DY. COMMISSIONER OF INCOME TAX-2, KANPUR vs. KULDEEP SINGH SUKHVINDER SINGH & OTHERS, KANPUR

PER BENCH:

These three appeals have been preferred by the Revenue against a common order dated 13.09.2018 passed by the Ld. Commissioner of Income Tax (Appeals) –IV, Kanpur (ld. CIT(A)) for assessment years 2010-11, 2011-12 and 2013-14.

2.0 Since the facts and the issues involved in the above captioned appeals are almost identical, therefore, they were taken up together for hearing and are being disposed of through this common order for the sake of convenience.

3.0 First, we will deal with the issues involved in the case of the assessee in ITA No.695/LKW/2018 for assessment year 2010-11.

ITA Nos.695, 696 & 698/LKW/2018 Page 2 of 16 3.1 The brief facts of the case are that the assessee is an Association of Persons (AOP) and engaged in the trading activity of dealing in liquor. The assessee filed its return of income for the year under consideration on 28.11.2011, declaring a total income of Rs.2,41,35,170/-. The assessment in this case was completed on 31.01.2013 under section 143(3) of the Income Tax Act, 1961 (hereinafter called “the Act’), assessing the total income at Rs.2,52,66,140/-. Subsequently, a Search and Seizure operation under section 132 of the Income Tax Act, 1961 (hereinafter called “the Act’) was conducted in Tilak Raj Sharma Group of cases on 09.07.2014. During the Search and Seizure operation, various incriminating documents/information allegedly relating to the assessee were found and seized. Accordingly, Satisfaction Note was recorded by the Department and Notice under section 153C read with section 153A of the Act was issued in this case on 12.01.2016. In compliance to notice under section 153C of the Act, the assessee filed its return of income on 31.05.2016, declaring the same income as disclosed by the assessee in the original return of income, i.e., Rs.2,41,35,170/-. Thereafter, the Assessing Officer (AO) issued notices under section 143(2)/142(1) of the Act along with questionnaire. In response, the assessee, vide letter dated 06.09.2016 raised objection against Satisfaction Note recorded

ITA Nos.695, 696 & 698/LKW/2018 Page 3 of 16 before issuance of notice under section 153C read with section 153A of the Act. The objections raised by the assessee were rejected by the AO, vide letter dated 06.09.2016. During the course of proceedings under section 153C of the Act, after considering the submissions of the assessee, the assessee was asked to explain and to justify as to why addition on account of alleged suppression of sale may not be made by applying extra gross profit on suppression of sale to its total income and, accordingly, he estimated the total sales suppressed during the year under consideration at Rs.19,06,04,050/-. The assessee filed a detailed reply dated 29.12.2016, however, the same was held not found to be tenable, as according to the AO, the documents seized from the premises of Shri Vikas Jaiswal & Smt. Sapna Jaiswal, 127/18, W-1, Saket Nagar, Kanpur clearly showed that discount and additional discount were allowed to the assessee AOP by the wholesaler and all the AOPs had made purchases from same group namely, Ponty Chaddha and, therefore, it was not practically feasible to discriminate in terms of discount/additional discount on purchases. He, therefore, by applying G.P. rate of 11.31% (as shown by the assessee) on total estimated suppressed sales of Rs.19,06,04,050/-, which came to Rs.2,15,57,318/-, made the addition to the total income of the assessee. The AO completed the assessment under section 153C

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read with section 153A of the Act, assessing the total income of the assessee at Rs.4,68,23,460/-.

3.2 Aggrieved, the Assessee preferred an appeal before the ld. CIT(A), who annulled the order passed by the AO under section 153C of the Act and allowed the appeal of the assessee on the legal ground of validity of the Satisfaction Note.

3.3 Now the Revenue has approached this Tribunal challenging the order of the ld. CIT(A), by raising the following grounds of appeal:

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3.5 Aggrieved, the Assessee preferred an appeal before the ld. CIT(A), who annulled the order passed by the AO under section 153C of the Act and allowed the appeal of the assessee on identical reasoning as in assessment year 2010-11.

3.6 Now the Revenue has approached this Tribunal challenging the order of the ld. CIT(A), by raising the following grounds of appeal:

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Rs.34,500/- towards purchase of Air conditioner, which were not accounted for in the books of account and, therefore, the same was also added to the income of the assessee. The AO completed the assessment under section 153C read with section 153A of the Act, assessing the total income of the assessee at Rs.9,83,75,450/-.

3.8 Aggrieved, the Assessee preferred an appeal before the ld. CIT(A), who annulled the order passed by the AO under section 153C of the Act and allowed the appeal of the assessee as in assessment years 2010-11 & 2011-12.

