DEPUTY COMMISSIONER OF INCOME TAX (CENTRAL CIRCLE) - 7(1), MUMBAI, MUMBAI vs. PRATEEK VINOD JATIA, MUMBAI

Since all the aforesaid appeals pertain to same assessee, having identical and interconnected issues / grounds of appeal raised on parity of facts and circumstances, therefore, these appeals are being heard together and decided under this common order.

AY 2013-14, as agreed by both the parties has been taken as lead year wherein our decision and deliberations shall apply mutatis mutandis to the appeals for remaining AYs.

The brief facts of the case are that, the assessee has e-filed his return of income on 24.06.2013 declaring total income of Rs.82,06,620/-. The case of assessee was, then assessed u/s 143(3) of the Act vide order dated 24.02.2016, accepting the declared income of the assessee. Subsequently, a search and seizure 4

In due course, a notice u/s 153A was issued on 23.10.2019, in response to which the assessee filed return of income on 12.11.2019 declaring the total income of Rs.82,06,620/-. Later, statutory notices u/s 143(2) and 142(1) along with questionnaires were issues on various dates. The assessee responded to such notices and has filed written submissions, accordingly. During the course of assessment proceedings, Ld. AO observed that the assessee has shown agricultural income to the tune of Rs. 59,48,370/- and the net profit from agricultural activities was shown at Rs. 58,12,579/-. In order to verify the genuineness of such income and expenditure, the Ld. AO investigated further into the information available and on scrutiny the Ld. AO came across an information, which was recorded in the statement of Mr. Vinod Jatia, wherein Mr. Vinod Jatia has replied that he grows rice, mango, seasonal vegetables and mushrooms from their agricultural land situated at Panvel and his wife and he looks after the agricultural activities. In question No.32, regarding the crops grown and sold during the last 3 years, Mr. Jatia replied that banana, mango, sag

The Ld. AO referred to further enquiries during the search and seizure action wherein field enquiry u/s 131 of the Act was conducted at the office premises of Mr. Nandkumar Sitaram Sapkal and accordingly, his statements were recorded u/s 131. Mr. Sapkal stated that he is a wholesaler of vegetable and agricultural product and he operates his business from shop no. 42 APMC Market, Old Panvel, Navi Mumbai-410206. In the statement, Mr. Nandkumar Sitaram Sapkal clearly admits and confirms that he issued bogus bills for agricultural products at 1% commission. The Ld. AO also produced the relevant part of the statement of Mr. Sapkal in the assessment order. Further, on physical verifications, during post-search proceedings, DDIT Investigation Unit 4(3) along with inspectors and key person of Vinod Jatia group, Shri Vindo Jatia and Smt. Nita Vinod Jatia had visited the agricultural land of Mr. Vinod Jatia Family. On physical verification, it was clearly seen that there was no sign of agricultural activities. Most of the lands are barren and not fit for agricultural activities. There are some mango trees, which seem to be grown naturally and spontaneously and without intervention of human agency. It is observed that there is no sign visible which could establish the fact that these mango trees are part of agricultural activities, even many of these mango trees are not so huge that could generate such a huge income.

From the aforesaid statement, Ld. AO noted that the assessee has incurred agricultural expenditure only 2%, 1%, 2%, 8% and 18% for the aforesaid respective years. Ld. AO also noted the details of agricultural lands held by the assessee during the AY 2012-13 to 2017-18. Regarding sale of agricultural products, the assessee has submitted that these agricultural products were sold out to Mr. Nandkumar Sitaram Sapkal, proprietor of M/s. Sapkal and Co., Panvel and also submitted invoice/bills provided by Mr. Sapkal for various years. It is also mentioned that Mr. Sapkal in his statement recorded u/s 131 has admitted and confirmed that he issued bogus bills for agricultural products on a commission of 1% commission. The statements of Mr. Sapkal were also reproduced in the assessment order. The Ld. AO observed on the basis of statements of Mr. Nandkumar Sitaram Sapkal that the assessee actually had not undertaken any agricultural activity and only taken bogus bills from Mr. Sapkal for agricultural products, claimed to be cultivated and sold out and either received cash, which was subsequently deposited in bank account or received in cheque and for this, he has paid a commission of 1% to Mr. Nandkumar Sitaram Sapkal.

