DCIT, CENTRAL CIRCLE, KOLKATA vs. MERLIN PROJECTS LIMITED, KOLKATA

The Registry has pointed out that these appeals have been filed belatedly by the revenue. Petition for condonation of delay is placed on record by the revenue explaining the reasons for late filing of appeals. On perusing the same, we are convinced that the revenue was prevented by sufficient cause from filing these appeals in time. Accordingly, we condone the delay and proceed to admit the revenue’s appeals for hearing.

As the grounds of appeal raised in IT(SS)A No. 131/Kol/2023; Assessment Year 2013-14, IT(SS)A No. 132/Kol/2023; Assessment Year 2014-15, IT(SS)A No. 133/Kol/2023; Assessment Year 2016-17 and IT(SS)A No. 134/Kol/2023; Assessment Year 2019-20, IT(SS)A No. 135/Kol/2023; Assessment Year 2015-16 and IT(SS)A No. 137/Kol/2023; Assessment Year 2015-16 are verbatim identical, except for variance in quantum, the grounds of appeal in ITA No. IT(SS)A No. 131/Kol/2023; Assessment Year 2013-14; are reproduced below:- “1. Ground That on the facts and circumstances of the case, the Ld. CIT(A) erred to direct the AO to delete the addition of Rs 2,55,00,000/- on account of unsecured loan taken from various loan creditors as mentioned in the order treating the same as unexplained cash credit u/s 68 of the Act.

That on the facts and circumstances of the case, the Ld. CIT(A) erred to direct the AO to delete the addition of Rs 47,342/- made by the AO in the assessment order treating the same as bogus interest expense.

That on the facts and circumstances of the case, the Ld. CIT(A) erred to direct the AO to delete the addition of Rs 1,27,500/- u/s 69C made by AO out- of-books commission expenses paid to entry operators for facilitation of accommodation entries.

That on the facts and circumstances of the case, the Ld. CIT(A) erred to direct the AO to compute the book of the assessee u/s 115JB of the Act excluding the additions/disallowances made by the AO.

That the department craves leave to add, alter, or modify any grounds of appeal in the course of Appellate Proceedings.”

The assessee has raised the following grounds of appeal in ITA No. IT(SS)A No. 136/Kol/2023; Assessment Year 2017-18 :- “1. That on the facts and circumstances of the case, the Ld. CIT(A) erred to direct the AO to delete the addition of Rs.9,77,70,866/- on account of unsecured loan taken from various loan creditors as mentioned in the order treating the same as unexplained cash credit u/s 68 of the Act.

That the department craves leave to add, alter, or modify any grounds of appeal in the course of Appellate Proceedings.”

From perusal of the above grounds, we notice that the issues mainly relate to addition u/s 68/69C, 36(1)(iii) and regarding computation of book profit u/s 115JB of the Act in the case of assessee companies. We, therefore, for the sake of convenience, adjudicate the common issues based on the facts of the assessee, namely, Merlin Infraprojects Pvt. Ltd. for AY 2013-14 and our decision for such common issues would apply mutatis mutandis on the remaining appeal of the revenue raising similar issues.

Facts in brief are that the assessee, namely, Merlin Infraprojects Pvt. Ltd., which is a private limited company engaged in real estate development business, filed its regular return of income u/s 139(1) of the Act on 30/09/2013 disclosing Nil income. A search operation u/s 132(1) of the Act as well as survey u/s 133A of the Act were conducted on 18/12/2020 and subsequent dates at the office premises of Merlin Group of companies as well as the residential premises of the directors. The assessee company being part of the Merlin Group was also subjected to search u/s 132 of the Act. Subsequent to search, notice u/s 153A of the Act was issued for carrying out the proceedings u/s 143(3) of the Act. In compliance, the assessee furnished return on 31/01/2022 disclosing total income of Rs.27,100/-. Certain incriminating documents were found/seized. But the ld. AO while carrying out the assessment proceedings in the case of the assessee has only referred to seized material DS/02 (page 1 to 49). After validly serving the notices and also considering the submissions filed by the assessee in response to notice u/s 142(1) of the Act, the ld. Assessing Officer mainly dealt with the issue of unsecured loans received during the year. Though reference was made to the incriminating material and some portion of the seized material is also reproduced in the assessment order but there is no mention of the assessee’s name on any such documents. The ld. AO based on the theory of shell companies and accommodation entry providers, came to the conclusion that the assessee company has taken unsecured loans from shell and paper entities. Though it was contended by the assessee that all these details of loans taken are reflected in the regular books of accounts and are from group concerns/parties and each and every entry appearing in the seized documents are duly incorporated in the audited financial statements but the ld. AO without making reference to any specific incriminating material having live nexus with the assessee or any unaccounted income earned by the assessee, completed the assessment making addition u/s 68 of the Act at Rs.2,55,00,000/- treating the unsecured loans as unexplained and also disallowed the interest expenses claimed on such unsecured loans at Rs.47,347/- and further made addition u/s 69C of the Act at Rs.1,27,500/- towards unsecured expenditure in the form of commission allegedly paid by the assessee for procuring the alleged unsecured loan. Income of the assessee, assessed at Rs. 2,57,01,940/-.

