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Facts
During a search operation under section 132 of the Income Tax Act, 1961, the Assessing Officer (AO) made additions based on an investigation report and statements, disallowing F&O trading losses. The assessee had filed a return, and subsequently, a search led to a notice under section 153A, resulting in the completion of assessment with significant additions.
Held
The Tribunal held that for unabated assessments, additions under section 153A can only be made if there is incriminating material found during the search. In this case, the additions were based on post-search investigations and reports without specific incriminating material found during the search related to the assessee's F&O trading transactions.
Key Issues
Whether additions made under section 153A in an unabated assessment year are valid without any incriminating material found during the search.
Sections Cited
153A, 143(3), 132, 147, 148, 56(2)(vii)
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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI VIKRAM SINGH YADAV & SHRI ANIKESH BANERJEE
The instant appeal of the revenue and cross objection by the assessee are filed against the order of the Learned Commissioner of Income-tax (Appeals)-50, Mumbai [for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in shot, “the Act”) for the Assessment Year 2014-15, date of order 28/01/2025. The impugned order emanated from the order of the Learned Assistant Commissioner of Income-tax, Central Circle-8(4), Mumbai (in short, ‘the Ld.AO’) passed u/s 153A of the Act, date of order 12/05/2021.
2. The revenue has raised the following grounds of appeal: - “1 On facts and circumstances of the case and in law, the Id. CIT(A) erred in deleting the additions in the assessment made under section 153A read with section 143/3) of the Income Tax Act, 1961, as no incriminating material was found or seized during the search proceedings despite the fact that disallowance/addition have been made on the basis of investigation/inquiries conducted during the pre & post search proceedings.
2 On farts and circumstances of the case and in law, the Id. CIT(A) erred in not considering the reliance on the statement recorded during the course of search proceedings, which has direct linkage to the addition made in assessment proceedings.
3 On facts and circumstances of the case and in law, the id. CII(A) erred in not considering the financial statements and regular books of accounts are incriminating in nature despite clear linkage with findings unearthed in statements and subsequent enquiries.
4 On facts and circumstances of the case and in law, the Id. CITIA) erred in not considering the corroborative evidentiary value of statements.
& c.o. 94/Mum/2025 Akshat Vinimay Private Limited 5. On the facts and in the circumstances of the case, the Ld. CITIA) erred in not considering the addition made on account of Disallowance of Loss on F&O Trading amounting to Rs. 2,74,39,330/-, Disallowance of expenditure in relation to accommodation entry by way of loss on F&O trading amounting to Rs. 5,48,787/- were based on incriminating evidence.
6. The appellant craves leave to add to, alter, amend, modify and/or delete any or all of the above said grounds of appeal, the appellant reserves its right to file further submissions in the appeal.”
2. The brief facts of the case are that the assessee filed the return of income declaring total income at Rs.7,71,060/-. Subsequently, assessment under section 143(3) of the Act was completed on 16/12/2016 by assessing the total income amount to Rs.63,47,970/-. Thereafter, a search under section 132 of the Act was conducted on assessee’s premises on 22/03/2018. In consequence to the search, a notice under section 153A of the Act was issued on 04/07/2019. In response to the notice under section 153A, the assessee filed a return of income on 20/07/2019 declaring total income at Rs.7,71,060/-. Finally, the assessment was completed by Ld. AO by determining the total income amount to Rs.2,87,59,177/-. During the assessment under section 153A, the Ld.AO disallowed the loss claimed amount to Rs.2,74,39,330/- on account of F&O trading by holding the same as bogus loss. Further, the addition was made on the brokerage / commission of Rs.5,48,787/- @2% on the accommodation entries on bogus F&O loss. The aggrieved assessee filed an appeal before the Ld.CIT(A). The assessee challenged the merit as also the legality before the Ld.CIT(A). Further, the assessee filed an additional ground before the Ld.CIT(A) by challenging the jurisdiction of the Ld. AO related assessment U/s 153A of the Act without having the incriminating material found during the course of search. The entire assessment was made on the basis of the & c.o. 94/Mum/2025 Akshat Vinimay Private Limited report of the Investigation Unit of Income tax Department, Mumbai, after the post search operations. Accordingly, the Ld.CIT(A) allowed the appeal of the assessee by admitting the additional ground taken in appeal proceedings. Further, the Ld. CIT(A) called for a remand report from the Ld. AO, which was duly submitted and duly considered by the Ld. CIT(A) while passing the impugned appellate order. The Ld. CIT(A) held that the assessment made under section 153A of the Act was entirely void in the absence of any incriminating material found during the course of search. Accordingly, the legal ground raised by the assessee was allowed, and since the appeal was decided on the legal issue, the merits of the case were not adjudicated upon by the Ld. CIT(A). Being aggrieved by the said order, the revenue has preferred an appeal before us, and the assessee has filed a cross-objection.
