u/s.143(3) and for the assessment years 2009-2010 to 2012-2013, the period for issuing the notice u/s 143(2) has elapsed on the date of search i.e. 10.12.2013 and no notices were issued u/s 143(2) for the aforesaid years. Therefore, the assessment for the assessment years 2008- 2009 to 2012-2013 are non abated and no additions can be made in respect of the non abated assessment years without referring to any incriminating materials found during the search. It is apparent that no incriminating material was found during the search.

The learned departmental representative and the learned CIT appeals have tried to distinguish this decision from Hon’ble Bombay High Court by referring to Hon’ble Delhi High Court decision in the case of Kabul Chawla (supra).

In this regard we are of the considered opinion that the decision from honourable jurisdictional High Court in Continental Warehousing (supra) is clear and unambiguous. It was clearly held in that case that assessments which are not pending and which have attained finality, addition under section 153(A) cannot be done without reference to incriminating seized material. We may gainfully refer to the relevant order of the honourable High Court as under: …….

As regards the issue of seized material it is clear that in the appeals which have remained unabated the addition is without reference to any seized material. The materials referred are only the statement obtained of the assessee under section 132 (4). These have been duly retracted. Hence without corroborative material addition only based upon the retracted statement is not sustainable. For this proposition following case laws are germane: • CIT Vs. Sunil Agarwal (379 ITR 367) • CIT Vs. Naresh Kumar Agarwal (369 ITR 171) • DCIT Vs. Narendra Garg & Ashok Garg (AOP) (ITA No. 1531 & 1532 of 2007 dated 28.7.2016) • DCIT Vs. Marathon Fiscal Pvt. Ltd. (ITA no. 5783 & 5784/Mum/2017 dated 28.8.2019)

In the background of aforesaid discussion and following the judgements of the jurisdictional High Court, the addition made in these assessment orders passed by the assessing officer under section 153A without reference to any incriminating material found in search is not sustainable. Hence, we set aside the orders of authorities below and allowed the claim of the assessee and delete the addition. Since we have already directed to delete the addition of loan itself, the addition of commission and interest thereon disallowed are also directed to be deleted as the same are also without reference to any material foundering search. The appeal of the assessee for the A.Ys. 2008-2009 to 2012- 2013 are allowed.” 13. We note that, the Ld. CIT, DR was unable to point out any change of fact or any change in the position of law. Having regard to the foregoing, the judicial discipline demands that we follow the ratio/decision rendered by this Tribunal (supra) on same set of facts and circumstances in the cases belonging to the same Group. Respectfully following the same, we are of the considered view that,the additions / disallowances made in the unabated AYs by the AO u/s 68 of the Act on account of unsecured loans, interest incurred thereon, and the alleged notional commission expense incurred for procurement of such loan, were not backed by any incriminating material found as a result of search. Hence, we set aside the order of the lower authorities below and allow this ground of the assessee and direct the AO to delete the additions made in the assessment order.

Since we have deleted the additions impugned before us on the ground that it was not based any incriminating material found in the course of search, all other grounds raised in the appeal on the merits of these additions have become academic in nature and is therefore dismissed as infructuous.

Since the facts and circumstances in the lead case under consideration, being A.Y. 2011-12 is identical to the other unabated AY 2012-13 in our decision in the case of ITA No. 330/Mum/2020, for A.Y. 2011-12 of the assessee’s appeal shall apply mutatis mutandis to the assessee`s appeals in ITA No. 331/Mum/2020. Hence, the appeal for AY 2012-13 also stands allowed.

In the result, the appeals of the assessee for AYs 2011-12 & 2012-13 are allowed and the appeal of the assessee for AY 2013-14 is allowed for statistical purposes. Order pronounced in the open court on 31/01/2023./- Sd/- Sd/- (BASKARAN B R) (ABY T VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,दिनांक/Dated: 31/01/2023. Vijay Pal Singh, (Sr. PS)