PRIYABLUE SHIPPING PRIVATE LTD.,MUMBAI vs. THE DY.CIT, CENTRAL CIRCLE-1(1), AHMEDABAD

1 आयकरअपीलीयअधिकरण, अहमदाबादनयायपीी IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’ D’’ BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER And Ms. MADHUMITA ROY, JUDICIAL MEMBER आयकरअपीलसं./IT(SS)A Nos. 40-41/AHD/2022 धििाधरणवरध/Asstt. Years: (2018-2019 & 2019-20) Priyablue Shipping Private Ltd., D.C.I.T, 501/502, 5th Floor Kesar Orion, Vs. Central Circle-1(1), Hindu Colony, Ahmedabad. Lane No.5, Dadar East, Mumbai-400014.

PAN: AAFCP5056R

(Applicant) (Respondent) Assessee by : Shri Tushar Hemani, Sr. Advocate with Shri Parimalsinh B. Parmar A.R Revenue by : Dr. Darsi Suman Ratnam, CIT. DR सुिवाईकीतारीख/Date of Hearing : 18/10/2023 घोरणाकीतारीख/Date of Pronouncement: 02/01/2024 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:

The captioned two appeals have been filed at the instance of the Assessee against the order of the Learned Commissioner of Income tax (Appeals)-11, Ahmedabad, arising in the matter of assessment orders passed under s. 143(3) r.w.s. 153A of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Years 2018-2019 & 2019-20.

IT(SS)A Nos.40-41/Ahd/2022 A.Ys. 2018-19 & 2019-20 2 2. First, we take up ITA No. 40/AHD/2022 for the AY 2018-19, an appeal by the assessee. The assessee has raised the following grounds of appeal: 1. In law and in facts and circumstances of the case CIT(A) erred in not holding that the assessment order passed u/s 153A r.w.s. 144C is void & without jurisdiction as no incriminating material was found during search. He further erred in not following the decision of the Guj HC in ACIT v. Saumaya Construction P. Ltd (387 ITR 529) 2. In law and in facts and circumstances of the case CIT(A) erred in not holding that the order under section 127 for centralisation of the case to Ahmedabad from Mumbai was devoid of natural justice and hence was void ab initio as the Assessee was not given sufficient opportunity of being heard. 3. In law and in facts and circumstances of the case CIT(A) erred in upholding downward adjustment by Rs. 18,92,95,606 incurred by the Appellant to purchase Tugs in AY 2018-19 resulting in disallowance of depreciation of Rs. 4,42,06,564 in AY 2019-20. 4. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal. The 1st issue raised by the assessee in ground No. 1 is that Ld. CIT(A) 3. erred in confirming the adjustment made by the AO/TPO without appreciating the fact that no incriminating material was found during the search.

4.1 Accordingly, the AO referred the matter to the TPO for determining the ALP of the international transaction as discussed above under the provisions of section 92CA of the Act. The Ld. TPO found that the assessee has made purchases of 3 Tugs- Malviya-23, Malviya 25 and Malviya 27 from its AE namely BOL (Best Oasis Ltd.) in the year under consideration on 30-12-2017 at $ 24,67,500/- for three TUGS. The assessee to determine the ALP of such international transaction applied the CUP method based on one of the tugs, valued on 08-1-2018 which

IT(SS)A Nos.40-41/Ahd/2022 A.Ys. 2018-19 & 2019-20 3 was accepted by the custom authorities. As per the assessee all three tugs were identical and therefore the same should be taken as the ALP for all the TUGS. The assessee to substantiate its claim that its bench marking is correct submitted various written submission in respect of tugs and their valuation. The assessee also challenged the Validity of assessment by submitting that no incriminating material was found at the premises of assessee during the search operation.

4.2 However, the TPO rejected the ALP determined by the assessee by applying CUP method by observing that the value of each ship varies from ship to ship which depends on various factors like size, life, finance etc. Therefore, the CUP method is not suitable in these facts and circumstances. As such, the CUP method is useful for strict comparability. Hence, the TPO considered the most appropriate method as TNM method to determine ALP of the TUGS.

