ACIT, NASHIK vs. AUTORIDERS INTERNATIONAL LIMITED, MUMBAI

Brief facts of the case as culled out from the records are that the assessee is a Limited Company engaged in the business of car rental and providing cars for self-drive. Income of Rs.1,69,93,320/- declared in the return for A.Y. 2015-16 e-filed on 15.09.2015. Case of the assessee not selected for regular scrutiny prior to the conducting of search u/s.132 of the Act on 17.01.2018. Assessee is part of the Deesan Group which was subjected to search u/s.132 of the Act. Certain documents were seized during the course of search conducted at assessee’s premises as well as residential premises of the Directors. Thereafter, notice u/s.153A of the Act issued on 08.03.2019, followed by notices u/s.143(2) and 142(1) validly served upon the assessee. During the course of scrutiny proceedings, ld. Assessing Officer took note of the seized material which were confronted to the key person of the assessee company namely Mr. Pushpak Bansal whose statements were recorded u/s.131 of the Act on 05.03.2018, i.e. post search. In these statements, it was submitted that there were old outstanding loans and sundry creditors amounting to Rs.34.30 crore (outstanding loan of Rs.5.96 crore towards capital purchase and outstanding sundry creditors of Rs.28.34 crore) in the name of M/s. Autoriders Finance Limited which were no longer payable have been written off in the books under the head “Reserves and Surplus”. However, when it was confronted that why the alleged sum has not been offered to tax, then Mr. Pushpak Bansal stated that “I am not in a position to state that why the same has not been offered to tax. Therefore we hereby offer to appropriately disclose Rs.28.34 crore for taxation as income of M/s. Autoriders International Limited for A.Y. 2015-16. Based on this statement, ld. Assessing Officer show caused the assessee that why the sum of Rs.28.34 crore has not been offered to tax in the return filed in compliance to notice u/s.153A of the Act. In reply, the assessee made detailed submissions and also referred to plethora of decisions stating that assessee was previously engaged in the business of taking cars on lease from its sister concern M/s. Autoriders Finance Limited and the business continued from the year 1994 till F.Y. 2001-02 and the assessee incurred huge amount of losses. Post F.Y. 2001-02, assessee stated new business of purchase of cars and providing them on rent. It was claimed before the Assessing Officer that for invoking section 41(1) of the Act one of the condition is that the assessee should have obtained some benefit in support of such trading liability whether in cash or in any other manner whatsoever. However, since the assessee has incurred losses till A.Y. 2001-02 and that they have not set off these losses against the income and therefore assessee has not taken any benefit from the expenses incurred towards lease premium payable to M/s. Autoriders Finance Limited. It was also submitted that since the accumulated loss exceeds the outstanding sundry creditors payable to M/s. Autoriders Finance Limited, assessee has written off alleged sum directly in the balance sheet under the head Reserves and Surplus and has not routed through profit and loss account. It was also submitted that factual examination of the preceding year losses have been carried out while preparing the return in response to notice u/s.153A of the Act and therefore in light of the settled judicial precedents as well as the facts of the present case assessee did not disclose them as income. However, ld. Assessing Officer concluded the proceedings making addition Rs.28,34,10,884/- and assessed the income at Rs.30,04,04,200/- and the concluding observation of the AO in para 7.11 and 7.12 of the assessment order reads as under :

Aggrieved assessee preferred appeal before ld.CIT(A) and took multiple grounds including the ground that the assessment year in question is completed assessment and there being no incriminating material found during the course of search, ld. Assessing Officer grossly erred in making the impugned addition. On merits of the case, it has been contended that since the assessee has incurred huge losses in the business of taking cars on lease from M/s. Autoriders Finance Limited and assessee has not taken any benefit from such accumulated loans, therefore, no addition u/s.41(1) of the Act is called for. It has also been claimed that the assessee has only written off the balances of M/s. Autoriders Finance Limited from its books but no such action has been taken by M/s. Autoriders Finance Limited in their books and they are still demanding the outstanding sum receivable by them and even the assessee has subsequently paid Rs.3.00 crore to of M/s. Autoriders Finance Limited. However, ld.CIT(A) gave part relief to the assessee by firstly holding that the impugned addition has been made by the Assessing Officer based on the incriminating material found during the course of search and secondly ld.CIT(A) held that invoking of section 41(1) of the Act by the Assessing Officer is justified and thirdly while dealing with the alternate plea of the assessee ld.CIT(A) gave part relief to the assessee observing that assessee has not taken benefit of the accumulated losses to the extent of Rs.27,30,42,267/- and therefore provisions of section 41(1) could not apply to this extent and only sustained the remaining addition of Rs.1,03,68,617/-. Finding of ld.CIT(A) reads as under : “Findings and decision of Appellate Authority:

9 I have considered the assessment order, remand report, submissions of the appellant and the facts of the case. Briefly the facts are The appellant is a company engaged in the business of car rental, providing cars for self-drive. It had also earned income from car hiring, as well as, the business being tour operators. Autorider International Ltd. is a part of Autorider Group. This Company started its car rental business long back from 01.11.1994 by taking cars on lease basis from its sister concern Autorider Finance Ltd. This business of renting of car was run upto F.Y.2001-02. Thereafter, it has started new business in purchase of cars providing on rent, however, since FY.2004-05 the company has fully stopped its first business of taking the cars on lease basis. Original return of income u/s 139 of the Act was filed by the appellant company on 15.09.2015 declaring total income at Rs. 1,69,93,320/-. Α search action u/s 132 of the Act was conducted in Dessan Group of cases of Shirpur, Dhule on 17.01.2018 wherein the appellant company was also covered. Its various offices as well as the residential premises of the Directors were also covered. Accordingly, assessment proceedings were initiated u/s 153A of the Act by issue of notice u/s 153A of the Act on 08.03.2019. In response to this notice, the appellant filed its return of income u/s 153A on 05.04.2019, declaring total income of Rs. 1,69,93,320/-.