3. The Ld. DR argued and stated that the appellate order itself is perverse and without considering the facts, the order was passed. The Ld.DR accepted the fact that the addition was made relying on the Investigation report of Income-tax Department, Mumbai and further analyzing the statement of the drectors of the assessee-company, both the additions related to loss of F&O trading and disallowance of expenditure relating to accommodation entry by way of loss on F&O trading was made by the Ld.AO. The Ld.DR respectfully relied on the order of Hon’ble Supreme Court in Bannalal Jat Constructions (P.) Ltd vs Assistant Commissioner of Income-tax (2019) 106 taxmann.com 128 (SC), where the Hon’ble High Court upheld the addition made by authorities below by relying upon statement made in course of search proceedings of director of assessee company, since assessee failed to discharge its burden that admission made by director, in his statement was wrong and said statement was recorded under duress and coercion. The SLP filed against the decision of High Court was dismissed. He further relied on & c.o. 94/Mum/2025 Akshat Vinimay Private Limited the judgement of Hon’ble Delhi High Court in case of Smt. Dayavanti vs Commissioner of Income-tax (2016) 75 taxmann.com 308 (Delhi). The statement recorded during search operation could be relied upon to make addition of assessee’s income where inference drawn in respect of undeclared income of assessee was premised on material found as well as statements recorded from assessee’s son in course of search operations and assessee has not been able to show as to how estimation made by the AO was arbitrary and unreasonable, addition was made by the AO by rejecting books of account, was held to be justified. The Ld.DR filed a written submission. The relevant paragraphs are extracted as below: - “1. On facts and circumstances of the case and in law, the Id. CIT(A) erred in deleting the additions in the assessment made under section 153A read with section 143(3) of the Income Tax Act, 1961, as no incriminating material was found or seized during the search proceedings despite the fact that disallowance/addition have been made on the basis of investigation/inquiries conducted during the pre & post search proceedings.
A. During the course of search proceedings in the case of M/s Linton Engineering Services Pvt. Ltd., M/s Akshat Vinimay Pvt. Ltd., M/s Bloomingdale Securities Pvt. Ltd., M/s Acme Polytwist Pvt. Ltd., M/s Chitra Construction Pvt. Ltd., Mis Tridev Vyapaar Pvt. Ltd., M/s Urvasi Mercantile Pvt. Ltd., and Shri Hitendra Mota at 304, Neelkanth Corporate Park, Vidyavihar (W), Mumbai 400086, various incriminating documents and loose papers were found and seized.
B. During the course of appellate proceedings Id. CIT(A) has asked remand report in this said report AO has reported that financial documents of Mis. Akshat Vinimay Pvt. Ltd. for A.Y. 2014-15 (Page No. 98 to 122 of Annexure-A2) were seized, wherein it was clearly observed that M/s Akshat Vinimay Pvt. Ltd. had debited C. Additionally, incriminating loose papers and documents also pertained to Shri Hitendra M. Mota, Director of the assessee company, which further established the presence of substantial material directly linking the assessee's claimed loss to the accommodation entry scheme.
D. These seized materials formed a direct and material basis for the addition/disallowance made by the AO, demonstrating that the claim of loss was not genuine but part of a structured scheme of bogus transactions. This fact clearly refutes the CIT(A)'s erroneous approach in deleting the addition solely on the ground of absence of incriminating material found during the search.
E. Section 153A does not restrict the Assessing Officer to rely solely on material seized during the search, but also contemplates reliance on other relevant material, including statements recorded during search proceedings, DGIT (Investigation) inputs, and third-party confirmations F. The Hon'ble Delhi High Court in Smt. Dayawanti v. Commissioner of Income Tax ((2016) 75 taxmann.com 308 (Delhi)] has held that such statements under oath have undeniable probative value, and form valid basis for additions. Further, the Hon'ble ITAT Patna Bench in Kumar Suman Singh v. ACIT ((2025) 171 taxmann.com 801 (Patna)] held that where a search operation was carried out based on valid information, and substantial undisclosed investments in movable and immovable properties were discovered, proceedings under section 153A are valid.