3.9 Now the Revenue has approached this Tribunal challenging the order of the ld. CIT(A), by raising the following grounds of appeal:

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reference to seized material, has failed to appreciate the fact that details of seized material finds mention in the page no.-3 of the assessment order itself and therefore, additions made had direct linkage with the material found during the search. 4. That the appellant craves leave to add or amend any other more ground of appeal as state above as and when needs for doing so may arise. 5. The order of the Ld. CIT (A) is erroneous in law and on facts of the case and is liable to be set aside and the order of the AO be restored. 4.0 The Ld. CIT(DR), appearing on behalf of the Department, Shri R. K. Agarwal, submitted that the assessment proceedings in the cases of the assessee for the captioned assessment years were initiated following the Search and Seizure operation conducted on Tilak Raj Sharma Group of cases on 09.07.2014, wherein documents and information relating to the assessee were found and seized during the search operation. The Ld. CIT(DR) submitted that the core issue in all the three years relates to receipt of undisclosed discount and estimated sales suppression. The Ld. CIT(DR) submitted that during the post-search enquiry, it was found that the assessee had received discount as well as additional discount from the wholesalers on the purchase of various types of liquors and it was only after a careful verification of the documents and evidences on record that the AO came to the conclusion that the additional discount should have been

ITA Nos.695, 696 & 698/LKW/2018 Page 9 of 16 incorporated into the net purchase calculations. It was further submitted that the assessment orders were passed keeping in view the fact that the additional discount received by the assessee was evident from the documents seized during the course of search and, therefore, the assessments were completed under section 153C read with section 153A of the Act after making addition on account of extra profit at the calculated rate of gross profit on estimated suppressed sales. It was submitted that the estimation of suppressed sales and corresponding extra gross profit was calculated on the basis of the documents seized from the assessee pertaining to financial year 2013-14, i.e., assessment year 2014-15. The Ld. CIT(DR) submitted that the impugned additions had been made for the three captioned assessment years, i.e., assessment years 2010-11, 2011-12 and 2013-14, on the methodology and the crucial evidence extracted from the documents sourced from financial year 2013-14. The Ld. CIT(DR) referred to the seized material and also to the orders passed by the AO and submitted that if the assessee was receiving substantial undisclosed additional discount in financial year 2013-14, it was highly probable that these discounts would have been earned in earlier assessment years also and, therefore, they were added by the AO in the captioned assessment years. The Ld. CIT(DR) also submitted that in the case of M/s United

ITA Nos.695, 696 & 698/LKW/2018 Page 10 of 16 Associates, which was another AOP dealing in liquor, it was clearly established that discounts were being given to the liquor traders outside the books of account. It was submitted that the recovery of documents for financial year 2013-14 indicate in the direction that the assessee also was receiving discounts which were not part of the accounts of the assessee. The Ld. CIT(DR) assailed the order of the Ld. First Appellate Authority and submitted that the Ld. First Appellate Authority, while deleting the addition for want of proper reference to the seized material, had failed to appreciate the fact that the details of seized material finds mention in page 3 of the assessment orders itself and, therefore, there was a direct linkage with the material found during the course of search.

4.1 The Ld. CIT(DR) also filed written submissions in support of his arguments which have been taken on record and have been duly considered while dictating this order.

5.0 Per contra, the Ld. Authorized Representative for the assessee (Ld. A.R.), Shri Samrat Chandra, C.A. submitted that the discounts, which were made subject matter of the addition, were already included in the final accounts of the assessee and to demonstrate this, he drew our attention to page 25 of the paper book filed by the assessee which contains the Trading and Profit and Loss Account for the assessment year 2014-15, i.e., financial

ITA Nos.695, 696 & 698/LKW/2018 Page 11 of 16 year 2013-14 and submitted that these seized documents which were being relied upon by the AO for making the addition on account of alleged suppressed discount received, was already reflected in the Trading and Profit and Loss Account of that particular year. He submitted that the entire assessment had been framed on wrong assumption of facts and submitted that the Ld. First Appellate Authority had rightly deleted the additions. The Ld. A.R. argued that the projection calculated by the AO was, therefore, not based on any seized material and that the extrapolation was based on statement recorded under section 131 of the Act in the case of M/s United Associates which had accepted that there was a general practice of receiving undisclosed discounts. It was further submitted that, however, in the case of the assessee, no such undisclosed discount was evident from any seized material. The Ld. A.R. further submitted that the addition with respect to the discount as well as to the alleged suppressed gross profit was based on mere assumption which was not relatable to any seized document. The Ld. A.R. relied heavily on the order of the Ld. First Appellate Authority and prayed that the appeals of the Department be dismissed.

6.0 We have heard the rival submissions and have also perused the material on record. We have also carefully perused the orders under appeal and we note that in all the three

ITA Nos.695, 696 & 698/LKW/2018 Page 12 of 16 assessment years, the assessments have been completed under section 153C read with section 153A of the Act. During the course of proceedings before the Ld. First Appellate Authority, the assessee had challenged the validity of Notice issued under section 153C of the Act and had argued that the assessments framed for the captioned three assessment years were bad in law and without jurisdiction inasmuch as there was no proper satisfaction drawn by the AO which would establish that the seized material indeed related or pertained to the assessee and, therefore, the same would have any bearing on the determination of the total income of the assessee. It was also argued before the Ld. First Appellate Authority that no incriminating document was found as a result of search in the case of the assessee and, therefore, the additions made on account of alleged undisclosed discount and alleged suppressed gross profit were not sustainable.

