VIVEK MEHROTRA,MUMBAI vs. DCIT CC 3(2) , MUMBAI

2 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra O R D E R PER S. RIFAUR RAHMAN (AM) 1. These cross appeals are filed by the assessee and revenue against order of the Learned Commissioner of Income Tax (Appeals)-51, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 08.02.2018 for the A.Y.2015-16.

3 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra 3. In the course of assessment proceedings in the case of the assessee's father this position was explained by letters dated 08.12.2016 (see pages 125 to 148 of the Paper Book) and 23.12.2016 (see pages 149 to 163 of the Paper Book) to his Assessing Officer. The Assessing Officer of the assessee and his father is the same i.e. the Deputy Commissioner of Income-tax- 3(2), Mumbai. Along with the said letter, the Memorandum of Understanding dated 25.09.2014 was also annexed. In the course of the said assessment proceedings, based on information sought by the Assessing Officer, Kamdhenu Cattle Feeds Pvt. Ltd. has directly filed a confirmation with the Assessing Officer accepting the said transaction and the fact that they had paid cash of ₹.1,00,00,000 to the assessee's parents in respect of the same. In the said confirmation they also accepted that an amount of ₹.4,00,00,000 including ₹.1,00,00,000 paid for the present transaction had been offered as undisclosed income. The said confirmation has been separately handed over at the time of hearing. Based thereon, no addition has been made in his hand (the assessment order in the case of the assessee's father at pages 164 to 167 of the Paper Book).

4. In the Assessee's case, the Assessing Officer has proceeded on the basis that the premises being Khatri House at Lucknow belongs to him.

4 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra Therefore, as per section 292C of the Act, the presumption should be that the said cash belonged to him. According to the Assessing Officer, since the assessee had not provided a satisfactory explanation for the amount of ₹.75,00,000/-, it was added as his income under section 69A of the Act. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and Ld.CIT(A) upheld the finding of the Assessing Officer.

5. Aggrieved assessee is in appeal before us raising following grounds in its appeal: - “1. That the Ld. CIT (Appeals) erred in law as well as on the facts in upholding the addition of Rs.75,00,000.00 on account of alleged unexplained cash u/s 6A made by the Ld.AO. by presuming that the entire cash found and seized from the appellant's residence belonged to him as the cash had been found in possession of various family members of the appellant who never denied ownership of the same 2 That the Ld.CIT (Appeals) erred in law as well as on the facts in upholding the addition of Rs.75,00,000.00 as unexplained money u/s 69A of the Act in the appellant's case when in fact the cash was duly explained and formed part of the regular cash books of the appellant's father Shri LN.Mehrotra, in whose case also a search u/s 132 was conducted and whose cases were also assessed u/s 153A of the Act and who was also a wealth tax assessee and the cash was duly reflected in his Wealth tax Return

3. That the Ld.CIT (Appeals) erred in law as well as on the facts in upholding the addition of Rs 75,00,000.00 as unexplained money u/s. 69A by rejecting the appellant's explanation as an afterthought, merely on conjectures and surmises, and without refuting or pointing out any anomaly in the documents and evidences placed on record by the appellant

4. That the Ld. CIT (Appeals) erred in law as well as on the facts in upholding the addition of Rs 75,00,000.00 as unexplained money u/s 69A when in fact the sources of the same were duly explained and supported by documentary and other evidences.

5 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra 5. That the appellant begs for admission of such additional grounds as may arise in the course of the appellate proceedings before the Hon'ble Bench.”

7. At the outset, Ld. AR of the assessee submitted that the above additional grounds of appeal

are purely legal grounds and do not require any fresh examination of facts. Ld. AR basically argued on the additional ground and challenged the validity of assessment order passed by the Assessing Officer u/s. 153A of the Act, is illegal and bad in law rendering the entire assessment null and void. Ld. AR submitted the written submissions, for the sake of clarity it is reproduced below: - “1. The aforesaid appeals were heard by the Tribunal on 21.09.2021. The said appeals have been heard only on the additional ground as raised by the assessee before the Tribunal on 25.08.2021. In the said additional ground the assessee has urged that passing of the assessment order dated 30.12.2016 by the Assessing Officer (the AO) under section 143(3) read with section 153A of the Income-tax Act (hereinafter referred to as 'the Act) is invalid as assessment under the said section 153A could not have been made for the year under consideration.

2. A bare perusal of section 153A of the Act shows that an assessment under the said section could be made only for six assessment years immediately preceding the assessment year 6 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra relevant to the previous year in which the search was conducted. In the present case, the search was conducted on 04.12.2014 and, therefore, the relevant assessment year in which the search was conducted would be assessment year 2015-16 i.e., the year under consideration. The six years immediately preceding the said assessment year 2015-16 would be assessment years 2009-10 to 2014 -15. In view thereof, an assessment under section 153A of the Act could not have been passed for assessment year 2015-16 but could be passed only for assessment years 2009-10 to 2014-15.

