SHREE BASAVESHWAR SUGARS LIMITED,VIJAYAPURA vs. ACIT, CENTRL CIRCLE, TRICHIRAPALLI

आयकर अपीलीय अिधकरण, ‘ए’ �यायपीठ,चे�ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI �ी महावीर �सह, उपा�य� एवं �ी जी. मंजुनाथ, लेखा सद�य के सम� BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENTAND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA Nos.: 1005, 1006, 1007, 1008, 1009, 1010 & 1017/CHNY/2022 िनधा�रण वष�/Assessment Years: 2012-13, 2013-14, 2014-15, 2015-16, 2016-17, 2017-18 & 2018-19 Shree Basaveshwar Sugars The ACIT, Ltd., vs. Central Circle -1, No.6, Mallikarjun Badvane, Tiruchirapalli. Mangul Road, Ganesh Nagar, Vijayapura (Bijapur), Karnataka – 586 109. PAN: AANCS 3203R (अपीलाथ�/Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से/Appellant by : Shri G. Baskar, Shri I. Dinesh & Shri P.M. Karthir, Advocates ��यथ� क� ओर से/Respondent by : Shri R. Mohan Reddy, CIT सुनवाई क� तारीख/Date of Hearing : 10.01.2023 घोषणा क� तारीख/Date of Pronouncement : 18.01.2023 आदेश /O R D E R PER BENCH: These 7 appeal by the assessee are arising out of three different orders of the Commissioner of Income Tax (Appeals)-19, Chennai in ITA Nos.836, 837, 838 & 839/19-20 & 989/21-22 and

2 ITA Nos. 1005 to 1010 &1017/Chny/2022 990/21-12 dated 24.11.2022 and ITA No.991/21-22 dated 28.11.2022. The assessments were framed by the ACIT, Central Circle -1, Trichy for the assessment years 2012-13 to 2018-19 u/s.144 r.w.s. 153C of the Income Tax Act, 1961 (hereinafter the ‘Act’), vide orders of even date 25.12.2019. 2. The first common issue in all these seven appeals of assessee is as regards to the orders of CIT(A) and orders of AO, committing grave errors in violating the principles of natural justice and completing the assessments within ’27 days’ from the date of issuance of notices u/s.153C of the Act for calling of returns of income. The facts are exactly identical in all the seven appeals of assessee on this very issue of violation of principles of natural justice as the assessment and consequent appellate order is emanating out of search conducted u/s.132 of the Act on M/s. Dhanalakshmi Srinivasan Charitable and Educational Trust on 15.02.2018. The issue raised is exactly identical in all the seven appeals, hence we will take the facts and grounds of appeal from assessment year 2017-18 in ITA No.1010/CHNY/2022 and will decide the main issue. The relevant ground read as under:- “2. Natural justice violation: 2.1 The CIT(A) has committed a grave error in upholding the order of assessment in spite of the serious violation of natural justice principles committed by the Assessing Officer while passing the same.

3 ITA Nos. 1005 to 1010 &1017/Chny/2022 2.2 The order of assessment having been completed in a mere “27” days, the CIT(A) has rather erroneously held that the same did not infringe natural justice principles. 2.3 Seeing as how the reasonable opportunity of hearing before the AO cannot be substituted by any number of opportunities granted by the appellate forums, the order of the AO framed without hearing the appellant ought to be quashed. 3. Briefly stated facts are that the assessee Shree Basaveshwar Sugars Ltd., is running a sugar factory at Bijapur, Karnataka. A search u/s.132 of the Act was conducted by the Income-Tax Department in the group cases of m/s. Dhanalakshmi Srinivasan Charitable and Educational Trust including assessee on 15.02.2018. According to Revenue, during the course of search, incriminating material relating to assessee’s company was found and statement u/s.132(4) of the Act was recorded from two responsible persons of these concerns. Consequent to search conducted on 15.02.2018, notice u/s.153C of the Act was issued on 28.11.2019 by the AO to the assessee. There was no compliance to the statutory notice and consequently notice u/s.142(1) of the Act was issued on 11.12.2019 for calling of return of income for the relevant assessment year 2017-18. There was no response to this notice either as per Revenue. A show cause notice proposing to make certain additions for the relevant assessment year 2017-18 was issued on