Aggrieved the assessee preferred appeal before the ld. CIT(A) and stated that the assessment order in question is a completed assessment year and addition for such completed/concluded assessment year can be made only on the basis of incriminating material found during the course of search relevant to particular assessment year. The assessee placed reliance on the judgment of the Hon’ble Supreme Court in the case of Principal Commissioner of Income-tax, Central-3 v. Abhisar Buildwell (P.) Ltd. reported in [2023] 149 taxmann.com 399 (SC) and other judgments of various Hon’ble Courts and stated that whatever incriminating material has been referred by the AO in the assessment order, firstly complete reply explaining each of the entries has been furnished, secondly, there is no mention of the assessee in the said documents and thirdly, all the information appearing in the alleged seized material are already incorporated in the audited balance sheet filed for the particular assessment years before the revenue authorities.

On merits also, the assessee submitted that the alleged unsecured loans are either from group companies or from the concern with whom the assessee is carrying out regular transactions and complete evidence are available for explaining the nature and source as well as identity and creditworthiness of the cash creditors and genuineness of the transactions. The ld. CIT(A) on examining the facts of the case and considering the assessee’s submission was of the view that the ld. AO erred in making the addition for completed/concluded assessment without making any reference to the incriminating documents having nexus with the alleged addition and, therefore, the case of the assessee is squarely covered by the judgment of the Hon’ble Apex Court in the case of Abhisar Buildwell (P.) Ltd. (supra) and deleted the additions.

Aggrieved, the revenue is now in appeal before this Tribunal challenging the deletion of addition made by the ld. CIT(A).

The ld. D/R vehemently argued referring to the finding of the ld. AO stating that the assessee company and its group concerns were found to be engaged in the taking accommodation entries in the form of bogus unsecured loans from bogus/shell companies which deserves to be added u/s 68 of the Act. He also submitted that certain documents were seized during the course of search which was stated to be incriminating in nature by the ld. AO and, therefore, it cannot be said that no incriminating material was found during the course of search. He also submitted that even though the assessment order in question is a completed assessment order but since the incriminating material was found during the course of search, the ld. AO was well within his jurisdiction to make the assessment u/s 143(3) r.w.s. 153A of the Act.

On the other hand, the ld. Counsel for the assessee, at the outset, stated that the ld. CIT(A) has allowed the assessee’s appeal on legal grounds placing reliance on the judgment of the Hon’ble Supreme Court in the case of Abhisar Buildwell (P.) Ltd. (supra) and the revenue has not taken any legal ground challenging the said finding of the ld. CIT(A). The ld. Counsel for the assessee further stated that the ld. AO made a wild allegation with a pre-determined mind. The ld. AO has stated that Mr. Anand Sharma is an alleged entry operator but no opportunity for cross-examination was given. He also submitted that the seized document ID mark DS/02 alleged as incriminating document relates to financial transactions/unsecured loans. None of the seized documents states that any accommodation entry has taken place. These documents simply relates to financial transactions of group companies of Mr. Dinesh G. Sanghvi, which was part of the regular books of account and even no adverse view in assessment of Mr. Dinesh G. Sanghvi has been taken by Revenue on the basis of such documents. He further placing heavy reliance on the detailed finding of the ld. CIT(A) submitted that, the issue in dispute is squarely covered in favour of the assessee by the judgment of the Hon’ble Supreme Court in the case of Abhisar Buildwell (P.) Ltd. (supra). While concluding, he again asserted that the assessment order in dispute falls under the category of completed/concluded assessments as on the date of search i.e., 18/12/2020 and addition could have been made only if any incriminating documents of any nature was found or seized.

We have heard rival contentions, perused the material placed before us and carefully gone through the findings of both the lower authorities as well as the judgments referred and relied on by the ld. CIT(A) in the impugned order and by the assessee. The following chart represents the amounts of addition made under various Sections of the Act, in respect of the assessees involved in the present appeals:- SI No. Name of the Assessment Amount of addition assessee Year Unreserved Bogus Commission u/s 69C loan u/s 68 interest u/s 36(1)(iii)