10 During the course of search certain material were found and seized as Bundle no. 21 (pages 1 to 309) from the corporate office premises of Deesan Group. This material is related to the assessee company M/s Autoriders International Limited. In this bundle there are annual reports, ledger accounts etc. of the appellant. While examining these papers during search inquiries, it was noticed that assessee has identified old outstanding loans and creditors which were concluded to be no longer payable. Ultimately the assessee has written off a sum of Rs.28.34 crores during financial year 2014-15 relevant to assessment year 2015-

Accordingly, the seized material was confronted to assessee Shri Pushpak Bansal during the course of his statement recorded u/s. 131 of the Act on 05/03/2018. In this respect it is pertinent to point here that, assessee in his reply to Q No.6 categorically admitted that "Sir, during financial year 2014-15 the company has identified old outstanding loans and creditors which were no longer payable. The company M/s. Autoriders International Limited has written back Rs.34.30 crores during FY 2014-15 comprising of long outstanding loans of Rs.5.96 towards capital purchases and Rs. 28.34 crores towards long outstanding loans outstanding creditors. The company has written back an amount of Rs.28.34 crores as amounts no longer payable to M/s. Autoriders Finance Limited on account of lease charges during the course of leasing business carried out by the company long back. Presently, I am not in a position to state as to why the same has not been offered to tax. Therefore, we hereby offer to appropriately disclose Rs.28.34 crores for taxation as income of M/s. Autoriders International Ltd. for A. Y. 2015-16."

11 Further, the director of assessee as per his letter dated 16/03/2018 has categorically confirmed the above appropriate disclosure of income by Shri Pushpak Bansal. It is also admitted that assessee company AIL is engaged in the business of car rental, providing cars for self-drive, besides, it has earned income from car hiring and from the business being tour operators. All the required vehicles were obtained on lease basis from Autoriders Finance Limited (AFL). Assessee company AIL has obtained loans mainly from AFL and Empark Motors. As per books of accounts of assessee-AIL, in its balance sheet AFL is reflected as sundry creditor for a sum of Rs.28,34,10,884/-

12 However, in the above backdrop on verification of Return of income (supra) filed in compliance with notice u/s.153A of the Act; it was noticed that assessee failed to disclose above income of Rs.28.34 crores despite his categorical admission of income discussed precisely as above.

13 During the course of assessment proceedings, in this regard, a show cause notice was asked to the appellant as to why the disclosure made by the appellant at the time of post search enquiry was not offered for tax u/s 41(1) of the Act in relation to write back of liability of Autoriders Finance Limited. In response to show cause notice, the appellant had furnished its reply and explained "that Autorider International Ltd. is a part of Autorider Group. This Company started its car rental business long back from 01.11.1994 by taking cars on lease basis from its sister concern Autorider Finance Ltd. This business of renting of car was run upto F.Y.2001-02. Thereafter, it has started new business in purchase of cars providing on rent, however, since FY.2004- 05 the company has fully stopped its first business of taking the cars on lease basis. The assessee Company has given the statistic of business profit/loss from AY. 1995-96 onwards to AY. 2014-15. With regard to non-disclosure of income for taxation u/s. 41(1) of the Act, 1961, assessee has referred to the relevant provisions of section 41(1) of the Act and contended that this is a deeming section and every word of the section has specific meaning. In the backdrop of this discussion and by placing reliance on certain judicial pronouncements, it is vehemently argued by assessee, the assessee-AlL has not obtained under section 41(1) is not fulfilled. The amount so written back cannot be taxed within the meaning of section 41(1) of the IT Act, 1961, In such circumstances, the assessee has taken a deviation from the disclosure made by Mr. Pushpak Bansal in his statement on oath (supra) and sum of Rs.28,34,10,884/- has not been offered for the purpose of taxation in its Return of income filed u/s. 153A of the Act, 1961."

14 The submission of the appellant was considered by the Ld. AO but the same was not found acceptable. Thus, the additional income of Rs. 28,34,10,884/- admitted by the appellant was added back to the total income of the appellant within the ambit sect 41(1) of the Act.

15 Aggrieved by the above addition, the appellant has filed this present appeal.

16 The appeal is disposed off ground wise as under: Ground No. 1:

1 The first ground relates to the contention of the appellant that the AO erred in making additions in absence of any incriminating material found during the search action. The appellant has submitted that the addition bears no relation to any new material/documents/records found and seized during the search action. The additions have been made on the basis of annual reports pertaining to the appellant, which was already available with the Tax authorities. The appellant has submitted that on observation of the seized material and the explanation provided by the appellant, your honour would appreciate that all the seized material are nothing but the copies of annual reports, financials, income tax returns and ledgers account etc. of the appellant. It is also important to note that all the documents which were found at the time of search were recorded and no unrecorded transactions were found by the department during the search as well as post search proceeding. In short, the appellant contends that since no incriminating material was found during the course of search hence the addition made is bad in law ab-initio.

2 In this regard, remand report was called from the AO vide letter dated 23/06/21 specifically on this point as under:

In this case the main issue is addition of Rs. 28,34,10,884/- made by the AO u/s 41(1) of the Income-tax Act. The appellant has raised mainly two issues (i) In this case, no incriminating material was found during the course of search and the addition was made on the basis of the material, which was already available with the department. Since it was a case of completed assessment, which was not abated due to search, no addition can be made in the assessment u/s 143(2) rws 153A of the Act."