3. That, in the present case, assessment order has been passed under section 153A of the Act, is shown by a bare perusal of the following: Point No.13 at page-1 of the assessment order giving the section and sub-section under which the assessment is made; b. Paragraph 9 at page-28 of the assessment order stating that "Assessed u/s. 143(3) r.w.s. 153A of the 1. T. Act, 1961; c. Further, paragraph 10 at page-28 of the said assessment order shows that the Order has been passed by the Assessing Officer after obtaining the approval of Addl. Commissioner of Income-tax Central Range-3, Mumbai under section 153D of the Act, which according to him, was granted on 30.12.2016. Approval is required to be obtained under the said section only when an assessment order is passed under section 153A of the Act; and d. Lastly, in the Extract from the Remand Report filed by the Assessing Officer before the Commissioner of Income-tax (Appeals) during the appellate proceedings he has observed that assessment under section 153A was made in the assessee's case (see paragraph 3.1 at page 3 of the appellate order).

4. Based on the above, it is urged that the assessment order dated 30.12.2016 passed by the AO for the year under consideration under section 153A of the Act is without jurisdiction rendering the order to be illegal and bad in law. It is respectfully submitted that, the said ground raises a pure legal issue for adjudication of which the relevant facts as referred to above already form part of the 7 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra assessment and the appellate order. This issue goes to the root of the matter and the Tribunal may be pleased to admit and allow the same.

8 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra to the root of the matter, like in the present case, where the assessment order has been passed without jurisdiction can be raised at any stage of the proceedings. Apart therefrom, the Ld. DR had also placed reliance on judgment of the Hon'ble Apex Court in the case of Jute Corporation of India Ltd. v. CIT 187 ITR 688 for the proposition that assessee has to explain why the additional ground could not be raised earlier. In the present case, the said issue was brought to the notice of the assessee by the Advocate only when preparing for this appeal. Since he did not have any knowledge of this issue it could not have been raised earlier. Attention of the Hon'ble Bench is also drawn to National Thermal Power Corporation Ltd. v. CIT 229 ITR 383 wherein the Hon'ble Apex Court has held that "We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier." Based thereon, it is urged that the ground raised in the present case is a pure question of law and hence may be admitted. b. Relying on paragraph 5.3 at page 7 of the CIT (A)'s order, it was urged by the Ld. DR that validity of the assessment order passed under section 153A of the Act had been challenged by the assessee on the ground that no incriminating material had been found by the Revenue in the search proceedings. According to her, the additional ground as now raised before the Tribunal involved a totally different issue. The assessee submits that it is an undisputed position that the issue as now raised before the Tribunal was not raised earlier whether in the assessment or in the appellate proceedings. It is in these circumstances, that the assessee has filed the additional ground along with a request for admission of the same. It requires consideration that a bare perusal of said paragraph 5.3 of the CIT(A)'s order shows that it is an undisputed position that an assessment order in the present case had been passed under section 153A of the Act which it is submitted is contrary to law. c. It has been lastly urged by the Ld. DR that reference to section 153A of the Act in the assessment order dated 30.12.2016 is a mistake which would not render the proceedings to be invalid in view of section 292B of the Act. The assessee submits that firstly, mentioning section 153A at different places of the assessment order and also obtaining prior approval of the Additional Commissioner of Income-tax as per section 153D of the Act cannot be regarded as a mistake. Further, the present is a case, where, the assessing officer, lacked jurisdiction under section 153A of the Act. In this regard, attention is invited to the Judgment of the Hon'ble Apex Court in the case of PCIT vs. Maruti Suzuki India Ltd. 309 CTR 433 (Annexure 5 hereto), where, 9 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra the Revenue was seeking to justify the assessment order passed on a non-existing entity by relying on the said provision. The Hon'ble Apex Court has held that recourse can be taken to the said provision to rectify a procedural irregularity but not a case which involves substantive illegality. In the present case, the AO lacked jurisdiction under section 153A. Hence, it is a case of substantive illegality and not procedural irregularity.

6. In view of the above, the assessee respectfully submits that the Tribunal may be pleased to admit the additional ground and allow the same.”

by assessee in 2359/m/2018 was argued by the A.R and undersigned. The written submission is on the arguments put forth as follows. With reference to the above the assessee via application filed on 25- 8-2021 has raised a ground challenging validity of assessment order passed u/s 153A, the following submission may kindly be considered and taken on record.

1. Additional ground was raised after a gap of 3 years and 5 months i) Appeal was filed by the assessee 2359/M/2018 Form 36 was verified on 10/4/2018, in line 5 the section mentioned is 143(3) (date of communication of CIT(A) order is 19.3.2018) ii) the additional ground was filed as per submission on 25-8- 2021 i.e after a gap of 3 years 5 months. iii) total 5 grounds raised before the Hon'ble Tribunal by assessee. Ground no 1- 4 relate to addition of Rs 75 lacs cash confirmed by CIT(A), Ground 5 is general.

