CHANDRIKA HEMENDRA KAPADIA,MUMBAI vs. ACIT - CENTRAL CIRCLE 8(2), MUMBAI

These are a set of seven appeals preferred by the Revenue and seven appeals preferred by the assessee for the assessment years 2014- 15 to 2020-21, arising out of the respective orders passed by the learned Commissioner of Income-tax (Appeals) [“learned CIT(A)”]. The appeals of the Revenue are ITA Nos. 3403/Mum/2026 to 3409/Mum/2026 and the appeals of the assessee are ITA Nos. 3613/Mum/2026 to 3619/Mum/2026. Since the appeals arise out of the assessments framed pursuant to the same search and seizure proceedings and involve substantially common facts and issues, they were heard together and are being disposed of by this consolidated order. For the sake of convenience, ITA No. 3403/Mum/2026 filed by the Revenue and ITA No. 3613/Mum/2026 filed by the assessee for the assessment year 2014-15 are taken as the lead appeals.

The common factual background, as emerging from the assessment order for the assessment year 2014-15, is that a search and seizure action under section 132 of the Income-tax Act, 1961 (“the Act”) was conducted on 06.11.2019 in the case of the One World Group and various connected entities. The premises from which the proprietary concern of the assessee, namely M/s. Kaysons, was stated to be operated were also covered during the search proceedings. Thereafter, the case of the assessee was centralised with the Central Circle and

The Assessing Officer recorded that the assessee did not furnish the requisite details and supporting documents in response to the statutory notices issued during the assessment proceedings and, after issuing show-cause notices, proceeded to complete the assessment under section 144 read with section 153A of the Act. The assessment order records that, pursuant to the final show-cause notice, a reply dated 21.09.2021 was filed through the Authorised Representative and that a ledger account relating to the transactions with the One World Group was subsequently furnished. The Assessing Officer, however, was of the view that the material furnished by the assessee did not satisfactorily explain the nature and genuineness of the transactions.

The Assessing Officer, while completing the assessment, relied substantially upon the statements recorded during the search and post- search proceedings, including the statement of Shri Hemendra Kapadia, husband of the assessee, recorded under section 132(4) of the Act, as well as the statement of Shri Urvil A. Jani, stated to be a director of the One World Group entities. According to the Assessing Officer, the statements indicated that the entities controlled or managed by Shri Hemendra Kapadia were engaged in providing accommodation entries by way of purported purchase and sale transactions without actual movement of goods. The Assessing Officer also referred to the alleged absence of transport documents, vehicle details, delivery challans and other supporting evidence in respect of the transactions.

On the aforesaid basis, the Assessing Officer rejected the books of account under section 145(3) of the Act and proceeded to estimate the income of the assessee. For the assessment year 2014-15, the Assessing

Aggrieved by the respective assessment orders, the assessee preferred appeals before the learned CIT(A). The learned CIT(A), while disposing of the appeal for assessment year 2014-15, upheld the rejection of the books of account under section 145(3) of the Act and the action of the Assessing Officer in proceeding under section 144 of the Act. However, in respect of the estimation of income from the alleged accommodation-entry activity, the learned CIT(A) reduced the rate of estimation from 5% adopted by the Assessing Officer to 0.5% of the aggregate turnover of Rs.60,55,02,599/-, resulting in an estimated operational income of Rs.30,27,513/-. In respect of the interest income, the learned CIT(A) directed the Assessing Officer to verify the expenditure claimed to have been incurred for earning such income and allow the deduction in accordance with law. The addition made under section 68 of the Act was sustained. Similar issues arise in the appeals relating to the other assessment years, subject to the grounds specifically raised for the respective assessment years.

Being aggrieved by the relief granted by the learned CIT(A), the Revenue has preferred appeals for all the seven assessment years. The

The assessee has also preferred appeals for all the seven assessment years. In the appeal for assessment year 2014-15, the assessee has challenged the validity of the assessment as well as the estimation of operational income at 0.5% of the turnover. The assessee has contended that, even assuming that the activity constituted accommodation-entry business, the income ought to have been determined at 0.15%, relying upon the judicial precedents cited before the learned CIT(A). The assessee has further challenged the treatment of interest income of Rs.5,94,703/- and the addition of Rs.2,40,06,475/- made under section 68 of the Act, including the application of section 115BBE of the Act. The grounds raised by the assessee in the other assessment years are substantially similar, subject to the variations specifically made for the respective years. We have taken note of the fact that no ground relating to the issue of interest/other income has been raised by the assessee for assessment year 2018-19 and that the assessee has not raised the relevant ground under section 68 for assessment years 2016-17 and 2017-18. We, therefore, confine our consideration in each year to the grounds actually raised therein.

We have heard the learned Departmental Representative (“ld.DR”) and the learned Authorised Representative (“ld.AR”) and carefully

At the outset, we find that the principal issue which requires consideration in these appeals is not merely the quantum or rate of estimation adopted by the Assessing Officer or modified by the learned CIT(A). The assessments involve serious factual issues concerning the nature and genuineness of the business transactions, the rejection of books of account under section 145(3) of the Act, the alleged accommodation-entry activity, the statements recorded during the search and post-search proceedings, the addition under section 68 of the Act in the relevant years and other consequential issues. The assessment orders have been framed under section 144 of the Act. Therefore, in our considered view, before the merits of the various additions can be effectively adjudicated, the assessee must have a reasonable and effective opportunity to place all relevant material before the Assessing Officer and the Assessing Officer must consider such material in accordance with law.