3 The AO vide letter dated 20.07.2021 has submitted as under on this point. "

In compliance to such directions, the report is submitted on the above queries as under seriatim: (i) Yes, incriminating material was found and seized during tin course of search conducted on the Deesan Group of cases. The relevant seized material was inventorised as Bundle No.21 from pages 1 to 309 seized from the corporate office premise of Deesnn Group (Party No AM-10). This bundle consists of pages from 01 to 309. These are the documents related to Autoriders International Ltd. In this bundle there are annual reports as well as ledger accounts pertaining to Autoriders International Ltd, It was observed during the post search enquiries while examining these documents seized from the premise that, M/s Autoriders International Ltd in F.Y. 2014-15 as identified old outstanding of loans, creditors which were no longer payable. The company has written back Rs. 28.34 crores during F.Y.2014-15. (ii) In this case, statement of Shri Pushpak Bansal was recorded during the course of search u/s 132(4) of the IT Act on 19.01.2018, wherein he was confronted with the seized material, item No 21. In reply lo (he same vide question No 27, he submitted that these are returns of income and ledger accounts of Autoriders International Pvt Limited.

During the post search, further verifications were made and statements of Shri Pushpak Bansal was again recorded on oath u/s 131 dated 05/03/2018. He was confronted with the seized item No 21 and the treatment in the books of accounts regarding this writing back of Rs. 28.34 crore in F.Y, 2014-15. He stated as answer to question no. 6 that:

34 Crores towards long outstanding creditors. The company has written back an amount of Rs.28.34 crores as amounts no longer payable in its reserves and surplus accounts. The same is ori account of amounts payable to M/s Autoriders Finance Ltd on account of lease charges payable during the course of leasing business carnal out by the company long back. Presently, I am not in a position to state as to why the same has not been offered to tax. Therefore, we hereby offer to appropriately disclose Rs.28.34 crores for taxation as income of M/s Auloriders International Ltd for A.Y. 2015-16."

Further, the director of M/s Autoriders Finance Ltd during post search enquiries, has given a written submission dated 16/03/2018 and confirmed the disclosure made by the CFO as under:-

AIL obtained cars from Autoriders Finance Limited ('AFL') on lease and accordingly AIL was liable to pay lease charges to AFL. Further, AlL has also obtained loan from AFL and Empak Motors for long term capital purposes. Breakup of the same is under: Sr.No. Name of the Head Amount company 1 Autoriders Sundry Creditors 28,34,10,884 Finance Limited Empak Motors Loan for long term 5,30,06,000 Capital purposes 3 Autoriders Loan for long term 66,23,184 Finance Limited capital purposes Total 34,30,40,368

Due to adverse market scenario and financial condition, the company could not repay the loan taken for long term capital purposes to M/s. Autoriders Finance Limited and also Empak Motors. Further, the company was a so facing severe financial crunches to pay the outstanding on account of least charges to M/s. Autoriders Finance Limited of Rs. 28,34,10,884. Accordingly, the company has written back aforesaid dues in AY 2015-16. 4. Mr. Pushpak Bansal vide his Statement dated 5th March, 2018 has offered to appropriately disclose Rs. 28,34,10,884 for taxation of income of M/s. Autoriders International Limited for AY 2015-16. 5. We hereby agree with the contents of disclosure of Rs. 28,34,10,884 made by Mr. Pushpak Bansal vide his statement dated 5th March, 2018."

4 At this point it is important to discuss as to what is the meaning of incriminating material. According to the Oxford Learner's Dictionaries, "incriminating material" refers to evidence or information that suggests someone has done something wrong or illegal. According to Cambridge Dictionary, "incriminating material" refers to evidence, documents, or other information that suggests or proves someone is guilty of a crime or wrongdoing. In the present case the material relating to write back old outstanding creditor amounting to Rs. 28.34 Crores in the form of annual reports, ledgers etc. were seized because prima facie the claim appeared to be wrong. After seizure, the same was confronted to Shri Pushpak Bansal, CFO during the course of search in the statement recorded u/s 132(4) of the IT Act on 19.01.2018. During the post search, further verifications were made and statements of Shri Pushpak Bansal was again recorded on oath u/s 131 dated 05/03/2018. He was confronted with the seized item No 21 and the treatment in the books of accounts regarding this writing back of Rs. 28.34 crore in F.Y, 2014-15. He stated that he hereby offers to appropriately disclose Rs.28.34 crores for taxation as income of M/s Auloriders International Ltd for A.Y. 2015-

Further, the director of M/s Autoriders Finance Ltd during post and confirmed the disclosure made by Shri Pushpak Bansal.

5 Referring to above definition as per Oxford dictionary, incriminating material with reference to the present income tax proceedings would refer to any evidence which points to any undisclosed income or income in respect of which wrong claim or inaccurate claim has been made. Thus, the seized material inventorised as Bundle no. 21 (from pages 1 to 3019) combined with the statement of Shri Pushpak Bansal u/s 132(4) dated 19/01/2018 and u/s 131 dated 05/03/2018 and statement of the director of Autoriders Finance Ltd during post search enquiries dated 16/03/2018 are certainly evidence which point towards prima facie wrong claim by the appellant. All the above statements where the income has been disclosed and offered for taxation are self incriminating statements based on the admission of an apparently and prima facie incorrect claim.