G. Section 153A does not restrict the Assessing Officer to rely solely on material seized during the search, but also contemplates reliance on other relevant material including statements & c.o. 94/Mum/2025 Akshat Vinimay Private Limited recorded under section 132(4), DGIT (Investigation) inputs, and third-party confirmations, as well as the pattern of transactions reflected in financial records and external data.
H. The reliance of CIT (A) on the absence of directly seized documents is contrary to settled law and the factual matrix of the present case
On the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) [CIT(A)] erred in not considering the reliance placed by the Assessing Officer on the statements recorded during the course of search proceedings, which have direct and clear linkage to the addition made in the assessment proceedings
A. Statements recorded under section 132(4) during search proceedings are valid and admissible material and can be relied upon by the Assessing Officer for making additions under section 153A read with section 143(3) of the income Tax Act, 1961.
B. The Hon'ble Delhi High Court in Smt. Dayawanti v. Commissioner of Income Tax (2016) 75 taxmann.com 308 (Delhi)) has categorically held that the probative value of such statements is undeniable and can validly form a basis for addition in search assessments, especially where the statements explain the modus operandi, sources, and linkage of undisclosed income.
C. Further, Sri Kamlesh Vrajlal Shet and Shri Mahesh Kantilal Vora purchased 25% and 13.52% and claimed that Shri Pankaj Kantilal Vora would explain the transaction.[ reference from remand report page no.23).
D. During the statement recorded on oath under section 132(4) on 15.04.2018, Shri Pankaj Kantilal Vora failed to explain the rationale of the shareholding acquisition and candidly admitted (in reply to Question Nos. 9, 10, 11, 21, 23 & 26) that he was a director and shareholder of Mis Akshat Vinimay Pvt. Ltd., but had no E. Furthermore, Shri Hitendra Manekji Mota, in his statement under section 132(4) recorded on oath (Question No. 84), stated that Shri Pankaj Kantilal Vora would be able to explain why 49,99% shareholding in M/s Akshat Vinimay Pvt. Ltd. (with total assets of Rs. 26,36,04,380 as of 31.03.2010) was purchased for a mere consideration of Rs. 66,37,000/- and admitted that he himself had not seen the financial position of the company prior to investing, having acted on the advice of his father. Shri Kantilal Nandlal Vora. [Page No.19 on CIT(A) order).
F. These statements are part of the record and directly linked to the addition made by the AO and are significant corroborative evidence of the non-genuine nature of transactions undertaken by the assessee
On facts and circumstances of the case and in law, the Id. CIT(A) erred in not considering the financial statements and regular hooks of accounts are incriminating in nature despite clear linkage with findings unearthed in statements and subsequent enquiries. On facts and circumstances of the case and in law, the Id. CIT (A) erred in not considering the corroborative evidentiary value of statements.
A. During the course of investigation under Project Falcon, statements under oath of various brokers were recorded. In particular, Shri Sanjay Kumar Periwal and Shri Harshvardhan Kayan [third parties] admitted that various clients indulged in trading illiquid options with the sole purpose of generating losses by letting the option expire or reversing the trades within seconds or hours. Specifically, Shri Sanjay Kumar Periwal stated that "These transactions are either expired or reversed on the same day within few seconds to few hours, and Shri Harshvardhan Kayan stated that "These trades & c.o. 94/Mum/2025 Akshat Vinimay Private Limited would expire on weekly options or reversed within a few seconds to match the trades with each other." B. The assessee traded through Mis. Ashika Stock Broking Ltd, submitting only corrach notes and ledger extracts without furnishing any holding period of contracts, profit and loss statements, or the end result of the trade.
C. No explanation was offered regarding whether the F&O contracts were held for one. two, or three-month periods, nor whether they were sold before expiry of expired. All trades reported by the assessee had a "trade age of 0", as confirmed by detailed data tabulated in Annexure-1 of the Al's assessment order, indicating that trades were booked on the same day as the expiry, without any genuine commercial rationale (page no.6 of AD order).