4.3 Further, the TPO on verification of MOA dated 08-11-2017 between BOL and M/s Kalsubhai Shipping Pvt. Ltd. (for short KSPL) found during the search observed that BOL purchased these 3 TUGS from KSPL at $ 18,00,000/- only which was escalated as per the addendum to MOA dated 10-01-2018 to $ 23,50,000/- only. There was one more addendum after the addendum dated 10 January 2018 which further escalated the purchase price to $ 24,67,500.00 of the three tugs. Thus, as per the TPO, it is clear that BOL sold such TUGS at a very High Value to the assessee company in a very short span of time of one month only.

4.4 Further, the TPO considering the Statement of Shri Sanjay Mehta recorded during search at his residence, found that no document was maintained for justifying the ALP for the international transactions. This fact came to know during the search proceedings only.

IT(SS)A Nos.40-41/Ahd/2022 A.Ys. 2018-19 & 2019-20 4 4.5 Further, the Ld. AO before making a reference to the TPO has given an opportunity to the assessee to furnish the objection against such reference. But the assessee has stated that it had no objection for the case being referred to TPO. In view of the above TPO applied the TNMM to determine the ALP and computed the Downward adjustment of Rs. 18,92,95,606/- only.

IT(SS)A Nos.40-41/Ahd/2022 A.Ys. 2018-19 & 2019-20 5 9. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the search action under section 132 of the Act dated 19-11-2019 was carried out at the premises of the assessee and in consequence to the same, the proceedings under section 153A of the Act were initiated for 6 years (A.Y. 2014-15 to 2019-20). However, the dispute under consideration before us relates to AY 2018-19. The assessment for the year under consideration was completed under section 153A r.w.s. 143(3) of the Act 04-03- 2022 without any addition to the return income but certain downward adjustment was made by the TPO on the value of capital assets purchased by the assessee from its AE. We find that the year under consideration is an unabated assessment year because the time limit to issue notice under section 143(2) of the Act for the assessment has expired. It is settled position of law as propounded by various Hon’ble High Courts including the Hon’ble Jurisdictional High Court in the case of Saumya Construction (P.) Ltd reported in 387 ITR 529 that unabated/completed assessment years cannot be disturbed in the absence of incriminating material found from the premises of the assessee. This legal preposition is now settled by the Hon’ble Supreme Court by judgement dated 24-04-2023 holding that in respect of completed assessments/unabated assessments no addition can be made by Assessing Officer in absence of any incriminating material found during course of search under section 132 or requisition under section 132A of the Act in the batch of cases namely PCIT, Central-3 -Vs- Abhisar Buildwell Pvt. Ltd. reported [2023] 149 taxmann.com 399 (SC) by observing as follows: “Section 153A, read with sections 132 and 143, of the Income-tax Act, 1961 - Search and seizure - Assessment in case of (Conditions precedent) - Whether object of section 153A is to bring under tax undisclosed income which is found during course of search or pursuant to search or requisition; therefore, only in a case where undisclosed income is found on basis of incriminating material, Assessing Officer would assume the jurisdiction to assess or reassess total income for entire six years block assessment period even in case of completed/unabated assessment- Held, yes - Whether in case of search under section 132 or requisition under section 132A, Assessing Officer assumes jurisdiction for block assessment under section 153A and that all pending assessments/reassessments shall stand abated - Held, yes - Whether in respect of completed assessments/unabated assessments no addition can be made by Assessing Officer in absence of any incriminating material found during course of search under section 132 or requisition under section 132A - Held, yes - Whether, however, completed/unabated assessments can be reopened by Assessing Officer in exercise of powers under section 147/148 subject to fulfilment of

