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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: SHRI AMIT SHUKLA, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLE
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “D”, MUMBAI BEFORE SHRI AMIT SHUKLA, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER
ITA NOs.2312, 2311 & 2356/MUM/2022 (A.Ys.2014-15, 2015-16 & 2017-18) DCIT – Central Circle – 2(4) v. Shri Mishal Nickunj Shah Room No. 802, 8th Floor {L/H of Late Shri NickunjGunvantrai Shah} 22/23, Krishna Mahal Prathishtha Bhavan, M.K. Road Netaji Subhash Road, Marine Drive Mumbai - 400020 Mumbai - 400020 PAN: ALVPS2634L (Appellant) (Respondent)
C.O. Nos. 138, 139 & 140/MUM/2022 [ARISING OUT OF ITA NOs. 2312, 2311 & 2356/MUM/2022 (A.Ys. 2014-15, 2015-16 & 2017-18)] Shri Mishal Nickunj Shah v. DCIT – Central Circle – 2(4) {L/H of Late Shri NickunjGunvantrai Shah} Room No. 802, 8th Floor 22/23, Krishna Mahal Prathishtha Bhavan, M.K. Road Netaji Subhash Road, Marine Drive Mumbai - 400020 Mumbai - 400020 PAN: ALVPS2634L (Appellant) (Respondent)
Assessee by : Shri Niraj Sheth Department by : Shri Rakesh Garg
Date of Hearing : 20.12.2022 Date of Pronouncement : 28.12.2022
2 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah O R D E R PER BENCH
These appeals and cross objections are filed by revenue and assessee against common order of Learned Commissioner of Income Tax (Appeals)–48, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 15.07.2022 for the A.Ys. 2014-15 and 2015-16. Appeal in ITA.No.2356/Mum/2022 is filed against order of the Ld.CIT(A) dated 20.07.2022 for the A.Y. 2017-18.
Since the issues raised in all the appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order.
Revenue has filed three appeals objecting to the deletion of addition made by the Ld.CIT(A) in all the Assessment Years under appeal. With regard to A.Y. 2014-15 and 2015-16, Ld.CIT(A) has deleted the addition with the finding that there is no incriminating material found during the course of search and with regard to A.Y.2017-18 Ld.CIT(A) has deleted the addition based on the merits in the case.
3 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah 4. First we will take up the issue of incriminating material in A.Y.2014-15 and 2015-16. We are taking A.Y 2014-15 as lead case and the relevant facts in A.Y. 2014-15 are as under: -
Assessee had filed its original return of income for the A.Y.2014-15 on 29.11.2014 declaring total income of ₹.45,30,000/-. The return of income was duly processed u/s. 143(1) of the Income-tax Act, 1961 (in short “Act”). Subsequently, the case was selected for scrutiny and notice u/s. 143(2) was issued and subsequently assessment was completed u/s.143(3) of the Act on 10.11.2016 computing the total income at ₹.45,30,000/-.
The assessee is a proprietor of M/s. Nickunj Enterprise India and he is the director of Nickunj Group of Companies. These companies are engaged in manufacturing of graphite items and in trading of high-tech industrial products across various sectors including automobiles, ceramics and refractory, aerospace etc.
A search and seizure action u/s. 132(1) of the Act was initiated on Nickunj Group of cases on 16.11.2017. During the course of the search and seizure action residences of the directors of the groups as well as
4 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah business premises of the entities were covered. The case of the assessee was centralized and a notice u/s. 153A of the Act dated 01.01.2019 was issued and served upon the assessee. The assessment u/s. 143(3) r.w.s. 153A was passed on 18.102.2019 making the sole addition u/s. 68 of the Act being sale consideration of sale of shares of PFL Infotech Ltd. The Assessing Officer disallowed the exemption claimed u/s. 10(38) of the Act on long term capital gain claimed by the assessee.
The assessment u/s. 143(3) r.w.s. 153A was completed based on the investigation report received from DDIT(Investigation), Unit-II (4), Hyderabad dated 24.10.2017. The Assessing Officer analyzed the detailed report of the DDIT (investigation), Hyderabad in his order, verified the issue relating to the shares of PFL Infotech Ltd., elaborately and he came to the conclusion that the nature of transactions entered by the assessee is proved that assessee has taken accommodation entries in the scrip of PFL Infotech Ltd., Accordingly, he proceeded to deny the exemption claimed by the assessee u/s. 10(38) of the Act.
Aggrieved assessee preferred an appeal before the Ld.CIT(A) and before the Ld.CIT(A), assessee has filed detailed submissions in which
5 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah assessee has challenged the assessment u/s. 153A of the Act in absence of any incriminating material as well as on merits.