The Ld. AO further noted that even all the agricultural expenses are incurred in cash in the year under consideration and the expenditure so debited by the assessee against the agricultural income are not commensurate with the huge income booked under the head agricultural income. Ld. AO also made the allegation that all the expenses claimed by the assessee are neither in relation to general agricultural income nor it seems actual. All these expenses are seeming to be fictitious and bogus. It is also noted by the Ld. AO that the assessee submitted sample copy of bills of Mr. Nandkumar Sitaram Sapkal, fertilizers and seeds and there were no bills involving expenditure of electricity, diesel, water, 7/12 extract, transportation bill, employee cost to prove the genuineness of the agricultural income. The Ld. AO noted that the volume of agricultural transaction shown by the assessee requires good amount of manpower supply, machineries, water, electricity etc. However, from the submissions made by the assessee, it can be seen that the assessee has spent very meagre amount on account of agricultural expenses. The Ld. AO further made specific observations qua the activities of the assessee and concluded that the assessee failed to produce any proof to substantiate the genuineness of agricultural income, therefore, it is conclusively established on the basis of comprehensive and detailed investigation/analysis, cogent and coherent evidence including statements 11

Being aggrieved, assessee preferred an appeal before the Ld. CIT(A) who had partly allowed the appeal of the assessee. During the appellate proceedings before the Ld. CIT(A), the assessee raised certain additional grounds which were remanded by the Ld. CIT(A) to the Ld. AO for his comments. In remand proceedings, the Ld. AO commented that the assessee and his family members have failed to submit any substantial document before the Ld. AO to establish the genuineness of cash and cheque credited in cash book and bank book. The onus was on the assessee and his family members to prove the genuineness of transaction but they remained unable to provide a single supporting document in the office of Ld. AO. Thus, the onus lies upon the assessee and his family members to provide the source of cash credited to cash book and check credited 12

it is submitted that, Hon’ble ITAT in its order has observed that there was substantial plantation of mango trees and also sustainable vegetable being grown in the said land in the case of assessee’s father. There was no addition in respect to agricultural receipts in the earlier years. Only the 20% of agricultural expenses were disallowed as being bogus in nature, which was also not sustained by the Ld. CIT(A) and no additions were made in the case of assessee for AY 2013-14 and 2014-15. The Ld. CIT(A), after considering overall facts of the case, had concluded that as per reports, the agricultural income shown by the assessee is bogus in nature. It cannot be said that there was no agricultural activity at all 14

Since the Ld. CIT(A) has granted relief of 30% to the assessee and has sustained the 70% of the additions made by the Ld. AO, both assessee and Revenue being aggrieved, are in appeal before us.

At the outset, the Ld. AR for the assessee sought adjudication of the legal ground challenging the assumption of jurisdiction under section 153A of the Act, contending that no incriminating material or document was found or seized during the course of search conducted on 17.04.2018 and concluded on 22.04.2018. It was submitted that, in the absence of any incriminating material found during the course of search, no addition could be made in respect of assessment years which had attained finality and were unabated as on the date of search, in view of the settled legal position governing assessments under section 153A of the Act.

The Ld. AR further contended that there was no material unearthed during the course of search, which could constitute incriminating material qua the impugned additions. It was submitted that the adverse inference drawn by the Assessing Officer, treating the agricultural income declared by the assessee as unexplained cash credit under section 68 of the Act, was founded substantially upon statements recorded from third parties, without any independent or corroborative material discovered during the search. On this premise, it was contended that, in respect of unabated assessment years, the scope of proceedings under section 153A could not extend to making additions dehors any incriminating material found as a result of search.

Per contra Ld. DR vehemently supported the findings of Ld. CIT(A) on this aspect.

We have considered the rival submissions and perused the material available on record. Admittedly, the assessment years involved in the present 16

The settled legal position governing the scope of proceedings under section 153A of the Act, in respect of unabated/completed assessments, is that an addition can be made only where the same is based upon incriminating material found during the course of search under section 132 of the Act. The mere existence of material or information otherwise available on the record, which does not emanate from or is not found as a result of the search, cannot, by itself, constitute the basis for disturbing a completed assessment.