3(b) In the assessment order, A.O. has mentioned about the incriminating documents found during search. Some extracts of such documents have also been copied in the assessment order. Perusal of these noting’s show that these are recording of financial transactions. Appellant has pointed out that these noting’s were made at one place to keep track of the entire transactions and also for calculation of interest on such loans. All these transactions are part of regular books of accounts. A.O. has not been able to refute the assertions of the appellant, that all these transactions are part of regular books of accounts. A.O. has not been able to point out even a single transaction which has not been recorded in the books of accounts. 3.3(c) Next, A.O. mentions that Lender Companies are shell/paper entities having no real business/income. Lender companies did not have any physical existence and it was established by spot enquiries conducted by the Investigation Wings during post search enquiries and also during assessment proceedings. Thus, it is apparent that doubts regarding existence of the lender company or regarding the genuineness of transactions with the lender company have arisen due to some post search enquiries. But there was no incriminating material found during search which could have shown that the lender company was not in existence or the transaction with the lender company was not genuine. Although, appellant has submitted details of the financial capacity and net worth of lender companies but I am not going into those details at this point and rather I would confine my discussions on the incriminating material found during search, based on which additions are supposedly made. 3.3(d) Next, A.O. refers to statement of Shri Sushil Kr. Mohta, Director Merlin Group and Shri Jagdish Baldwa. But, perusal of their statements, as copied in assessment order, shows that nowhere have they admitted that transactions with the lender company were not genuine. Rather, they have denied the allegation that the lender company is shell entity. 3.3(e) A.O. has next relied on the statement of the entry operator, Shri Anand Sharma which was recorded by the Investigation wing in connection with enquiry in some other group. However, it is not clear from the assessment order as to how the statement of Shri Anand Sharma are incriminating in nature. Besides, the statement appears to have been recorded at some other time and not in connection with search on the Merlin group. Further, neither the copies of statement were provided to the appellant nor appellant’s request for cross examination of Shri Anand Sharma was arranged by the A.O. Under the circumstances, even if Shri Anand Sharma had made any adverse comments, these would not be held as incriminating in nature against the assessee in the absence of opportunity for cross examination, as held by Hon’ble Calcutta High Court in the case of PCIT vs. Rashmi Infrastructure Ltd. order dated 24-02-2020 (Supra) and other decisions as cited by the appellant in the foregoing paras. 3.3(f) It appears that A.O. has not been able to fully appreciate the noting’s in seized documents, as referred in the assessment order. Noting’s relating to financial transactions or loans do not by itself become incriminating documents as these are duly reflected in the regular books of accounts. Purpose of making such noting’s may not be with any intention to hide or manipulate any financial transaction. It could be for different reasons and in appellant’s case it was for keeping control of finances raised through loans and the total amount of interest outgo on such loans. Thus, it is apparent that the noting’s in the seized documents are not incriminating in nature. Any adverse facts collected during post search enquiries or during assessment proceedings cannot be categorised as incriminating evidence found during search. Further, statement of any alleged entry operator recorded at some other time and that too not confronted to the assessee and without opportunity of cross examination, cannot be the basis for any addition in the hands of the assessee, as been held by various Courts including the jurisdictional High Court. In view of the discussion above, I agree with appellant’s contentions that additions in proceedings u/s.153A were made without any incriminating evidence found during search. 3.3(g) Now, let us have a look at what the Hon’ble Courts have held in respect of additions made in search assessments without any incriminating material found during search: i) In the case of CIT (Central) – III Vs. CIT vs. Kabul Chawla (2015), 61 taxmann.com 412 (Delhi)……. In the case of CIT vs. Kabul Chawla (2016), 380 ITR 573(Delhi) the Hon’ble Delhi High Court has held that once a search takes place, notice u/s. 153A (1) has to be mandatorily issued. Assessment and re-assessment pending on the date of search shall abate. But, an assessment under the section 153A has to be made only on the basis of seized materials. In absence of any incriminating materials, the completed assessment can be only reiterated and assessment can be made only in respect of abated assessment or re-assessment. Completed assessment can be only interfered with by the AO while making the assessment u/s.153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in course of search which were not produced or not already disclosed or made known in the course of original assessment. While delivering the judgment; the Hon'ble Delhi High Court followed the judgment of the Bombay High High Courts and Tribunals on this issue. The position as on today is that in respect of completed assessment any addition can be made under proceedings u/s.153A only if any incriminating documents are found. As mentioned above, no incriminating documents have been found during search against the assessee. In the current case, additions (disallowances) have been made on the basis of information available in the Audit Report/Return of Income. Hence respectfully following the judgments / decisions of various High Courts and the Tribunals, including those of the jurisdictional High Court and ITAT, the disallowances made are not sustainable.

On a conspectus of section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the afore mentioned of decisions, the legal position that emerges is as under :— i. Once a search takes place under section 132 of the Act, notice under section 153A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the assessment year in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such assessment years will have to be computed by the Assessing Officers as a fresh exercise. iii. The Assessing Officer will exercise normal assessment powers in respect of the six years previous to the relevant assessment year in which the search takes place. The Assessing Officer has the power to assess and reassess the 'total income' of the afore mentioned six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six assessment years "in which both the disclosed and the undisclosed income would be brought to tax". iv. Although section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post- search material or information available with the Assessing Officer which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment have to be made under this section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in section 153A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under section 153A merges into one. Only one assessment shall be made separately for each assessment year on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer. vii. Completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment." ii) In the case of ACIT, Central Circle-1(3), Kolkata vs Narula Educational Trust, (2021) 126 taxmann.com158 (Kolkata ITAT), the Hon'ble Tribunal has held as under:

Considering the judicial precedents (supra) on the subject, particularly the decision of the Hon'ble jurisdictional Calcutta High Court in the case of Salasar Stock Broking Ltd. (supra) which is binding upon this Tribunal as well as the Hon'ble Apex Court decision in CIT v. Sinhgad Technical Education Society [2017] 84 taxmann.com 290/250 Taxman 225/397 ITR 344, we hold that in the case of unabated assessments of an assessee, no addition is permissible in the order u/s. 153A of the Act unless it is based on any tangible, cogent and relevant incriminating material found during the course of search qua the assessee and qua the AY.