4 ITA Nos. 1005 to 1010 &1017/Chny/2022 13.12.2019 based on seized material and assessee was requested to file its objections to the show cause notice on or before 18.12.2019. Since there was no response to this show-cause notice, the assessment was completed u/s.144 r.w.s. 153C of the Act vide order dated 25.12.2019, ex-parte. The assessee challenged the assessment order before CIT(A) and the CIT(A) passed appellate order in ITA No.990/21-22 vide order dated 24.11.2022 confirming the additions despite the fact that objections were raised before him that the time limit for completion of assessment u/s.153C of the Act in this case was available to the AO upto 31.12.2020 but AO completed assessment under compulsion without affording opportunity to the assessee to present its case. The assessee before CIT(A) filed written submissions stating violations of principles of natural justice by the AO in completing the assessment and the relevant submissions of the assessee as reproduced by the CIT(A) in his order reads as under:- 3.1 As submitted earlier, search took place on 15 February, 2018. Notice us 153C came to be issued on 28.11.2019 calling upon the assessee to file a ROl within 7 days, in other words the AO gave 6 days' time to respond Normally in other cases notices u/ss 153C provides a time of atleast 30 days to respond. Why this AO chose to give only 7 days time to respond to the notice u/s 153C is not known. It is not a case whether an accelerated assessment needs to be made. This appellant company has been in existence for a long time and the there is no necessity to make an accelerated assessment. Even if an accelerated assessment is to be made that requires the approval of the CIT.

5 ITA Nos. 1005 to 1010 &1017/Chny/2022 3.2. Although no minimum time limit has been specified in Secs. 153A or 153Cfor furnishing a return, Sections 1588C (pan materia with Sections 153A and Sec 153C) stipulated a minimum of15 days' time limit. Section 148 originally prescribed a minimum time limit of 30 days. Vide Finance Act, 1996, the said provision stood amended to read as within the time specified in the notice. These are stated here only to submit that in any event 'a reasonable time' has to be given to file a return of income in pursuance of any notice under the Act. 3.3. The notice us. 153C was followed by another notice us 142 dated 11.12.2019 which gives time of 5 days to respond to it. Even before the said time limit of 5 days gets over the AO issues a pre-assessment show cause notice dated 13 December, 2019 proposing to add a sum of Rs 38,89,48,593/ to the returned income. The AO completes the assessment on 25. 12.2019. Thus, between the initiation of proceedings u/s 153C and the completion of assessment on 25. 12.2019 hardly 27 days had gone by. The notice having been issued only in the month of November. 2019 the assessment gets time barred only by 31. I2.2020. It is not known why the AO hushed up the entire assessment within time span of 27 days. 3.4. This discloses the intention of the AO to willy nilly complete a block assessment and slap a huge demand on the appellant throwing to wind all the principles of natural justice and the mandatory provisions of the Income- Tax Act. The A0 says that the JCIT has approved the Assessment. It is not known when the proposal itself was put up to the JCIT and when it was partly or fully approved by the JCIT. It is also not known how many approvals had been accorded by the JCIT during the interregnum period. 3.5 The Assessment Order having been passed in total violation of the provisions of the IT Act and principles of natural justice is liable to be quashed in toto. In this connection we may use fully refer to the decision of the Hon'ble Madras High Court in the case of B. Kubendran -vs- DCIT (supra) wherein the Hon'ble High Court held that the assessment is inproper. In the case before the Madras High Court judgement proceedings was completed in a span of about 2 months whereas in the present case it was completed within a span of less than four weeks. The reason that prompted the A0 to complete the assessment within that short period is unknown. 3.6. The AO is well aware of the fact that the registered and administrative office of the Appellant Company is in Hubbali and all the records pertaining to this company is available only in the administrative office of the company.