10 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra iv) As per the folder: The case of assessee was fixed on 8 dates from 22/4/2019 to 27/7/2021 Revenues appeal folder shows it was fixed on 12 dates. v) There is no reason given for the additional ground being raised now, which is more in the nature of a fresh claim not emanating from the order of CIT(A). vi) Reliance is placed on the following judicial pronouncements (1) decision dated 20.7.2020 of Honble Madras High Court in the case of The Commissioner of Income Tax vs M/s.Tarachanthini Services Pvt. T.C.A.Nos.839 & 840 of 2019 (Annexure 'A') (copy enclosed) para 3 (the ground raised

) ...The assessee for the very first time raised a new ground before the Tribunal stating that the assessment itself was bad in law and nullity, since the name of the assessee Company was struck off from the Register of Companies, even before the Assessment Order was passed. The Tribunal permitted the assessee to raise the ground as additional ground stating that it goes to the very root of the matter. vide para 10 the hon'ble court held: ...Furthermore the question would be whether the Tribunal committed an error in permitting the assessee to raise such a ground for the first time before the Tribunal, especially when it is a factual issue which the assessee never raised before the Assessing Officer in the reassessment proceedings or before the Commissioner of Income Tax (Appeals) and sought to raise it before the Tribunal for the first time stating that it goes to the root of the matter. We do not agree with the reasoning of the Tribunal in this regard. If the assessee had failed to raise the factual issue before the Assessing Officer at the first instance and consciously participated in the proceedings, could not have been permitted to canvass such factual issue for the first time before the Tribunal.

2. The Hon'ble Supreme Court of India laid the basic condition to be satisfied by the appellate authorities while accepting the additional ground, in the case of Jute Corporation Of India Ltd vs Commissioner of Income Tax And Anr on 4 September, 1990 Equivalent citations: 1991 AIR 241 (Annexure 'B') (copy enclosed) HEAD NOTES

11 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra HELD: 1.2 If the Appellate Assistant Commissioner is satisfied he would be acting within his jurisdiction in considering the question so raised in all its aspects. Of course, while permitting the assessee to raise an additional ground, the Appellate Assistant Commissioner should exercise his discretion in accordance with law and reason. He must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The satisfaction of the Appellate Assistant Commissioner depends upon the facts and circumstances of each case and no rigid prin- ciples or any hard and fast rules can be laid down for this purpose. [157D-F]

3. The assessee has during the course of stated that the additional ground can be raised any time. Reliance is being placed on the decision of Hon'ble Supreme Court in the case of M. Balakrishnan vs. M. Krishnamurthy on 3rd September, 1998, which deals with the Limitation Act of 1963(Annexure 'e') (copy enclosed) The Hon'ble Court has held It is axiomatic that condonation of delay is a matter of discretion of the court Section 5 of the Limitation Act does not say that such discretion can be exercised only if the delay is within a certain limit. Length of delay is no matter, acceptability of the explanation is the only criterion. Sometimes delay of the shortest range may be uncondonable due to want of acceptable explanation whereas in certain other cases delay of very long range can be condoned as the explanation thereof is satisfactory. …….omitted A court knows that refusal to condone delay would result foreclosing a suitor from putting forth his cause. There is no presumption that delay in approaching the court is always deliberate. This Court has held that the words "sufficient. cause" under Section 5 of the Limitation Act should receive a liberal construction so as to advance substantial justice vide Shakuntala Devi Jain Vs. Kuntal Kumari [AIR 1969 SC 575] and State of West Bengal Vs. The Administrator, Howrah Municipality [AIR 1972 SC 749]. It must be remembered that in every case of delay there can be some lapse on the part of the litigant concerned. That alone is not enough to turn down his plea and to shut the door against him. If the explanation does not smack of mala fides or it is not put forth as part of a dilatory strategy the court must show utmost consideration to the suitor. But when there is reasonable ground to think that the delay was occasioned by the party deliberately to gain time then the court should lean against acceptance of the explanation. While condoning delay the Could

12 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra should not forget the opposite party altogether. It must be borne in mind that he is a looser and he too would have incurred quiet a large litigation expenses. It would be a salutary guideline that when courts condone the delay due to laches on the part of the applicant the court shall compensate the opposite party for his loss. 2. Ground raised by the assessee before the CIT(A): i) As per Form 35 dated 24/1/2017 are related to addition /disallowance u/s 80IC,14A,69A: At any juncture either at the time of filing appeal or even during the course of appellate proceedings the assessee has raised any ground regarding the validity of the assessment on the ground that the order is passed u/s.153A. In the present case there is no reason why the assessee could not have been able to raise this ground earlier and has sought to bring up the same when substantial time has lapsed. In Form 35 the assessee has stated in Col. 2.a that order is passed u/s.143(3) as against the return filed on 04.11.2015 [Col. 8.1.b which is u/s. 139(1)]. Hence there was no occasion for the CIT(A) to give any decision on this account on this ground. ii) Further, the assessee also raised additional ground as per para 3.1 and decided as para 5: Cit(A) Order para 3.1 Ground no 1 of appeal is about questioning the validity of the assessment made u/s 153A of the Act by the AO on the ground that there was no incriminating material found during the course of search action. As per the extract in the order reliance is placed on the decision of CIT vs Continental Warehousing Corporation Appeal no 523 of 2013. CIT(A) considering the facts of the case has dismissed the ground as the case being that of search year. (para 5.3) Therefore, it is clear that the assessee has actually challenged the assessment passed relying on the decision of CIT vs. Continental Warehouse Corporation challenging the assessment holding it to have been passed u/s.153A. At no point the assessee has raised that the assessment is wrongly made u/s.153A instead of 143(3). However, now on a totally different footing, in the additional ground raised before the Hon'ble tribunal vide dated 25-8-2021 the assessee has challenged the validity and legality of the assessment order dated 30.12.2016 on the that it was the broken period and not covered u/s 153A.