The relevant submissions particularly in relation to incriminating material are reproduced below: - "2. Ground 1: The Learned Assessing officer erred in law as well as on facts, in making an assessment u/s 153A of completed assessments in absence of any incriminating material for the year found during the search and not restricting the proceeding only to the seized material evidence found during the search. 2.1 At the outset, we would like your honour to appreciate the fact that the assessee in the return of income filed has disclosed all the details including that of income from Long Term Capital Gain on sale of shares of PFL Infotech Ltd. Also, during the course of regular assessment proceedings, the appellant had submitted all the details in respect of the said Long Term Capital Gain earned on sale of shares. The assessment u/s 143(3) of the Act was completed on 10.11.2016 after considering the said submissions filed by the appellant. In other words, the assessment was completed as on date of search action, hence it does not abate as contemplated u/s 153A of the Income Tax Act, 1961. 2.2 We further submit that the additions made in the assessment order by the learned A.O. are on the basis of books of accounts and return of income already filed on 29.11.2014. Further, the same were also available during the course of assessment proceedings u/s 143(3) of the Act concluded on 10.11.2016. No incriminating evidence was found during the course of search, on the basis of which such addition can be made by the Assessing officer in the assessment order. We would like to submit that in the absence of any incriminating material found during the course of search action, no assessment can be made u/s 153A of the Income Tax Act, 1961. 2.3 Before dwelling into further submission, we would like to draw your honour's attention to provisions of Section 153A of the Act, as applicable during the year in which the said proceedings were concluded. The section reads as under:
6 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah "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, sofar as may be, apply accordingly as if such return were a return required to befurnished 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 Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years and for the relevant assessment year or years Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years and for the relevant assessment year or years referred to in this sub-section 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: Provided also that the Central Government may by rules made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated under the second proviso), specify the class or classes of cases in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years Provided also that no notice for assessment or reassessment shall be issued by the AssessingOfficer for the relevant assessment year or years unless (a) the Assessing Officer has in his possession books of account or other. documents or evidence which reveal that the income, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh
7 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah rupees or more in the relevant assessment year or in aggregate in the relevant assessment years, (b) the income referred to in clause (a) or part thereof has escaped assessment for such year or years, and (c) the search under section 132 is initiated or requisition under section 132A is made on or after the 1st day of April, 2017. Explanation 1.-For the purposes of this sub-section, the expression "relevant assessment year shall mean an assessment year preceding the assessment year relevant to the previous year in which search is conducted or requisition is madewhich falls beyond six assessment years but not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made. Explanation 2.-For the purposes of the fourth proviso, "asset" shall includeimmovable property being land or building or both, shares and securities, loansand advances, deposits in bank account ]" The words "pending on the date of initiation of search has to be assigned simple and plain meaning. If assessment is finalized, there are no "pending proceedings to be abated. In present case of Appellant, assessment order u/s 143(3) was passed on 10.11.2016 and hence as on the date of search le. 17.11.2017, there was no assessment which was pending. Thus, there was no question of abatement. Additions in case of search could be made only on the basis of incriminating material found during the course of search and not on the basis of the books of accounts already filed with the income tax department. 2.4 At this juncture, we once again submit that there was no incriminating documents found during the course of search action on the basis of which the addition can be made in the assessment order. In support of the same, we are enclosing herewith following documents; (a) Panchanama dated 20.11.2021 [Page No. 46 to 50 of Paper Book 1) (b) Statement of Nickunj Shah, recorded during search and seizure proceedings on 16.11.2017 [Page No. 51 to 61 of Paper Book I]
8 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah (c) Statement of Nickunj Shah, recorded on 19.11.2017 [Page No. 62 to of 87 Paper Book 1] We would like to draw your honour's kind attention to Q7. To Q 23 of statement recorded on 19.11.2017, wherein the specific questions on sale of shares of PFL Infotech were asked and appellant had repeatedly confirmed that his transactions in sale of shares of PFL Infotech Ltd is genuine transaction which is duly supported by all the documentary evidences. Further, on perusal of the above documents, your honour will find that there is no incriminating material found during the course of search action on the basis of which the said addition can be made. Thus, the order passed u/s 153A of the Act is bad in law and hence request your honour to quash the said order and delete the addition made in the same. 2.5 In support of our above contention, we would like to refer to Hon. BombayHigh Court's decision in case of Commissioner of Income Tax v. ContinentalWarehousing Corporation (NhavaSheva) Ltd [2015] 58 taxmann.com 78,wherein it has been held by Hon. Jurisdictional High Court as under "The Division Bench outlined the ambit and scope of the powers conferred by section 153A and observed that on a plain reading of section 153A, it becomes clear that on initiation of the proceedings under section 153A, it is only the assessment/reassessment proceedings that are pending on the date of conducting search under section 132 or making requisition under section 132A stand abated and not the assessments/reassessments already finalised for those assessment years covered under section 153A. By a Circular No. 8 of 2003, dated 18-9-2003 (See 263 ITR (St) 61 at 107) the CBDT has clarified that on initiation of proceedings under section 153A, the proceedings pending in appeal, revision or rectification proceedings against finalised assessment/reassessment shall not abate. It is only because, the finalised assessments/reassessments do not abate, the appeal revision or rectification pending against finalised assessment/reassessments would not abate. Therefore, the argument of the revenue, that on initiation of proceedings under section 153A, the assessments/reassessments finalised the assessment years covered under section 153A stand abated cannot be accepted. Similarly on annulment of assessment made under section 153A (1) what stands revived is the pending assessment /reassessment proceedings which stood abated as per section 153A(1).