D. The absence of any credible explanation from the assessee, combined with detailed Investigative findings of Project Falcon, strongly corroborates that the loss claimed is nothing but an accommodation entry.
E The Hon'ble Patna ITAT in Kumar Suman Singh v. ACIT (2025) 171 taxmann.com 801 (Patna) has held that where a search operation leads to the discovery of substantial undisclosed investments or entries in books of accounts that do not have reasonable explanation, the Assessing Officer is justified in making additions based on such records, and the corroborative evidentiary value of such statements recorded under section 132(4) cannot be discarded.
F. In the present case, the financial statements of Mis Akshat Vinimay Pvt. Ltd, including the regular books of accounts, reflected entries of loss on F&O Trading amounting to Rs. 2.74,39,330 and brokerage/commission of Rs 5,48,787/- which have direct nexus with the statements recorded under section 132(4) during the course of search proceedings.
& c.o. 94/Mum/2025 Akshat Vinimay Private Limited G. These documents were also corroborated by third-party confirmations and Project Falcon report showing coordinated, premeditated manipulative transactions illiquid stock options, designed purely to book bogus losses.
H. The statements under oath recorded from Shri Hitendra Manekji Mota Shri Pankaj Kantial Vora, and other relevant persons specifically admitted that they were unaware of the financial health of the company and that the transactions did not reflect genuine business dealings.
I. The CIT(A) erred in falling to appreciate the integral link between these financial records and statements recorded during search, as well as the probative value they carry in establishing the non-genuine nature of the clamed F&O trading loss and associated expenses J. It is well-settled that in cases involving search and seizure, the Assessing Officer is not required to prove the existence of incriminating material only in the form of seized documents during search but can validly rely on statements recorded under section 132(4), books of accounts, financials, and corroborative material unearthed during subsequent inquiries. Therefore, the addition/disallowance made by the AO on this basis is justified in law and fact.
K. The CIT(A) failed to appreciate that the assessment under section 153A read with section 143(3) is valid based on such incriminating evidence and recorded statements. and cannot be set aside merely because the assessee failed to furnish supporting details.
4. On the facts und in the circumstances of the case, the Ld. CIT(A) erred in not considering the addition made on account of Disallowance of Loss on F&O Trading amounting to Rs. 2,74,39,330/- , Disallowance of expenditure in relation to accommodation entry by way of loss on F&0 trading amounting to Rs. 5,48,787/- were based on incriminating evidences.
& c.o. 94/Mum/2025 Akshat Vinimay Private Limited A. Statements recorded under section 132(4) of the Income Tax Act, in which directors and other persons associated with the assessee admitted the lack of any genuine commercial rationale for the investments, transactions, and losses booked in the F&O segment.
B. Details and data obtained under Project Falcon, which exposed a systematic modus operandi of pre-planned trades executed purely to manufacture losses by trading in illiquid stock options, where trades either expired or were reversed within seconds. leaving a zero-trade age.
C. Contract notes and ledger extracts submitted by the assessee did not contain any credible explanation of holding periods, outcomes of the contracts, or genuine trading strategy.
D. M's Ashika Stock Broking Ltd., involved in these transactions, was specifically identified in the Falcon report as a bogus concern providing accommodation entries.
E. The fact that no legitimate financial rationale was offered for purchasing illiquid options, especially when the assessee failed to substantiate the investments or explain the financial position of the entities involved.
F. Specific admission by Shri Hitendra Manekji Mota that the financial position of M/s Akshat Vinimay Pvt. Ltd was not examined prior to investment, and that the purchase consideration of Rs. 66,37,000/- for a 49.99% share in a company having total assets of Rs. 26,36,04,380/- was based purely on advice from family members without any independent assessment of net worth or business viability.”
The Ld.AR argued and filed a paper book containing pages 1 to 33, which is kept on record. The Ld.AR argued that during the search operation, the statement was recorded from Shri Pankaj Kantilal Vora, director of assessee on dated 15/04/2018 and Shri Hitendra Manekji Mota under section 132(4) of the Act on & c.o. 94/Mum/2025 Akshat Vinimay Private Limited 15/04/2018. Considering the statements, the addition related to F&O trading has never been asked in the questionnaire. The questionnaires only related to the investments in shares of other companies. He further stated that the entire addition is not related to any incriminating material found during the search. The impugned assessment order is an unabated year and the assessment under section 143(3) was duly completed on 16/12/2016. So Ld.CIT(A), respectfully considering the order of the Hon’ble Apex Court in the case of PCIT vs. Abhisar Buildwell Pvt Ltd. 454 ITR 212 (SC) has deleted the addition.