6 In view of the above facts and discussion, the contention of the appellant that the addition was not based on any incriminating material found during the course of search does not have any force. In my considered opinion the above addition was based on incriminating material as discussed above. Hence, the ground no. 1 deserves to be and accordingly dismissed. Ground no. 2:

1 Vide this ground the appellant has contended that the AO has erred in making an addition of Rs. 28,34,10,884 being lease charges payable to Autoriders Finance Limited without appreciating the fact that the said liability has not yet ceased nor has Autoriders Finance Limited given consent to such cessation. The appellant prays that the said addition may kindly be deleted.

2 In order to decide this ground, it is pertinent to discuss the provisions of section 41(1) which are reproduced below for clarity and ready reference. Profits chargeable to tax.

(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first- mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income- tax as the income of that previous year. Explanation 1. For the purposes of this sub-section, the expression "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first-mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts.

3 Explanation 1 above which was inserted w.e.f 1/04/1997 clearly states that "loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof" shall include the remission or cessation of any liability by a unilateral act by the first- mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts. Thus, there is no need of obtaining any consent from Autoriders Finance Limited whose liability has been written off by the appellant. The provisions are very clear that once the liability has been written off in the books by an assessee i.e there is a remission or cessation of a trading liability then it would be deemed to be be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year.

4 In view of the above, this ground does not have any legs to stand. It deserves to be and accordingly dismissed. Ground No. 3:

1 In this ground the appellant has made a without prejudice plea that the appellant had not received any tax benefit on cessation of liabilities because it has suffered tremendous amount of losses in preceding years and losses amounting to Rs.27,30,42,367 have lapsed by the virtue of provisions of Section 72 of the Act. Autorider International Ltd. is a part of Autorider Group. This Company started its car rental business long back from 01.11.1994 by taking cars on lease basis from its sister concern Autorider Finance Ltd. This business of renting of car was run upto F.Y.2001-02. Thereafter, it has started new business in purchase of cars providing on rent, however, since FY.2004-05 the company has fully stopped its first business of taking the cars on lease basis. These losses have been incurred due to various expenses incurred by the appellant including the Lease Charges which were payable to Autoriders Finance Limited. However, the appellant has not been able to claim the benefits of these losses incurred in the previous years.

2 The details of losses which have lapsed by virtue of provisions of section 72 are as under :

3 The appellant has taken a plea that provisions of section 41(1) can be invoked only in a case where an allowance or deduction in the form of a loss or claim of expenditure or trading liability has been claimed in a particular year and in some later year some benefit in the form of cash or in any other manner or in the form of remission or cessation of the trading liability is obtained in respect of the earlier claim. then the benefit accruing in the later year would would be deemed to be be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that later year. In other words, since the deduction or allowance has already been allowed in respect of a trading liability but at a later stage if the payment is not made in respect of the liability and the liability is written off then it is as good as the liability was never incurred. But since deduction has already been allowed in respect of this liability, the cessation thereof would be taxable in the year in which there is remission or cessation of the liability. This is based on the principle of equity that only the real loss or expenditure would be allowed and if the loss or expenditure is recovered later then it would be brought to tax in the year of recovery. The appellant has submitted that since the business losses to the extent of Rs. 27,30,42,367/-incurred from 1995-96 to 2001-02 has not been claimed and has lapsed. These losses are incurred due to various expenses incurred by the appellant including the lease charges payable to Autoriders Finance Limited. Since the appellant has not claimed the losses therefore to that extent (Rs. 27,30,42,267) the cessation of liability should not be considered as profits and gains of business or profession.

4 In regard to the above, the appellant has relied on the the decision delivered by ITAT Pune Bench 'B' in the case of Mula Pravara Electric Co-op. Society Ltd. V. Deputy Commissioner of Income-tax. [2013] 37 taxmann.com 363 (Pune Trib.) The fact of this case was that the assessee was one of the five pilot electric co-operative societies established in the State of Maharashtra by the Government of India during 1969-70. It was purchasing electricity from MSEB and was selling the same to the consumers in the area earmarked for it. The rates of the electricity purchased from MSEB and selling to ultimate consumers were controlled by the Government of Maharashtra through MSEB. Due to the disparity in the tariff, the assessee started incurring huge losses. Subsequent to a representation made before Government of Maharashtra, MSEB reviewed tariff payable by the assessee from April 1977 to April 2000. As a result of the said review, the arrears of MSEB were substantially reduced. MSEB after calculating the viable tariff had allowed rebate to the extent of Rs. 541.80 crore in the price payable by the assessee to MSEB. The assessee had incurred business loss amounting to Rs. 140.46 crores which had not been set-off. Thus, the assessee prayed that the amount to the extent of Rs. 140.46 crore could not be brought to tax under section 41(1) out of the total rebate of Rs. 541.80 crore. The relevant part of the judgement is reproduced as under:

From the above chart, it is seen that the assessee has continuously incurred business loss (other than depreciation) from the A.Y. 1978-79 to 1992-93 to the extent of Rs. 140,46,06,586/-. As per the statement made by the Ld. counsel at the Bar the said loss has lapsed and assessee could not get the benefit due to the period of limitation is provided u/s 72(3) of the Act or by reason of other statutory provisions. The first part of sec. 41(1) contemplates loss, expenditure or trading liability in some former years in which allowance or deduction has been made and the second part of the said section contemplates recoupment of such loss or expenditure or benefit in respect of "such" trading liability by way of remission or cessation in some subsequent years. The word "such" appearing in the second part of sub-section (1) of sec. 41 is significant in the context that the word "such" signifies that the recoupment or benefit must be in respect of loss or expenditure or trading liability mentioned in the first part of the said sub-section. The argument of the Ld. counsel is that to extent of the losses from the A.Y. 1978-79 to 1992-93 aggregating to Rs. 140.46,06,586/-, section 41(1) cannot be applied being it is a deeming provision as the assessee has not got any benefit in tax liability under the charging provisions.