Another question arises, as to whether statements recorded during the course of search or in the post-search proceedings, in absence of any supporting or corroborative material found, can by themselves constitute incriminating material for the purposes of making an addition in an unabated assessment, is also covered by the settled legal principles. The issue is no longer res integra in view of the judgment of the Hon'ble Supreme Court in the case of Pr. CIT v. Abhisar Buildwell (P.) Ltd. [2023] 454 ITR 212 (SC), which was relied upon by

In this context, it would be appropriate to first examine the conclusion drawn by the Ld. CIT(A) on the aforesaid legal issue, which reads as under:

Coming to the facts borne out from the record, we find that neither the Assessing Officer nor the Ld. CIT(A) has referred to any specific incriminating material or document unearthed and seized during the course of search which could be said to have a direct bearing upon the impugned additions. On the contrary, the basis adopted by the Assessing Officer comprises the books of account of the assessee, data available in the Tally software in which the assessee

The Assessing Officer has also relied upon photographs of the subject land, stated to have been taken subsequent to the search, for the purpose of drawing an inference that no agricultural activity had been carried out on the said land. On the basis thereof, the claim of the assessee regarding agricultural income was treated as not genuine. However, such photographs, having admittedly been taken subsequent to the search, cannot, on the face of the record, be regarded as material found during the course of search.

We further note that, insofar as the statements relied upon by the Assessing Officer are concerned, no corresponding incriminating document or other corroborative material found during the course of search has been identified either in the assessment order or in the appellate order. The mere reference to statements recorded during or after the search, without identifying any material found during search which corroborates the contents thereof and has a nexus with the impugned additions, would therefore require examination in the context of the settled legal position governing unabated assessments. Support can be drawn

On examination of the findings recorded by the Ld. CIT(A), we find that the appellate authority has also proceeded on the basis of the findings emanating from the search, but has not identified any specific document or material seized during the search which could constitute incriminating material relatable to the impugned additions. Thus, the record does not disclose any specific incriminating material found during the course of search which formed the foundation for the additions made for the aforesaid assessment years.

In view of the aforesaid factual position, the question that arises for consideration is whether, in the absence of any incriminating material found during the course of search relatable to the impugned additions, the Assessing Officer could validly invoke the jurisdiction under section 153A of the Act so as to disturb the completed assessments for the aforesaid assessment years, settled principle of law does not permit to do so.

In terms of the aforesaid observations and discussion, we find that no incriminating material relatable to the impugned additions has been identified as 20

Accordingly, in view of the aforesaid findings and the legal position discussed hereinabove, the orders of the Ld. CIT(A), insofar as they relate to the impugned additions for A.Ys. 2013-14 to 2016-17, are set aside and the said additions are directed to be deleted.

Accordingly, ITA Nos. 86/Mum/2026 to 89/Mum/2026, filed by the assessee for Assessment Years 2013-14 to 2016-17, respectively, are allowed on the aforesaid legal ground.

Since the assessee succeeds on the jurisdictional/legal ground and the substantive additions have consequently been directed to be deleted, the other grounds relating to the merits of such additions, as well as the other legal contentions raised in relation thereto, are rendered academic. We, therefore, refrain from adjudicating the same.

Regarding the appeals of revenue, since the validity of jurisdiction of AO in invoking provisions of Section 153A, itself has been held to be bad in law and

Accordingly, ITA Nos. 231/Mum/2026 to 234/Mum/2026, filed by the Revenue for Assessment Years 2013-14 to 2016-17, respectively, are dismissed.

The grounds of appeal raised by the assessee as well as the Department are as under: “Grounds in ITA 90/Mum/2026 of assessee 1. The Learned DDIT(Inv.). Unit-4(3), Mumbai, erred in issuing search warrant No. MUM C/U-4/18-19/13 dated 17.04.2018, led by Team-JWR-2, without having any information in its possession on the basis of which a reasonable belief can be founded that the appellant has omitted or failed to produce books of accounts or other documents before conducting search action u/s 132 of the Act or that the appellant was in possession of any money. bullion, jewellery or other valuable article which represents wholly or partly any income or property, which has not been disclosed by the appellant. In view of the same, the search warrant No. MUM C/U-4/18-19/13 dated 17.04.2018, led by Team-JWR-2 is clearly illegal, bad in law and ultra-vires the provisions of the Income tax Act 1961. 2. The Learned Assessing Officer erred in issuing notice u/s 153A of the Income Tax Act, 1961 without appreciating the fact that there are no incriminating documents in seized material suggesting that any income has escaped assessment. Hence, the notice issued u/s 153A of the Act is clearly Bad in Law, illegal and ultra-vires the provision of the Act. 3. The Learned Commissioner of Income Tax (Appeal)-49, Mumbai has erred in confirming the disallowance to the extent of 70% of Agricultural Income i.e. Rs. 26,13,835/-by erroneously treating it as "Unexplained cash credit under section 68 of the Income-tax Act, 1961. 4. The Learned Commissioner of Income Tax (Appeal)-49, Mumbai has erred in confirming the addition being 1% of Rs. 26,13,835/- i.e. Rs. 26,138/- by erroneously treating the same as "Commission" without any evidence whatsoever and thereby erred in treating the sae as "Unaccounted Income" under section 68 of the Income-tax Act, 1961. 22