3. Additional ground and reliance on the notice in paper book and extract of CIT(A) order.

13 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra i) The AO DCIT Central circle 3.2 after verification of record has submitted a report which may kindly be considered stating that there is no notice u/s 153A issued. Return was filed U/S 139(1) and there was no objection raised by the assessee at any point. (copy enclosed) (Annexure-F). As per the details filed in paper book dated 27-8-2021, there is no notice u/s 153A attached only the annexure to the notice u/s 143(2) refers to 153A. ii) Without prejudice to the above considering that the annexure to the notice (page 1-2 of paper book dated 27-8-2021) referred to 153A, there has been no objection raised by the assessee at any point till the additional ground is raised on 25-8-2021. iii) Provisions of section 292B are attracted in the present case, reliance is placed on the judicial pronouncements that wrong mention in notice or assessment order does not invalidate the assessment order as the assessee has participated in the assessment proceedings. 1) Bombay High Court in the case of Prime Securities Ltd. v. Varinder Mehta, Assistant Commissioner of Income-tax (2009) WRIT PETITION NO.112 OF 1993. (Annexure 'D') (Copy enclosed). Para 10 10. The last submission is the consequence flowing from the provisions of Section 292B. It was introduced by Taxation Laws (Amendment) Act, 1975, with effect from 1.10.1975 and reads as under: "292B. No return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act." A bare reading of this provision, makes it clear that a return of income shall not be treated as invalid merely by reason of any mistake, defect or omission in such return of income, if such return 14 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra of income is in substance and effect in conformity with or according to the intent and purpose of this Act The same decision would be applicable in the case of an assessment also as in the present case. 2) Karnataka High Court in the case of The Commissioner Of Income Tax vs M/S Sri Durga Enterprises on 11 February, 2014 1.T.A. No.677/2007 9 (Annexure 'E') (copy enclosed) The Hon'ble Court held in para 9 9. In the present case, as observed earlier, the assessee not only responded to the notice under Section 148 of the Act within one month, but on the basis of the return filed earlier, participated in the proceedings till the matter reached the FAA and was disposed of. A glance at Section 292B of the Act, shows that under this provision, certain Acts are not to be treated as invalid, may be by reason of any mistake, defect or omissions, either in return of income, assessment, notice, summons or other proceedings. In other words, a notice cannot be invalidated by reason of any mistake, such as the one occurred in the present case, namely, the period of filing return of income was not specified as contemplated by Section 148 of the Act. If such a defect is not allowed to be cured, or treated as invalid so as to declare the notice invalid, despite the fact that assessee had taken that notice as valid and responded to it in letter and spirit and participated in the proceedings, the very purpose objective of the provisions contained in Section 292B of the Act would stand frustrated/defeated.

3. DCIT vs K.M. Nagaraj ITA Nos.1259 to 1261/Bang/2013 (Annexure - 'F') (copy enclosed).

4. In the instant case no objection was raised by the assessee. The lapse is only on account of typographical mistake in the order, no notice whatsoever was issued u/s 153A. It is a technical objection which does not have substance.”

15 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra 9. Considered the rival submissions and material placed on record, during appellate proceedings assessee has pressed mainly the additional ground of appeal raised before us and submitted the issue raised by the assessee is a legal issue. Accordingly, the additional ground of appeal is admitted for adjudication.

10. We observe that Ld. AR vehemently argued that the Assessing Officer has assessed the income for the impugned assessment year u/s.143(3) r.w.s. 153A of the Act even though the search was conducted on 04.12.2014 and the relevant assessment year in which search was conducted would be A.Y. 2015-16 i.e. year challenged before us. Therefore, he objected that the preset assessment u/s. 153A of the Act could not have been passed for the present assessment year but could be passed only for assessment year 2009-10 to 2014-15. Further, he submitted that Assessing Officer after obtaining the approval of Additional Commissioner of Income Tax, Range – 3, Mumbai u/s. 153D of the Act which was granted on 30.12.2016. Ld. AR submitted that approval is required to be obtained u/s. 153D only when the Assessment Order is passed u/s. 153A of the Act. Based on the above fact on record he submitted that Assessment Order dated 30.12.2016 passed by the 16 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra Assessing Officer for the year under consideration u/s. 153A is without jurisdiction rendering the order to be illegal and bad in law.

11. On the other hand, Ld. DR objected to the above submissions and also submitted that the assessee has raised additional ground on 25.08.2021 after a gap of three year and four months. This issue was never raised before any authorities below. After considering the facts on record we are of the opinion that normally after search assessment notices were issued after obtaining approval u/s. 153D for six Assessment Years including searched assessment year. Since the notices are issued for seven years and also assessments are carried together, sometimes Assessing Officer maybe of the opinion that the search Assessment Order also to be assessed u/s. 153C of the Act. We observe that the assessee was issued 143(2) notice subsequently to the search and Assessing Officer has gathered all the information and completed the assessment u/s.143(3) of the Act. However, due to wrong belief as mentioned above he has merely quoted the section as 143(3) r.w.s. 153A of the Act it does not mean that the assessment proceedings carried by the Assessing Officer is bad in law, it is a rectifiable mistake and it is not a jurisdictional issue as such. The relevant case law relied by the assessee are 17 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra distinguishable to the facts of the present appeal. Therefore, the additional ground raised by the assessee is accordingly, dismissed.