9 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah Once it is held that the assessment has attained finality, then the Assessing Officer while passing the independent assessment order under section 153A read with section 143 (3) could not have disturbed the assessment/reassessment order which has attained finality, unless the materials gathered in the course of the proceedings under section 153A establish that the reliefs granted under the finalised assessment/reassessment were contrary to the facts unearthed during the course of 153A proceedings. If there is nothing on record to suggest that any material was unearthed during the search or during the 153A proceedings, the Assessing Officer while passing order under section 153A read with section 143(3) cannot disturb the assessment order [Para 28]" Copy of above Hon. Bombay High Court is decision is enclosed as Page No. 1 to 23 of Paper Book II. Further, in support of above contentions, the Appellant would also like to place reliance on the following judicial pronouncements; Pr. CIT vs MeetaGugutgia [2018] Invocation of section 153A to re-open 96 taxmann.com 468(Supreme Court) concluded assessments of assessment years earlier to year of search was not justified in absence of incriminating material found during search qua each such earlier assessment year. Copy of said decision is enclosed herewith vide Page No, 24 to 25 of Paper Book II. Smt. Jami Nirmala v. Pr. CIT Where assessment order passed under [2021] 132 taxmann.com 267 [Orissa High section 153A did not refer to any document Court] unearthed during course of search, assumption of jurisdiction under section 153A for reopening of assessment was without legal basis. Copy of said decision is enclosed herewith vide Page No. 26 to 31 of Paper Book II. Pr. CIT vs Jignesh P. Shah Where in the course of proceedings u/s [2018] 99 taxmann.com 111 (Bombay High 153A, AO made certain additions to Court) assessee's income, in respect of deemed dividend, in view of the fact that 111 assessment for relevant years had attained finality and no incriminating material High was found in course of search, impugned addition was to be deleted. Copy of said decision is enclosed herewith vide Page No. 32 to 33 of Paper Book II. CIT vs Murli Agro Products Ltd Where there was nothing on record to [2014] 49 taxmann.com 172 (Bombay High suggest that any material was unearthed Court) during search or during proceedings
10 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah initiated under section 153A showing that certain relief in form of deduction was wrongly allowed to assessee, Commissioner could not invoke jurisdiction under section 263 on ground that assessment order passed under section 153A, read with section 143(3) was erroneous or prejudicial to interest of revenue. Pr. CIT v. Jaypee Financial Services Ltd Section 153A, read with section 40A(3), of [2021] 282 Taxman 475 [Delhi High High the Income-tax Act, 1961 - Search and Court] seizure Assessment in case of (Condition precedent) - Pursuant to search carried out in case of assessee, a notice under section 153A was issued - In course of assessment, Assessing Officer made addition to assesse’s income on account of client code modification which had been suppressed in books of account by assessee and on account of expenditure incurred in cash by assessee beyond limit prescribed -Both Commissioner (Appeals) and Tribunal held that addition was not based on any incriminating material found during course of search and assessment was not pending on date of search and hence deleted addition -On appeal revenue also did not make any attempt to disclose incriminating material - Whether therefore, findings of Commissioner (Appeals) and Tribunal could not be held to be perverse - Held, yes. Copy of said decision is enclosed herewith vide Page No. 34 to 35 of Paper Book II. Pr.CITvs Saumaya Construction Ltd [2017] Section 153A bears the heading taxmann.com (Gujarat High Court) 'assessment in case of search or requisition. From the heading of section 153, the intention of the Legislature is clear, viz., to Pvt provide for assessment in case of search and requisition. When the very purpose 81 of the provision is to make assessment in case of search or requisition, it goes 292 without saying that the assessment has to have relation to the search or requisition. 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
11 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah 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. CIT vs Kabul Chawla [2015] 61 taxmann. Completed assessments can be interfered com 412(Delhi High Court) with by Assessing Officer while making assessment under section 153A only on basis of some incriminating material unearthed during course of search which was not produced or not already disclosed or made known in course of original assessment. Copy of said decision is enclosed herewith vide Page No. 36 to 46 of Paper Book II. CIT v. RRJ Securities Ltd. [2015] 62 In terms of section 153C, concluded taxmann.com 391(Delhi High Court) assessment of assessee cannot he interfered with under section 153A unless incriminating material belonging to assessee has been seized in course of search of any other person. Anil Mahavir Gupta ACIT [2017] 82 Where impugned additions were not based taxmann.com 122 (Mumbai Tribunal) on any incriminating material found vs during the course of search at the premises of the assessee and original assessment had not abated, such additions were beyond the scope and ambit of an assessment order under section 143(3) read with section 153A(1) ACIT vs Jayendra P. Jhaveri [2014]46 Where no incriminating evidence is found taxmann.com45/(Mumbai Tribunal) during search, it is not open to Assessing Officer to make reassessment of concluded assessment in garb of invoking provisions of section 153A. Gurinder Singh Bawa vs DCIT [2012]28 Where in search assessment u/s 153A, all taxmann.com328 (Mumbai Tribunal) assessments pertaining to six immediately preceeding assessment years were complete, assessing officer cannot make any addition there under unless there is any incriminating material recovered during search ACIT vs RPD Earth Movers Pvt Ltd [2019] Where assessment proceedings on basis of 101 taxmann.com 89(Chennai Tribunal) return filed being already culminated Ltd by operation of law and no incriminating material being found during subsequent search, there could not be any assessment under section 153A/153C BMM Ispat Ltd vs DCIT [2018] 93 Where pursuant to search proceedings, taxmann.com 76(Bangalore Tribunal) assessment was completed wherein certain
12 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah addition was made, in view of fact that original assessment for relevant could be made only on basis of incriminating material seized from assessee which was not case here, impugned addition made by AO was to be set aside. Mala Builders Pvt Ltd vs ACIT [2017] 88 In cases where assessments have already taxmann.com 801 (Chandigarh Tribunal) been made, addition to be made in proceedings under section 153A is to be restricted to incriminating material found, if any. What section 153A prescribes is that where assessments are completed, they shall be reopened, incomes relating to incriminating material found during the search determined and added to the already assessed income and, thus, total income computed. Where in assessment order passed under section 153A disallowance was made for want of evidence and not on the basis of any incriminating material found during search, such addition could not be upheld. In view of factual and legal submission made hereinabove, we once again submit that there is no incriminating material found during the course of search and seizure action in respect of sale addition made in the assessment order. Such assessment without any incriminating evidence found during the course of search and seizure action is without jurisdiction and hence the said addition made in the order u/s.153A of the Act without any incriminating evidence is bad in law and hence we request your honour to delete the said addition."
