DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-1(4), KOLKATA vs. SNOWTEX TRADELINK PVT LTD, KOLKATA

आदेश/O R D E R PER DR. MANISH BORAD, ACCOUNTANT MEMBER:

The captioned appeals filed by the Revenue, pertaining to assessment years 2012-13 to 2017-18 are directed against the orders passed by the Learned Commissioner of Income Tax (Appeals) – 20, Kolkata (hereinafter referred to as the ‘ld. CIT(A)’) even dated 13th July, 2024, which is arising out of the different assessment orders under Section 153A/143(3) of the Income-tax Act, 1961 (the Act) dated 24.03.2022, 26.03.2023. 2. Since the issues raised in the instant four appeals are common and pertains to same assessee all these appeals have

“1. Whether on the facts and circumstance of the case and on materials available, 14. CIT(A) was erroneous in not appreciating the addition made of an amount of Rs.13,81,79,000/- u/s. 68 being Bogus Sale of Investments of unlisted companies by way of accommodation entries for which the identity of the creditors, creditworthineness of the creditors and genuineness of the transaction was not proved. 2. Whether on the facts and circumstance of the case and on materials available, the 14. CIT(A) has erred in not appreciating the statement of the Entry operator Shri Mukesh Banka, who provided the accommodation entries and also not appreciating the facts that Director of the Jalan Group has given the statement wherein he accepted the fact that they had generated undisclosed income of Rs.30 Crores and would offer the same for taxation during the course of search proceeding, as incriminating in nature. 3. Whether on the facts and circumstance of the case and on materials available, the ld. CIT(A)was correct in not going into the facts of the case and materials available and deciding only on lack of incriminating material 4. Whether on the facts and circumstance of the case and on materials available, the Hyden's rule of interpretation has been judicially accepted and applied by Calcutta High Court in Reckitt Colman of India Vs. ACIT(2001) 252 ITR 550(Cal). Wherein "Incriminating material" can be in any form, such as evidence in the nature of i) A document, content of any document, ii) an entry in books of accounts, iii) an asset; iv) statement given on oath, v) absence of any fact claimed earlier but coming to notice during search; vi) absence of books being found during search or vii) absence of the office/business premises as claimed during returns filed of any other documents, etc. 5. That the department craves leave to add, alter or modify any grounds of appeal in the course of appellant proceedings.” 4. Brief facts are that the assessee is a private limited company engaged in business. Regular return of income for A.Y. 2012-13 was furnished on 13th September, 2012, declaring income of ₹5,16,930/-. The return was processed u/s 143(1) of the Act. The assessee is part of the Jalan Group of companies which was subjected to search and seizure operation u/s 132 of the Income-

“4.3 Observations and Decision: 4.3(a) I have carefully considered the facts of the case and submission of the appellant. Perusal of the assessment order shows that AO had not referred to any specific incriminating material seized during search. AO has only made general statement regarding evidences gathered post search enquiries. A.O. has also referred to post search enquiries and statements of entry operators, some of which were recorded prior to search on assessee. Hence, to get a better understanding, letter dated 17.02.2023 was sent to the AO for his clarification. Main contents of the letter are as under: “Appeals have been filed on 22-04-2022 against order u/s.153A dated 26- 03-2022. In response to the notices for hearing, appellant has made written submission of 17 pages on technical grounds relevant to the above mentioned assessment years. A copy of appellant’s submission is being forwarded for your perusal. You are requested to go through the appellant’s submission and offer your comments within 10 days of receipt of this letter. These appeals have been taken up for priority disposal on direction of the Hon’ble Calcutta High Court. Hence, necessary report should be sent within the time as indicated above.” But A.O. has not replied to this letter till date. No comments have been offered on assessee’s contention that no incriminating material was found during search. 4.3(b) Now, let us see the views expressed by the Hon'ble Jurisdictional High Court of Calcutta and other Courts/Tribunals on issue relating to additions made in search assessments without any incriminating material found during search. (a) In the case of CIT, Kolkata – III Vs. Veerprabhu Marketing Ltd.(2016) 73 taxmann.com 149 (Cal), Hon'ble High Court has held as under:

“Above analysis clearly establish that the cash loan given by Jalan Group concerns and individuals amounting to Rs. 13,60,00,000/- unaccounted and undisclosed in nature. 5.4 With regard to declining statement as incriminating materials, in this regard, the undersigned humbly submit that:- The primary thrust of the Search and Seizure action is to collect evidences of tax evasion which otherwise could not have surfaced and brought to tax. Section 132(4) of the act has been put in place by the legislature consciously so as to enable the authorized officer to collect such evidences by recording statements during the course of search. It is for this purpose that the Section 132(4) of the act empowers the Authorized Officer, to examine and record a statement under oath of any person who is found to be in possession or control of any books of account, documents, money, bullion, jewelry or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Income-tax Act, Direct Tax Law (Amendment) Act"1987 w.e.f. 01-4-1989. inserted an explanation to Section 132(4), which reads as under:- "Explanation-For the removal of doubts, it is hereby declared that the examination of any person under this sub-section may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act". The statements u/s 132(4) are recorded by administering oath, which is presumed to be carrying truth in view of the provisions of section 181 and section 193 of the Indian Penal Code which provide for imprisonment if a false statement is given. Therefore, there is a considerable importance of statements recorded u/s 132(4) during search and seizure operations, which is clear from the intent of Legislature as it thought fit to include a separate sub-section 132(4) for recording of statement during a search operation. Presumption is raised under section 132(4A) about the correctness of the evidence found. Hence, the statement given under sections 132(4) in presence of witnesses hold their evidentiary value if not rebutted by the assessee by submitting cogent evidence. Any retraction of a clear admission made has to be on the ground of it being either erroneous or factually incorrect or one made under threat or coercion. Now a question arises whether the statement recorded u/s 132(4) of the act can be retracted, if yes, then under what circumstances? The Thumb Rule to address this issue is to understand the legal principle that though an admission u/s 132(4) of the act is an extremely important piece of evidence, but it cannot be said that it is conclusive and it is open to the person, who made it, to show it that the impugned statement has incorrectly been made.As the statement recorded under section 132(4), is statutorily deemed to have evidentiary value; it cannot be retracted at the mere will of the party. Admission as has been often held is the best evidence on a point in issue and though not conclusive but the same is decisive of the matter

Thereafter, the finance broker infused those funds in the guise of bogus sale of shares to the assessee and others group of companies with the help of exit providers. The whole mechanism was put before the key person of Jalan Group, Sri Ajay Mohon Jalan who could not answer satisfactorily along with substantive documentary evidences. Consequently, Sri Ajay Mohon Jalan disclosed an amount of Rs. 30 Crores which further make the ground more robust and concrete. It also corroborates the fact that the disclosure/entries in the regular books of the assessee is nothing but a subterfuge to conceal the true nature of the transactions represented by sale of bogus investments. Against the said backdrop, the regular books itself are

“2. During the course of search operation it was seen that the assessee company, on 21.04.2007 Ltd had raised share capital amounting to Rs. 39,12,00,000/- by allotting 9,78,000 shares at face value of Rs. 10/- and premium of Rs. 390/-, (Table of allotment containing name of allottee, PAN, address etc are famished below). On perusal of the list of allottees, it was seen that most of these allottee companies appear in the database of shell companies. ITR analysis of these companies also revealed that these companies have no creditworthiness to invest in the share of the company at such an exorbitant price. Thereafter, the company was taken over by Jalan Group by appointing its persons Shri Nishant Bhalotia and Sri Ajay Jalan as director/ authorized signatory on 10.11.2011. 3. The fund raised as share capital/ premium was initially invested in the form of unlisted equities, but once the company was taken over by the Jalan Group, there has been sale / liquidation of shares over the years and the amount so realized has

“ 4. M/s. Snowtex Tradelink Pvt Ltd is/ was originally a paper/shell company under control and management of well known Kolkata based entry operator Sri Mukesh Banka. A Search and seizure operation was conducted by the department on Bank group on 08/06/2018 and during the course of search operation, his statement was recorded and again his deposition was recorded during the course of PO operation in the post search proceedings. In his dseposition, he had provided a list of all the paper/ shell companies having significant capital which was acquired by some beneficiary concern/ group and this list includes the name of company Snowtex Tradelink Pvt Lid at Sl No:22 in his reply to question no:22 of the deposition. The relevant portion of his statement is as below:” 11. We also notice that in one of the assessment year that for the A.Y. 2017-18, the ld. AO has given reference to the details of share premium and share capital received by the assessee company during the F.Y. 2006-07, and the theory developed by the AO for the alleged assessment years is based on the funds received by the assessee company during the F.Y. 2006-07, which has subsequently been routed by sale of shares, re-investing into equities of other companies, liquidation of loans and advances and then again giving fresh loans and finally the funds have been utilized by the assessee company in its other group of companies. We therefore, reproduce below the detail mentioned by the ld. AO at page no.2,3,4,5 for A.Y. 2017-18:-