12. Coming to the merits of the case, at the time of hearing Ld. AR submitted that cash found during the search is ₹.1.15 crores found at the premises of the assessee. He submitted that as per the explanation submitted before the Assessing Officer that all the cash were held at the premises Khatri House at Lucknow and accordingly, the Assessing Officer has observed that to the extent of ₹.75 lakhs assessed in the hands of the assessee are not explained properly by the assessee and made the addition. In this regard Ld. AR submitted that the above said cash is belongs to assessee’s father and he submitted that assessee’s father has sold the property and received advance. Further, he filed the its written submissions, for the sake of clarity it is reproduced below: -

“5. The Assessee submits that the said addition is not permissible in his hands, for the following amongst other reasons, each of which is in the alternative and without prejudice to any other: a. That as per section 292C of the Act cash found in the possession or control of any person in the course of search may be presumed to be belonging to such person. In the present case, Khatri House at Lucknow was of the ownership of the assessee's father. The assessee was also staying with him. Therefore, the presumption should be that the said cash belonged to him and not the assessee. In this view of the matter, no addition could be made in Assessee's hands.

18 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra b. The AO passing the assessment order in the assessee's and his father's case is the same. In the course of assessment proceedings on the assessee's father, the AO has made extensive enquiry with respect of this issue. As stated above, the assessee's father by his letters dated 08/12/2016 and 23/12/2016 explained the whole transaction and also produced the relevant supporting material. In the said proceedings, the AO also called for confirmation from Kamdhenu Cattle Feeds Pvt. Ltd. which has been referred to hereinabove. Based thereon no addition has been made in his hands. In view thereof, once the same AO was satisfied in the assessee's father's case that the cash has been explained, he was not justified in taking a different view in the present case. c. Though the entry with respect to receipt of cash of Rs. 1,00,00,000 was not available in the cash book on the date of commencement of search. However, before the conclusion of the search, the said entry had been passed as on 25/09/2014. In the assessment order passed in the case of the Assessee's father, no addition has been made in respect of the entry of receipt of advance in cash. Hence, this position appears to be accepted. In these circumstances, addition of the said amount as unexplained money was not permissible.

6. In the course of hearing before the Tribunal, clarification was sought by the Hon'ble Bench with respect to the search party taking cognizance of the entry passed in the cash book and assessment order being passed in the hands of Kamdhenu Cattle Feeds Pvt. Ltd. assessing them on the undisclosed income. In this regard, the following may be relevant:- a. The aforesaid search action also covered premises being at Panchsheel Park at New Delhi. In the course of search at said premises, cash amounting to Rs. 12,33,500 was found of which Rs. 1,60,000 had been placed under prohibitory order in a cupboard. The said cupboard was opened on 13/01/2015 before the conclusion of the search and the entire amount has been returned back to the assessee. If the assessee group had explained cash only to the extent of Rs.40,22,342, as is the case of the AO, then this amount also ought to have been seized. However, seizure of this amount was not made as by then the entry in the cash book had been passed which had been accepted by the search party. Annexed hereto as 19 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra Exhibit A is a copy of Panchnama prepared by the search party on 13/01/2015 (see page no. 16 to of this submission). Further, no addition has been made in respect of the entry for receipt of advance in cash in the assessment order passed in the case of the assessee's father. b. Assessee also annexes the copy of assessment order dated 29/12/2017 passed by the Deputy Commissioner of Income-tax-6, Kanpur in the case of Kamdhenu Cattle Feeds Pvt. Ltd., wherein, they have been assessed on an undisclosed income of Rs. 10.50 crore as declared in the course of survey action (see paragraph 4 at page 2 of this submission), Apart therefrom, in the paper book as presently filed before the Tribunal, the financial statement of Kamdhenu Cattle Feeds Pvt. Ltd. as on 31/03/2014 has been filed. We also annex their Financial statement as on 31/03/2015 reflecting advance for properties of Rs.4,00,00,000 in the schedule of Short term loans and advances which also includes the amount of Rs. 1,00,00,000 being advance given by them to the assessee's father(see page no. 23 of this submission).

7. The assessee submits that, if the Tribunal deems fit, it may remand this issue to the AO to specifically consider the aforesaid material.”