In view of the above legal position, let us now proceed to examine whether the additions/disallowances which the AO made in the orders impugned in this appeal [AY 2008-09 to AY 2012-13] was based on or made with reference to any incriminating material/document found in the course of search. We note that in the assessment orders for AY 2008-09 to AY 2012-13, the AO have not referred to any material un-earthed during search conducted on 13-3-2014 in the orders impugned to justify the additions. There is no whisper/mention of any material leave alone any incriminating material seized during search to justify the addition in these un-abated assessments other than the in-valid valuation report as discussed supra. The valuation report of DVO in the facts discussed cannot be held to be incriminating material, since it is not a fall out of any incriminating material un-earthed during search to suggest any investment in building which is over and above the investment shown by the assessee in its audited books. And as found by us, the search party pursuant to search u/s 132 of the Act did not even visited the educational institution which fact is evident from the perusal of panchnama which shows that the search team has only searched the administrative office situate at "Dwarika Building", 7, Sarat Bose Road, Kolkata-700020 and not at the campus of educational institution situated at Nilgunj Road, Panihati, Kolkata-700 114. So, from the perusal of panchnama and the assessment orders, it can be safely inferred that the reference made by DDIT (Inv.) for valuation of the properties on 1-4-2014 was without any incriminating materials found during search [oral or documentary which could have suggested that the assessee has shown less investment in its books for building construction] Therefore, no addition was permissible in the assessment order u/s 153A of the Act in the case of un-abated assessments unless it is based on relevant incriminating material found during the course of search qua the assessee and qua the AY. Thus the assessee succeeds in its cross-appeals on the legal issue raised in respect of appeals pertaining to AY 2008-09 to AY 2012-13. Consequently, appeal of assessee pertaining to these assessment years are allowed.” iii) 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:

Coming to the alleged cash trail, none of the material gathered by the Assessing Officer by way of bank account copies of various companies supposed to be part of the chain of companies was not confronted to the assessee. The alleged statements that were recorded from directors of these companies which formed this alleged chain were also not brought on record. Only a general statement has been made. There is no evidence whatsoever that cash has been routed from the assessee company to any of these chain of companies. There is no evidence that any cash was deposited by the assessee company. Moreover, there is no material whatsoever brought on record to demonstrate that the alleged cash deposit made in the bank account of a third party was from the assessee company. No opportunity to cross- examine any these parties was provided to the assessee. The bank statements based on which the cash trail was prepared are part of the disclosed documents and cannot be held as incriminating material. 10. 2. Thus, none of these material gathered by the Assessing Officer can be catergoized as incriminating material found during the course of search or found during the course of any other operation under the Act. Thus, we hold that the additions in question are not based on any incriminating material. The ld. CIT(A) on page 38 of his order held as follows:

From perusal of the above finding we notice that the ld. CIT(A) has after examining the factual part i.e. the seized material referred by the Assessing Officer in the assessment order, came to the conclusion that the alleged material referred in the assessment order does not fall under the category of any incriminating material as the details available in the alleged documents already disclosed in the regular return of income and there was no specific allegation against the assessee having earned any unaccounted income or made unaccounted investment. Since revenue has not challenged the finding of the ld. CIT(A) quashing the assessment order framed u/s 153A r.w.s. 143(3) of the Act in all the assessees appeals before us by taking any specific legal ground, therefore, since the revenue has merely challenged the quantum additions but not challenged the finding of the ld. CIT(A) quashing the assessment orders, the instant appeal of revenue deserves to be dismissed on this ground itself. However, for academic purpose, we will deal with the legal issue since it goes to the root cause of the quantum additions.

For examining the legal issue, we need to examine two aspects, firstly whether the assessees in appeal before us have filed their return of income u/s 139(1) of the Act and for the year under consideration any assessment was pending as on the date of search and secondly, whether the seized material referred to by the Assessing Officer in the assessment order is incriminating in nature. We have summarised the details of the returns filed u/s 139(1) of the Act by the respective assessees and the last date of issue of notice u/s 143(2) of the Act, which reads as under:- SI No. Name of the assessee Assessment Date of filing return Last date for issue Year u/s 139(1) of the Act of notice u/s 143(2)

So, undisputedly all the assessment years in question before us pertaining to various assessees of Merlin Group fall under the category of completed and unabated assessments and for assuming jurisdiction to make the assessment u/s 153A/143(3) of the Act, availability of seized incriminating material for the particular Assessment Year is sine qua non for making the addition in the hands of the assessee. For this, we have to deal with the second part of our discussion (supra) that whether seized incriminating material referred by the Assessing Officer in the assessment order marked DS/02 can fall under the category of incriminating material. In the instant cases, the alleged incriminating material referred in the assessment order are basically details of various companies from which the group concerns have taken unsecured loans/other credits and all these details are forming part and parcel of the audited financial statements/income tax returns submitted by the assessee in the regular course of business. The alleged seized material only indicates various details of unsecured loans of various group companies and the details have been maintained in an excel sheet. These details also include the details of the equity shares allotted against the sum received or the details of unsecured loans taken against the payment of interest. None of these details indicate any such information which can tantamount to be incriminating in nature. All these details mentioned in such seized records have been carried out through banking channels in the bank accounts disclosed in the regular books and all these details are also forming part of the annual returns uploaded on the portal of Ministry of Corporate Affairs. Since the alleged seized material is not falling under category of incriminating material, the alleged addition made by the Assessing Officer are merely on the basis of post search enquiry and is not having any direct nexus with any incriminating material.

