M/S. AJITABH AGRO FARMS PVT. LTD.,BENGALURU vs. ACIT, CC-1(2), CHENNAI

Since identical facts and issues are involved in all these three appeals, these appeals were heard together and disposed of by this common order. For the sake of clarity and convenience the facts relevant in the ITA No.3251/CHNY/2025 are stated herein:

The Assessee in ITA No.3251/CHNY/2025 raised the following grounds of appeal : “1. On the facts and circumstances of the case as well as in law, the Learned CIT(A) as well as the Learned Assessing Officer has erred in not recognising the legal point that the initial order passed u/s.143(3) r.w.s 153A of the Income Tax Act, 1961 was not compliant with the provision of the Income Tax Act, 1961 and thus invalid, as a result the subsequent revisional order passed u/s.263, and the further assessment order passed u/s.153A r.w.s. 263 of the Act, are equally flawed and should be set aside, as they are based on invalid or non-est original assessment.

Briefly facts of the case are that the appellant is a Company duly incorporated under the provisions of Companies Act. The appellant filed the original return of income for the Assessment Year 2016-17 admitting a loss of Rs.14,402/-. There was no scrutiny assessment. The search and seizure operation ware conducted in the business premises of the appellant along with the case of Gold and Shelter Private Limited NKV Krishna Group. The Assessing Officer issued notice u/s.153A of the Act calling upon the appellant to file return of income. In response to notice u/s.153A, the appellant filed return of income disclosing loss. Against the said return of income, the assessment was completed by the Assessing Officer accepting the returned loss.

Subsequently, on review of the assessment record, the Learned Principal Commissioner of Income Tax, Central Circle, Chennai-1(Pr.CIT) formed an opinion that the assessment order is erroneous as the Assessing Officer had failed to verify the sources of the cash deposit in the bank account and introduction of share application money, accordingly, the assessment was set- aside by the Ld.Pr.CIT in exercising the power vested with him u/s.263 of the Act vide order dated 23.03.2024. Pursuant to the order passed by the Ld.Pr.CIT u/s.263, a consequential assessment order was passed by the ACIT vide order dated 11.11.2024 passed u/s.153 r.w.s 263 of the Income Tax Act, 1961 at a total income of Rs.19,35,598/-. While doing so, the Assessing Officer made addition of Rs.19,50,000/- being amount credited in the books of accounts maintained by the appellant towards in the form of loan advances as the appellant had failed to offer sources of the said credit.

Being aggrieved by the above order, appellant filed an appeal before the ld.CIT(A) who vide impugned order confirmed the action of the Assessing Officer.

Being aggrieved by the order of ld.CIT(A), the appellant is in appeal before us in the present appeal. The ld.Authorised Representative submits that though the fact that no panchnama was executed, it would go to prove the fact that no incriminating material was found, as a result of search and seizure action. Consequently, no assessment u/s.153A can be made. Further submits that the fact that the appellant had submitted to the jurisdiction u/s.153A of the Act cannot be bar to challenge the very jurisdiction u/s.153A of the Act in the collateral proceedings since it is a legal issue and also placed reliance on the decision of Hon’ble Madras High Court 272 ITR 405 and also placed reliance on the decision of Hon’ble Orissa High Court in the case of PCIT Vs. Badal Prakash Jinda in ITA No.8, 7, 9 & 10/2023 dated 02.03.2023.

On the other hand, Learned CIT-DR submits that the order passed by the Pr.CIT it attained finality, therefore, the validity of the proceedings u/s.263 of the Act cannot be challenged in the assessment proceedings.

We have heard both the parties and perused the records. Admittedly, the Assessing Officer passed the assessment order consequent to the order passed by Learned Pr.CIT in exercising of powers vested u/s.263 of the Act. Admittedly, the order of the Pr.CIT u/s.263 attained finality as the appellant had not chosen to contest the order. The operative part of the order u/s.263 of the Act is as under : “9. Accordingly, by invoking the revision powers vested with me under provisions of section 263 of the Income tax Act, I consider it appropriate to direct the AO to cause necessary inquiries/verification, as to the source of the cash credits noticed to the tune of Rs.19.50 lakhs, as found recorded in the seized materials and revise the assessment order passed u/s.153A r.w.s 143(3) of the Income Tax Act, 1961 dated 25.09.2021 for Assessment Year 2016-17 based on such verification and also to invoke the provisions of section 68/69A r.w.s 115BBE, if found applicable. Necessary opportunity of hearing be offered to the assessee.”

On reading of above said observation, it clearly indicates that the original assessment order passed u/s.153A r.w.s 143(3) of the Income Tax Act, 1961 dated 25.09.2021, was set-aside and the proceedings were remanded as open remand on the issue of genuineness of the cash credits found in seized material unearthed during the course of search and seized operations. Since it was an open remand, the Assessing Officer while passing the consequential assessment order was vested with all the powers including jurisdiction to make an addition as all the powers of Original Assessing Officer gets vested by operations of law. In this connection, we rely on the judgment of Hon’ble Kerala High Court 444 ITR 80 wherein vide para 13 of the judgment is as under : “13. In the context of the circumstances arising in this case, it is profitable to bear in mind the distinction between the proceedings under section 263 and the initiation of penalty under section 271(1)(c). There is no quarrel that while issuing orders under section 263 of the Act, the Principal Commissioner of Income-tax cannot direct penalty to be imposed. However, when in the exercise of powers under section 263 of the Act, an assessment order was set aside and remanded back to the assessing officer, all the powers of an original assessing officer gets vested by operation of law. In such proceedings, if the assessing officer expresses his satisfaction that penalty proceedings can be initiated, then, that satisfaction is certainly expressed before conclusion of proceedings under the Act and is within his authority.”

Therefore, in the light of above judgment of Hon’ble Kerala High Court, we can safely conclude that the issue of jurisdiction to make addition u/s.153A is very much open before the Assessing Officer. Furthermore, the operative part of the 263 order clearly mentions that “as found recorded in the seized material” which indicates that the jurisdiction of the Assessing Officer is confined to make addition in respect of items which are found in the seized material. Admittedly, in the present case, no incriminating material was found, as a result, a search and seizure operations. So, it is beyond the scope of the powers of the Assessing Officer to make an addition on account of cash credits found credited in the books of accounts. It is also settled position of law that in the case of assessment made u/s.153A, existence of incriminating material collected during the course of search and seizure operations sin qua non as it forms the foundation for making the assessment as held by the Hon’ble Supreme Court in the case of PCIT Vs. Abhisar Builders 454 ITR 212. Therefore, in the light of settled legal position, we are of the considered opinion that the Assessing Officer cannot make addition of cash credits found in the books of accounts as undisclosed income u/s.153A, of the Income Tax Act, 1961. Therefore, we direct the Assessing Officer to delete the addition of Rs.19.50 lakhs.

In the result, appeal filed by the assessee in ITA No.3251/CHNY/2025 stands allowed. ITA Nos.3252 & 3253/CHNY/2025

Since the facts and issues involved in the above captioned appeals are identical, therefore, our decision in ITA No.3251/CHNY/2025 for the A.Y.2016-17 shall apply mutatis mutandis to both these appeals of the assessee in ITA Nos.3252 & 3253/CHNY/2025 for the A.Y.2016-17.

In the result, appeal of the assessee in ITA Nos.3252 & 3253/CHNY/2025 are allowed.

In the result, all three appeals filed by the assessee are allowed. Order pronounced in the open Court on 26th May, 2026.