20 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra the search said to belongs to assessee or assessee’s father. In the given case it is observed by the Assessing Officer that ₹.75 lakhs was added in the hands of the assessee as not properly explained. However, the same amount was verified in the hands of the assessee’s father wherein separate assessment order was passed in the case of assessee’s father wherein the extensive enquiry was conducted by the same Assessing Officer. Assessee’s father has submitted letters dated 08.12.2016 and 23.12.2016 by which he has explained the whole transaction and also produced the relevant supporting materials. In the same proceedings Assessing Officer has called for confirmation from Kamdhenu Cattle Feeds Pvt. Limited and after verifications no additions was made in the hands of assessee’s father. It is also fact on record that the above receipt of cash of ₹.1 Crore was not available in the cash book on the date of commencement of search, however, before conclusion of the search the said entry has been passed on 25.09.2014. Since the issue was verified in the hands of the assessee’s father and Kamdhenu Cattle Feeds Pvt. Limited, there was no addition made in the hands of the assessee’s father, however, there were several cash transactions found during search. For the sake of overall justice, we deem it fit and proper to remit this issue back to the file of the Assessing Officer to verify these cash transactions

21 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra properly as per law, after providing adequate opportunity of being heard to the assessee. Accordingly, the grounds raised by the assessee are allowed for statistical purpose.

ITA.No. 2170/MUM/2018 (DEPARTMENT APPEAL)

“1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee's claim of deduction u/s 80IC without appreciating the fact that during the course of search action it has been clearly established and confirmed from the statement recorded on oath of Shri Sanjeev Kumar Agarwal, Manager of the assessee that the assessee was not doing any manufacturing or processing activity but only mixing and repacking various ingredients and thus no finished product distinct from the raw material has come into existence, which may fall within the meaning of words "manufacturing, processing and production as enunciated under the provisions of section 80IC of the IT. Act, 1961". 2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee's claim of deduction u/s 80IC by holding that the assessee's claim for deduction in the original assessment in the preceding years was thoroughly examined and thereafter allowed and holding the action of the AO of disallowing the assessee's claim for deduction u/s.80IC in the assessment u/s.143(3) rws 153A as not justified."

22 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra 3. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee's claim for deduction u/s.80IC of the LT. Act, 1961, without appreciating the fact that the essential requirement to be eligible to claim the said deduction u/s 80IC of the LT. Act, 1961 was not fulfilled by the assessee". 4. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance made by the AO u/s.14A of the LT. Act. 1961 by holding that the shares held by the assessee are in the nature of stock in trade and therefore, should be excluded while computing disallowance u.s.14A". The appellant craves to leave, to add, to amend and / or to alter any of the ground of appeal, if need be.”

17. Coming to the departmental appeal, revenue has raised four grounds, aggrieved with the order of the Ld.CIT(A) in which he gave relief to the assessee u/s. 80IC of the Act and 14A of the Act.

18. Ground No. 1, 2 and 3 are relating to relief granted u/s. 80IC of the Act and Ground No. 4 on relief granted u/s. 14A of the Act.

19. With regard to Ground No. 1, 2 & 3, the relevant facts are, during search proceedings one Shri Sanjeev Kumar Agarwal, one of the managerial employees of the assessee stated that the manufacturing process undertaken involves only mixing of the various ingredients and does not even involve heating or chemical reaction and therefore, does not constitute 'manufacturing' activity. The assessee uses raw materials which are basically hydro carbons and their halogenated, sulphonated or 23 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra nitrated derivatives, alcohols and their derivatives, phenols, ethers, carboxylic acids etc. which comes under organic and inorganic compounds. Whatever is produced by the assessee from mixing of these raw materials will also be organic and inorganic compounds which fall under Schedule XIII, with the above observation Assessing Officer held that the assessee cannot claim deduction u/s. 80IC of the Act. Assessing Officer heavily relied on the statement given by Shri Sanjeev Kumar Agarwal.

20. On appeal, before the Ld.CIT(A) assessee has filed detailed submissions in appellate proceedings. After considering the submissions of the assessee Ld.CIT(A) deleted the addition made by the Assessing Officer, observing as under: -

“6.3 From the bare perusal of the section would reveal that sub- section (1) of section 80IC provides a deduction in respect of profit and gains derived by an undertaking or enterprises from any business referred to in sub-section (2), while computing the total income of an assessee. Sub-section (2) has further sub- sections and in the case of assessee, the clause applicable is 80IC 2 (a)(ii) which provide that assessee has begun or begins to manufacture or produce any article or thing, which are not specified in Thirteenth schedule. The assessee has not manufactured any article or thing, which is provided in thirteenth schedule and its factory is situated in Industrial Estate at Uttranchal, therefore, therefore sub-clause (ii) of section 80-IC(2)(a) is applicable to it. 6.4 The only case of the AO is that the activity carried out by the assessee at its factory comprises of only mixing of various ingredients which does not constitute manufacturing or production.

24 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra There is no dispute that the various other conditions for claiming deduction u/s. 80IC are duly being fulfilled by the assessee. The expression 'production' has not been defined in the Act. However, the expression 'manufacturing activity' has been defined in Sec. 2(29)(BA) which is reads as under:- "(29BA) "manufacture", with its grammatical variations, means a change in a non-living physical object or article or thing,- (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure". 6.5 It would be helpful if the meaning of expression "manufacture and production" as propounded in the various authoritative pronouncements of the Hon'ble Supreme Court as well as of Hon'ble High Court is understood. In the case of India Cine Agency (308 ITR 98). Hon'ble Supreme Court has considered its judgment rendered in the case of Sesa Goa (271 ITR 331) and all other decisions on the point which contemplate the meaning of expression "manufacture" as well as "production". In the case of India Cine Agency, assessee was carrying on business of conversion of Jumbo Rolls of photographic films into small flats and rolls in desired sizes. It claimed deduction under sec. 80-HH and 80-1 as well as investment allowance under sec. 32AB. The controversy arose whether conversion of jumbo rolls into small sizes amounts to manufacture or production, eligible for deduction under sec. 32AB or deduction under sections 80-HH and 80-1 of the Income-tax Act, 1961. Hon'ble Supreme Court has held that this activity amounts to manufacture or production. The relevant discussion made by the Hon'ble Supreme Court reads as under: "2. As noted above, the core issue is whether activity undertaken was manufacture or production.