After considering the detailed submissions of the assessee, Ld.CIT(A) decided the issue in favour of the assessee on incriminating material by following the principle as laid down in various judicial precedents and held as under:
“7.16 Conclusion- The aforesaid detailed discussion with respect to various judicial decisions clearly laid down the following principles -
13 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah (i) the assessments which have been concluded u/s 143(3) of the Act and not pending at the time of search proceedings, do not abate. ii) for this purpose, intimation u/s 143(1) would constitute an assessment, relying on the decision of Hon'ble Bombay High Court in CIT V/S Gurinder Singh Bawa (7 taxmann.com 398) (iii) the proceedings u/s 153A of the Act do not empower the Assessing officer to re-adjudicate the settled issues again, unless fresh incriminating material is found during the course of search. (iv) the Assessing officer does not have jurisdiction to make additions disallowances which are not based on any incriminating material found during the course of search. (v) in the case of completed/un-abetted assessments, where no incriminatingmaterial is found during the course of search, the assessment u/s 153A of the Act is to be made on originally assessed / returned income and no addition ordisallowance can be made de hors the incriminating evidences recovered during thecourse of search. (vi) Any admission or confession needs corroboration with evidences. In order to make a genuine and legally sustainable addition on the basis of admission or confession during search action, it is necessary that some incriminating material must have been found to correlate the undisclosed income with such statement. 7.17 In the present case, the AO has not brought on record either through the assessment order or through remand report, any incriminating document or material found or seized during the Search and Seizure action u/s 132 of the Act. that are utilized or correlated with the addition made u/s 68 of the Act of Rs. 9.37,11,250/- being the consideration of sale of shares of PFL Infotech Ltd. and disallowing the exemption benefits claimed u/s 10(38) on LTCG. The impugned addition will not survive as held in the above binding judicial decisions. The AO is accordingly directed to delete the said addition of Rs. 9,37,11,250 Thus, the ground of appeal no. 1 is allowed.”
Even on merits he decided the issue in favour of the assessee.
14 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah 12. Aggrieved revenue is in appeal before us raising following grounds in its appeal, against which assessee also filed cross objection.
“1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition made by the AO amounting Rs. 9,37,11,250/- holding that the AO made no reference to the incriminating material in the assessment order when that the AO had made due reference to the accommodation entry found in assessee's books of accounts and its statement recorded during the search operation which formed the basis for the said addition. 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in holding that addition was not made on the basis of incriminating material when said addition was made on the basis of examination of books of accounts in light of new information with the AO which was not available during the original assessment proceedings and statement recorded during the search operation and when books of accounts and statement recorded during the search operation have been interpreted by various courts as incriminating material. 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not relying upon the order dated 28.10.2020 of his predecessor pronounced in the case of M/S Nickunj Eximp Enterprises (M/s Nickunj Eximp Enterprises is also a Nickunj Group company and was covered in the same search as the assessee) wherein it was held that incriminating material should be interpreted widely and that books of accounts and statements recorded during the search operation are to be regarded as incriminating material and additions made on their basis are sustainable u/s 153A. 4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition made by the AO without adjudicating upon the merits of the case which were that there was credible information available with the AO that the assessee had transacted in the shares of penny stock M/s PFL Infotech Limited for the purpose of claiming bogus LTCG and that the assessee was also involved in rigging the price movement of the scrip M/S PFL Infotech Limited.”
15 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah 13. At the time of hearing, Ld.DR submitted that the search was conducted on 16.11.2017 and in the search it was observed that assessee has taken accommodation entries from the concern PFL Infotech Ltd., and it is fact on record that DDIT (Investigation), Hyderabad has established that the scrip PFL Infotech Ltd., is a penny stock and PFL Infotech Ltd., is giving accommodation entries to various parties and assessee is one of the beneficiary. The search was initiated based on the report of the investigation wing dated 24.10.2017 which is reproduced in the Assessment Order itself. He submitted that Ld.CIT(A) has decided the issue of no incriminating material in favour of the assessee, he submitted that the search was initiated only on the basis of the DDIT (Investigation), Wing report and it is established that the assessee has taken accommodation entries. Therefore, it establishes that the addition was made by establishing that the assessee is one of the beneficiary. Therefore, this clearly establishes that there is incriminating material found during the search or otherwise it can be said that it is established that the assessee is the beneficiary, therefore, it should be considered and treated as the incriminating material. Further, he submitted that the issue has to be decided on merit as per the information available on record the scrip PFL Infotech Ltd., is a
16 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah penny stock. Therefore, the merit has to be verified and established and he vehemently argued that Ld.CIT(A) failed to see merit on record.
On the other hand, Ld. AR submitted as under: - “1. The statement recorded u/s. 133A of the Income Tax Act, 1961 of Mr. Abhinandan Jain appears to be the primary basis of which the search operations were initiated on Late Nickunj Shah (the assessee) and later on search was extended to other Group Entities of the assessee. The statement so recorded of Mr. Abhinandan Jain in other proceeding was neither provided to the assessee during the search proceedings nor during the assessment or appeal proceedings of the assessee. 2. The statement was provided to the assessee after the hearing on directions of the Hon'ble members of ITAT and Your Honour permission sought for rejoinder in the written submissions and the permission was granted. 3. The assessee's rejoinder to the statement of Mr. Abhinandan Jain as recorded and provided, is as under: 4. While the Department representative has not specified during the hearing as to which questions in the statement of Abhinandan Jain he relies upon, it appears the reliance wouldhave been placed on Q No.27& 28 of the statement. In Q no.27 Mr. Abhinandan Jain has stated that some warrants of PFL Infotech were sold to the assessee through him as he was his client when Mr. Abhinandan Jain was in practice as a Chartered Accountant. In Q No.28 he mentioned about the business and office address of the assessee. These seems to be the relevant questions in the statement relied upon by the DR. In case any other portion of the statement is sought to be relied upon by the DR or if the Hon'ble members feels that any other answer in his statement has relevance then the Appellants may be given an opportunity to revert. 5. In the above statement, Mr. Abhinandan Jain has mentioned that the assessee has purchased shares of PFL Infotech at his insistence. The same fact was corroborated from the statement recorded u/s. 132 of Late Nickunj Shah, where he had mentioned that Abhinandan Jain was a CA with his Auditor and that how he met him and advised to invest in warrants of PFL Infotech Ltd. The