Thus, we notice that the seized documents referred to in the assessment order firstly does not have reference to any of the assessees in appeal before us. Secondly, the transactions, details of which are appearing in the seized documents prima facie indicate that they are merely details of unsecured loans taken from various concerns as well as details of shareholding of the group concerns. Assessee has filed detailed replies to explain each and every transaction appearing in the alleged seized documents and has corroborated the same with audited financial statements. The ld. D/R failed to controvert the fact that alleged seized documents relates to the financial transactions of group companies of Merlin Group and only provided details of investments, unsecured loans taken by Mr. Dinesh G. Sanghvi from its family members and group members and they all are part of group concern.

We find that similar set of facts and circumstances came up before this Tribunal recently in the case of Narsingh Ispat Ltd. & Ors in I.T.(SS)A No. 34/KOL/2023 (A.Y. 2018-2019) and others order dt. June 09, 2023, complete jurisprudence pertaining to the issue in question has been dealt after duly considering the judgment of the Hon’ble Supreme Court in the case of Abhisar Buildwell (P.) Ltd. [2023] 149 taxmann.com 399 (SC). The relevant finding of the Tribunal, reads as under:- “10. We have duly considered the rival contentions and gone through the record carefully. Section 153A including the amendment effected by Finance Act, 2017 whereby 4th proviso has been included in the Statute Book has a direct bearing on the controversies. Therefore, we take note of this section, which reads as under:- “153A. (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 132A 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 respect of each assessment year falling within six assessment years and for the relevant assessment year or 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 and for the relevant assessment year or years;

The ld. Counsel for the assessee while taking us through this section apprised us its scope as propounded by the Hon’ble Supreme Court in the case of PCIT –vs.- Abhisar Buildwell Pvt. Limited reported in 149 taxmann.com 399 (SC) (copy placed on record). He also made reference to the decision of the Hon’ble Delhi High Court in the case of CIT –vs.- Kabul Chawla reported in 380 ITR 573 (Delhi) as well as the decision of the Hon’ble Punjab & Haryana High Court in the case of Vipin Khanna – vs.- CIT reported in 255 ITR 220 (PH). According to the ld. Counsel for the assessee, this section has two compartments. The first compartment deals with the situation upto 2nd proviso of the section. This compartment provides that section 153A applies to a person in respect of whom search is initiated under section 132 of the Act, or whose books of account, other documents or any asset are requisitioned under section 132A after May 31, 2003. The second proviso attached with this section further contemplates that the assessments/reassessments, relating to any assessment year falling within the period of six assessment years, which are pending on the date of initiation of the search under section 132 or requisitioned under section 132A shall stand abate. It was further submitted that the second proviso also provides that if on the date of initiation of search or requisition under section 132 or under section 132A of the Act, any assessment/reassessment proceedings relating any assessment year falling within the period of six assessment years is pending, then the pending proceeding shall stand abated and fresh assessment of the same can be done under section 153A of the Act. It is also emphasized that if no proceeding was pending on the date of the search, then, the proceeding for that year stand concluded and such search shall have no impact on the concluded proceeding. Thus this proviso was enacted specifically to avoid two parallel proceeding of assessment of a particular year of the same person, i.e. one regular assessment proceeding under section 143(3) /147 of the Income Tax Act, vis-a-vis another assessment proceeding under section 153A of the Act. The ld. Counsel for the assessee further explained the meaning of expression “abatement”. This expression would mean that something is to be eliminated or suspended, defeat, nullify of pending action. Thus a plain reading of second proviso would suggest that if the assessment or reassessment, which is pending on the date of initiation of search, shall only abate. Therefore, what will abate are only the pending assessment or reassessment and not the completed assessment. This proviso i.e. second, would not lead to any abatement of those assessments, which have already been concluded and are not pending on the date of search. The next question, which would pose before us is, what to be construed as pending. The expression “pending” would mean that where some proceeding has been initiated by the ld. Assessing Officer. We will amplify this proposition while taking note of the judgment of the Hon’ble Delhi High Court as well as of the Hon’ble Supreme Court on this aspect. In other words, if no proceedings are pending, namely in a regular assessment year, the time limit to issue notice under section 143(2) expired and no reassessment proceeding is pending, then it is to be construed that assessment in that year is completed. In such situation, it has been laid down that those assessments would not be tinkered with unless incriminating material exhibiting the escapement of income unearthed found during the course of search. Thus the power given by the 1st proviso to assess income for six assessment years has to be confined to the undisclosed income unearthed during the course of search by way of a seized material or documents etc.

There was lot of controversy on the scope and interpretation of the first compartment of the section 153A, but now this controversy has been finally silenced by the Hon’ble Supreme Court in the case of PCIT –vs.- Abhisar Buildwell Pvt. Limited. Before adverting to the judgment of the Hon’ble Supreme Court, we deem it appropriate to make reference to the two decisions of the Hon’ble High Courts namely CIT –vs. Kabul Chawla of Hon’ble Delhi High Court and Saumya Construction of Hon’ble Gujarat High Court.