6 ITA Nos. 1005 to 1010 &1017/Chny/2022 Only during November, 2019 the files were centralised and the AO had been conferred with the jurisdiction over this appellant. The records pertaining to this year was at least seven years old and needs to be secured from the administrative office for furnishing the details called for by the AO. It is not as if the appellant has not responded to any of the notices. The Respondent has filed its ROI for this year in response to notice u/s 153C on 19th December, 2019 which has been totally ignored or deliberately not taken cognizance of by the AO. This ROI was never processed before completion of the assessment proceedings. 3.7. In this case the files came to be centralised only during November, 2019 although search took place in February, 2018 and the assessment was completed on 25.12.2019. At least in the case before the Madras high court a detailed questionnaire dated 07. 12.2019 issued by the A0 before framing the assessment. However, in this case not even a questionnaire had been issued but the A0 was building castles in the air notice over notice and the show cause notice. Thus, the assessment framed by AO needs to be annulled as observed by the Hon'ble Madras High Court in that case" The CIT(A) rejected the ground of violation of principals of natural justice by observing in para 6.9.3 to 6.9.5 as under:- 6.9.3 The submission made by the Appellant has been carefully examined. While going through the records it can be seen that the A.O. has issued the notice us 153C on 28.11.2019 and completed the assessment for all the Assessment Years under consideration on 25.12.2019. In this regard, the appellant has relied upon the decision of the Jurisdictional Hon'ble Madras High Court in the case of B.Kubendran vs. DCIT [2021] 126 taxmann.com 107 (Madras), wherein the Hon'ble Court had remanded the matter back to the A.O. 6.9.4 The issue involved in this case is that the Appellant was not provided sufficient opportunity of being heard, and thereby violated the principal of natural justice. The Commissioner of Income Tax (Appeals) is competent enough to entertain new evidence and allow new grounds which was not considered by the A.O. during the course of Assessment Proceedings. In fact, the CIT(A), is empowered to enter into the shoes of the A.O. and decide the issue. The Appellant was given multiple opportunities during the course of Appellate Proceedings to provide additional ground, additional evidence and

7 ITA Nos. 1005 to 1010 &1017/Chny/2022 submission. It may be appreciated that during the course of Appellate Proceedings, the Appellant has not attempted to provide not even a single evidence, to prove about the genuineness and creditworthiness of the creditors. Instead of providing evidences to support the claim about the creditworthiness, the Appellant has neither raised valid argument nor prayed for provision of additional time to furnish relevant evidence and valid submission. This will prove that the Appellant is not in possession of any valid evidence or argument to adduce. Thus, the A.O. has rightfully decided the issue by treating the creditors as bogus and added the same, to a total income of the Appellant. 6.9.5 In view of the above, I am not inclined to accept the argument of the Appellant that the A.O. has not provided sufficient opportunity of being heard in completing the assessment. Aggrieved, assessee came in appeal before the Tribunal. 4. Before us the ld.counsel for the assessee Shri G. Baskar first of all filed dates of events of the case which are as under:- # Date Event 1. 15.02.2018 Search conducted u/s.132 of the Act. 2. 15.11.2019 Notification of the PCIT centralizing the files to the AO 3. 28.11.2019 Notice u/s.153C of the Act issued by the AO calling for ROI to be filed within “7” days. 4 04.12.2019 Communication of the PCIT rejecting the Petitioner’s request to defer the assessment. 5. 11.12.2019 Notice u/s.142(1) of the Act issued by the AO calling for ROI to be filed within “5” days. 6. 13.12.2019 Show-cause notice proposing additions issued by the AO. 7. 20.12.2019 ROI filed by Petitioner in response to notice u/s.153C of the Act. 8. 21.12.2019 Objections filed by the Petitioner to the additions proposed. 9. 25.12.2019 Impugned order of assessment u/s.144 r.w.s.153C of the Act passed by the AO. 10. 31.12.2020 Expiry of limitation for passing the above order of assessment.

