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Facts
During a search, the AO noted that the assessee, an LLP engaged in power generation, had taken unsecured loans from various parties. The AO questioned the genuineness of these loans, alleging they were unexplained cash credits and the interest paid was non-genuine expenditure.
Held
The Tribunal held that the additions made by the AO were based on post-search investigation and not on incriminating material found during the search. Relying on the Supreme Court's decision in Abhisar Buildwell (P.) Ltd., it was concluded that in the absence of incriminating material, no additions can be made for completed/unabated assessments.
Key Issues
Whether additions made under Section 153A can be sustained in the absence of incriminating material found during the search, for unabated assessment years.
Sections Cited
132, 153A, 143(1), 143(2), 142(1), 68, 115BBE, 147, 148, 132A
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Income Tax Appellate Tribunal, MUMBAI “B” BENCH :: MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI NARENDER KUMAR CHOUDHRY
O R D E R Per: NARENDER KUMAR CHOUDHRY, JM
These appeals have been preferred by the Assessee against the separate orders even dated 27/01/2025 impugned herein passed by the Commissioner of Income Tax (Appeals)-54, Mumbai (in short, ‘Ld. Commissioner’) u/sec. 250 of the Income Tax Act, 1961 (in short, ‘Act’) for the A.Y. 2013-14, 2014-15 & 2015-16 respectively.
, 2114 & 2115/MUM/2025 (Bona Terra Greenhouses LLP) 2. All the cases under consideration having involved almost identical facts and issues, therefore, for the sake of brevity, the same were heard together and disposed of by this composite order by taking into consideration the facts and issues involved in (AY 2013-14) as a lead case and result of the same shall apply mutatis mutandis to the other appeals under consideration.
, we observe that in this case, a search and seizure operation u/sec. 132(1) of the Act was conducted in the case of M/s. Hindustan Platinum Group on 24/08/2018. During the course of search proceedings at residential premises of M/s. Hindustan Platinum Group, the case the case of the Assessee was also covered for search and accordingly, notice u/sec. 153A of the Act dated 12/09/2019 was issued for the assessment year under consideration.
In response to the said notice, Assessee had declared its income at loss of (-) Rs. 1,56,916/- by filing its return of income on dated 11/10/2019, which was processed u/sec. 143(1) of the Act initially, and thereafter, various statutory notices including 143(2) & 142(1) of the Act were issued to the Assessee. In response to which, Assessee filed submissions and on examining the same, it was observed by the Assessing Officer (AO) that the Assessee is a LLP and engaged in the business of power generation, who had taken loans from the following parties, during year under consideration: - Sr.No. Particulars AY 2013-14 AY 2014-15 1 Anuttar Mercantiles P. Ltd 30,00,000 10,00,000 2 Preeti Commodities P. Ltd. 50,00,000 25,00,000 3 Parshvanth Dealers P. Ltd 50,00,000 -- 4 Parshvanath Dealers P. Ltd - 15,00,000 Total 1,30,00,000 50,00,000 2 , 2114 & 2115/MUM/2025 (Bona Terra Greenhouses LLP)
Thus, the AO based on the findings as mentioned in the course of search, show-caused the Assessee vide show-cause notice dated 08/03/2021 “as to why the unsecured loans should not be considered as unexplained cash credits u/sec. 68 of the Act and subsequent interest paid, be disallowed as non- genuine expenditure”.
The Assessee in response to the said show-cause notice, filed its detailed submissions before the AO. Gist of the same is under:-
The Assessee has taken loan through banking channels and also subsequently repaid the same through banking channels Further, the Assessee submitted confirmations, ITR, bank statements and relevant extracts from the accounts of the parties from whom loan was accepted. The Assessee has stated that the parties had enough assets to advance the loan to the Assessee. The Assessee has discharged its primary onus of proving the identity, genuineness and creditworthiness of the transactions and hence no additions should be made on this account The Assessee is not obligated to prove source of source of funds. Once the primary onus is discharged, the Assessee cannot be held liable for any discrepancies in the books of the lender.