First we refer to the decision of Hon’ble Delhi High Court in the case of CIT v-vs.- Kabul Chawla, 380 ITR 573 (Del.). Hon’ble Delhi High Court after detailed analysis has summarized the following legal position: On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: (i)Once a search takes place under Section 132 of the Act, notice under Section 153 A(l) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. (ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such A.Y.s will have to be computed by the AOs as afresh exercise. (iii) The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". (iv) Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." (v) In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. (vi) Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.

Now we take note of the relevant part of the Hon’ble High Court’s decision in the case of Saumya Construction. Hon'ble Gujrat High Court has also considered the decision of Hon'ble Delhi High Court in the case of CIT Vs. Kabul Chawla (supra). Hon'ble Gujarat High Court framed the following question of law in the case of Pr.CIT Vs. Saumya Construction (supra): "(a) Whether the order of Tribunal is right in law and on facts in deleting the addition made in assessment made u/s 153A of the Act? (b) Whether the Tribunal is right in law in holding that the addition should be based on the incriminating material found during the course of search under new procedure of assessment u/s 153A which is different from earlier procedure u/s 158BC r.w.s. 158BB of the Act and by reading into the section, the words 'the incriminating material found during the course of search' which are not there in section 153A? (c) Whether the Tribunal erred in relying on the ITAT order in Sanjay Aggarwal v. DCIT (2014) 47 Taxmann.Com 210 (Del) which has interpreted undisclosed income unearthed during the search to imply incriminating material, as against the finding of the Delhi High Court in Filatex India Ltd. v. CIT- IV (2015) 229 Taxman 555 wherein it is held that during the assessment u/s 153A additions need not be restricted or limited to incriminating material found during the course of search?"

Hon'ble Court concurred with the decision of Hon'ble Delhi High Court. We deem it appropriate to take note of relevant part of the decision, which reads as under:

Section 153A bears the heading "Assessment in case of search or requisition". It is well settled as held by the Supreme Court in a catena of decisions that the heading of the section can be regarded as a key to the interpretation of the operative portion of the section and if there is no ambiguity in the language or if it is plain and clear, then the heading used in the section strengthens that meaning. From the heading of section 153, the intention of the legislature is clear viz., to provide for assessment in case of search and requisition. When the very purpose of the provision is to make assessment in case of search or requisition, it goes without saying that the assessment has to have relation to the search or requisition. In other words, the assessment should be connected with something found during the search or requisition, viz., incriminating material which reveals undisclosed income. Thus, while in view of the mandate of sub-section (1) of section 153 A of the Act, in every case where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish returns of income for the six years preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made, any addition or disallowance can be made only on the basis of material collected during the search or requisition. In case no incriminating material is found, as held by the Rajasthan High Court in the case of Jai Steel (India) (supra), the earlier assessment would have to be reiterated. In case where pending assessments have abated, the Assessing Officer can pass assessment orders for each of the six years determining the total income of the assessee which would include income declared in the returns, if any, furnished by the assessee as well as undisclosed income, if any, unearthed during the search or requisition. In case where a pending reassessment under section 147 of the Act has abated, needless to state that the scope and ambit of the assessment would include any order which the Assessing Officer could have passed under section 147 of the Act as well as under section 153A of the Act.

In the facts of the present case, a search came to be conducted on 07.10.2009 and the notice was issued to the assessee under section 153A of the Act for assessment year 2006-07 on 04.08.2010. In response to the notice, the assessee filed return of income on 18.11.2010. In terms of section 153B, the assessment was required to be completed within a period of two years from the end of the financial year in which the search came to be carried out, namely, on or before 31st March, 2012. Here, insofar as the impugned addition is concerned, the notice in respect thereof came to be issued on 19.12.2011 seeking an explanation from the assessee. The assessee gave its response by reply dated 21.12.2011 calling upon the Assessing Officer to provide copies of statements recorded on oath of Shri Rohit P. Modi and Smt. Pareshaben K. Modi during the search as well as the copies of the documents upon which the department placed reliance for the purpose of making the proposed addition as well as the copy of the explanation given by Shri Rohit P. Modi and Smt. Pareshaben K. Modi regarding the on-money received, copies of the assessment orders in case of said persons and also requested the Assessing Officer to permit him to cross-examine the said persons. The Assessing Officer issued summons to the said persons, however, they were out of station and it was not known as to when they would return. In this backdrop, without affording any opportunity to the assessee to cross-examine the said persons, the Assessing Officer made the addition in question.

In this case, it is not the case of the appellant that any incriminating material in respect of the assessment year under consideration was found during the course of search. At the relevant time when the notice came to be issued under section 153A of the Act, the assessee filed its return of income. Much later, at the fag end of the period within which the order under section 153A of the Act was to be made, in other words, when the limit for framing the assessment as provided under section 153 was about to expire, the notice has been issued in the present case seeking to make the proposed addition of Rs.l 1,05,51,000/- on the basis of the material which was not found during the course of search, but on the basis of a statement of another person. In the opinion of this court, in a case like the present one, where an assessment has been framed earlier and no assessment or reassessment was pending on the date of initiation of search under section 132 or making of requisition under section 132A, while computing the total income of the assessee under section 153A of the Act, additions or disallowances can be made only on the basis of the incriminating material found during the search or requisition. In the present case, it is an admitted position that no incriminating material was found during the course of search, however, it is on the basis of some material collected by the Assessing Officer much subsequent to the search, that the impugned additions came to be made.