The Ld.AR further stated that the remand report was called for and in appellate order on page 23, the Ld.CIT(A) at paragraph 3.7 observed that - “3.7. In view of the same, the AO has carried post search investigation during the assessment proceedings via departmental database with regards to this and has verified the loss claimed on account of F&O Trading from information available in this office as well as available on Insight Portal Consequently, the AO has observed from information available with this office that assessee has booked bogus loss on F&O Trading. In this connection, a Note on Project Falcon-2 into Tax Evasion & Investigation into Manipulative Transactions using Expiry Trades on BSE Options Derivative Segment is prepared by the Addl. DIT(Inv). Unit-6, Mumbai. The note deals with the issue of tax evasion through coordinated and premeditated trading in illiquid stock options on the Bombay Stock Exchange. During the investigation carried out by Unit-6 (Inv.), Mumbai under the Project Falcon regarding claim of fictitious losses through coordinated and premeditated trading in illiquid stock options, it had come to notice that there are several instances/internal alerts wherein a set of entities were consistently seen incurring trading loss by executing Reversal of trades in options on individual stocks ("stock options") in Equity Derivative Segment. However, it has also come into notice that along with Reversal of Trades, huge losses are being generated by various clients by letting the option expire. During the course of investigation under Project Falcon, statements under oath of various brokers were recorded. The Addl.DIT(Inv)-Unit-6. Mumbai obtained such trading data on the Equity Options (Derivatives)
& c.o. 94/Mum/2025 Akshat Vinimay Private Limited Segment concerning entities spanning across India from the BSE for F.Y.s 2012- 13, 2013-14, 2014- 15 and 2015-16. The perusal of the data shows that many entities have purchased options and there are no subsequent transactions on the same. In the same fashion, many have booked only sell trade and there is no subsequent buy trade, this shows that these entities have consistently booked losses and profits on these options. These trades have been executed on illiquid stocks. Such trades have been booked mostly on the date on which the sauda/contract was supposed to expire. The expired trades all show a pattern of transactions where the options were purchased but not exercised. This results in a loss for every expired trade. The transactions facilitated by these brokers show that most of the clients have taken up options but have not sold them consistently. This shows that they have entered into these trades only to generate losses. In this connection, statement of Brokers were also recorded. A perusal of the statement of Brokers i.e. Shri Sanjay Kumar Periwal and Shri Harshvardhan Kayan, it shows that various clients trade in illiquid options with the sole motive of generating losses by letting the option Expire rather than engaging in Reversal of Trade. In reply to Q-26 of his swoma Shri Sanjay Kumar Periwal has stated that "These transactions are either expired or rever the same day within few seconds to few hours". Similarly, Shri Harshvardhan Kayan has in his sworn statement that "These trades would expire on weekly options or reversed within few seconds to match the trades with each other"
The Ld.AR further respectfully relied on the impugned appellate order paragraphs 14 to 21 on pages 31-34, which are extracted as below:- “14. As can be seen from the above, the disallowance made by the AO is on the basis of Project Falcon report received by DGIT Mumbai. The investigation was carried out by the investigation unit Mumbai regarding the claim of fictitious losses through coordinated and premeditated trading in illiquid stock options. During the assessment proceedings the AO found that the assessee has shown F&O losses on account of trading in illiquid options. The AO has not discussed anything about the finding of the search in appellant’s case.
I have also gone through the copies of statements of Shri Hitendra Mota and Shri Pankaj Kantilal Vora recorded during the search conducted on the appellant; however, there is nothing adverse recorded in these statements regarding the F&O trading activities. The issue of loss incurred from illiquid stock options has not been confronted in these statements. In the report & c.o. 94/Mum/2025 Akshat Vinimay Private Limited submitted by the A.O dated 14.10.2024, it is submitted that the addition is based on the inquiries conducted in the pre and post search proceedings, however from the facts available on record, it is evident that the addition/ disallowance made by the A.O is not related to the findings of the search conducted on the appellant but on the basis of report received by the A.O on the investigations carried out in case of third party.