The AO though considered the aforesaid submissions of the Assessee, however, found the same not acceptable, on the following reasons: - , 2114 & 2115/MUM/2025 (Bona Terra Greenhouses LLP) (i) The companies from which the Assessee has taken loans do not have the requisite creditworthiness from their financial analysis to undertake the huge risk. (ii) The major source of funds in these companies is the share premium received from shareholders. It will be also explained subsequently that the shareholders are not traceable at their official address and even the neighbors were unaware of the existence of such parties. (iii) The directors in these companies also have very meagre income not commensurate with the risks being taken by the companies for granting huge unsecured loans. (iv) All such companies are shown meagre profit from their business activities, which is not commensurate with the risks being taken in advancing huge unsecured loans. (v) Mere producing of confirmations and bank statements and such documents is not sufficient for providing genuineness and creditworthiness of the parties, especially when the physical verification has shown otherwise. It is a settled position that mere routing of transactions through banking channels is no indication of their genuineness.
Thus, on the aforesaid reasons for rebuttal qua submissions made by the Assessee, the AO further observed that all the above facts clearly point to only one conclusion, namely that the transactions with these Kolkata based entities are merely sham transactions, which are nothing but accommodation entries designed to hide the Assessee’s unaccounted income. Therefore, in view of the above discussion, unsecured loans amounting to Rs. 1,30,00,000/- are treated as unexplained cash credits u/sec. 68 of the Act for the year under consideration, as the explanation offered by the Assessee is not satisfactory.
The AO ultimately, made the addition of Rs. 1,30,00,000/- and taxed the same as per the provisions of section 115BBE of the Act, without allowing any deduction in respect of any expenditure or , 2114 & 2115/MUM/2025 (Bona Terra Greenhouses LLP) allowance or set off of any loss under any provision of Act, in computing the income u/sec. 68 of the Act. Further, the AO also disallowed an amount of Rs. 2,76,357/- being interest paid on the aforesaid loans as claimed by the Assessee.
The Assessee, being aggrieved, with the said additions and decision of the AO vide assessment order, by filing first appeal before the Ld. Commissioner raised various issues, including challenging the additions being based on no incriminating material found during the course of search proceedings u/sec. 153 of the Act, therefore, the same are liable to be deleted specifically in view of the judgment of the Hon'ble Apex Court in the case of PCIT vs. Abhisar Buildwell (P.) Ltd [2023] 454 ITR 212 (SC). The Ld. Commissioner by considering the peculiar facts and circumstances of the case and documents available on record and while relying on certain judgments, ultimately, upheld the additions on merits as well as on legal aspect as raised by the Assessee based on Abhisar Buildwell (P.) Ltd.’s case (supra), by observing and holding as under:-
“5.3.7 The appellant also submitted that during the search proceedings, no incriminating material was found and, therefore, the assessment order u/s 153A for A.Y 2013-14, which is unabated assessment year, is bad in law The appellant has referred to the provision of section 153A of the Act. The appellant has also relied upon the decisions in the case of (1) Pr.CIT Central -3 vs. Abhisar Buildwell (P) Ltd. [2023] 149 taxmann.com 399 (SC) 454 ITR 212 (SC), (ii) All Cargo Logistics Ltd. vs. DCIT (ITAT Mumbai Special Bench) (III) Commissioner of Income tax Vs Continental Warehousing Corporation, (iv) Commissioner of Income-tax vs. Kabul Chawla and (v) Commissioner of Income-tax vs. Lancy Constructions. 5.3.7.1 Now it is imperative to understand what constitutes "Incriminating material/evidence and also to examine whether there was any "Incriminating material/evidence" in the case of the appellant. The term "Incriminating material/evidence" has neither been used in section 153A nor has been defined in the section, however, the Act as well as various judicial decisions provide a hint Such 'incriminating material / evidence could be any books of 5 , 2114 & 2115/MUM/2025 (Bona Terra Greenhouses LLP) account or documents or any information unearthed during the course of search action having a bearing on the determination of the total income of a person. Clearly, such incriminating material has to be either the books of account or document (seized or requisitioned) itself or any information gathered during search or statement recorded during the search action which has the potential of affecting the determination of total income of the party to which such information relates. Hence, if a search is conducted to investigate certain allegations which are found to be correct during search and based on the various documents collected during the search action, specific information or finding is generated on account of inquiries conducted during search process which has a bearing on the determination of total income of an assessee, the AO would be within his power to proceed under section 153A of the Act against such person on the basis of such finding which would also constitute incriminating material. 