IT(SS)A Nos.40-41/Ahd/2022 A.Ys. 2018-19 & 2019-20 6 conditions as envisaged/mentioned under section 147/148 and those powers are saved - Held, yes 9.1 In the case on hand, no material whatsoever was found or seized from the premises of the assessee based on which any income could have been assessed or reference to TPO could have been made. We also note that the AO/TPO also did not refer to any material which was found from the premises of the assessee. As such, the copy of MOA between assessee’s AE and Kalsubai Shipping & Offshore Pvt Ltd. referred and relied on by the TPO for making downward adjustment to the value of import of capital assets was found from the premises of third party in an independent search. Accordingly, we hold that the completed assessment cannot be disturbed under section 153A of the Act in the absence of incriminating material found from the premises of the assessee. In holding so, we draw support and guidance from the judgment of Hon’ble Gujarat High Court in case of Saumya Construction (P.) Ltd (supra) wherein it was held as under: Thus, while in view of the mandate of sub-section (1) of section 153A 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, the earlier assessment would have to be reiterated. 9.2 Coming to the utilization of material found during the search proceeding at third party premises, the law is fairly settled that in case any material pertaining to or belonging to the assessee found during the search proceedings at the third party then such material can be used against the assessee by initiating proceeding under section 153C of the Act. As such, the proceedings under section 153C of the Act can be initiated in a situation where the documents/materials belonging to the assessee was recovered from the premises of the 3rd party in the course of search proceedings under section 132 of the Act. Then, the AO of the search party has to record the satisfaction by observing that the documents found in the course of search from the premises of the 3rd party belongs to the person other than searched person and he/she (AO of search assessee) will hand over such

IT(SS)A Nos.40-41/Ahd/2022 A.Ys. 2018-19 & 2019-20 7 satisfaction note along with the necessary documents to the AO of such other person (present assessee) who was not subject to search. The AO of the other person (present assessee) will again record his satisfaction that the documents found from the premises of the 3rd party in the course of search has bearing on the income of the assessee. The question arises what the fate of the case would be where there was search in the case of the assessee as well as in the case of the other party under the provisions of section 132 of the Act and the document was found from the premises of the 3rd party. This issue has been answered by the order of this Tribunal in the case of Shri Rajesh Sundardas Vaswani & others in IT(SS)A No. 95/Ahd/2019 & others where the coordinate bench vide order dated 12-11-2020 quashed the assessment order passed under section 143(3) r.w.s. 153A of the Act by observing as under: 29. We have duly considered rival contentions and gone through the record carefully. Before adverting to the facts and alleged seized material considered by the ld.AO for making the addition in the hands of the present three assessees, we deem it appropriate to bear in mind the position of law propounded in various authoritative judgments recording scope of section 153A of the Act. We are of the view that in this regard, there were large numbers of decisions. First we refer to the decision of Hon’ble Delhi High Court in the case of CIT Vs. Kabul Chawla, 380 ITR 573 (Del). Hon’ble Delhi High Court after detailed analysis has summarized the following legal position: 37. 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(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 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 AYs will have to be computed by the AOs as a fresh 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

IT(SS)A Nos.40-41/Ahd/2022 A.Ys. 2018-19 & 2019-20 8 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. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A 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.” 30. ITAT, Delhi Bench in the case of DIT Vs. Smt. Shivali Mahajan and others, rendered in ITA No.5585/Del/2015 (copy of the decision placed on record) has considered this aspect in its decision. Thereafter, the Tribunal has specifically held that serial no.(iv) of the above proposition, the Hon’ble Delhi High Court has specifically held that assessment under section 153A of the Act has to be specifically made on the basis of seized material. ITAT Delhi Bench was considering an aspect whether the evidence in the shape of books of accounts, money, bullion, jewellery found during the course of search relates to other person than the searched person, can that be considered while making assessment under section 153A of the Act. Like in the present appeals, simultaneous search was carried out at the premises of the Venus Infrastructure and Ashok Sunderdas Vaswani, and the material found during the search of Venus Infrastructure Developers or Ashok Sunderdas Vaswani could be used while framing the assessment of Rajesh Sunderdas Vaswani and Deepak Budharmal Vaswani under section 153A of the Act. ITAT Delhi Bench has specifically held that material recovered from the premises of other person cannot be used in the hands of the searched person. For that purpose an assessment under section 153C or 147 is to be made. At this stage, in order to fortify ourselves, we would like to make reference to the following paragraphs of the ITAT Delhi Bench’s order. It reads as under: “15. Thus, when during the course of search of an assessee any books, document or money, bullion, jewellery etc. is found which relates to a person other than the person searched, then the Assessing Officer of the person searched shall hand over such books of account, documents, or valuables to the Assessing Officer of such other person and thereafter, the Assessing Officer of such other person can proceed against such other person. However, in the case under appeal before us, admittedly, Section 153C is not invoked in the case of the assessee and the assessment is framed under Section 153A. We, respectfully following the above decisions of Hon'ble Jurisdictional High Court, hold that during the course of assessment under Section 153A, the incriminating material, if any, found during the course of search of the assessee only can be utilized and not the material found in the search of any other person.” 31. Order of the ITAT Delhi Bench in other cases viz. Asha Rani Lakhotia vs. ACIT and Subhag Khattar Vs. ACIT are on the same line.