17 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah purchase of warrants was investment by the assessee out of surplus funds. 6. In any case, the statement of Abhinandan Jain as dealt above was the only piece of information, based on which search was initiated. In this regard, our submissions are: i. There has to be some specific information based on which search operations areapproved. However, such information is not conclusive but just gives reason tosuspect and interrogate further. ii. There has to be a demarcation between 'information' and incriminating material. Incriminating material is nowhere defined in the Income Tax Act, 1961 and therefore what is "incriminating' has to be ascertained from the legal precedents. iii. One of the very important and relevant aspect of incriminating material is that it should be found during the search proceedings. It is not necessary that there is some tangible material to be considered as incriminating material. However, one thing which is imperative is that the findings of search are conclusive enough to initiate assessment proceedings u/s. 153A/C. This becomes all the more relevant when the Assessing Officer is re-opening closed assessments post search. Now, relating this understanding to the facts of the case of the assessee, there was information of the statement of Mr. Abhinandan Jain that the assessee has purchased warrants of PFL Infotech Ltd. During the search, statement of the assessee was recorded, where he specified the same thing that he has purchased the convertible warrants. The documentary evidences were submitted during the search proceedings. The facts are undisputed and the search officer and the Assessing Officer both have accepted all evidences submitted. It is clear that there was nothing additional material, which was found during the search proceedings, which would have enabled the AO to make any addition under the re-assessment u/s. 153A of theAct. iv. It is humbly submitted, that if the entire assessment was framed based only on the statement of Mr. Abhinandan Jain, then the same could have been also done under u/s.147 of the Income Tax Act, 1961. When the re-assessment re-course was available, there was no need to initiate search proceedings and make assessments u/s.153A. v. Search proceedings under the Income Tax Act, 1961 is with more powers as compared to any assessment or re-assessment proceedings. The power to search and seize the residential and
18 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah office premises of any assessee and every and all unrelated information cannot be considered as incriminating material. Additions have to be restricted to only those material or evidences which are unearthed during the search operations and which necessarily prove that there is some unaccounted income which has not been disclosed by the assessee intentionally. The search assessments cannot make additions based on only information from investigation sources and with no further findings during the search operations. vi. Since there was nothing new found during the search in case of the assessee, we submit that there was no 'incriminating material' as required u/s.153A to make additions for the unabated assessments. It is a trite law that only the statement recorded u/s.153A cannot be considered as incriminating, if no evidences are found to be adverse. vii. We place reliance on the following case laws to support the above mentioned contention: Saraya Industries Ltd. v. Union of India [2008] 306 ITR 189 (Delhi): It was held that, the search or requisition must be of such a character as topersuade the Assessing Officer to even reopen closed assessments and thereshould be incriminating material on search or requisition for issue of anotice under section 153A. Pr. CIT v. MeetaGutgutia [2017] 395 ITR 526 (Delhi): It has been held and we quote, "56. Section 1534 of the Act is titled "Assessment in case of search or requisition". It is connected to section 132 which deals with 'search and seizure. Both these provisions, therefore, have to be read together. Section 153A is indeed an extremely potent power which enables the Revenue to re- open at least six years of assessments earlier to the year of search. It is not to be exercised lightly. It is only if during the course of search under section 132 incriminating material justifying the re-opening of the assessments for six previous years is found that the invocation of section 1534 qua each of the AYs would be justified." (SLP filed by the department is dismissed) Saumya Construction (P.) Ltd. (387 ITR 529) Guj HC: "Section 153A bears the heading "Assessment in case of search or requisition". It is well settled as held by the Supreme Court in
19 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah 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 153A. 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 returnsof 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), Jodhpur v. Assistant Commissioner of Income Tax (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." CIT v/s, Continental Warehousing corporation (374 ITR 645) BOM HC: With respect to fresh material to be found during the search proceedings, certain relevant observations are quoted, "In the present case, the notice under section 153A is founded on search. If there is no incriminating material found during the search, then, the Special Bench was right in holding that the power under section 1534 being not expected to be exercised routinely, should be exercised if the search reveals any incriminating material. If that is not found, then, in relation to
20 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah the second phase of three years, there is no warrant for making an order within the meaning of this provision. CIT v/s. Kabul Chawla (380 ITR 573) Delhi HC: With special reference to importance of material seized during the search proceedings it was observed by the Hon'ble HC that "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". The reading of observations of the above judgments makes it clear that there has to be some seized material, extra evidence, or some new finding which is unearthed during the search proceedings which is nothing but incriminating material. The assessments which are concluded have to be framed based on incriminating material and there has to be necessarily have some nexus to material seized as such. The facts placed before authorities are clear that there was no new material or information seized by the authorities and therefore there was no incriminating material in case of the assessee. 7. The assessee is the regular investor, apart from his business and up on the opportunity available opted to invest and the investment in PFL Infotech was one such investment and income out which was offered for tax at applicable tax on the disposal of the investment. ITAT Madras in matter I.T.A. No.1787/CHNY/2017 A.Y. 2014-15 Shri SohanrajUttamchand v/s DCIT Non-Corporate Circle -2, Chennai. considered this aspect in the investment by other assessee in PFL Infotech and up held in the favor of assessee and the ratio of this judgment is applicable in the case of assessee. 8. Even SEBI in the inquiry conducted pursuant to the complaint of some investor considered identical facts as relied up on of the acquiescence of Mr. Abhinandan Jain and assessee in the assessment proceedings initiated under section 153A,The SEBI in its Order dated 28.11.2022 did not take cognizance this facts against assessee and exonerated the assessee and recognized the assessee as investor and done disinvestment in PFL Infotech in regular course. The relevant para's are 47 & 65 of the order, copy of order attached herewith.”