On behalf of the appellant, it has been contended that if any incriminating material is found, notwithstanding that in relation to the year under consideration, no incriminating material is found, it would be permissible to make additions and disallowance in respect of all the six assessment years. In the opinion of this court, the said contention does not merit acceptance, inasmuch as, the assessment in respect of each of the six assessment years is a separate and distinct assessment. Under section 153A of the Act, an assessment has to be made in relation to the search or requisition, namely, in relation to material disclosed during the search or requisition. If in relation to any assessment year, no incriminating material is found, no addition or disallowance can be made in relation to that assessment year in exercise of powers under section 153A of the Act and the earlier assessment shall have to be reiterated. In this regard, this court is in complete agreement with the view adopted by the Rajasthan High Court in the case of Jai Steel (India), Jodhpur (supra). Besides, as rightly pointed out by the learned counsel for the respondent, the controversy involved in the present case stands concluded by the decision of this court in the case of Jayaben Ratilal Sorathia (supra) wherein it has been held that while it cannot be disputed that considering section 153A of the Act, the Assessing Officer can reopen and/or assess the return with respect to six preceding years; however, there must be some incriminating material available with the Assessing Officer with respect to the sale transactions in the particular assessment year.

For the foregoing reasons, it is not possible to state that the impugned order passed by the Tribunal suffers from any legal infirmity so as to give rise to a question of law, much less, a substantial question of law, warranting interference. The appeal, therefore, fails and is, accordingly, dismissed."

It is also pertinent to note that, in the case of Kabul Chawla (supra), the Hon’ble Delhi High Court in its concluding paragraph has observed that, on the date of the search, the assessments for assessment years 2002-03, 2005-06 and 2006-07 already stood completed and the returns in these years were accepted under Section 143(1) of the Act and these acceptance of returns processed under Section 143(1) of the Act was construed by the Hon’ble Delhi Court as completion of assessments and as acceptance of return, according to the Hon’ble Delhi High Court, could be tinkered with if some incriminating material was found at the premises of the assessee.

The position of law in other decisions referred by the Id. Counsel for the assessee is identical; particularly we have considered the judgment of Hon’ble

The Hon’ble Supreme Court in the case of PCIT –vs.- Abhisar Buildwell Pvt. Limited has concurred with both these decisions of the Hon’ble High Courts. The relevant part of the Hon’ble Supreme Court’s decision reads as under:- “As per the provisions of Section 153A, in case of a search under Section 132 or requisition under Section 132A, the AO gets the jurisdiction 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 subsection (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 jurisdiction 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 jurisdiction 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 fulfillment 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 jurisdiction 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 jurisdiction 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 subsection (2) of Section 153A would be redundant and/or re- writing the said provisions, which is not permissible under the law.

In the light of above, let us consider the facts of the present appeals. The ld. Counsel for the assessee has tabulated the date of filing of the return under section 139 and the time limit available for issuance of a notice under section 143(2) to scrutinise the returns of assessee. Such details read as under:- Sr. Respondent-Assessee A.Y. Date of filling Last date of issuing order No. ITR 143(2)

The search upon the assessee was conducted on 29.01.2021 meaning thereby all these assessments attained their finality because the returns have been processed under section 143(1). At the cost of repetition, we would like to emphasize that in the case of Kabul Chawla, the Hon’ble Delhi High Court in its concluding paragraph has observed that on the date of the search, the assessments for A.Ys. 2002-03, 2005- 06 and 2006-07 already stood completed and the returns in these years were accepted under section 143(1) meaning thereby the Hon’ble High Court has emphasized that if 143(2) notice for scrutinising the return was not issued that would be construed as completion of the assessment proceeding under section 143(1) and it can only be tinkered if during the course of search, some incriminating material was found.

A perusal of the order of ld. CIT(Appeals) on page no. 9 of paragraph no. 4.3(a) would reveal that during the appellate proceeding, ld. Assessing Officer had again asked to refer to the record and to point out incriminating material, which might have been discovered during the search proceeding. In response to the above letter of the ld. CIT(Appeals), ld. Assessing Officer has submitted his remand report in the letter dated 01.12.2022. The ld. CIT(Appeals) has reproduced such letter on pages no. 9 to 16 of the impugned order. While evaluating this remand report, ld. CIT(Appeals) has observed that ld. Assessing Officer failed to pinpoint any material found during the course of search which has unearthed the receipt of share application money not disclosed in the books or in the regular returns. The assessees have received the share application money in the accounting period relevant to the assessment year but those were to be construed as accepted by the ld. Assessing Officer by not scrutinizing the return under section 143(2). The acceptance of the share application money in a constructive manner by the Revenue cannot be revisited under section 153A by again analysing that very material as if ld. Assessing Officer is passing a regular assessment. Whatever evidence the Assessing Officer has referred, it was available much prior to the date of the search. The last statement referred by him is of Mukesh Banka, which was also recorded on 30.05.2018 much prior to the search, but after that statement, no action was taken by the Revenue. Therefore, under the first limb of argument and on the strength of the Hon’ble Supreme Court’s decision in the case of PCIT –vs.- Abhisar Buildwell Pvt. Limited, these appeals deserve to be dismissed.”