27 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra and now it has also been upheld by the Hon'ble Supreme Court. While upholding the decision, the Hon'ble Supreme Court referred to its own decision in the case of Arihant Tiles and Marbles P. Ltd. (320 ITR 79) wherein it has been held that the expression 'production' is of a much wider import as compared to the expression 'manufacture. It noted that in the case of Arihant Tiles and Marbles P. Ltd., though cutting of marble blocks into marble slabs did not amount to manufacture however, the same amounted to production and therefore, was eligible to claim deduction u/s.80IA. It was further held that any activity which brings a commercially new product into existence constitutes production. It held that by undertaking the process of bottling, the LPG becomes capable of being marketed as a domestic kitchen fuel and thereby making it a viable commercial product. The Hon'ble Supreme Court also distinguished its own decision of Tara Agencies (292 ITR 444) wherein the assessee's claim for deduction was not allowed on the ground that blending of different qualities of tea amounted to 'processing of tea' and cannot be equated to a 'manufacturing process', by clarifying that in this case the issue to be adjudicated is whether bottling of LPG into cylinders constitutes "manufacturing" or "production" and not whether bottling of LPG into cylinders constitutes "processing". ….. 6.9. Moreover, in course of the appellate proceedings, the assessee has submitted a work-flow diagram in respect of the various processes carried out in the various sections of the factory at Page No 94 of the paper book, which is as under: Raw Material Hall Hundreds of raw materials / ingredients such a natural essential oils, aromatic chemicals, oleoresins, resinoids, etc., which are manufacture in India as well as all over the world, are purchased from our suppliers. These raw materials are stored and kept in a dark place. This is very important as each and every raw material has a shelf life period any which must be stored in suitable conditions otherwise the life and quality of raw material expires. Work in Process Hall At the time of production / manufacturing raw materials are transferred to production hall / work in process. Reactions, stirring,

28 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra grinding, mixing, filtering, storage for maturity etc. is done in Work in process (WIP) hall. It is very important to use the ingredients properly as per prescribed limits, dosages. Some of the materials are hazardous and may cause irritation to skin, eyes after a particular dosage. Compliance of various norms like IFRA, FEMA while using them is essential. Finished/Packing and Despatch Finished goods (which is mixture of odoriferous substances) / flavours/ fragnances/synthetic essential oils/fragrant compounds, is transferred to packing hall. Since all the material is tailor made and developed as per the requirement of customer it is also packed according to the requirement of customer. It may be in Aluminium bottles/plastic jerry canes of various sizes ranging from 25 ml to 200 kilos barrels. …… 6.11 The AO has disallowed the assessee's claim for deduction u/s.80IC primarily on the basis of (i) In the statement on oath recorded of Shri Sanjeev Kumar Agarwal, one of the managerial employees of the assessee, where he stated that the manufacturing process undertaken involves only mixing of the various ingredients and even does not involve any heating or chemical reaction and (ii) The assessee uses raw materials which are basically hydro carbons and their halogenated, sulphonated or nitrated derivatives, alcohols and their derivatives, phenols, ethers, carboxylic acids etc. which comes under organic and inorganic compounds and therefore whatever is produced by the assessee from mixing of these raw materials will also be organic and inorganic compounds which fall under Schedule XIII of products not eligible for deduction u/s.80IC. 6.12 As regards the reliance of the AO solely on the statement on oath of Shri Sanjeev Kumar Agarwal to disallow assessee's claim for deduction u/s 80-IC, this action is incorrect, considering that in course of the search action itself, Shri Vivek Mehrotra, the key person of the assessee group and the only person with knowledge of the component 'heart', the main ingredient of the final products, had clarified that the entire process not only involves mixing of ingredients but also grinding, stirring and reactions at optimum