“17. We have heard the learned counsels appearing on behalf of the parties and perused the record. 18. The primary grievance which arises in the present appeals pertains to whether the ITAT was right in deleting additions made under Section 68 of the Act by holding that no assessment could have been made on mere presumption of existence of incriminating material. 19. Undisputedly, during the period of search, no incriminating material appears to have been found. However, the Revenue proceeded to issue notice under Section 143(2) of the Act on the pretext of the statements of the Directors of the respondent- assessee companies recorded under Section 132(4) of the Act and material seized from the search conducted on Jain group of companies. The assessment order was also passed under Section 143(3) read with Section 153C of the Act making additions under Section 68 of the Act. 20. However, it is an undisputed fact that the statement recorded under Section 132(4) of the Act has better evidentiary value but it is also a settled position of law that addition cannot be sustained merely on the basis of the statement. There has to be some material corroborating the content of the statements. 21. In the case of Kailashben Manharlal Chokshi v. CIT1, the Gujarat High Court held that the additions could not be made only on the Signature 1 Not Verified 2008 SCC OnLine Guj 436 Digitally Signed By:MAANAS JAJORIA Signing Date:29.05.2024 16:29:11 B basis of admissions made by the assessee, in the absence of any corroborative material. The relevant paragraph no. 26 of the said decision has been reproduced hereinbelow: - 26. In view of what has been stated hereinabove we are of the view that this explanation seems to be more convincing, has not been considered by the authorities below and additions were made and/or confirmed merely on the basis of statement recorded under section 132(4) of the Act. Despite the fact that the said statement was later on retracted no evidence has been led by the Revenue authority. We are, therefore, of the view that merely on the basis of admission the assessee could not have been subjected to such additions unless and until, some corroborative evidence is found in support of such admission. We are also of the view that from the statement recorded at such odd hours cannot be considered to be a voluntary state ment, if it is subsequently retracted and necessary evidence is led contrary to such admission. Hence, there is no reason not to disbelieve the retrac tion made by the Assessing Officer and explanation duly supported by the evidence. We are,

“5. We have heard learned counsel for the respective parties at length. The question which is posed for consideration in the present set of appeals is, as to whether in respect of completed assessments/unabated assessments, whether the jurisdiction of AO to make assessment is confined to incriminating material found during the course of search under section 132 or requisition under section 132A or not, i.e., whether any 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 132 A of the Act, 1961 or not. 6. It is the case on behalf of the Revenue that once upon the search under section 132 or requisition under section 132A, the assessment has to be done under section 153A of the Act, 1961 and the AO thereafter has the jurisdiction to pass assessment orders and to assess the 'total income' taking into consideration other material, though no incriminating material is found during the search even in respect of completed/unabated assessments. 7. At the outset, it is required to be noted that as such various High Courts, namely, Delhi High Court, Gujarat High Court, Bombay High Court, Karnataka High Court, Orissa High Court, Calcutta High Court, Rajasthan High Court and the Kerala High Court have taken the view that no addition can be made in respect of completed/unabated assessments in absence of any incriminating material. The lead judgment is by the Delhi High Court in the case of Kabul Chawla (supra), which has been subsequently followed and approved by the other High Courts, referred to hereinabove. One another lead judgment on the issue is the decision of the Gujarat High Court in the case of Saumya Construction (supra), which has been followed by the Gujarat High Court in the subsequent decisions, referred to hereinabove. Only the Allahabad High Court in the case of Pr. CIT v. Mehndipur Balaji 2022 SCC Online All 444/[2023] 147 taxmann.com 201/ [2022] 447 ITR 517 has taken a contrary view. 7.1 In the case of Kabul Chawla (supra), the Delhi High Court, while considering the very issue and on interpretation of section 153A of the Act, 1961, has summarised the legal position as under:

Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (DR. MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER Kolkata, Dated 18.10.2024 *SS, Sr.Ps आदेश की प्रतततिति अग्रेतषत/Copy of the Order forwarded to : अिीिार्थी / The Appellant 1. प्रत्यर्थी / The Respondent 2. संबंतित आयकर आयुक्त / Concerned Pr. CIT 3. आयकर आयुक्त ) ( 4. अिीि / The CIT(A)- 5. तवभागीय प्रतततनति आयकर अिीिीय अतिकरण कोिकाता/DR,ITAT, Kolkata, , , 6. गार्ड फाईि / Guard file.

आदेशानुसार/ BY ORDER, TRUE COPY

Sr. PS/ Assistant Registrar आयकर अिीिीय अतिकरण ITAT, Kolkata