For the relief granted by Ld. CIT(A), the Revenue is in appeal, whereas for the addition to the extent sustained by the Ld. CIT(A), the assessee is in appeal before us.

For A.Y. 2017-18, the assessee filed its return of income on 23rd August, 2017. The search, which constituted the genesis for invocation of the provisions of section 153A of the Act in the present case, was conducted on 17th April, 2018. In terms of section 143(2) of the Act, the Assessing Officer had the statutory time available for issuance of notice for scrutiny assessment up to six months from the end of the financial year in which the return was furnished.

Thus, on the date of search, i.e., 17th April, 2018, the time prescribed for issuance of notice under section 143(2) had not expired and the assessment proceedings for A.Y. 2017-18 had not attained finality. The assessment year, therefore, cannot be regarded as an unabated or completed assessment year. Consequently, the challenge raised by the assessee vide Ground No. 2 to the validity of assumption of jurisdiction under section 153A on the ground of absence of incriminating material seized during the course of search proceeds on the premise applicable to completed or unabated assessments and does not arise in the facts of the present case. Accordingly, Ground No. 2 of the appeal of the assessee stands dismissed.

Coming to the contentions qua the merits of the additions, the assessee has, inter alia, submitted that the post-search findings in the case of the assessee's mother, Smt. Nita Jatia, as also the agricultural income declared by the assessee, had been accepted and no addition was ultimately sustained by the Tribunal. In this regard, it is pertinent to note that the orders relied upon by the assessee were passed in respect of additions made pursuant to assessments framed under section 143(3) of the Act, and the findings emanating from the search proceedings were not the subject matter of consideration by the Tribunal in those proceedings.

The assessee has further contended that the ledger account forming part of the seized material duly records the agricultural receipts and corresponding expenditure in the books of account and, therefore, such ledger account could not, according to the assessee, be regarded as incriminating material. It has also been contended that the statement of Mr. Nandkumar Sitaram Sapkal could not, by itself, be relied upon in the absence of independent corroborative material, particularly when the assessee was not afforded an effective opportunity of cross- examination of the said person.

It is further the contention of the assessee that the observation of the Ld. AO that the assessee had never received agricultural income through banking channels is contrary to the material available on record. In support of the agricultural transactions, reliance has been placed upon the bills and vouchers, bank statements, ledger accounts, data available in the Tally records and other documentary evidence. The assessee has also relied upon the fact that Mr. Nandkumar Sitaram Sapkal had himself filed returns of income, contending that the material on record, considered cumulatively, establishes the genuineness of the agricultural sales made to him.

On the strength of the aforesaid documentary material and submissions, it has been contended that the assessee had duly discharged the onus cast upon it 26

On the other hand, the Ld. DR relied upon the findings recorded by the Ld. AO and submitted that the addition was made on the basis of substantive material and evidence available on record. It was contended that the Ld. CIT(A), without recording any cogent or legally sustainable reasoning, had restricted the addition and, therefore, the entire claim of agricultural receipts deserved to be treated as unexplained cash credits liable to addition under section 68 of the Act.

The Ld. DR further submitted that, having regard to the nature of the transactions and the accommodation entries alleged by the Revenue, payment of commission is an inherent and inevitable incidence of obtaining such entries. Accordingly, it was contended that commission at the rate of 1% on the agricultural receipts treated as bogus ought also to be sustained as unexplained expenditure under section 68 of the Act.