We are conscious of the fact that the assessment order records several instances of non-compliance with notices issued under section 142(1) of the Act. At the same time, the assessment order itself records that, pursuant to the final show-cause notice, the assessee filed a reply through her Authorised Representative and subsequently furnished ledger accounts relating to the transactions with the One World Group. The assessment was nevertheless ultimately completed under section 144 of the Act. Considering the nature and magnitude of the additions, the material relied upon by the Assessing Officer and the several factual issues which arise for determination; we are of the considered view that the matter requires a fresh examination at the assessment stage.

The principle of natural justice requires that a person whose taxable income is being determined should be afforded a reasonable and effective opportunity to explain the material relied upon against him or her and to place such evidence as may be relevant in support of the claim. The requirement assumes greater significance where the assessment involves appreciation of voluminous factual material and where the conclusion regarding the genuineness of transactions is founded upon statements and other material gathered during search and post-search proceedings. The Assessing Officer, while exercising the power to make a best judgment assessment, is nevertheless required to arrive at a fair and reasonable determination on the basis of the material available and after giving due consideration to the explanation and evidence furnished by the assessee.

In the present case, we are of the considered view that it would not be appropriate for the Tribunal, at this stage, to adjudicate upon the rival claims of the Revenue and the assessee regarding the appropriate rate of estimation of income, the nature of the alleged accommodation-entry activity, the allowability of the interest-related expenditure or the addition made under section 68 of the Act. Such adjudication, without first providing an effective opportunity to the assessee to place the relevant material before the Assessing Officer and without the Assessing Officer examining such material in the first instance, may result in the assessee being deprived of an effective opportunity to establish its case at the assessment stage.

We are, therefore, of the considered opinion that the interests of substantial justice would be served by setting aside the assessments for all the assessment years under consideration and restoring the matters to the file of the Assessing Officer for de novo consideration. Such restoration will enable the Assessing Officer to examine afresh all the factual and legal issues arising in the respective assessment years after

Accordingly, without expressing any opinion on the merits of any of the issues raised by either the Revenue or the assessee, we set aside the respective impugned orders of the learned CIT(A) and restore the matters to the file of the Assessing Officer for de novo consideration and adjudication in accordance with law.

The Assessing Officer shall, in the fresh proceedings, afford the assessee a reasonable and effective opportunity of being heard. The Assessing Officer shall examine and consider all books of account, documents, confirmations, explanations, evidences and other material that may be furnished by the assessee in support of its case. The Assessing Officer shall also consider the material gathered during the search and post-search proceedings and the statements relied upon in the assessment orders and shall undertake such verification or enquiry as may be considered necessary in accordance with law. Where any material is proposed to be relied upon against the assessee, the assessee shall be afforded an appropriate opportunity to explain the same in accordance with the principles of natural justice.

The Assessing Officer shall thereafter pass a fresh speaking and reasoned order for each assessment year independently, dealing with the issues arising in that particular year and after objectively considering the entire material available on record as well as the material and submissions furnished by the assessee. The Assessing Officer shall not merely reproduce or rely upon the findings contained in the earlier assessment orders but shall undertake a fresh examination of the issues in the light of the material placed before him in the de novo proceedings.

We also direct the assessee to extend full and proper cooperation in the fresh assessment proceedings. The assessee shall comply with the

It is clarified that we have not expressed any opinion on the genuineness or otherwise of the transactions, the applicability of section 145(3), the validity of the assessment under section 144, the appropriate rate of estimation of income, the treatment of interest or other income, the addition under section 68, the applicability of section 115BBE, or any other issue arising in the respective assessment years. All such issues are left open for fresh adjudication by the Assessing Officer. The observations made in the present order are confined solely to the question of the manner in which the assessments are required to be reconsidered and shall not be construed as an expression of opinion on the merits of the respective claims.

In view of the aforesaid directions, the grounds raised by the Revenue challenging the reduction of the estimated income from 5% to 0.5%, as well as the corresponding grounds raised by the assessee challenging the adoption of 0.5% and seeking estimation at 0.15%, do not require separate adjudication at this stage. Similarly, the grounds raised by the assessee in respect of interest/other income and the additions under section 68 of the Act also do not require separate adjudication, as the entire assessment for the respective assessment years is being restored to the file of the Assessing Officer for de novo consideration.

Consequently, the appeals filed by the Revenue as well as the appeals filed by the assessee are allowed for statistical purposes in the terms indicated hereinabove.

In the result, ITA Nos. 3403/Mum/2026 to 3409/Mum/2026 filed by the Revenue for assessment years 2014-15 to 2020-21 and ITA Nos. 3613/Mum/2026 to 3619/Mum/2026 filed by the assessee for assessment years 2014-15 to 2020-21 are allowed for statistical purposes.