IT(SS)A Nos.40-41/Ahd/2022 A.Ys. 2018-19 & 2019-20 9 32. Hon’ble Delhi High Court in the case of Subhag Khattar in Tax Appeal No.60 of 2017 has considered the following question of law: "Did the Income Tax Appellate Tribunal (ITAT) fall into error in holding that the additions made under Section 153A read with Section 143(3) of the Income Tax Act, 1961 in the circumstances of the case, were not justified and supportable in law? " 33. After putting reliance upon its decision in the case of CIT Vs. Kabul Chawla (supra) has replied this question as under: “6. The Assessee went in appeal before the Commissioner of Income Tax (Appeals) who dismissed it by an order dated 27th November, 2014. A further appeal was filed by the Assessee before the ITAT. The ITAT, inter alia, found substance in the contention of the Assessee that the assessment under Section 153(A) of the Act, in the absence of any incriminating material found during the search on the premises of the Assessee was not sustainable in law. Reliance was placed on the decision of this Court in Commissioner of Income Tax v. Kabul Chawla, [2016] 380 ITR 573. 7. A question was posed to the learned counsel for the Revenue whether in the present case anything incriminating has been found when the premises of the Assessee was searched. The answer was in the negative. The entire case against the Assessee was based on what was found during the search of the premises of the AEZ Group. It is thus apparent on the face of it, that the notice to the Assessee under Section 153A of the Act was misconceived since the so-called incriminating material was not found during the search of the Assessee's premises. The Revenue could have proceeded against the Assessee on the basis of the documents discovered under any other provision of law, but certainly, not under Section 153A. This goes to the root of the matter.” 34. Hon’ble Court has specifically observed for the purpose of section 153A that only seized material is required. However, if there is any other incriminating material belong to the assessee found at the premises of the some other person, then the assessment has to be made under other provisions and not under section 153A of the Act. Hon’ble jurisdictional 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?"

IT(SS)A Nos.40-41/Ahd/2022 A.Ys. 2018-19 & 2019-20 10 35. 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: “16. 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 153A 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. 17. 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. 18. 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.11,05,51,000/- on the basis of the material which was not found during the course of