16. From the above it is evident that there is no incriminating material found during the search conducted on the appellant regarding the loss claimed on account of F&O trading. The addition /disallowance is made by the AO on the basis of the Project Falcon carried out by the investigation unit, which has no direct nexus with the search conducted on the appellant.
In the report submitted by the A.O, it is submitted that during the course of search conducted on the appellant, it was found that the assessee has debited expenses to the tune of Rs 2,74,39,330 on account of loss on F&O trading and the same was confronted in the search. However as discussed above, this issue has not been confronted in the statements recorded during the search. Now, it may also be examined whether the financial statements of the appellant can be treated as “incriminating material”. For this purpose, it would be pertinent to discuss the view taken by the Hon’ble Delhi High Court and ITAT, Mumbai, on the issue.
The Hon’ble Delhi High Court in Pr. CIT v. Param Diary Ltd. has held that the Revenue cannot treat the regular books of accounts like cash and bank book, ledgers, audit report, TALLY accounting software found during the search as incriminating material. The relevant extract of the High Court’s decision is as under: “The ITAT, in the impugned order has held that in the audited report filed by the assessee along with the report, cash book, ledger, bank book etc. were mentioned; that the respondent assessee was maintaining books on TALLY Accounting Software which was seized during the search and was being treated as incriminating material; however, regular books of account of the assessee, by no stretch of imagination, could be treated as incriminating material to form basis of framing assessment under Section 153A read with Section 143(3) of the Act………..”
Further, the Hon’ble jurisdictional Bench of the Mumbai ITAT, in the case of Micro Ankur Developers Vs DCIT (ITA No. 1046/Mum/2019), after following the aforesaid decision of the & c.o. 94/Mum/2025 Akshat Vinimay Private Limited Hon’ble Delhi High Court in Param Dairy (supra), held that the regular books of accounts maintained by the assessee in tally software to justify the additions made therein did not constitute incriminating material unearthed during the search. The relevant extract of the said decision is reproduced as under: “15. …………. The only material now being referred to by the lower authorities in their submissions dated 21-06-2022 was the regular books of accounts maintained in the Tally Accounting Software. We find merit in the submissions of the Ld. AR that the regular books of accounts cannot be treated as ‘incriminating material’ unless the Revenue makes out a case with corroborative evidence that the transaction reflected in the books of accounts did not represent the true state of affairs. Otherwise, going by the logic propounded by the Revenue, each and every seized material would be said to be incriminating in nature, which according to us, is not tenable in the eyes of law. This view of ours find support from the judgment of the Hon’ble Delhi High Court in the case of Pr. CIT Vs Param Dairy Ltd in dated 15-02-2021 on somewhat similar facts………..
In view of the above, we are of the considered view that the regular books of accounts maintained by the assessee in tally software, now being referred by the Revenue, to justify the impugned addition did not constitute incriminating material unearthed during the search.”
From the above discussion, it is clear that the financial statements of the appellant cannot be treated as “incriminating material”. Even in the assessment order passed u/s. 153A of the Act by the AO, there is no reference made to any “incriminating or new material” based on which these additions were made. These facts show that there was no “incriminating material” found during the course of search conducted u/s. 132 of the Act relating to the additions made.
In view of the discussion in the foregoing paragraphs, I agree with the contention of the appellant that the assessment for A.Y. 2014-15 in his case being unabated, additions could have been made in the impugned assessment order passed by the AO u/s. 143(3) r.w.s. 153A of the Act for the year only on the basis of incriminating material found during the search. Further, the additions made by the AO in the impugned assessment order on account of disallowance loss on account of F&O and commission on the alleged F&O transaction is not based on any & c.o. 94/Mum/2025 Akshat Vinimay Private Limited incriminating material found during the search. Accordingly, the appellant succeeds on this ground. Therefore, additions/ disallowance made by the A.O is hereby deleted appeal on additional ground is thus ALLOWED.”