21 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah 15. Considered the rival submissions and material placed on record, we observe that the original assessment was completed on 10.11.2016 and subsequently a search was initiated on 16.11.2017 based on the DDIT, Investigation report from Hyderabad dated 24.10.2017. It clearly established that the search was initiated mainly on the basis of the report from Investigation Wing and subsequent to search, in the assessment initiated u/s. 153A of the Act, the addition made by the Assessing Officer is only based on the investigation report of Hyderabad and there is no material found during the search. The information based on which the search was initiated was already available with the Assessing Officer and there is no other material found in the search which can be considered as incriminating material. We also observed that the entire assessment was based only on the statement of Mr. Abhinandan Jain based on which the DDIT (investigation), Hyderabad has reported barring which there is no other incriminating material found during the search. Based on the investigation report we observe that there is no incriminating material available on record and the assessment was completed only based on the information already available with the revenue. The facts are similar to the Hon'ble Jurisdictional High Court in the case of CIT v. Continental Warehousing
22 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah Corporation [374 ITR 645] and Hon'ble Delhi High Court decision in the case of CIT v. Kabul Chawla [380 ITR 573].
The coordinate bench considered and decided similar issue in the case of Mr. Vikram Bodhraj Tanna v. ACIT in ITA.No. 7323/Mum/2016 dated 25.11.2021, in which one of the member is co-author to this order, it is held as under: - “8. Considered the rival submissions and material placed on record. We observe from the record that a search and seizure operation under section 132 (1) of the Act was conducted on the assessee and his related entities. Accordingly notice under section 153A of the Act was issued and served on the assessee and in response assessee filed his return of income. We observe from the record that the addition was made by the assessing officer during this assessment year pertains to a bank account in HSBC, Geneva. The relevant information on the bank account was not found during search proceedings nor found in the possession of the assessee. However, during search proceedings, the assessee was confronted with the Base Note which the Income Tax Department obtained under exchange of information between French government and Indian government under the provisions of DTAA. The investigation wing and the assessing officer heavily relied on the information contained in the Base Note which they have confronted with the expectation that assessee will accept the information contained in the Base Note. However, the assessee has denied the ownership of any bank account opened in the HSBC Bank, Geneva and denied the information on the base note except the personal informations. It is fact on record that the addition was made in the assessment under section 143(3) read with section 153A only based on the information contained in the base note, which was not the material found, during search, in the possession of the assessee or in the places where search were conducted. Before us, the Ld. AR made a detailed submissions by heavily relying on decision of the special bench in the case of All Cargo logistics Ltd (supra) and decision of the honourable jurisdictional High
23 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah Court in the case of Continental Warehousing Corporation (supra), made a plea that no incremental material found during search to make the addition in the assessment completed under section 153A whereas the assessing officer used the information obtained from the external agencies, which is not the information obtained from the possession of the assessee during search. 8.1 We observe from the decision of the coordinate bench in the case of Arunkumar Ramniklal Mehta (supra) and ITAT Kolkata bench in the case of Bishwanath Garodia (supra) held that no additions can be made in respect of unabated assessment which have become final, if no incriminating material is found during the course of search. The facts are similar in the present case and it is fact on record that the addition made by the assessing officer wholly based on the information contained in Base Note which was not the material found during the search proceedings either in possession of the assessee or found in the premises were search conducted. The information obtained from outside agencies which was confronted with the assessee during the search cannot be considered as incriminating material found during search proceedings. It can only be considered as additional information in case it is found proper, can be used to make addition during assessment proceedings and cannot be used as the information found during search. There two aspects are completely different and gives different connotation. The information found during search alone can be considered for making addition u/s 153A of the Act. Therefore, we are inclined to accept the submissions of the Ld. AR and accordingly the ground No. 1 raised by the assessee is allowed.”
In the background of aforesaid discussion and following the judgements of the jurisdictional High Court, the addition made in these assessment orders passed by the assessing officer under section 153A without reference to any incriminating material found in search is not sustainable. Hence, there is no infirmity in the findings of Ld.CIT(A). Accordingly, grounds raised by the revenue are dismissed.
24 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah 18. In the result, appeal filed by the revenue is dismissed. Since we have decided the issue of incriminating material in favour of the assessee and the issue raised by the revenue on merit becomes infructuous, accordingly, this issue is not adjudicated.
Coming to the appeal relating to A.Y. 2015-16, since facts in this case are mutatis mutandis, therefore the decision taken in A.Y. 2014-15 is applicable to this assessment year also. Accordingly, this appeal is dismissed.
Now coming to appeal relating to A.Y. 2017-18, the relevant facts are, assessee filed its return of income for the A.Y. 2017-18 on 31.10.2017 declaring total income of ₹.96,97,220/- and the return of income was processed u/s. 143(1) of the Act by accepting the return of income filed by the assessee.
Subsequently, a search and seizure action u/s. 132 of the Act was initiated in the case of Nickunj Group on 16.11.2017. Subsequently, the case of the assessee is centralized. During the assessment proceedings Assessing Officer observed that the group has deposited huge cash during the demonetization period the details of which are as under: -
25 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah SI. No. Name of Co. / Entity Amount 1 Nickunj Eximp Enterprise P. Ltd. 4,29,77,547 2 Nickunj EDM Wires & Consumables 70,52,357 3 Nickunj Enterprises (India) 92,88,723 Total 5,93,18,627
On enquiry, one Mr. Manohar Pai, Executive Vice-President of the group, in his statement stated that the cash deposited was out of cash in hand and cash sales. However, Assessing Officer observed that Mr.Manohar Pai did not provided the details of cash sales made during the course of search action and asked for some time to submit the same. The Assessing Officer further observed that during the course of the search, it was found that there was huge cash in hand as per the books, while no physical cash was available in the office as well as other residences of the directors. The Assessing Officer heavily relied on the statement of Mr. Manohar Pai and observed that assessee did not proved the partywise cash details made during the demonetization. In view of the above observations the assessee was asked to explain the source of the huge cash deposits during the demonetization period along with the supporting documentary evidences such as party wise cash sale chart, day to day cash register, inward and outward goods register, bank book, cash book, etc., for the relevant Financial Year
26 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah 2016-17, failing which the cash deposits shall be treated as the unexplained cash credit and added to the income of the assessee.