We find force in the argument of the Ld. counsel. In sec. 41(1), the Legislature has used the words "loss" also. If the assessee claims expenditure but ultimately if there is a "loss" and such "loss" cannot be set off u/s 72 of the Act, in such a situation, in our opinion, section 41(1) of the Act cannot be invoked.. In this case the entire rebate is treated as cessation of liability to the extent of Rs. 541.80 crores and the addition is made in the A.Y. 2002-03. The assessee could get the benefit of the brought forward business losses from the A.Y. 1993-94 as well as depreciation allowance and the tax liability of the assessee is reduced. So far as these fifteen assessment years are concerned, even if the rebate relates to the tariff which is debited to the P & L a/c in the respective assessment years but the fact remains that the losses which were worked out after debiting the said tariff had lapsed. Both the parties have not brought to our notice any direct decision on this crucial issue but to our conscious, considering the intention of the Parliament to enact sec. 41(1) creating fiction is not to put any extra burden of tax on the assessee but to take away the benefit which is enjoyed by the assessee by reducing the tax liability under the charging provisions of the Act. We therefore, hold that to the extent of Rs. 140,46,06,586/- sec. 41(1) cannot be applied and the said amount has to be reduced from the total rebate of Rs. 541.80 crores which is brought to tax in the A.Y. 2002-03. We accordingly direct the AO to verify the record and reduce above amount from addition made u/s 41(1) in this year."

5 I have considered the submissions of the appellant, case law relied upon ITAT Pune Bench 'B' in the case of Mula Pravara Electric Co-op. Society Ltd. V. Deputy Commissioner of Income-tax (supra) and facts of the case. The facts of this case law is similar to the facts of the case. The reasoning given by the Hon'ble ITAT is that the fiction created u/s 41(1) is not to put any extra burden of tax on the assessee but to take away the benefit which is enjoyed by the assessee by reducing the tax liability under the charging provisions of the Act. In the present case, the appellant has claimed certain expenditure as lease charges payable to its sister concern Autoriders Finance Limited but ultimately it has incurred losses in those years which could not be set off (lapsed) to the extent of Rs. 27,30,42,267. Since the loss could never be set off, the provisions of section 41(1) would not apply to that extent.

6 In view of the above discussion and respectfully following the decision of Hon'ble Pune ITAT B' in the case of Mula Pravara Electric Co- op. Society Ltd. V. Deputy Commissioner of Income-tax (Supra), addition u/s 41(1) to the extent of Rs. 27,30,42,267/- deserves to be and accordingly deleted. Ground no. 3 is partly allowed. Ground no. 4:

1 In this ground the appellant has contended that the AO erred in not giving effect of provision of section 41(5) of the Act. The Ld. AO ought to have allowed the setoff of loses of ceased business as per the provisions of Section 41(5) of the Act.

2 In view of the decision of the appellate authority for ground no. 3, this ground becomes academic and need not be adjudicated.

With the result, appeal is partly allowed.”

Aggrieved by the order of ld.CIT(A), both assessee and Revenue are in cross appeals before this Tribunal.

Ld. Counsel for the assessee firstly made submissions with regard to the Ground No.1 of the Additional grounds of appeal challenging the validity of the assessment order being bad in law and invalid as Document Identification Number (DIN) is not quoted on the body of the assessment order. However, the second Additional ground of appeal, he submitted that the newly introduced section 292BA of the Act only refers to the assessment order which shall not be deemed to be invalid on the ground of any mistake, defect or omission in respect of quoting of computed generated DIN. However, in the case of assessee, the approval u/s.153D of the Act does not contain any DIN and since section 292BA only talks about assessment order and not the show cause notice or approvals therefore since the approval u/s.153D of the Act is bad in law and invalid, the assessment order u/s.143(3) r.w.s.153A of the Act is also bad in law and invalid and deserves to be quashed. In support, reliance has been placed on plethora of decisions appearing in the case law paper book running from pages 491 to 611. 6. Ld. Counsel for the assessee further contended that during the course of search, the documents which were seized by the search team were only audited financial statements for F.Y. 2015- 16 and the ledger account of sundry creditors and unsecured loans and the transactions appearing therein are duly incorporated in the books of account. Apart from these documents, no other loose papers or any other incriminating material were found during the course of search. He further submitted that the issue of cessation/remission of liability u/s.41(1) of the Act is with reference to writing off of the outstanding loan and sundry creditors payable to of M/s. Autoriders Finance Limited but the same has already been incorporated in the books and also been shown in the Notes of Account attached to the balance sheet and the amount has been written off under the head “Reserves and Surplus” and the audited financial statements are part of the Income Tax Return filed by the assessee on 15.09.2015. He also submitted that since there is no incriminating material found during the course of search, the impugned addition has been made only on the basis of statement given u/s.131 of the Act, i.e. post search and that ld. Assessing Officer erred in mentioning that the statement has been given u/s.132(4) of the Act and further the assessment year in question falls in the category of completed assessment as no notice u/s.143(2) of the Act was issued and therefore in light of the judgment of Hon’ble Apex Court in the case of PCIT v. Abhisar Buildwell P. Ltd. (2023)454 ITR 212(SC) ld. Assessing Officer was not justified in making the impugned addition for the completed Assessment Year which is merely based on the information contained in the books of account and audited financial statements already disclosed with the regular return of income.

