RADHIKA REDDY ALTHURI,HYDERABAD vs. ACIT, CENTRAL CIRCLE-2(1), HYDERABAD

Appellant by : Shri DK. Chhablani. Respondent by : Shri Jeevan Lal Lavidiya Date of Hearing : 01.08.2023 Date of Pronouncement : 30.08.2023 O R D E R PER BENCH :

Before us, at the outset, both parties submitted that the issues raised in all the four appeals are identical except one fact i.e., the assessees in appeals i.e., and 43/Hyd/2023 i.e., Sri Girish Reddy Althuri and Latha Reddy Althuri declared their income under Income Declaration Scheme Rules, 2016. The Assessing Officer on Page 1 of the assessment order in ITA Nos.42 and 43/Hyd/2023, respectively, held as under : “1.0 The assessee is an individual. During the year under consideration, the assessee declared his income under Income Declaration Scheme Rules, 2016 for the Assessment Year 2012-13 on 30.09.2016 declaring total income of Rs.1,12,07,723/- from salary, income from house property and income from other sources besides agricultural income of Rs.18,66,273/- after claiming exemption u/s 10(38) to the tune of Rs.8,94,76,600/-. A search and seizure operation u/s 132 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’) was conducted in the case of M/s. AMR India Limited and Others on 02.05.2018. As part of the search operations, the case of the assessee was covered u/s 132 of the Act. Subsequently, the case of the assessee was notified to Central Circle – 2(1), Hyderabad vide order of the Pr.Commissioner of Income Tax – 1, Hyderabad in F.No.5/Pr.CIT-1,Hyd/Juris/2018-19, dtd.18.07.2018.”

“1.0 The assessee is an individual. During the year under consideration, the assessee declared his income under Income Declaration Scheme Rules, 2016 for the Assessment Year 2012-13 on 30.09.2016 declaring total income of Rs.12,31,808/- from salary, income from house property and income from other sources besides agricultural income of Rs.4,22,260/- after claiming exemption u/s 10(38) to the tune of Rs.5,95,17,606/-. A search and seizure operation u/s 132 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’) was conducted in the case of M/s. AMR India Limited and Others on 02.05.2018. As part of the search operations, the case of the assessee was covered u/s 132 of the Act. Subsequently, the case of the assessee was notified to Central Circle – 2(1), Hyderabad vide order of the Pr.Commissioner of Income Tax – 1, Hyderabad in F.No.5/Pr.CIT-1,Hyd/Juris/2018-19, dtd.18.07.2018.”

“1. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in upholding the notice issued u/s 153A and the consequent assessment order passed u/s 143(3) r.w.s 153A despite the same being illegal, bad in law, barred by limitation or otherwise void for want of jurisdiction.

2. On the facts and circumstances of the case and in law, the CIT (A) has erred in sustaining the notice issued by AO under s.153A and the consequent assessment order passed under s. 143(3) of the Act in the absence of incriminating material found in the course of search and thereby being legally barred from revisiting a concluded assessment.

3. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in relying on the fourth proviso to section 153A for the purpose of holding that notice u/s 153A for the seventh assessment year and consequent assessment order u/s 143(3)

r.w.s 153A is not barred by limitation and/or illegal within the meaning of first proviso to section 153A.

4. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in relying on the statements of various persons obtained behind the back of the appellant without affording opportunity of cross examining those persons resulting in gross violation of the principles of natural justice.

5. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in confirming the AO's action of making addition u/s 68 of the Income Tax Act 1961 in respect of net long term capital gain of Rs. 5,96,11,906/- especially in the absence of any incriminating evidence/material and/or asset found during the course of search.”

“1.4 In response to the notice u/s. 153 A, the assessee has filed a letter in this office on 25.06.2019 stating as under: "With reference to the notice, cited above, this is to humbly submit that a Search operation u/s. 132 of Income Tax Act, 1961 ('hereinafter referred to as "the Act") was conducted in my case on 02.05.2018 and, as such A. Y. 2012¬13 falls beyond the period comprising six assessment years prior to the assessment year relevant to the year of search. Further, no incriminating material, constituting tangible evidence for any escapement of income from assessment for A. Y. 2012-13, was found during the said search operation. In view of this fact, the assumption of jurisdiction u/s. 153 A of the Act for such year is legally unsustainable, Hence, you are requested to kindly drop the proceedings initiated u/s. 153 A for A. Y. 2012-13. Without prejudice to the above prayer and accordingly reserving the rig/it to appeal against such assumption of jurisdiction u/s. 153 A, the return in response to the notice referred to above was filed on 04.07.2019 vide Acknowledgement No. 559646680040719."