8 ITA Nos. 1005 to 1010 &1017/Chny/2022 The ld.counsel for the assessee drew our attention to communication received form PCIT rejecting assessee’s contention for deferment of assessment proceedings for all the assessment years and he stated in his communication dated 04.12.2019 issued vide letter No.ITBA/COM/F/17/2019-20/1021610491(1) and the relevant para 7 reads as under:- “7. Though the 153C assessment is a separate proceeding technically, for all practical purposes, it is very much part and parcel of the 153A proceedings which is getting time barred shortly, on 31.12.2019. As far as the request for postponement of assessment is concerned, the same cannot be entertained at this point of time.” 4.1 The ld.counsel for the assessee stated that notice u/s.153C of the Act was issued to the assessee for calling for return of income to be filed within 7 days on 28.11.2019 as against which the PCIT rejected the assessee’s contention vide dated 04.12.2019 as noted above. The AO issued notice u/s.142(1) of the Act calling for return of income to be filed within 5 days dated 11.12.2019 and consequently, show cause notice was issued proposing addition vide dated 13.12.2019. The assessee filed return of income in response to notice u/s.153C of the Act on 20.12.2019 and objections were also filed by the assessee to the proposed additions on 21.12.2019. The AO rejected all the objections and framed assessment u/s.144 r.w.s. 153C of the Act vide order dated 25.12.2019. According to ld.counsel, this happened because PCIT was of the view that the

9 ITA Nos. 1005 to 1010 &1017/Chny/2022 assessment on the searched party u/s.153A of the Act was getting time barred on 31.12.2019 and consequently, petitioner’s assessment also getting time barred u/s.153C of the Act. The ld.counsel drew our attention to the submissions made before the CIT(A) as regards to erroneous assessment order and the relevant is reproduced in para 5 vide sub-para 3.8, 3.9 & 3.10, which read as under:- 3.8 Further, the assessment has been initiated by issue of a notice u/s 153C of the IT Act Sine qua non for non-initiation of proceedings u/s l53C is unearting of incriminating material belonging to the Appellant which disclosed un-explained income. Before issue of notice u/s 153C the AO has to record the satisfaction note as required u/s 153C of the IT Act. Secondly the satisfaction note should also disclose the materials that made the AO believe that income that had not been disclosed hitherto had been found consequent upon the search. 3.9. The satisfaction note to be recorded was neither furnished to the appellant nor made a part of the Assessment Order. Therefore, it is not clear as to whether am satisfaction note was recorded at all and if so on what date and what are the contents of it. The AO states that the reasons have been approved by the Joint CIT. There is no requirement of any approval by any superior authority with regard to the satisfaction note. If the reasons have originally been recorded by the Joint CIT himself which was then passed on to the AO for follow up, even then it does not meet the requirements of law. It is the AO and the AO only who needs to record satisfaction. 3.10 The learned Commissioner (Appeals) may kindly call for the records of the AO. In the absence of any satisfaction note the assessment is liable to be quashed as ab initio void. We place reliance on the decision of the Supreme Court in the case of CIT vs. Calcutta Knitwears 362 ITR 673 and in the light of the CBDT Circular No.24/2015 dated 31-12-2015. If there is one, the AO may be directed to furnish a copy of the satisfaction note along with enclosures if any to complete our submissions.

10 ITA Nos. 1005 to 1010 &1017/Chny/2022 4.2 The ld.counsel stated that exactly on identical facts, Hon’ble High Court of Madras in the case of B.Kubendran vs. DCIT [2021] 126 taxmann.com 107 (Madras) wherein the Hon’ble High Court has discussed the facts that the time allowed in this case was two months and this fact is recorded by Hon’ble High Court in para 25 & 26 as under:- 25. On the question of adherence to the principles of natural justice, the relevant sequence of dates and events is that a notice under Section 153C was issued on 25.10.2019 in regard to a search conducted in 2017. Unfortunately neither the affidavit filed in support of the writ petitions nor the impugned orders of assessment anywhere mention the date of search and it was only in the course of the submissions made orally that the date of search was noted by me as 07.11.2017. The limitation for completion of assessments would be the 31st of December, 2019. The impugned orders state that centralization of the assessments took place only on 24.09.2019 and pursuant to the centralization, notices under Section 153C were issued on 25.10.2019, leaving barely a period of a little over two months for completion of six search assessments. 26. The notice under Section 153C called upon the petitioner to file returns within a period of 8 days from service of the notice and the returns have been filed on 07.12.2019, in all cases, beyond the period granted by the respondent. On the same date a questionnaire under Section 142(1) has been issued calling for various particulars in response to which the petitioner has filed replies dated 13.12.2019 furnishing some of the particulars sought. The impugned orders have come to be passed on 30.12.2019 without further reference to the petitioner. The Hon’ble High Court then set aside the assessment by observing in para 31 to 35 as under:- 31. The impugned order has come to be passed on 30.12.2019 without further reference to the petitioner. In this case as well, I am of the view that the assessments have certainly been completed in haste. When the search