29 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra temperature levels. It is further observed that no infirmity is found either during the search action or during the assessment proceedings in the clarification recorded of Shri Vivek Mehrotra Therefore, the sole reliance placed by the AO on the statement on oath recorded at the time of search action of Shri Sanjeev Kumar Agarwal to draw an adverse nference on the eligibility of the assessee to claim deduction u/s.80IC is not Justified. 6.13. As regards the finding of the AO that the raw materials used for producing the final product are organic/inorganic chemicals and therefore the final product also is organic/inorganic chemicals which falls under Schedule XIII of products not eligible for deduction u/s.80IC, the assessee has argued that the assessee manufactures/produces a mixture of odoriferous substances and not organic/inorganic chemicals. It has further been submitted that just because some of the raw materials used by it are organic/inorganic chemicals, it does not imply that it is engaged in the manufacture of such products. It was further submitted that in Schedule XIII, the following tariff headings of the product categories as per the Central Excise Tariff have been held to be not eligible for deduction/exemption:- Chapter 28- Inorganic Chemicals and Chapter 29 Inorganic Chemicals, organic or inorganic compounds of precious metals, or rare earth metals, of Radioactive Elements or of Isotopes of Excise tariff. It was submitted by the assessee that none of the products manufactured/produced by it fall under Chapter 28 or 29 but fall under Chapter 33 related to 'essential oils resinoids, perfumery, cosmetic or toilet preparations'. Therefore, it was contended by the assessee that the conclusion drawn by the AO that the final products fall under Schedule XIII, of products not eligible for deduction u/s 80IC, is not correct. 6.14. It is observed that there is merit in the contention of the assessee that just because certain raw materials used by it are organic/inorganic chemicals, it cannot be said that the final product manufactured by it is also organic/inorganic chemicals. Moreover, it is noted that the products manufactured by the assessee fall under Chapter 33 related to 'essential oils resinoids, perfumery, cosmetic or toilet preparations' and do not fall under Chapters 28 and 29 related to organic/inorganic chemicals. Therefore, the conclusion

30 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra drawn by the AO that the final product are organic/inorganic chemicals which fall under Schedule XIII of products not eligible for deduction u/s.80IC, is incorrect 6.15 The assessee has submitted that it had set up its factory at Integrated Industrial Estate, Pantnagar under the guidelines issued by SIDCUL which allots plot only to eligible industries and that its unit has been registered under SSI under the category 'manufacturing, engaged in preparation of mixture of odoriferous substances'. It was further submitted that the products manufactured by it are excisable products and that it has obtained NOC from Pollution Control Board owing to effluent discharge from the manufacturing process. It was also submitted that it is registered under the Factories' Act and under VAT. Moreover, it was also submitted that it has obtained license under FSS Act since it manufactures flavours to be used by industries manufacturing edible products. Therefore, it was contended that in view of the certification given by the various government authorities, the action of the AO of concluding that the assessee is not engaged in manufacturing activity is not correct. There is merit also in these contentions of the assessee that it is engaged in activity which can be termed as manufacturing or production, considering that it has obtained the requisite approvals for its manufacturing activity from the various government authorities. …. 6.19. Aggrieved by the above decision of the FAA in the case of Khushbu Industries for AY 2008-09, the Department preferred further appeal before the Hon'ble ITAT. In the proceedings before the Hon'ble ITAT, the said assessee carried out a live demonstration on a sample basis to show that the product or article produced by it is different from the raw material used by it and the final product is having a different market value higher than the raw material and which cannot also be reconverted into the raw materials used. In front of the Hon'ble Bench, three of the Chemical Engineers of the assesse demonstrated as to how the final products, "Sweet Gulab' and 'Compound Bela are manufactured. For manufacture of Sweet Gulab, 15 items were used as raw material of which 2 were in solid form and 13 in liquid form. The various raw materials were mixed in a particular order and in appropriate proportions to prepare the said final product, Sweet Gulab. In respect of 2 of the solid raw materials,

31 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra heating process was carried out to convert them to liquid form. Similarly, the manufacture of Compound Bela was also demonstrated before the Hon'ble Bench. Thereafter, after considering the definition of the expression "manufacture" as per section 2(29BA) and primarily the following decisions of the Hon'ble Courts, it was held that the assessee is eligible to claim deduction u/s.80IC: (i). Chowgule & Co P Ltd (1 SCC 623) (SC) wherein it has been held that even blending of iron ore for the purpose of export constitutes "manufacturing" (ii). Indian Cine Agencies (308 ITR 98) (SC) wherein it has been held that the activity of cutting jumbo roll films into flat and small rolls in desired sizes constitutes manufacture / production, (iii). Arihant Tiles & Marbles P Ltd (320 ITR 79) (SC) wherein it has been held that cutting and polishing of marble blocks constitutes manufacturing and (iv). Tata Tea Ltd. (338 ITR 285) (Ker.) whether blending of tea was to be held to be a manufacturing activity. 6.20 In view of the aforesaid detailed discussion, it is held that the assessee has undertaken manufacturing / production activity and is therefore entitled to claim deduction u/s 80-IC. Accordingly, Ground Nos. 2 & 3 of the appeal are allowed.”

32 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra for the relevant year in the assessment u/s. 143(3) rws 153A is not justified. The assessee has rightly relied upon the decision of the Hon'ble Supreme Court in the case of Radhasaomi Satsang Ltd. (supra) wherein it has been held that if there is no change in the material facts, it will be incorrect to take a view different from the one taken in the earlier years. Accordingly, Ground No. 4 of the appeal is allowed.”

34 & 2170/MUM/2018 (A.Y: 2015-16) Shri Vivek Mehrotra investments which have actually yielded tax free income. Respectfully following the above said direction, we also remit this issue back to the file of the Assessing Officer to restrict the disallowance to the extent of those investments which have actually yielded tax free income. Accordingly, ground raised by the revenue is allowed for statistical purpose.

Order pronounced in the open court on 30th January, 2023