In response, assessee has filed detailed submissions before the Assessing Officer which is reproduced in Para No. 9.3 to 9.7 of the Assessment Order.The Assessing Officer rejected the submissions of the assessee and he observed as under: - “- Assessee has mentioned that opening cash in hand as on 1- 4-2016 was 1,49,57,146. Assessee has further given opening cash balance at the beginning of every month. As per assessee cash in hand from 1-11-2016 to 8-11-2016 was Rs.93,55,946. Assessee has completely ignored the part where cash expenses are done to run a business. It is very strange and unacceptable explanation that from 1-11-2016 to 8-11-2016 assessee's cash in hand balance has not changed at all. Furthermore assessee's cash in hand as on 1-11-2015 is just Rs.6,24,224. It shows that assesse has rigged the numbers to explain the amount of cash deposits made during demonetisation period. - Further assessee has made the cash expense of Rs.84,34,828 from 1-4-2015 to 8-11-2015. Whereas cash expenses shown by assessee from 1-4-2016 to 8-11-2016 is Rs.21,51,200. This once again demonstrate that assessee is showing reduced amount of cash expenses so that it can explain the source of cash deposit as opening cash balance shown by the assessee on 1-4- 2016. - Assessee has shown total cash sale of Rs.30,39,945 during the year. But it has shown cash sale of Rs.30,19,724 from 1-4-2016 to 8-11-2016. Whereas for remaining 4 months of the year cash sale shown is only Rs.20,221. This is beyond human probability. And as it can be shown only adjustment made by the assessee to explain the huge cash deposit out of its unaccounted money. - When ratio of cash deposit made in the bank from 9-11- 2015 to 31-12-2015 to total cash deposit made in FY 2015-16 is taken, it comes at 24.20%. Whereas ratio of cash deposit made in the bank from 9-11-2016 to 31-12-2016 to total cash deposit made
27 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah in FY 2016-17 is taken it comes at 63.30%. There has been increase of 383.94% in this ratio. This is unprecedented increase in cash deposit made by the assessee and explanation given by the assessee is not tenable. - Further assessee has submitted sample invoices of cash sale. None of these invoices contains complete details of the purchaser like name, PAN and addresses. Assessee has failed to provide whereabouts of purchasers. Hence notices u/s 133(6) could not be sent to verifywhether cash sale has actually taken place. It is assessee's deliberate strategy not to provide complete details of purchasers so that verification cannot be done.”
Accordingly, Assessing Officer made the addition u/s. 68 of the Act by relying on the decision of the CIT v. Kishorilal & Santhoshilal [1995] 216 ITR 6 (Raj.)
Aggrieved assessee preferred an appeal before the Ld.CIT(A) and filed detailed submissions similar to the submissions made before the Assessing Officer. After considering the submissions of the assessee Ld.CIT(A) deleted the addition with the following observations:
“8.1 I have carefully considered the facts of the case and submissions made by the appellant. The only issue to be decided here as to whether there is justification for cash deposit of Rs. 92,88,723/- in the appellant's bank accounts, during the demonetization period. The AO found the cash sales and cash depositsduring the relevant period unusual when compared with such sales and deposits during the preceding year AY 2016-17. On the other hand, the claim of the appellant is that the cash deposits made in the bank account during demonetization period were out of explained sources i. e, from opening cash balance of Rs 1,49,57,146/-as on 01.04.2016 and out of Cash sales made during the year of Rs 30,39,945/-.
28 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah 8.2 Before proceeding further some undisputed facts, as recorded by the AO in the assessment order, are mentioned herein- i) During the year, the appellant was engaged in the business of trading generally in industrial products and other items through his proprietorship concern M/s. Nickunj Enterprises (India), the appellant had made cash sales and during the captioned assessment year during demonetization perioddeposited Cash of Rs 92,88,723/ in the bank account. During the search proceedings on 16.11.2017, Sh. Manohar Pai, Executive VP of the group, in his statement stated that the cash deposit was out of cash-in-hand and cash sales. (ii) From Annexure 2 of statement of Sh. Manohar Pai, the AO noted that cash deposit pattern of the assessee group over the years show that majority cash is being deposited on regular basis. (iii) Details of cash sales for FY 2015-16 and 2016-17 as produced before Assessing Officer.