4.1. It was the case of the assessee before the Assessing Officer that no incriminating material, constituting tangible evidence for escapement of income was found during the course of search conducted on 02.05.2018 for the assessment year 2012-13, which is beyond the period of 6 years. Therefore, no assessment can be made in the hands of assessee. The Assessing Officer mentioned the above said fact at Paragraph 1.4 (supra) of his order and thereafter, analysed the statement of Sri A. Mahesh Reddy, Managing Director of M/s. AMR India Limited and thereafter he mentioned as under : “In his statement, Sri Mahesh Reddy agreed to withdraw exemption claimed in his name and in the name of his family members to the tune of Rs. 32,76,61,066/-and also promised to offer to tax the same as additional income over and above the declared income for A.Y. 2012-13 and accordingly taxes will be paid.”

4.2 Thereafter, at Paragraphs 1.10 and 1.11 of his order, it was concluded by the Assessing Officer as under :

“1.10 The relevant provisions of section 153 A of the Act are reproduced as under: “…… Provided also that no notice for assessment or reassessment shall be issued by the Assessing Officer for the relevant assessment year or years unless (a) The Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more in the relevant assessment year or in aggregate in the relevant assessment years.

1.11 In view of the above, it is clear that the Assessing Officer has in his possession certain information / documents or evidence which reveal that the income, represented in the form of asset, which has escaped assessment in this case r the Assessment Year 2012-13. Hence, the objection raised by the assessee is not acceptable. The Assessing Officer has rightly issued notice u/s. 153 A of the Act for the Assessment Year 2012-13 and accordingly completed the assessment.”

4.3. Assessing Officer after examining the above said legal issue had examined the merits of the case from Paragraph 2 onwards and thereafter, had made additions in the hands of the assessee for an amount of Rs.5,96,11,906/-. The basis of the addition in the hands of the assessee made by the Assessing Officer was captured in Para 1.5 and 1.6 which is as under :

“1.5 The explanation submitted by the assessee is considered. Search operations u/s. 132 / Survey actions u/s 133A of the Act have been conducted by the Directorate of Investigation, Kolkata on various share brokers during which the share brokers accepted their role in the entire scheme of providing accommodation entry of bogus LTCG/STCL. The share brokers have stated in their statements that they have facilitated various paper/bogus entities to trade in the shares of M/s. Twenty First Century India Limited and other penny scrips for providing accommodation entry of bogus LTCG/.STCL. The relevant information is forwarded by the Directorate of Investigation, Kolkata. 1.6 Information received from the Directorate of Kolkata, wherein it is found that the directors / family members / promoters of M/s. AMR Jnia Limited have used penny stock to route their undisclosed income by booking Long Term Capital Gains through a company by name M/s. Twenty First Century (India) Limited managed by Sri Anil Kumar Khemka. Subsequently, a Search and Seizure operation u/s 132 of the Act was conducted in the business premises of M/s. AMR India Limited and residential premises of the directors on 02.05.2018. During the course of search operation, a statement was recorded from Sri A. Mahesh Reddy, Managing Director of M/s. AMR India Limited.”

4.4. Besides that, the Assessing Officer also made strong reliance upon the statement of assessee recorded by the officer of the Revenue during the course of search under section 132(4) of the Act.

4.5. On the basis of the above and on the basis of the other information which was collected by the Assessing Officer during the post search enquiry, the additions were made in the hands of the assessee.

“1.10 The relevant provisions of section 153 A of the Act are reproduced as under: “…… Provided also that no notice for assessment or reassessment shall be issued by the Assessing Officer for the relevant assessment year or years unless (a) The Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more in the relevant assessment year or in aggregate in the relevant assessment years.

8.1. The ld.AR further submitted that the case of the assessee is covered by the decision of Hon'ble Supreme Court and the decision of co-ordinate Bench of the Tribunal that no addition can be made in the hands of assessee as the requirements of the 4th proviso are not fulfilled and for the above said purposes, he has drawn our attention to the order passed by the Mumbai Bench of the Tribunal in the case of Viraj Profiles Limited wherein the Tribunal after discussing about the 4th proviso to section 153A of the Act, has granted the relief to the assessee. It was submitted that the language used in 4th proviso of Section 153A of the Act is parametria similar to the newly inserted section 149(b) of the Act w.e.f. 01.04.2022 whereby the word ‘expenditure’ and ‘entries in the books of accounts” have been added along with others in the definition of ‘Asset’. Prior to Amendment : Explanation – For the purposes of clause (b) of this sub-section, “asset” shall include immovable property, being land or building or both, shares and securities, loans and advances, deposits in bank account.

Post Amendment : Section 149(b) : “If three years, but nor more than 10 years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of – (i) An asset; (ii) Expenditure in respect of a transaction or in relation to an event or occasion; or (iii) An entry or entries in the books of account, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more.”