The Ld.AR stated that the apart from that, the Hon’ble Apex Court, Hon’ble Delhi High Court in case of PCIT vs Param Dairy Ltd I.T.A. 37/2021 dated 15/02/2021 held as follows:- “5. We have considered the aforesaid contentions and are of the view that no substantial question of law arises, as the matter is squarely covered by Kabul Chawla supra, which has been correctly applied to the facts of the case by the ITAT. The ITAT, in the impugned order has held that in the audited report filed by the assessee along with the report, cash book, ledger, bank book etc. were mentioned; that the respondent assessee was maintaining books on TALLY Accounting Software which was seized during the search and was being treated as incriminating material; however, regular books of account of the assessee, by no stretch of imagination, could be treated as incriminating material to form basis of framing assessment under Section 153A read with Section 143(3) of the Act. It was further held that assessment for the Assessment Years 2008-2009 and 2009-2010 were completed under Section 143(3) vide orders dated 28th July, 2010 and 31" May, 2011 respectively and audited books of account were thoroughly examined and details of purchase of milk must have been scrutinized as it was part of audited financial statement of accounts; as per Kabul Chawla supra, completed assessments can be interfered only on the basis of some incriminating material unearth during the search. With respect to the Assessment Years 2010-2011 to 2012-2013, the ITAT held that though no assessment was framed under Section 143(3) but it could safely be concluded that the period of limitation for issuing a notice under Section 143(2) expired much before the date of the search; reliance was placed on Chintels India Ltd. Vs. Deputy Commissioner of Income-Tax (2017) 397 ITR 416 (Delhi) holding that once an assessee does not receive a notice under Section 143(2) of the Act within the stipulated period, such an assessee can take it that the return filed by him has become final and no scrutiny proceeding are to be undertaken with respect to that return.”
He further relied on the order of the co-ordinate bench of ITAT, Delhi Bench in case of DCIT vs Fros Falcon Distilleries Ltd /Del/2018 dated 27.08.2024. The relevant paragraph 7 on page 7 is extracted below: - “7. The aforesaid observations of the Ld. CIT(A) could not be rebutted by the Ld. Departmental Representative by referring to any documents available on record or in the paper book to contend & c.o. 94/Mum/2025 Akshat Vinimay Private Limited that this factual finding is incorrect. The Ld. Departmental Representative has tried to make out a case on the observations of the Assessing Officer which are merely ‘inferences’ drawn on the basis of certain investigation reports of the other persons while the assessment in case of the assessee was completed by recourse to Section 153A (1)(b) read with Section 143 (3) of the Act. Thus, we are of the considered view that in the absence of any incriminating evidence, the assessments could not have been completed u/s 153A of the Act and the findings of Ld. CIT(A) requires no interference.”
The reliance was placed on the decision of co-ordinate bench of ITAT, Mumbai in case of DCIT vs Aachman Vanijya Pvt Ltd to 827/Mum/2025 dated 21/03/2025. The relevant para 7.2 is extracted below:_ “7.2. The report of the AO highlights the statement recorded in the course of search on Janil Shah Group basis which, the AO contended that these statements are to be considered as incriminating material found during the course of search. In his report, the AO referred to various statements recorded during the course of search at Janil Shah Group. After considering the remand report, the ld. CIT(A) was of the opinion that the AO has not discussed any findings of the searched or incriminating material found during the course of search. The ld. CIT(A) further observed that there is nothing adverse in the statement recorded during the course of search which can be considered as an incriminating material. The ld. CIT(A) concluded by holding that the additions made u/s 56(2)(vii) of the Act is not based on any search findings and in respect of other additions, the ld. CIT(A) took a similar view that the additions made by the AO are not based on any incriminating material found during the course of search conducted on the assessee. The ld. CIT(A) further observed that the assessment orders are not passed u/s 153C of the Act or u/s 148 of the Act. As per the observation of the ld. CIT(A) at para 21 of his order, it is clear that the impugned assessment orders framed u/s 153A of the Act are devoid of any incriminating material found/seized during the course of search conducted in the assessee’s own case. Drawing support from various judicial decisions, the ld. CIT(A) concluded by holding that the revenue has to follow the procedure laid down under the provisions of Section 153C of the Act in a situation where the documents were found from premises of a third party irrespective of the fact that the third party was also subjected to search. The ld. CIT(A) ultimately held that all the impugned & c.o. 94/Mum/2025 Akshat Vinimay Private Limited additions/disallowances made in the assessment order passed u/s 143(3) r.w.s. 153A of the Act, has to be deleted. Basis the findings given in AY 2012-13, the ld. CIT(A) deleted the addtions made in AY 2013-14, 2014-15 & 2015-16.”