11 ITA Nos. 1005 to 1010 &1017/Chny/2022 has been completed on 07.04.2017, there was no necessity to have waited till 20.09.2019 for centralization, and issue notices under Section 153C only on 25.10.2019. Any delay on the part of the petitioner in responding to the notices appears insignificant in the face of the enormous delay by the Income Tax Department in taking stock of the search material, centralizing the cases and issuing the notices in time, particularly, since it is their case that the assessment get time barred on 31.12.2020. 32. The petitioner has, for AY 2015~16 and AY 2016~17, specifically sought more time to make his submissions on the merits of the matter, relating to alleged undisclosed income from quarrying operations and seigniorage fee. The respondent officer has, in making additions as aforesaid, simply ignored this request. 33. As regards the question of valuation by the investigating officer, Revenue relies on the provision of Section 132(9D) that reads as follows: -132(9D) The authorised officer may, during the course of the search or seizure or within a period of sixty days from the date on which the last of the authorisations for search was executed, make a reference to a Valuation Officer referred to in section 142A, who shall estimate the fair market value of the property in the manner provided under that section and submit a report of the estimate to the said officer within a period of sixty days from the date of receipt of such reference.- 34. The Investigating officer is thus, empowered to refer an issue to valuation even during the process of search. However, such report has to be put to the assessee and his full and complete response sought prior to using the same against him. This has not been done in the present case. Thus, while the reference to valuation is in order, the decision making process is flawed and in violation of the principles of natural justice. 35. There is no explanation set forth in counter or at the time of hearing to explain why the assessment had been taken up for completion, at the very fag end of limitation and for this reason, I believe I would have been justified, had I annulled the assessments, as a second innings is not to be granted to the department, merely as a matter of rote. However, and solely as a matter of prudence, I set aside the assessments with a direction to the respondent to issue notices afresh, hear the petitioner and pass orders of assessments within a period of eight (8) weeks from today, with sufficient time being given to the petitioner to putforth his submissions on merits.

12 ITA Nos. 1005 to 1010 &1017/Chny/2022 5. When these facts were confronted to ld.CIT-DR, he started arguing on merits of the case that these are all these are agreed additions and completion of assessment is just merely a formality. He argued that in any eventuality the matter has to sent back, if the bench desire so, to the file of the CIT(A) because under challenge is the order of CIT(A). At this point, the ld.counsel for the assessee drew our attention to another decision of Hon’ble High Court of madras in the case of V. Tillainatesan vs. ACIT, [2021] 133 taxmann.com 131 wherein the Hon’ble High Court has considered this aspect as to whom the matter has to be sent and who has violated the principles of natural justice. The Hon’ble High Court considered this issue in para 10 & 11 as under:- 10. The other question, which may arise, is whether the opportunity, which can be afforded to the appellant-assessee by the Appellate Authority, would be sufficient? In this regard, we are guided by the decision of the Hon-ble Supreme Court in Tin Box Company vs. Commissioner of Income-tax reported in [2001] 116 Taxman 491 (SC). In the said decision, the Hon-ble Supreme Court held that opportunity of hearing by the Appellate Authority or the Tribunal or the Court can be of no substitute to that of the opportunity that will be provided by the Assessing Officer, at the first instance. 11. Thus, we are of the clear view that the assessment order calls for interference. In the result, the Writ Appeal is allowed and the order passed in the Writ Petition is set aside and consequently, the Writ Petition is allowed and the assessment order dated 19.04.2021 is quashed and the matter is remanded to the respondent or the appropriate authority for fresh assessment. The said authority shall provide reasonable opportunity and grant sufficient time to the appellant-assessee to produce all records, that may be required for completing the assessment and thereafter, after inviting additional objections, if any, which the appellant-assessee may desire to