We have considered the rival submissions and perused the material available on record. On consideration of the orders of the Ld. AO and the Ld. CIT(A), we find that the additions on merits are primarily founded upon the statement of Mr. Nandkumar Sitaram Sapkal, which has been sought to be 27

On examination of the order of the Ld. CIT(A), we do not find any independent or specific finding dealing with the aforesaid evidences and contentions qua the additions on merits. The Ld. CIT(A) has, in substance, relied upon the findings recorded by the Ld. AO. The material relied upon by the Revenue, particularly the statement of Mr. Nandkumar Sitaram Sapkal, assumes significance inasmuch as the said person is stated to have admitted providing accommodation entries in the guise of agricultural receipts to the assessee. At the same time, the assessee has specifically disputed the reliance placed upon the said statement and has sought an opportunity to cross-examine the deponent.

We further find from the record that an opportunity for cross-examination was sought to be provided by the Ld. AO; however, the proposed cross- examination could not materialise on the date fixed for the purpose. In these circumstances, where the statement of a third party constitutes a material basis

Accordingly, without expressing any opinion on the merits of the rival contentions or on the evidentiary value ultimately to be attached to the statement in question, we are of the considered view that the issue relating to the additions for the year under consideration, i.e., A.Y. 2017-18, requires fresh adjudication by the Ld. AO. The matter is, therefore, restored to the file of the Ld. AO for re- adjudication after providing the assessee an effective and meaningful opportunity to cross-examine Mr. Nandkumar Sitaram Sapkal, in accordance with law.

The assessee shall thereafter be at liberty to place before the Ld. AO such further submissions, explanations and documentary evidence as it may consider appropriate in support of its contentions. The Ld. AO shall examine the matter afresh after considering the statement, the result of cross-examination, the material already available on record and the further evidence, if any, furnished by the assessee, and shall adjudicate the issue in accordance with law.

In view of the foregoing facts and circumstances, the additions made by the Ld. AO on account of agricultural receipts treated as unexplained cash credits under section 68 of the Act, as well as the consequential addition towards 1% commission, require reconsideration in the light of the aforesaid observations. 29

In the result, Ground Nos. 3 and 4 of the present appeal of assessee for AY 2017-18 are allowed for statistical purposes and restored to the file of the Ld. AO for fresh adjudication in the aforesaid terms.

Adverting to Ground No. 1 of the assessee, wherein the legality of the search has been assailed on the ground that the DDIT (Inv.) Unit-4(3) was not in possession of any information warranting formation of the requisite belief that the assessee had omitted or failed to produce books of account or other documents, or was in possession of money, bullion, jewellery or other valuable article or thing representing, wholly or partly, income or property which had not been disclosed, we find that the Ld. CIT(A), while adjudicating the said ground, called for a remand report from the Ld. AO. The said report was thereafter forwarded to the ACIT, Central Circle-7, Mumbai, for his comments.

In the report so furnished, it has been categorically stated that the warrant of authorization under section 132 of the Act was issued by the competent authority after recording the requisite reasons to believe on the basis of information in his possession, in accordance with the statutory requirements of section 132 of the Act. It has, accordingly, been stated that the warrant of authorization was validly issued and that the subsequent search and seizure 30

The Ld. CIT(A), after considering the remand report and the material available on record, found no infirmity in the issuance of the warrant of authorization and, consequently, rejected the assessee's challenge to the validity of the search proceedings. The Ld. CIT(A) accordingly dismissed the ground raised by the assessee.

We have considered the aforesaid findings and the material placed on record. The competent authority, while issuing the warrant of authorization under section 132 of the Act, is stated to have recorded the requisite reasons to believe on the basis of information available in its possession. There was no basis to demonstrate any infirmity in the authorization issued by the competent authority or to establish that the statutory requirements contemplated under section 132 of the Act were not satisfied. In the circumstances, we find no basis, on the material available before us, to interfere with the findings recorded by the Ld. CIT(A) on this issue.

Accordingly, Ground No. 1 of the assessee's appeal is dismissed.

In result, the appeal of assessee for AY 2017-18 stands partly allowed for statistical purposes.

In combined result, the appeals of assessee in ITA Nos.86/Mum/2026 to 89/Mum/2026 are allowed, whereas the appeals of Revenue in ITA Nos. 231/Mum/2026 to 234/Mum/2026 stand dismissed and the appeal of assessee as well as Revenue in ITA Nos.90/Mum/2026 and 2549/Mum/2026 stands partly allowed for statistical purposes.