As regards the merits of the case regarding invoking of section 41(1) of the Act, he relied on the finding of ld.CIT(A) and further added that as the assessee paid sum of Rs.3.00 crore subsequent to F.Y. 2014-15 to M/s. Autoriders Finance Limited the outstanding sundry creditors have reduced by Rs.3.00 crore and are therefore less than the accumulated losses of preceding years at Rs.27,30,42,267/- and therefore even the addition sustained by ld.CIT(A) at Rs.1,03,68,617/- also deserves to be deleted. Reference made to the following documents placed in the paper book 1 and 2 as well as decisions referred and relied on in support of its grounds of appeal which reads as follows :

On the other hand, ld. CIT-DR vehemently argued supporting the finding of ld.CIT(A) dismissing the grounds of appeal raised by the assessee and stated that the impugned addition has been made on the basis of incriminating material found during the course of search and the key person of the assessee company has stated in the statement u/s.131 of the Act that it will offer the alleged sum to tax and since the assessee did not suo motu offer the admitted income of Rs.28.34 crore for taxation, ld. Assessing Officer has rightly made the impugned addition. Further, with regard to the invoking of section 41(1) of the Act he referred to the observations of the ld. Assessing Officer given in para 7.5 to 7.12 of the assessment order and submitted that the act of the assessee of restructuring of its balance sheet wherein the assessee has reversed the outstanding liability payable to M/s. Autoriders Finance Limited is nothing but an afterthought and an act of retraction of admitted disclosure of income by way of restructuring its original balance sheet.

We have heard the rival contentions and perused the record placed before us. We first take up the assessee’s appeal ITA No.1328/PUN/2025. Assessee has raised following grounds of appeal :

At the time of hearing, ld. Counsel for the assessee requested for not pressing the Additional Ground of appeal No.1 and the same is therefore dismissed as ‘not pressed’.

We now take up Additional Ground of appeal No.2 wehrein the only contention of ld. Counsel for the assessee is that section 292BA of the Act inserted by the Finance Act 2026 with retrospective effect from 01.10.2019 only refers to the assessment order and does not refer to other communication like notices or approvals. He submitted that since the approval u/s.153D does not contain DIN therefore in light of the settled judicial precedents and since the approval is not covered u/s.292BA of the Act the assessment order deserves to be quashed as bad in law.

We will first go through the purpose of section 292BA of the Act which reads as under :

After section 292B of the Income-tax Act, the following section shall be inserted and shall be deemed to have been inserted with effect from the 1st day of October, 2019, namely:—

From bare perusal of the above provision and also considering the intent of the legislature, we find that the purpose of introducing section 292BA of the Act is mainly that the assessment orders passed under the provisions of this Act should not be held to be invalid or shall be deemed to have been invalid on the ground of any mistake, defect or omission in respect of quoting of a computer generated DIN if the assessment order is referenced by such number in any manner. Now the contention of ld. Counsel for the assessee is that the approval u/s..153D of the Act does not contain DIN therefore such approval is bad in law and invalid making the impugned assessment order invalid and bad in law. Ld. Counsel for the assessee submitted that in section 292BA of the Act only the word “assessment order” is is only to be restricted to “assessment order”. However, if the DIN is not mentioned in the other communication like, show cause notice and approvals, then still the judicial precedents holds good and the impugned assessment order deserves to be quashed.

We however fail to find any merit in this contention because purpose of introducing section 292BA of the Act retrospective from 01.10.2019 is to safeguard the interest of Revenue because the assessment orders have been quashed merely for not mentioning of DIN in the body of the assessment order, approvals and other communication connected to framing of assessment order. In our considered view, basic object of inserting section 292BA of the Act retrospectively from 01.10.2019 is to safeguard the dismissal of assessment orders on account of DIN issues. Section 292BA of the Act also states “no assessment under any of the provisions of this Act” which means the total assessment proceedings have been taken care of in section 292BA of the Act. The “assessment order” is the final outcome of the assessment proceedings and therefore it is deemed that all the communications which are issued by the Department during the course of assessment proceedings including the “assessment order” are covered under the provisions of section 292BA of the Act and therefore even if DIN is not appearing on the approval u/s.153D of the Act or any other approval or show cause notice issued during the course of assessment proceedings or any other communication including the ‘assessment order’, which are necessary to frame the assessment order the assessment proceedings cannot be held to be invalid merely on the ground of any mistake, defect or omission in respect of quoting of a computer generated Document Identification Number if the assessment order is referenced by such number in any manner. Therefore, Ground No.2 of the Additional Grounds of appeal raised by the assessee is hereby dismissed.

Now we take up the main grounds of appeal filed by the assessee. In Ground No.1, it has been contended that the impugned addition made by the Assessing Officer in absence of incriminating material disregarding the judgment of Hon’ble Supreme Court in the case of PCIT v. Abhisar Buildwell P. Ltd. (supra) is not justified and the assessment order deserves to be quashed as bad in law.

Before proceeding, we take note of the ratio laid down by the Hon’ble Apex Court in the case PCIT v. Abhisar Buildwell P. Ltd. (2023)454 ITR 212(SC) affirming the view of Hon’ble Delhi High Court of CIT vs. Kabul Chawla (2015), 61 taxmann.com 412 (Delhi) and the ratio laid down by Hon'ble Apex court reads as under:-

For the reasons stated hereinbelow, we are in complete agreement with the view taken by the Delhi High Court in the case of Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra), taking the view that no addition can be made in material.