6.1 We find that during the course of arguments before us, the Ld. CIT(DR) has himself argued that the seized material which was made the basis of these impugned additions pertained to financial year 2013-14, i.e., assessment year 2014-15 and further it was argued by the Ld. CIT(DR) that based on the seized material for financial year 2013-14, it was observed by the AO that there were similar undisclosed discounts received during the

ITA Nos.695, 696 & 698/LKW/2018 Page 13 of 16 captioned assessment years and also there were suppressed gross profits. Thus, even by going by the arguments advanced by the Ld. CIT(DR), it is very much evident that there was no incriminating material found during the course of search for the three captioned assessment years under appeal before us.

6.2 Further, the Ld. A.R. has also drawn our attention to the Audited accounts for financial year 2013-14 and has demonstrated that the discounts have indeed been incorporated in the Trading and Profit and Loss Account.

6.3 Therefore, from all these facts, it is very much evident that the impugned additions had been made without there being any incriminating material found during the course of search which were relatable to the three captioned assessment years under appeal. We have also gone through the impugned order and it is seen that in the impugned order, the Ld. First Appellate Authority has also reproduced the Satisfaction Note for issuance of Notice under section 153C read with section 153A of the Act, dated 12.01.2016, and after reproducing the same, the Ld. First Appellate Authority has noted in paragraph 5.11 of the impugned order that it was evident from the bare reading of the Satisfaction Note dated 12.01.2016 that no seized document is mentioned by the AO which belongs/pertains/relates to the assessee. It was further observed that it seems from other page which was

ITA Nos.695, 696 & 698/LKW/2018 Page 14 of 16 annexed to the Satisfaction Note that certain other documents was seized but this Annexure was undated and did not find place in the Satisfaction Note recorded and signed by the AO on 12.01.2016. Thereafter, the Ld. First Appellate Authority has analyzed the nature of documents to assess as to whether these documents could be said to be belonging/pertaining/ relating to the assessee and as to whether they could be regarded as incriminating or not and, thereafter, the Ld. First Appellate Authority has concluded that in the case of search in the premises of Shri Sukhvinder Singh, Shri Tilak Raj Sharma, and Shri Vikas Jaiswal and Smt. Sapna Jaiswal, there was no finding by the AO that the documents seized related to the assessee and had any bearing on the determination of the total income of the assessee. The Ld. First Appellate Authority has gone ahead and concluded that it was evident that the AO has not found any document which belonged/pertained/related to the assessee and further a perusal of the assessment orders revealed that no additions were made by the AO on the basis of the seized documents and rather the AO had made additions on account of suppression of sales/profits on ad-hoc basis for which no documents were found and seized in search action and, thus, the seized documents had no co-relation by any stretch of

ITA Nos.695, 696 & 698/LKW/2018 Page 15 of 16 imagination to the estimated ad-hoc disallowances made by the AO under section 153C of the Act.

6.4 During the course of hearing before us, the Ld. CIT(DR) could not point out any perversity in the above findings recorded by the Ld. First Appellate Authority but has only harped on the argument that there were some incriminating documents with respect to assessment year 2014-15. Therefore, it is very much evident that the findings arrived at by the Ld. First Appellate Authority have been recorded after due consideration of facts and there is no perversity in them. We agree with the observations of the Ld. First Appellate Authority that from a plain reading of the language of section 153C of the Act, it is abundantly clear that in order to reopen the assessment of ‘other person’ under section 153C of the Act, the document found during the search should belong/pertain/relate to that other person and such documents seized should also have a bearing on the determination of total income of that other person for the relevant assessment year. Therefore, in the present appeals before us, we have no hesitation in holding that the impugned additions were not based on any incriminating material found as a result of search. In fact, no incriminating document during the course of search is found to be mentioned in the Satisfaction Note recorded by the AO.

ITA Nos.695, 696 & 698/LKW/2018 Page 16 of 16 6.5 There is also a plethora of judicial precedents which supports this view. The Hon'ble Apex Court, in the case of CIT-3, Pune vs. Sinhgad Technical Education Society (2017) 397 ITR 344 (SC), has held that the nexus between issuance of notice under section 153C of the Act and the incriminating material found as a result of search must exist and this nexus is found to be missing in the present set of appeals before us. Therefore, on an overall view of the facts of the case and respectfully following the judgment of the Hon'ble Apex Court in the case of CIT-3, Pune vs. Sinhgad Technical Education Society (supra), we dismiss the grounds raised by the Department in all the three captioned assessment years.

7.0 In the final result, all the three appeals of the Department stand dismissed.

Order pronounced in the open Court on 10/04/2026.

Sd/- Sd/- [NIKHIL CHOUDHARY] [SUDHANSHU SRIVASTAVA] ACCOUNTANT MEMBER JUDICIAL MEMBER

DATED:10/04…/2026 JJ: Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. DR By order Assistant Registrar/DDO