8.2. It was submitted by the ld.AR that no incriminating material has been found by the Assessing Officer before invoking 4th proviso to section 153A of the Act and therefore, no addition can be made in the hands of assessee. The other submission made by the ld.AR for the assessee is that in the absence of the incriminating material, the addition made by the Assessing Officer and confirmed by the ld.CIT(A) on the basis of the statement of Sri A. Mahesh Reddy (assessee), no addition can be made in the hands of assessee. The assessee has also not admitted to have traded in penny stock. Infact, he had drawn our attention to Page 42 and reply given by the assessee wherein the assessee has not admitted that the shares purchased and sold by the assessee were fictious and they were artificially increasing the premium of shares. It was further submitted that once the assessee had filed the return of income in response to section 153A notice, the assessee had not admitted any amount during the course of alleged statement, thus the assessee has thereby denied admission of any liability. The assessee had submitted that the statement taken by the Revenue from the assessee during the course of search proceedings cannot be relied upon for the purpose of making the addition. In this regard, the assessee relied upon the Instruction F.No.286/2/2003-IT (INV.II) dt.10.03.2003 to say that the addition should not be merely based on the confession made by the assessee.

8.3. The ld.AR further drawn our attention to the decision of the Hon’ble Delhi High Court in the case of PCIT Vs. Best Infrastructure (India) Pvt. Ltd and also in the case of Andhra Motars of Andhra Pradesh High Court wherein both the courts have held that the statement recorded u/s 132(4) of the Act does not have any evidentiary value for the purposes of making the addition unless the recorded statement is corroborated by the clinching and cogent evidence. It was submitted that the statement recorded by Investigation Wing is not an incriminating evidence and therefore, no addition can be made based on such statement.

8.4. Ld.AR further submitted that on merit, the assessee has traded through the stock exchange after paying the necessary STT charges and the gain arose to the assessee was disclosed by the assessee in the return of income filed by him in the normal tax provision and therefore, no addition can be made in the hands of the assessee. Further, it was submitted that the report referred by the ld.CIT(A) at page 74 of his order i.e., No.PKB/AO-97/2009 and PKB/AO-117/2009 dtt.23.09.2009 was not against M/s. Twenty First Century Private Limited. It was submitted that the whole finding of the ld.CIT(A) is based on the SEBI Report dt. 23.03.2009 wherein some penalty was imposed on the trader to an extent of Rs.3 lakhs. Further, it was submitted that the decision relied upon by the ld.CIT(A) in the case of PCIT Vs. Swati Bajaj (supra) is not applicable to the facts of the present case, as there was no report of SEBI in the case of assessee, scrip of M/s. Twenty First Century Limited and further, there was no evidence showing the availability of cash with the assessee, for the purposes of earning the long term capital gain, brought on record either by the Assessing Officer or by the ld.CIT(A) to prove that long term capital gain was the money of the assessee which was coming back in shape of long term capital gain.

9. On the other hand, ld.DR relied upon the orders passed by the lower authorities. He had submitted that the Department was well within its right to make the addition for A.Y. 2012-13 despite the fact that search was carried out in the premises of assessee on 02.05.2018. He had also submitted that the assessee has given statement and it was duly considered by the lower authorities, to make addition based on such admission. It was submitted that the statement given by the assessee during the course of search is binding and therefore, the addition was rightly made in the hands of assessee. He had drawn our attention to Para 1.10 of ld.CIT(A) wherein ld.CIT(A) had dealt with the argument of assessee w.r.t “no incriminating material”.

10.1 In Paragraph 1.4 of the assessment order, assessee has categorically mentioned that no incriminating material constituting the tangible assets were found in the premises of the assessee. In our view, in the absence of any incriminating material, no addition can be made in the hands of the assessee. For the above said purposes, we may fruitfully reply upon the decision of Hon'ble Supreme Court in the case of Abhisar Buildwell Pvt. Ltd. (supra). The co-ordinate Bench of the Tribunal has an occasion to examine the applicability of the decision in the case of Abhisar Buildwell Pvt. Ltd. (supra) in the case of Preranaa Agarwal ITA 458/Hyd/2021 wherein the co-ordinate Bench of the Tribunal in Para 8.2 to 9.1 had held as under :

“8. We have gone through the record in the light of the submissions made on either side. Insofar as the facts and figures are concerned, there is not much dispute. The return of income filed by the assessee for the assessment year 2013-14 on 27/07/2013 was processed under section 143(1) of the Act and notice under section 143(2) of the Act was never issued. By the date of search on 15/11/2018, four years elapsed after the last date for issuance of notice under section 143(2) of the Act in this case. It is also not the case of the Revenue that any incriminating material was found during the search that was considered by the learned Assessing Officer, but made the assessment. In these circumstances, the question that arises for consideration is whether any interference could be made with the concluded assessments while assessing the income under section 153A of the Act, when no incriminating material was found.

ii) all pending assessments/reassessments shall stand abated; iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved. 9.1. This decision applies to the facts of the case on all fours and respectfully following the same, we hold that since no incriminating material found in the case of assessee for the assessment year 2013-14, the concluded assessment cannot be disturbed and the addition made by the learned Assessing Officer and sustained by the learned CIT(A) cannot be upheld. We accordingly allow the appeal of assessee.”

16.1. In view of the above, all the legal grounds raised by the assessee are decided in favour of the assessee. We further note that we have not adjudicated the other grounds on merit as the assessee gets the relief on legal grounds. Thus, the appeal of the assessee is allowed.

Order pronounced in the open court on 30th August, 2023.