While considering the issue involved, one has to consider the object and purpose of insertion of Section 153A in the Act, 1961 and when there shall be a block assessment under section 153A of the Act, 1961. 9.1 That prior to insertion of Section 153A in the statute, the relevant provision for block assessment was under section 158BA of the Act, 1961. The erstwhile scheme of block assessment under section 158BA envisaged assessment of 'undisclosed income' for two reasons, firstly that there were two parallel assessments envisaged under the erstwhile regime, i.e., (i) block assessment under section 158BA to assess the 'undisclosed income' and (ii) regular assessment in accordance with the provisions of the Act to make assessment qua income other than undisclosed income. Secondly, that the 'undisclosed income' was chargeable to tax at a special rate of 60% under section 113 whereas income other than 'undisclosed income' was required to be assessed under regular assessment procedure and was taxable at normal rate. Therefore, section 153A came to be inserted and brought on the statute. Under Section 153A regime, the intention of the legislation was to do away with the scheme of two parallel assessments and tax the 'undisclosed' income too at the normal rate of tax as against any special rate. Thus, after introduction of Section 153A and in case of search, there shall be block assessment for six years. Search assessments/block assessments under section 153A are triggered by conducting of a valid search under section 132 of the Act, 1961. The very purpose of search, which is a prerequisite/trigger for invoking the provisions of sections 153A/153C is detection of undisclosed income by undertaking extraordinary power of search and seizure, i.e., the income which cannot be detected in ordinary course of regular assessment. Thus, the foundation for making search assessments under sections 153A/153C can be said to be the existence of incriminating material showing undisclosed income detected as a result of search.

On a plain reading of Section 153A of the Act, 1961, it is evident that once search or requisition is made, a mandate is cast upon the AO to issue notice under section 153 of the Act to the person, requiring him to furnish the return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and assess or reassess the same. Section 153A of the Act reads as under: "153A. Assessment in case of search or requisition - (1) Notwithstanding anything contained in Section 139, Section 147, Section 148, Section 149, Section 151 and Section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132-A after the 31st day of May, 2003, the Assessing Officer shall— (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made: Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132-A, as the case may be, shall abate. (2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or Section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner: Provided that such revival shall cease to have effect, if such order of annulment is set aside Explanation.—For the removal of doubts, it is hereby declared that,— (i) save as otherwise provided in this section, section 153-B and section 153- C, all other provisions of this Act shall apply to the assessment made under this section; (ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year."

As per the provisions of Section 153A, in case of a search under section 132 or requisition under section 132A, the AO gets the juri iction to assess or reassess the 'total income' in respect of each assessment year falling within six assessment years. However, it is required to be noted that as per the second proviso to Section 153A, the assessment or re-assessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. As per sub-section (2) of Section 153A, if any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner. Therefore, the intention of the legislation seems to be that in case of search only the pending assessment/reassessment proceedings shall abate and the AO would assume the juri iction to assess or reassess the 'total income' for the entire six years period/block assessment period. The intention does not seem to be to re-open the completed/unabated assessments, unless any incriminating material is found with respect to concerned assessment year falling within last six years preceding the search. Therefore, on true interpretation of Section 153A of the Act, 1961, in case of a search under section 132 or requisition under section 132A and during the search any incriminating material is found, even in case of unabated/completed assessment, the AO would have the juri iction to assess or reassess the 'total income' taking into consideration the incriminating material collected during the search and other material which would include income declared in the returns, if any, furnished by the assessee as well as the undisclosed income. However, in case during the search no incriminating material is found, in case of completed/unabated assessment, the only remedy available to the Revenue would be to initiate the reassessment proceedings under sections 147/48 of the Act, subject to fulfilment of the conditions mentioned in sections 147/148, as in such a situation, the Revenue cannot be left with no remedy. Therefore, even in case of block assessment under section 153A and in case of unabated/completed assessment and in case no incriminating material is found during the search, the power of the Revenue to have the reassessment under sections 147/148 of the Act has to be saved, otherwise the Revenue would be left without remedy.

If the submission on behalf of the Revenue that in case of search even where no incriminating material is found during the course of search, even in case of unabated/completed assessment, the AO can assess or reassess the income/total income taking into consideration the other material is accepted, in that case, there will be two assessment orders, which shall not be permissible under the law. At the cost of repetition, it is observed that the assessment under section 153A of the Act is linked with the search and requisition under sections 132 and 132A of the Act. The object of Section 153A is to bring under tax the undisclosed income which is found during the course of search or pursuant to search or requisition. Therefore, only in a case where the undisclosed income is found on the basis of incriminating material, the AO would assume the juri iction to assess or reassess the total income for the entire six years block assessment period even in case of completed/unabated assessment. As per the second proviso to Section 153A, only pending assessment/reassessment shall stand abated and the AO would assume the juri iction with respect to such abated assessments. It does not provide that all completed/unabated assessments shall abate. If the submission on behalf of the Revenue is accepted, in that case, second proviso to section 153A and sub-section (2) of Section 153A would be redundant and/or rewriting the said provisions, which is not permissible under the law.

For the reasons stated hereinabove, we are in complete agreement with the view taken by the Delhi High Court in the case of Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra) and the decisions of the other High Courts taking the view that no addition can be made in respect of the completed assessments in absence of any incriminating material.

In view of the above and for the reasons stated above, it is concluded as under: (i) that in case of search under section 132 or requisition under section 132A, the AO assumes the juri iction for block assessment under section 153A; (ii) all pending assessments/reassessments shall stand abated; (iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the juri iction to assess or reassess the 'total income' taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and (iv) in case no incriminating material is unearthed during the search, the AO cannot assess 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 AO in absence of any incriminating material found during the course of search under section 132 or requisition under section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved. The question involved in the present set of appeals and review petition is answered accordingly in terms of the above and the appeals and review petition preferred by the Revenue are hereby dismissed. No costs.