5.3.7.2 Hence, if during the course of search action, elaborate and thorough investigations are carried out to verify/examine modus operandi of an illegal scheme orchestrated by certain persons and during such investigations, based on ascertainment of various facts, examination of seized books, recording of statements and analysis of documents of a number of entities in coordination with each other certain information is generated that (i) the scheme violates the provisions of Income Tax Act and that (ii) such scheme has assisted various parties who have taken benefit of such scheme in introduction of their unaccounted income in their books in the form of eligible and non-taxable income, thus affecting determination of their total income, then, this information is clearly covered by section 153A of the Act. If a search is mounted to examine existence of an entity, the very fact that no evidence whatsoever is found during search would be an incriminating material against the person. The general refrain of the assessee, by placing reliance on various decisions, is that there is no incriminating material found in his case during the course of search action and hence, action taken by the AO against it under section 153A of the Act is not correct. In such claims, the assessee refers to actual seizure of documents having entries in his name. If the search action establishes deployment of illegal schemes for introducing bogus capital in the books which has been utilized by an assessee for his own benefit, such finding or information would be a sufficient incriminating material for the AO for the purpose of assessment under section 153A of the Act. The Hon'ble Supreme Court in the case of P.R. Metrani v. CIT [2006] 287 ITR209/157 Taxman 325 (SC) has explained the scope of section 132. It has been explained by the Hon'ble Supreme Court that the books of accounts, documents, money, bullion, jewellery or other valuable article or thing and any statements recorded of the persons searched maybe used as evidence for any proceedings under the Act. The relevant portion of the order of the Hon'ble Supreme Court is reproduced as under:
, 2114 & 2115/MUM/2025 (Bona Terra Greenhouses LLP) “18 Section132 is a Code in itself. It provides for the conditions upon which and the circumstances in which the warrants of authorization can be issued Subsection (2) authorizes the authorized officer to requisition the services of any police officer or of any officer of the Central Government or of both to assist him for all or any of the purposes for which the search is conducted. Under subsection (4) the authorized officer can during the course of search or seizure examine on oath any person who is found to be in possession or control of any books of account, documents, money bullion jewellery or other valuable article or thing and any statement made by such persons during such examination may thereafter be used in evidence in any proceeding under the Act" 5.3.7.3 Hence, if the Search and seizure action has resulted in identification of certain entities which have indulged in dubious or bogus transactions in general and during such search it is noted that either some of the searched parties or some other third party has engaged in similar transaction with these entities, such information would be an information of incriminating nature. The findings of a search may lead to detection of money, bullion. jewellery or other valuable article or thing which has not been disclosed prior to search action. If these assets belong to the searched person, he is to be assessed under section 153A. If these belong to a person who has not been searched, he is to be assessed under section 153C of the Act. The findings of search may also lead to gathering of some information or detection of such books of account or documents, seized or requisitioned which impact the determination of total income of an assessee, meaning thereby that these evidences discovered during the search action indicate suppression of income, suppression of information about the character of a receipt / suppression of tax by a person, whether searched or not. Loosely, these items are known as "incriminating material/evidence" being information which was earlier not known prior to the search action and having come to light during the search action, has the potential of affecting determination of income/tax of the persons affected by such information. If the information pertains to searched person, he is assessed under section 153A and if the information is in respect of a party not covered by search, his case is covered under section 153C The appellant has relied upon the decisions in the cases of CIT vs. Continental Warehouse Corporation (2015) 374 ITR 645, Commissioner of