From perusal of the above finding of this Tribunal considering the ratio laid down by the Hon’ble Apex Court in the case of Abhisar Buildwell Pvt. Ltd. (supra) and also considering the facts that income-tax returns have been filed for the assessment years in question u/s 139(1) of the Act and that no assessment was pending as on the date of search, the assessment years in question are completed/concluded assessments and there being no reference to any incriminating material showing escapement of income as discussed above, we find that the impugned additions in the case of assessees namely, Merlin Infra Project Private Limited , Merlin Acropolis Projects Private Limited, Merlin Projects Limited, Bengal Merlin Housing Ltd., Kolkata, are only towards unsecured loans taken towards various group concerns and all these unsecured loans are forming part of the regular books of accounts duly audited and duly filed before the revenue authorities with the return u/s 139(1) of the Act. Therefore, the addition made by the Assessing Officer in the hands of these assessees are merely based on the post search enquiry. As far as the assessee, M/s. Merlins Kolkata, is concerned, the addition has been made towards the funds received from the partners of the assessee firm and the source of such funds with the alleged three partners were from the other group concerns. Thus, it is an admitted fact that the alleged cash creditors referred to by the Assessing Officer in all the instant appeals are group concerns and the alleged have been duly accounted for in the regular books and, therefore, since the seized documents referred in the assessment order is not falling in the category of incriminating material, the ld. Assessing Officer has erred in assuming jurisdiction u/s 153A/143(3) of the Act and, therefore, has rightly quashed the assessment proceedings u/s 153A/143(3) of the Act treating them as bad in in law. Thus, the impugned additions have been rightly deleted by the ld. CIT(A) on legal grounds.

So far as the quantum additions are concerned, even though the ld. CIT(A) has not dealt with the quantum additions being academic and has since quashed the assessment orders placing reliance on the judgment of the Hon’ble Apex Court in the case of Abhishar Buildwell Pvt. Ltd. (supra), we have perused the details filed by the assessee before us. On going through the said details we notice that the alleged unsecured loans in the case of assessees, namely, Merlin Infra Project Private Limited , Merlin Acropolis Projects Private Limited, Merlin Projects Limited, Bengal Merlin Housing Ltd., Kolkata, are from group concerns having common directors and are regularly assessed to tax and books of accounts are regularly audited, financial statements also stands filed along with income tax return as well as with the Ministry of Corporate Affairs and all have duly replied to notice u/s 133(6) of the Act. Therefore, identity and creditworthiness of the alleged cash creditors and genuineness of the transactions is not in dispute and also the Assessing Officer has not brought any material on record indicating any discrepancy in the records filed by the assessee to explain nature and source of alleged sum. Therefore, no addition was called for u/s 68 of the Act in case of all these assessee(s) as the nature and source of alleged sum stands explained. So far as the assessee, namely, M/s. Merlins Kolkata, the alleged sum has been received from its own partners. These partners are part of the partnership firm for past many years. Therefore, identity and genuineness of the transactions cannot be disputed. So far as the creditworthiness is concerned material has been placed before us to show that the alleged sum which has been received from the partners was having nexus with the funds received from the alleged partners from other group concerns from the sale proceeds of the assessee. As such the creditworthiness is also established. Thus, even on merits, no addition was called for u/s 68 of the Act in the case of M/s. Merlins Kolkata, also. Consequently, the disallowance for interest expenditure claimed on the alleged sum also stands deleted. Further the addition for unexplained expenditure alleged to have been incurred for arranging the accommodation entries also deserves to be deleted as the loans/capital contribution are genuine. Thus, even on merits, revenue fails to succeed. Thus, all the grounds raised by the revenue are dismissed.

In the result, all the appeals of the revenue in I.T.(SS).A 131/Kol/2023; Assessment Year: 2013-14 , I.T.(SS).A 132 to 134/Kol/2023; for Assessment Year: 2014-15, Assessment Year: 2016-17 & Assessment Year: 2019-20 respectively, I.T.(SS).A 135/Kol/2023; Assessment Year: 2015-16 and I.T.(SS).A 136/Kol/2023; Assessment Year: 2017-18, I.T.(SS).A 137/Kol/2023; Assessment Year: 2015-16, are dismissed. Order pronounced in the Court on 20th February, 2024 at Kolkata. (SONJOY SARMA) ACCOUNTANT MEMBER Kolkata, Dated 20/02/2024 *SC SrPs आदेश क" "ितिलिप अ"ेिषत/Copy of the Order forwarded to : 1. अपीलाथ" / The Assessee

""यथ" / The Respondent 3. संबंिधत आयकर आयु" / Concerned Pr. CIT 4. आयकर आयु" अपील ( ) / The CIT(A)- 5. िवभागीय "ितिनिध ,आयकर अपीलीय अिधकरण, कोलकाता/DR,ITAT, Kolkata, 6. गाड" फाई/ Guard file.