JAYEMS ENGINEERING COMPANY PVT LTD.,,MUMBAI vs. ACIT, CC-4(2), MUMBAI

From the above chart, it can be seen that the basis of the\nproceedings u/s 153A of the Act is the sales data of the assessee as\nextracted from its ERP system. In our considered opinion the regular\nbooks of accounts of the assessee by any stretch of imagination cannot be\ntreated as incriminating material forming basis of framing assessment\nu/s 153A r.w.s.143(3) of the Act. The decisions of the Hon'ble Delhi High\nCourt in the case of CIT vs. Kabul Chawla (2016) 380 ITR 573 (ITR);\nChintles\nIndia Ltd v. Dy..CIT ( 2017) 397 ITR 416 ( Delhi)(HC) and the decision of\nthe Hon'ble Supreme Court in the case of PCIT v. Abhisar Buildwell P. Ltd.\n(2023) 454 ITR 212 (SC), squarely apply on the facts of the case as\ndiscussed hereinabove. The ratio of the decision laid down by the\n4\nHon'ble Delhi High Court in the case of Kabul Chawla (supra), reads as\nunder:-\n“37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto,\nand in the light of the law explained in the aforementioned decisions, the legal position\nthat emerges is as under:\ni. Once a search takes place under Section 132 of the Act, notice under Section 153 A\n(1) will have to be mandatorily issued to the person searched requiring him to file\nreturns for six AYs immediately preceding the previous year relevant to the AY in\nwhich the search takes place.\nii. Assessments and reassessments pending on the date of the search shall abate. The\ntotal income for such AYs will have to be computed by the AOs as a fresh exercise.\niii. The AO will exercise normal assessment powers in respect of the six years previous\nto the relevant AY in which the search takes place. The AO has the power to assess\nand reassess the 'total income' of the. aforementioned six years in separate assessment\norders for each of the six years. In other words there will be only one assessment order\nin respect of each of the six AYs "in which both the disclosed and the undisclosed\nincome would be brought to tax".\niv. Although Section 153 A does not say that additions should be strictly made on the\nbasis of evidence found in the course of the search, or other post-search material or\ninformation available with the AO which can be related to the evidence found, it does\nnot mean that the assessment "can be arbitrary or made without any relevance or\nnexus with the seized material. Obviously an assessment has to be made under this\nSection only on the basis of seized material."\nv. In absence of any incriminating material, the completed assessment can be reiterated\nand the abated assessment or reassessment can be made. The word 'assess' in Section\n153 A is relatable to abated proceedings (i.e. those pending on the date of search) and\nthe word 'reassess' to completed assessment proceedings.\nvi. Insofar as pending assessments are concerned, the jurisdiction to make the original\nassessment and the assessment under Section 153A merges into one. Only one\nassessment shall be made separately for each AY on the basis of the findings of the\nsearch and any other material existing or brought on the record of the AO.\nvii. Completed assessments can be interfered with by the AO while making the\nassessment under Section 153 A only on the basis of some incriminating material\nunearthed during the course of search or requisition of documents or undisclosed\nincome or property discovered in the course of search which were not produced or not\nalready disclosed or made known in the course of original assessment."\n5\n7.

Insofar as Assessment Years 2015-16 and 2016-17 are concerned,\nwhere no assessment was framed u/s 143(3) of the Act, it can be safely\nconcluded that the period of limitation for issuing show-cause notice u/s\n153A of the Act expired before the date of search as explained in the chart\nelsewhere.\n8. The Hon'ble Delhi High Court in the case of Chintels India Limited\n(supra) has held that once an assessee does not receive a notice u/s 143(2)\nof the Act within the stipulated period, such an assessee can take it that\nthe return filed by him has become final and no scrutiny proceedings are\nto be stated in respect of that return. This is also abundantly clear from\nthe Circular No. 549 dated 31/10/1989.\n9. The Hon'ble High Court was seized with the following substantial\nquestion of law:\n"Did the Income Tax Appellate Tribunal (ITAT) fall into error in holding that the\nassessments for Assessment Year 2008-09 were pending, on the date of the search i.e.\n25.03.2010, in the circumstances of the case?"