13 ITA Nos. 1005 to 1010 &1017/Chny/2022 submit, the assessment may be done afresh and in accordance with law. No costs. Consequently, connected Miscellaneous Petition is closed. In view of the above, the ld.counsel stated that in the present appeals also opportunity of being heard was violated by AO and agreed by appellate authority. The CIT(A) cannot be substituted to that of the opportunity that will be provided by the AO at the first instance. The ld.counsel stated that the adjudicating authority is the first authority before him entire facts are to be narrated and to be verified, which is the starting point where the principles of natural justice are clearly violated. Hence, he requested that the assessment orders and the orders of CIT(A) be set aside and matter be remanded back to the file of the AO for fresh adjudication in term of law. 6. After hearing rival contentions and going through the facts of the case, first of all we have gone through the communication received from PCIT dated 04.12.2019, wherein PCIT informed assessee that the assessment proceedings is getting time barred on 31.12.2019 and he informed the AO also. Once the PCIT has given his view that assessment is getting time barred on 31.12.2019, the AO was under pressure to complete the scrutiny / search assessment but actually the time barring was 31.12.2020 in the

14 ITA Nos. 1005 to 1010 &1017/Chny/2022 present assessment years. It means that the Department from the beginning was under wrong notion that the assessments will get time barred by 31.12.2019. From the chronology of events, it is clear that search was conducted in the group cases on 15.02.2018 and notification for centralization with the present PCIT charge was notified only on 15.11.2019 that means the Department took atleast 1 year & 9 months and Department was sleeping over search material during the entire period. Thereafter the AO issued notice u/s.153C of the Act only on 28.11.2019 calling for returns of income to be filed within "7" days. The assessee intimated the PCIT that assessments are getting barred by limitation by 31.12.2020 but PCIT was under wrong notion that the assessments were getting time barred on 31.12.2019 and same was communicated to the AO also by the PCIT. Accordingly the AO issued notice u/s. 142(1) of the Act for calling of returns of income to be filed within "5" days vide notice dated 11.12.2019. Subsequently vide dated 13.12.2019, show cause notice proposing certain additions was issued by the AO. Consequently the assessee filed return of income in response to notice u/s. 153C of the Act on 20.12.2019 i.e., within 30 days of the notice issued on 28.11.2019. The assessee filed objections vide dated 21.12.2019 against the proposed addition by the AO. The AO framed assessment u/s. 144 r.w.s. 153C of the Act

15 ITA Nos. 1005 to 1010 &1017/Chny/2022 vide order dated 25.12.2019. We noted that the AO merely allowed 21 days from the issuance of notice u/s.153C of the Act for calling of return of income till date of finalization of assessment order ex- parte u/s.144r.w.s. 153C of the Act dated 25.12.2019. 6.1 Going by the entirety of facts as narrated above that the Hon'ble High Court of Madras in the case of Shri B. Kubendran, supra has considered identical facts, rather the facts before us are worse than what was before the Hon'ble Madras High Court and the Hon'ble Madras High Court has set aside the assessments with a direction to the respondents to issue fresh notice and hear the petitioner and pass the assessment order on merits. In our view there is gross violation of natural justice in the present case before us but as the principle laid down by Hon'ble Madras High Court, we set aside the orders of the lower authorities i.e., the AO and the CIT(A) and remand the matter back to the file of the AO to issue fresh notice for framing of assessment and hear the assessee by allowing reasonable opportunity of being heard, to file the details and evidences. The AO will frame the assessment after considering the facts in entirety and will adjudicate the issue on merits. In view of the above, we set aside the orders of AO and the CIT(A) in all

16 ITA Nos. 1005 to 1010 &1017/Chny/2022 these seven assessment years and remand them back to the file of the AO for fresh adjudication in term of the above. 7. In the result, the appeals filed by the assessee in ITA Nos.1005 to 1010 & 1017/CHNY/2022 are allowed for statistical purposes. Order pronounced in the open court on 18th January, 2023 at Chennai. Sd/- Sd/- (महावीर �सह ) (जी. मंजुनाथ) (MAHAVIR SINGH) (G. MANJUNATHA) उपा�य� /VICE PRESIDENT लेखा सद�य/ACCOUNTANT MEMBER चे�ई/Chennai, �दनांक/Dated, the 18th January, 2023 RSR आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकरआयु� (अपील)/CIT(A) 4. आयकरआयु� /CIT 5. िवभागीय �ितिनिध/DR 6. गाड� फाईल/GF.