Examining facts of the instant case in the light of the judgment of Hon'ble Apex Court in the case of Abhisar Buildwell P. Ltd. (supra), we have to decide on two aspects, firstly whether any incriminating material was found and seized during the course of search and secondly whether the impugned assessment year falls in the category of completed assessment.

So far as the issue whether any incriminating material was found during the course of search u/s.132 of the Act, we note that the seized material have been placed in the paper book from 171 to 479. For the sake of convenience, the list of documents is reproduced below :

In the above list which is the seized material found during the course of search, includes the return of income, financial statements for A.Y. 2014-15 and 2015-16 and the sundry creditors ledger account and unsecured loans ledger account from A.Y. 2014-15 to A.Y. 2017-18. Apart from this, there is no other incriminating material in the form of loose papers or sheets or any diary where some unaccounted transactions are mentioned. Now whether the return of income, balance sheet and ledger account of sundry creditors and outstanding loans which are part of the books of account of the assessee can be termed as incriminating material. It is an admitted fact that the incriminating material has not been defined under the provisions of Income Tax Act. In the impugned order, ld.CIT(A) has referred to the definition as per Oxford Dictionary which provides that incriminating refers to any document, object, digital data or physical items that seems to show or suggest that someone has done something wrong or illegal. It is information that implies guilt and can be used as evidence in an investigation or trial.” According to Cambridge Dictionary, incriminating material refers to “evidence, documents or other information that suggests or proves some is guilty of a crime or wrong doing”.

Now examining the facts of the instant case in light of above definitions, we find that the return of income have been regularly filed for A.Y. 2014-15 till A.Y. 2017-18, books of account are regularly maintained and duly audited and audited financial statements have been e-filed on the income-tax portal as well as portal of Ministry of Corporate Affairs. Search team has not found that alleged Sundry Creditors and unsecured ledger accounts are part of some duplicate books of account containing unaccounted transactions and admittedly they have been accepted to be part of regular books of account. The only issue referred by the Assessing Officer in the assessment order is the writing off of the outstanding trading liability of M/s. Autoriders Finance Limited. Ld. Assessing Officer has referred that Mr. Pushpak Bansal has stated in the statement u/s.132(4) of the Act about the outstanding sundry creditors as payable to M/s. Autoriders Finance Limited as income for the amount of Rs.28,34,10,884/- We however find that firstly no such income was admitted in the statement u/s.132(4) of the Act, however, in the statement u/s.131 of the Act on 05.03.2018 just approximately 2 months after the date of conducting of search on 17.01.2018 Mr. Pushpak Bansal has stated "Sir, during financial year 2014-15 the company has identified old outstanding loans and creditors which were no longer payable. The company M/s. Autoriders International Limited has written back Rs.34.30 crores during FY 2014-15 comprising of long outstanding loans of Rs.5.96 towards capital purchases and Rs.28.34 crores towards long outstanding loans outstanding creditors. The company has written back an amount of Rs.28.34 crores as amounts no longer payable to M/s. Autoriders Finance Limited on account of lease charges during the course of leasing business carried out by the company long back. Presently, I am not in a position to state as to why the same has not been offered to tax. Therefore, we hereby offer to appropriately disclose Rs.28.34 crores for taxation as income of M/s. Autoriders International Ltd. for A.Y. 2015-16."

The statement of Mr. Pushpak Bansal in itself states that the alleged sum of Rs.28.34 crore has been written off in the books as no longer payable and this fact is evidenced by the Notes on Account and the Schedule of “Reserves and Surplus” attached to the Audited balance sheet for F.Y. 2014-15. Therefore, the transaction of writing off of Rs.28.34 crore has already been accounted for in the books but the only catch is that the assessee has written off the alleged sum directly from “Reserves and Surplus” and has not routed through its profit and loss account and therefore it does not form part of the Net Profit for the year. The above discussion shows that the information based on which ld. Assessing Officer has made the addition has not been unearthed during the course of search but was very much available in the Income Tax Return prior to the search and appearing in the Audited financial statements attached to the ITR. Therefore, in our considered view, the seized material found during the course of search in the case of assessee is not in the nature of incriminating material based on which the impugned addition can be made. Therefore, in our considered view no incriminating material has been found during the course of search at the assessee’s premises.

As far as second aspect as to whether the assessment year 2015-16 falls in the category of completed assessment, we find that the regular return of income has been filed on 15.09.2015. No notice u/s.143(2) of the Act has been issued and as on the date of search no assessment for the impugned assessment year was pending, therefore A.Y. 2015-16 is a completed assessment. Thus, both the conditions, i.e. absence of incriminating material and the assessment year falling in the category of completed assessment are existing in the instant case and the ratio laid down by Hon’ble Apex Court in the case of PCIT v. Abhisar Buildwell P. Ltd. (supra) squarely applies in favour of assessee.

So far as grounds on merits of the case are concerned, we find that ld.CIT(A) has rightly given partial relief and that assessee has subsequently paid Rs.3.00 crore to M/s. Autoriders Finance Limited post A.Y. 2015-16 and therefore the amount payable to sundry creditors M/s. Autoriders Finance Limited in the books of account comes down to Rs.25,34,10,884/- which is less than the lapsed losses of the years A.Y. 1995-96 to A.Y. 2011-12 amounting to Rs.27,30,42,267/- as indicated in the impugned order. Therefore, no addition u/s.41(1) of the Act is called for. For this we would like to quote the decision of Coordinate Bench, Pune in the case of Mula Pravara Electric Coop Society Ltd. Vs. DCIT (2013) 37 taxmann.com 363 (Pune-Trib) wherein on identical set of facts it was held that section 41(1) cannot be applied as the said amount has to be reduced from the total rebate. Relevant finding of Tribunal reads as under :