\n10. The relevant findings of the Hon'ble High Court read as under:\n“19. The above submissions have been considered. As far as AY 2008- 09 is concerned,\nthe fact that there was no notice sent to the Assessee under Section 143(3) of the Act\nbefore the deadline, i.e., 30 th September, 2009, is not in dispute. The CBDT Circular\nNo. 549 dated 31st October, 1989 deals with such a situation. Para 5.13 thereof reads\nas under:\n\"5.13 A proviso to sub-section (2) provides that a notice under the sub-section can be\nserved on the assessee only during the financial year in which the return is furnished\nor within six months from the end of the month in which the return is furnished,\nwhichever is later. This means that the Department must serve the said notice on the\nassessee within this period, if a case is picked up for scrutiny. It follows that if an\nassessee, after furnishing the return of income does not receive a notice under section\n143(2) from the Department within the aforesaid period, he can take it that the return\nfiled by him has become final and no scrutiny proceedings are to be started in respect\nof that return.\"\n20. In Vipan Khanna v. Commissioner of Income Tax (supra), the Punjab and\nHaryana High Court referred to the same circular and observed that in case where the\n6\nAO chose to verify the return and frame an assessment he has to issue a notice under\nSection 143(2) of the Act requiring the Assessee to produce his books of accounts and\nother material in support of his return. The High Court proceeded to observe:\n\"....Thereafter he can make an assessment under sub-section (3) of section 143 of the\nAct. Another important change incorporated in sub-section (2) of section 143 of the\nAct is that the notice under this sub-section cannot be served on an assessee after the\nexpiry of 12 months from the end of the month in which the return is furnished.\nTherefore, in a case where a return is filed and is processed under section 143(1)(a) of\nthe Act and no notice under sub-section (2) of section 143 of the Act thereafter is served\non the assessee within the stipulated period of 12 months, the assessment proceedings\nunder section 143 come to an end and the matter becomes final. Thus, although\ntechnically no assessment is framed in such a case, yet the proceedings for assessment\nstand terminated.\"\n21. In the present case, the facts speak for themselves. The Assessee filed its return on\n21st October, 2008. The return was processed under Section 143(1) of the Act on 27th\nMarch, 2010. It has held by this Court in Indu Lata Rangwala v. Deputy\nCommissioner of Income Tax (supra) that the mere processing of a return under\nSection 143(1) of the Act and the sending of an intimation to the Assessee will not\nmake it an 'assessment'. At the same time, the consequences of the Department not\nissuing a notice under Section 143(2) of the Act within the time stipulated as far as\nthe filing of the return in normal course is concerned was not examined either in\nCommissioner of Income Tax v. Kabul Chawla (supra) or Indu Lata Rangwala v.\nDeputy Commissioner of Income Tax (supra). As notice by the Punjab & Haryana\nHigh Court in Vipan Khanna v. Commissioner of Income Tax (supra), the CBDT\ncircular makes it abundantly clear that once an Assessee does not receive a notice\nunder Section 143(2) of the Act within the period stipulated then such an Assessee\n\"can take it that the return filed by him has become final and no scrutiny proceedings\nare to be started in respect of that return.\"\n22. The inevitable conclusion, therefore, in the present case, is that the ITAT was in\nerror in holding that the assessment for AY 2008-09 should be treated as 'pending'\nwhereas in terms of the above CBDT circular it should be treated as final in respect of\nwhich no scrutiny are to be started.\n23. Consequently as far as is concerned the question framed by this\nCourt on 27th January, 2017 is answered in the affirmative, i.e., in favour of the\nAssessee and against the Revenue. The impugned order of the ITAT to the extent it\nnegatives the plea of the Assessee is hereby set aside and the appeal is allowed.\n11. The aforementioned decisions of the Hon'ble High Court of Delhi,\none in the case of Kabul Chawla [supra] and another in the case of Chintels\nIndia Ltd [supra] clearly settle down the quarrel in favour of the assessee\nand against the revenue.\n7\n12. The aforementioned decisions were followed by the Co-ordinate\nBenches in the case of Param Dairy Ltd. in ITA Nos.3988 to 3995/Del/2019\nand order was challenged before the Hon'ble Delhi High Court by the\nrevenue and the Hon'ble High Court held as under:-\n“5. We have considered the aforesaid contentions and are of the view that no\nsubstantial question of law arises, as the matter is squarely covered by Kabul Chawla\nsupra, which has been correctly applied to the facts of the case by the ITAT. The ITAT,\nin the impugned order has held that in the audited report filed by the assessee along\nwith the report, cash book, ledger, bank book etc. were mentioned; that the respondent\nassessee was maintaining books on TALLY Accounting Software which was seized\nduring the search and was being treated as incriminating material; however, regular\nbooks of account of the assessee, by no stretch of imagination, could be treated as\nincriminating material to form basis of framing assessment under Section 153A read\nwith Section 143(3) of the Act. It was further held that assessment for the Assessment\nYears 