IT(SS)A Nos.40-41/Ahd/2022 A.Ys. 2018-19 & 2019-20 11 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. 19. 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. 20. 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.” 36. As far as decisions relied upon by the ld.CIT-DR are concerned, we have already considered the decision in the case of E.N. Gopakumar (supra). Other decisions are also on the similar line, but they are not in coherence with the position of law propounded by the Hon’ble jurisdictional High Court. Therefore, Tribunal being subordinate to the Hon’ble Gujarat High Court, is required to first follow Hon’ble Supreme Court and thereafter Hon’ble jurisdictional High Court. If no ratio of the law is available from Hon’ble Supreme Court as well as Hon’ble jurisdictional high Court, then the decision of non-jurisdictional High Court is to be followed. Therefore, we do not deem it necessary to recapitulate the decisions of Hon’ble Kerala High Court and make discussion on them. Ld.CIT-DR was unable to bring any authoritative decision from the Hon’ble Supreme Court or from the Hon’ble jurisdictional High Court to support the case of the Revenue. He made reference to para-18 of the Pr.CIT Vs. Saumya Construction (supra), which we have considered; but paragraph nowhere buttress the case of the ld.CIT-DR. On a detailed analysis of these case laws, it is pertinent to observe that scheme of the Income Tax Act would provide that a regular assessment of the income is to be made under section 143(3)/144. In the case of an escaped income, then a notice under section 148 should be issued and the assessment is to be made under section 147 r.w. section 143(3). In case a search is carried out on an assessee, then that search could give rise to a proceedings viz. under section 153A qua the person who has been searched. The income has to be assessed on the basis of material found during the course of search. The second category of the person is third-party and the assessment could be made under section 153C of the Act. The assessment under section 153C is to be made on a condition that during the

IT(SS)A Nos.40-41/Ahd/2022 A.Ys. 2018-19 & 2019-20 12 course of search any money, bullion, jewellery, assets, documents belonged to the assessee prior to 1.6.2015, and information relates/pertains to assessee after 1.6.2015 was found qua to the person other than the searched person. In that situation, the AO of the searched person would record his satisfaction that such material belongs to third-person, and he would transmit that material along with his satisfaction to the AO having jurisdiction on such other person. The AO thereafter issue notice under section 153Cafter recording his satisfaction and the assessment proceedings under section 153C r.w. section 153A would commence. One more situation would arise, which we are going to discuss in this very group in the later part of the order that material was found during the course of search, but six years have expired, then the assessment could be reopened. In other words, the material belonged to some other person was found during the course of search. Prior to 1.6.2015, a possible angle could be that such material is to be construed, whether the income has escaped assessment or not. Broadly, these are basic parameters for making assessment under different sections. In the present group of three assessees in different assessment years, search was conducted, but the additions have been made on the basis of the material found during the search relating to some third person. In other words, the AO has not made the addition on the basis of material found during the course of search of these three assessees. We will discuss the material considered by the AO in the subsequent part of his order. Primarily, after looking the material considered by the AO and compiled in tabular form by the ld.counsel for the assessee, we have verified that these additions are not based on the material found during the course of search conducted at the premises of these three assessees. Let us take note of the material considered by the AO for making the addition. These details have been compiled in tabular form and they read as under: XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX .

9.4 Coming to the facts of the case on hand, we note that the TPO while making the downward adjustment relied certain documents being the MOA between assessee’s AE and Kalsubai Shipping & Offshore Pvt Ltd but such MOA was found during the independent search at the premises of Shri Sanjay Prapatraj

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Mehta, Mrs Trupti S Mehta, Shri Vishwa Sanjay Mehta, at 502, Shanti shilp, 24 ashok dave marg, Nr Takeshwar post office waghawaadi road, Bhavnagar. This fact can be verified from the notice issued u/s 142(1) of the Act dated 11-09-2021. The relevant portion of the notice is reproduced as under: 4. Further, Bhavnagar residence of Sanjay Prapatrai Mehta, Trupti S. Mehta, Gaurav Sanjay Mehta, Vishwa Sanjay Mehta at 502 Shanti Shilp 2 4 Ashok Dave marg Nr. Takheshwar Post Office Waghwadi Road Bhavnagar was also covered under search. During the course of search various documents/digital data was found and seized. The analysis of the various documents/digital seized are as under: 4.1 Page no.14 of Annexure -A-3:

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Detailed calculation sheet attached herewith for your reference. Thus in view of the above we would like to request you to finance USD 14,250,000 and INR 16.50 Cr which will cover the purchase price of the tugs, deemed expenses and the amount for the guarantee to be provided. Kindly note we are ready to provide a 25% margin money for the requested finance amount. 2. Ref: Ship Recycling Policy - Collateral A. Our sincere request not to consider all the ship recycling companies at same level while advising the collateral security. Please consider 10% collateral for good customers and the standard percentage in policy for others. We also request you to consider based on ClassNK certification received by the yards as well yards that were inspected by EU to be included in their list as well as the past performance of the clients. B. As a special Case Priyablue can do 15%. C. Netting Of Liability D. Ship Recycling Policy-Associate companies 3. Ref: Best Oasis Ltd - Colleteral Margin 40%. Previously it was 30% 4. Bhuval Industries-100 Cr LC/BC 15 Cr CC with 15% Colleteral On perusal of the above page, it is noticed that Net profit USD 12,776,400 declared. In this regard, it is requested - Explain with documentary evidence and transaction trail as to how the various transactions shown in the pages of 14 Annexure-A-3 are reflected in your books of account for the relevant financial year to which the same pertain. Explain with proper computation and statement of Income, how the income generated/ earned/ accrued has been offered to tax in the concerned A.Ys. Please note that your explanation should be duly supported with substantiating documents and in absence of proper explanation without substantiating documents, Rs. 88,27,33,091/- (equivalent to USD 12,776,400) being net profit should be treated as unexplained Income and added back to your income for respective A.Ys. 9.5 It is clear from the above that documents relied on or based on which adjustment was made by the TPO in TP order are found at the premises of third parties. Therefore, the same cannot be utilized against the assessee in the proceedings under section 153A of the Act for the reasons as discussed above. There was no allegation of the AO/TPO that any incriminating document found from the premises of assessee company based on reference under section 92CA(3) was made and finally adjustment was made by the TPO. The AO, to utilize the material found from the premises of third party was required to initiate proceeding

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under section 153C of the Act after complying with the procedure as specified under section 153C of the Act.

9.6 In view of the above detailed discussion, we hereby quash the assessment order framed by the AO under section 153A r.w.s. 143(3) of the Act as void ab initio as the same was made without there being any incriminating material found in the search at the assessee’s premises. Hence, the ground of appeal raised by the assessee regarding validity of the assessment is hereby allowed. Once we have quashed the assessment order on technical ground as discussed above, the other issues raised by the assessee vide ground Nos. 2 to 4 of its appeal become redundant. Therefore, we are not inclined to adjudicate the same. Hence the same are hereby dismissed as infructuous.

9.7 In the result, the appeal of the assessee is hereby partly allowed.

Coming to ITA No. 41/AHD/2019, an appeal by the assessee for the Assessment Year 2019-20

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12.1 The AO during the assessment proceedings observed that the TPO vide order dated 27-01-2022 for the immediately preceding AY 2018-19 made a downward adjustment of Rs. 18,92,95,606/- on account of purchase of these three TUGS from its AE.

12.2 Therefore the Ld. AO accordingly revised the depreciation on the basis or revised capitalized value of two TUGS as discussed above and disallowed the depreciation of Rs. 4,42,06,564 and added to the total income of the assessee.

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16.1 However, we find that assessment order framed by the AO for AY 2018-19 under the provisions of section 153A of the Act wherein the value of TUGS has been downgraded has been quashed by us in ITA No. 40/Ahd/2022. The relevant findings of the same are given in paragraph 9 of this order. Once the assessment order of the earlier year based on which the AO made disallowance of the depreciation in the current year itself was quashed as invalid then the disallowance made in the current year on such invalid assessment of earlier year cannot be sustained. Therefore, we hereby set aside the finding of the learned CIT(A) and directed the AO to allow the depreciation on TUGS at the value claimed by the assessee. Hence the grounds of appeal of the assessee are hereby allowed.

16.2 Coming to the other issue raised by the assessee in its appeal, at the outset we note that we have allowed the ground of the assessee on the merit therefor

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we restrain ourselves from giving separate finding on the other issues raised by the assessee on technical grounds/ merit which now become infructuous.

16.3 In the result, the appeal of the assessee is hereby partly allowed.

Order pronounced in the Court on 02/01/2024 at Ahmedabad.

Sd/- Sd/- (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 02/01/2024 Manish