Income-tax vs Kabul Chawla and Commissioner of Income-tax vs. Lancy Constructions. The decision relied upon by the appellant are not relevant to the facts of the appellant. Thus, the arguments taken by the appellant are rejected. The non-existence of M/s. Preeti Commodities Pvt. Ltd. and M/s. Parshwanath Dealers Pvt. Ltd at the given address and enquiry conducted in the case of M/s. Anuttar Mercantile Pvt. Ltd constituted incriminating material. Therefore, the addition u/sec. 68 7 , 2114 & 2115/MUM/2025 (Bona Terra Greenhouses LLP) of the Act in respect of unsecured loan taken from M/s. Anuttar Mercantiles Pvt. Ltd M/s. Preeti Commodities Pvt. Ltd M/s. Preeti Vyapar Pvt. Ltd and M/s. Parshwanath Dealers Pvt. Ltd was based on incriminating material. Therefore, the cases laws relied upon by the appellant are not relevant to the facts of the appellant”
We have given thoughtful consideration to the facts and circumstances of the case and observe that Ld. Commissioner by considering the legal aspect of the Assessee as raised by it and analyzing the judgments relevant thereof, ultimately, held that non- existence of M/s. Preeti Commodities Pvt. Ltd. and M/s. Parshwanath Dealers Pvt. Ltd at the given address, and enquiry conducted in the case of M/s. Anuttar Mercantile Pvt. Ltd constituted incriminating material. Therefore, the addition u/sec. 68 of the Act in respect of unsecured loan taken from M/s. Anuttar Mercantiles Pvt. Ltd M/s. Preeti Commodities Pvt. Ltd M/s. Preeti Vyapar Pvt. Ltd and M/s. Parshwanath Dealers Pvt. Ltd was based on incriminating material. Therefore, the case laws relied upon by the Assessee are not relevant to the facts of the Assessee. The Ld. Commissioner also considered the cases relied on by the Assessee in CIT vs. Continental Warehouse Corporation [2015] 374 ITR 645; and, CIT vs. Lancy Constructions and held that the said cases talks about “incriminating evidence” or “incriminating material” found during the search action and not merely “seized material” or “seized documents”.
We have again given thoughtful consideration to the peculiar facts and circumstances of the case. Admittedly the additions made and affirmed are based on post-search investigation findings, including survey operations at the lenders premises, which allegedly established non-existent or lack of creditworthiness. Admittedly, the controversy qua addition made in the unabated assessment, dehors incriminating material found during the course of search u/sec. 153 of the Act, has been dealt with by the Hon'ble Delhi High Court in the case of Kabul Chawla (supra) and settled by the Hon'ble Apex 8 , 2114 & 2115/MUM/2025 (Bona Terra Greenhouses LLP) Court in the case of Abhisar Buildwell (P.) Ltd(supra) by laying down the following dictums: - “14. In view of the above and for the reasons stated above, it is concluded as under (1) that in case of search under section 132 or requisition under section 132A, the AO assumes the jurisdiction for block assessment under section 153A, (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 of 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. The question involved in the present set of appeals and review petition is answered accordingly in terms of the above and the appeals and review petition preferred by the Revenue are hereby dismissed. No costs.”
The Hon'ble Apex Court has clearly laid down the law that 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 9 , 2114 & 2115/MUM/2025 (Bona Terra Greenhouses LLP) 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.
The Hon'ble Apex Court further held that 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.
This is not the case here that assessment order has been passed u/sec. 147/148 of the Act and this is also not the case here that the addition has been made on the basis of incriminating material found. In fact, as observed above, the Ld. Commissioner has upheld the additions merely on non-existence of some of the parties, at the given addresses and, therefore, opined that enquiry conducted in the case of M/s. Anuttar Mercantile Pvt. Ltd., constituted incriminating material and therefore, the addition u/sec. 68 of the Act, was based on incriminating material. The findings of the Ld. Commissioner on this aspect, are having no foundation or support and substance. Admittedly, the assessment in this case was unabated, as on the date of search. Thus, we by respectfully following the directions/dictums laid down by the Hon'ble Apex Court in the case of Abhisar Buildwell (P.) Ltd. (supra) are inclined to delete the additions under consideration. Thus, the additions involved in this case are deleted.
As we have already deleted the additions on legal aspects, hence inclined not to delve into the merits of the case, as adjudication of the same would prove futile exercise.
The facts involved in & 2115/MUM/2025 are similar to the facts involved in . Therefore, our findings in shall apply mutatis mutandis to the appeals i.e. & 2115/MUM/2025 also.
In the result, all the appeals filed by the Assessee are allowed.
Order pronounced in the open court on 20.11.2025.