Finally, he relied on the order of Hon’ble Apex Court in the case of PCIT vs Abhisar Buildwell Pvt Ltd (2023) 454 ITR 212 (SC), wherein it has been held as follows:- “(iv) in case no incriminating material is unearthed during the search, the Assessing Officer 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 Assessing Officer in the 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 reopened by the Assessing Officer in exercise of powers under section 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under section 147/148 of the Act and those powers are saved.”
We have heard the rival submissions and carefully perused the materials available on record, including the assessment order, the impugned appellate order of the Ld. CIT(A), and the case laws relied upon by both parties. It is an undisputed fact that the original assessment under section 143(3) of the Act was completed on 16.12.2016, and therefore, on the date of search i.e., 22.03.2018, the assessment for A.Y. 2014–15 had attained finality and was unabated. Consequently, as per the settled position of law laid down by the Hon’ble Supreme Court in Abhisar Buildwell Pvt. Ltd. (supra), no addition can be made in respect of completed/unabated assessments under section 153A of the Act unless it is based on incriminating material found during the course of search. In the present case, the Ld. CIT(A), after calling for and examining the remand report, categorically found that no incriminating material relating to the alleged & c.o. 94/Mum/2025 Akshat Vinimay Private Limited bogus F&O loss or commission expenditure was found or seized during the search. The additions were made purely on the basis of the Project Falcon report and post- search investigations conducted by the Investigation Wing, Mumbai. The statements recorded under section 132(4) from the directors of the assessee also did not contain any admission or reference to F&O trading transactions. The financial statements and regular books of account of the assessee, which were already part of the records of the original assessment proceedings, cannot be treated as incriminating material. This view finds support from the decisions of the Hon’ble Delhi High Court in Param Dairy Ltd. (supra) and the jurisdictional ITAT, Mumbai in Micro Ankur Developers (supra), wherein it has been held that regular books of accounts or audited statements, even if found during search, do not constitute incriminating material for the purpose of section 153A of the Act. Further, the reliance placed by the Ld. DR on the decisions in Bannalal Jat Constructions (P) Ltd. (SC) and Smt. Dayawanti (Delhi HC) are misplaced, since those decisions were rendered in the context of cases where specific incriminating material or unexplained assets were found during search and where the facts materially differ from the present case. The law in the matter has been settled by Hon’ble Supreme Court in case of Abhisar Buildwell Pvt Ltd (supra) that where no incriminating material has been found during the course of search, no addition can be made by the Assessing Officer in respect of completed / unabated assessment u/s 153A. Further, the Hon’ble Supreme Court in the said decision has also held that such completed / unabated assessment can be opened by Assessing Officer in exercise of powers u/s 147 / 148 of the Act subject to fulfilment of conditions for exercise of such powers. In the instant case, as we have noted earlier, the additions were made purely on the basis of Project – Falcon report and post search & c.o. 94/Mum/2025 Akshat Vinimay Private Limited investigation conducted by the Investigation Wing, Mumbai. As strongly canvassed by Ld. DR during the course of hearing and also through the written submissions that on the basis of such investigation, where the revenue authorities believe that the claim of loss on account of F&O trading was not genuine and was part of structured scheme of bogus transactions, we do not know what action the revenue has taken in terms of sections 147 / 148 of the Act, in the light of decision of Hon’ble Supreme Court and where no such action has been taken, what stops the revenue from taking such action in light of decision of Hon’ble Supreme Court. Be that as it may, as far as the present matter in context of section 153A is concerned, the Ld. CIT(A) has passed a well-reasoned order after detailed consideration of the remand report and judicial precedents, holding that the assessment made under section 153A is void ab initio in the absence of incriminating material. We find no perversity or infirmity in the findings of the Ld. CIT(A). Accordingly, we uphold the order of the Ld. CIT(A) in deleting the additions made by the Ld. AO. The grounds raised
by the revenue are, therefore, dismissed.
12. In the result, the appeal of the revenue in is dismissed. 13. The cross-objection filed by the assessee was merely in support of the order of the Ld. CIT(A). Since we have upheld the order of the Ld. CIT(A) and dismissed the appeal of the revenue, the cross-objection of the assessee remains only of academic significance. Accordingly, the cross-objection filed by the assessee is dismissed as infructuous.
& c.o. 94/Mum/2025 Akshat Vinimay Private Limited 14. In the result, the appeal of the revenue bearing and the cross objection filed by the assessee bearing C.O. No.94/Mum/2025 are dismissed.