2008-2009 and 2009-2010 were completed under Section 143(3) vide orders\ndated 28th July, 2010 and 31st May, 2011 respectively and audited books of account\nwere thoroughly examined and details of purchase of milk must have been scrutinized\nas it was part of audited financial statement of accounts; as per Kabul Chawla supra,\ncompleted assessments can be interfered only on the basis of some incriminating\nmaterial unearth during the search. With respect to the Assessment Years 2010-2011\nto 2012-2013, the ITAT held that though no assessment was framed under Section\n143(3) but it could safely be concluded that the period of limitation for issuing a notice\nunder Section 143(2) expired much before the date of the search; reliance was placed\non Chintels India Ltd. Vs. Deputy Commissioner of Income-Tax (2017) 397 ITR 416\n(Delhi) holding that once an assessee does not receive a notice under Section 143(2) of\nthe Act within the stipulated period, such an assessee can take it that the return filed\nby him has become final and no scrutiny proceeding are to be undertaken with respect\nto that return.\"\n13. It is worth mentioning that the decision of the Hon'ble Delhi High\nCourt in the case of Param Dairy Ltd. (supra), was part of the bunch\nappeals decided by the Hon'ble Supreme Court tagged along with\nAbhisar Buildwell Pvt. Ltd. (supra). In light of the aforementioned\ndiscussion and drawing support from the decisions discussed\nhereinabove, the impugned assessment orders for AY 2015-16 and 2016-\n17 are quashed. Since we have quashed the assessment orders for AY\n8\n2015-16 and 2016-17, we do not find it necessary to delve into the merits\nof the case.\n14. Coming to the grievance in AY 2017-18, facts are identical as\ndiscussed hereinabove and as mentioned elsewhere, basis the sales data\nextracted from the ERP system of the assessee, the AO came to the\nconclusion that in AY 2017-18, there were suppressed sales of Rs.\n36,06,921/-.\n15. During the course of assessment proceedings itself, the assesse\nexplained that there are no suppressed sales and it is only because there\nwere sales returns. The explanation of the assessee did not find any\nfavour with the AO who made the impugned addition.\n16. Before the ld. CIT(A), the assessee furnished the factual position of\nsales as per accounts vis-à-vis disclosed in ITR sales as under:-\nParticulars\nSales in Navision\nERP\nAY 2017-18\nAs per Accounts\nAs per ITR\nAs per AO\nDifference\n21,41,96,346\n21,41,96,346\n21,41,96,346\nSales of EDS-\n12,69,428\n12,69,428\n12,69,428\n(12,69,428)\nTally (not\nconsidered by\nAO)\nGross Sales (A)\n21,54,65,774\n21,54,65,774\n24,41,96,346\n(12,69,428)\nSales Return in\nNavision ERP\n(not considered\nby AO)\n(45,06,976)\n(45,06,976)\n45,06,976\nSales Return in\nEDS Tally (not\nconsidered by\nAO)\n(2,56,058)\n(2,56,058)\n2,56,058\nTotal Sales\nReturn (B)\n(47,63,034)\n(47,63,034)\n47,63,034\nSales (net of\nreturn) (A-B) As\nper Accounts\n(Page 11)\n21,07,02,740\n21,07,02,740\n21,41,96,346\n34,93,606\n9\n17. It was explained to the ld. CIT(A) that these facts were also\nexplained to the AO customer-wise list of sales returns along with\nreconciliation was also furnished. After considering the facts and the\nsubmissions, the ld. CIT(A) observed that it is highly unconventional that\nproducts to be returned after such long period in a fashion conscious\nbusiness. The ld. CIT(A) further observed that the AO has also pointed\nout that several of the details including money trail of sales return, stock\nregister, sales return policy and many other details have not been\nfurnished by the. The ld. CIT(A) went on to confirm the addition.\n18. Before us, the assessee furnished the sample copies of money trails\nof sales return, stock register along with copies of sales invoices and the\nledger account of the customers and pointed out that the sales returns\nhave been properly explained and there is no suppression of sales.\nPer contra, the ld. D/R strongly supported the findings of the AO\nand the ld. CIT(A).\n19. We have carefully considered the submissions along with the\nsample copies of invoices, money trail of sales return, stock register. We\nare of the considered view that these facts have not been examined\nproperly by the authorities below, therefore, in the interest of justice and\nfairplay, we deem it fit to restore the issue to the files of the AO. The\nassessee is directed to furnish the details along with the supporting\nevidence and the AO is directed to examine the same in light of the\ncommercial expediency and decide the issue afresh after affording a\nreasonable and adequate opportunity of being heard to the assessee.\n10\n20. In the result, appeals by the assesse for AY 2015-16 and 2016-17 are\nallowed and that for AY 2017-18 is allowed for statistical purposes.\nOrder pronounced in the Court on 11th August, 2025 at Mumbai.\nSd/-\n(SAKTIJIT DEY)\nVICE PRESIDENT\nSd/-\n(NARENDRA KUMAR BILLAIYA)\nACCOUNTANT MEMBER\nMumbai, Dated 11/08/2025\n*SC SPS\nआदेश की प्रतिलिपि अग्रेषित/