29 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah
30 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah 8.4 Apart from that I find that the appellant has submitted the details before the AO, which has not been disputed by the AO. o Sample Cash Sale Invoices o Cash book for the period 01.04.2016 to 31.12.2016 o Bank Statement for November and December 2016 o Cash deposit details in the prescribed format as required by theassessing officer during course of assessment proceedings. o Month wise Cash Sales and Cash deposit in the prescribed format asrequired by the assessing officer during course of assessment proceedings. o Details of Cash deposits in Bank accounts from AY 2012-13 till AY2017-18 and also cash on hand as on year-end of respective year. D Stock Item ledgers (Stock Book) for Goods Inwards and Outward showing therein the cash sales of stock items. 8.5 Vide submission dated 17.02.2021, copies of said submission letters dated 09.11.2019 and 09.12.2019 along with above documents are again submitted during the appellate proceedings. I find that the A.O. has not pointed out any discrepancy in the documents submitted by the appellant.In the light of submissions of record, the claim of the appellant that the cash deposit is made out of opening cash balance as on 01.04.2016 of Rs 1,49,57,146/- and cash sales made of Rs. 30,39,945 during the year, cannot be factually disregarded, particularly when these are parts of audited books of accounts which have not been rejected by the AO. The A.O has accepted the books of accounts of the appellant of the current year and the preceding year. The AO has also not doubted the purchases made by the appellant Hence, the claim of the appellant that since the purchase of the appellant is not been doubted, corresponding sales also cannot be doubted, has got force. Also, since the books of accounts of the appellant has not been rejected, the cash sales can be said to be accepted and hence the corresponding cash deposit made out of said cash sales cannot be doubted, is the claim of the appellant. Similar is the claim that the appellant had made the cash sales of Rs 3,11,94,745/-in AY 2016-17 too and the A.O. during the course of assessment proceedings for AY 2016-17 (whose order was also passed u/s 153A) has accepted the said sales as well as closing cash balance as on31.03.2016 of Rs. 1,49,57,146/-Hence, when the cash
31 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah balance as on 31 03.2016 is accepted by the A.O during the course of assessment proceedings of AY 2016-17, cash deposit in the bank account in subsequent year out of said balance cannot be held as out of undisclosed sources. In my considered view, the AO cannot disregard these facts without bringing out any adverse material on record. 8.6 In the assessment order, the A.O. has observed that that the appellant has rigged the numbers to explain the amount of cash deposits made during demonetization period. It is stated that total cash sale during the year was Rs 30,39,945/ out of which cash sale during the 01.04.2016 to 08.11.2016 was Rs 30,19,724/ and for balance period it was Rs. 20,221/-. According to AO the same is beyond human probability In this regard, it cannot be overlooked that after 08 Nov., 2016, there was demonetization, and as a result of that there was drastic reduction of the cash transactions.Post demonetization, most of the major industries had adopted methodologyof payment by way of cheque and Online RTGS/NEFT payment and also reduced cash transactions due to non-availability of new currency. 8.7. Another observation of the AO that the cash expenses of the appellant have reduced substantially as compared to the preceding year is justified as the turnover of the appellant had also reduced from Rs. 17.69 crores in the preceding year to Rs. 10.61 crores in the year under consideration. Another observation of the AO that the ratio of cash deposit made in the bank account from 09.11.2015 to 31.12.2015 to total cash deposit was 24.20%, whereas the said ratio for the same period of AY 2017-18 was 63.30%. According to A.O., this is unprecedented increase in cash deposit made by the assessee and explanation given by the assessee is not tenable. According to the appellant the fact that there was demonetization from 09 Nov, 2016 and old form of currency / denomination notes of Rs. 500 and 1000 were banned as legal tender and they were required to be deposited in the bank account. Hence, it was compulsion for all to deposit their currencies into bank within declared period of demonetization to regularize such currencies. to therefore there is jump in cash deposit during demonetization period as compared to same period in the preceding year. I find justification in the above argument of the appellant. 8.8. The appellant has also relied upon the judgement of Hon'ble Visakhapatnam ITAT decision in case of Asst. Commissioner of Income Tax v. HirapannaJewellers (2021) 128 taxmann.com 291andHon. Delhi ITAT decision in case of Kishore Jeram Bhai
32 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah Khaniya v. Income Tax officer [ITA No. 1220/Del/2011] which are in order. 8.9. Conclusion Considering the totality of facts and circumstances of the issue involved, in my considered view the appellant has satisfactorily explained the cash deposit of Rs. 92,88,723/- whichwere out of explained sources ie., from opening cash balance of Rs 1,49,57,146/-as on 01.04.2016 and out of Cash sales made during the year of ₹.30,39,945/-. These figures are reflected in the audited books of accounts of the appellant for AYS 2016- 17 and 2017-18, which have not been rejected during the assessment proceedings. The AO has neither pointed out any lacuna in the trading results of the appellant nor any defect in the documentary evidences filed during the assessment proceedings. Looking to the above, the addition of Rs. 92,88,723/- deserves to be deleted. The AO is directed accordingly. Thus, ground of appeal no. 2 is allowed.”
Aggrieved revenue is in appeal before us raising following grounds in its appeal: - “1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition made by the AO amounting Rs. 92,88,723/- on account of cash deposits made during the demonetization period considering that the assessee could not explain the source of said deposits during the search operation/post- search investigation and also could not satisfactorily explain the source of said deposits during the assessment proceedings as well. 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the said addition without appreciating the analysis made by the AO in the assessment order which proved that the said deposits and the cash sales/cash-in-hand relied upon by the assessee to explain said deposits were irregular and not in line with the data pertaining to the pre-demonitization period. 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in observing that the AO did not find any discrepancy in the documents submitted by the assessee and its books of accounts when the AO, in the assessment order, had indeed pointed out discrepancies in both the books of accounts and documents submitted by the assessee.”
33 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah 27. In the above grounds, revenue has challenged the deletion of cash deposits and the grounds are interrelated. At the time of hearing, Ld.DR heavily relied on the order of the Assessing Officer. Ld.DR submitted that the assessee has deposited huge cash made during the demonetization period and assessee could not explain the source of deposits during the search operation / post search investigation. The assessee also could not satisfactorily explain the source of the said deposits. He relied on the analysis made by the Assessing Officer in the Assessment Order and submitted that Assessing Officer has proved the said deposits were irregular and not in line with the data pertaining to the pre-demonetization period. Further, he submitted that Assessing Officer has found several discrepancies in the Books of Accounts and documents submitted by the assessee and various submissions made by the assessee before Ld.CIT(A) are not satisfactory. Therefore, he relied on the order of the Assessing Officer.
On the other hand, Ld. AR submitted that assessee has submitted various documents before the Assessing Officer and submitted that the cash deposits during demonetization is out of the stock sold by the assessee and cash available with the assessee during the period. There
34 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah is no much variation, assessee was regularly depositing cash for the sales made by it in the bank account and whatever cash deposited by the assessee are supported by the movement of stock held by the assessee. Therefore, the Assessing Officer has no other material to prove that the cash deposited by the assessee is not relating to the business of the assessee. Ld. AR relied on the decision of the Ld.CIT(A).
Considered the rival submissions and material placed on record, we observe that assessee has deposited cash of ₹.92,88,723/- during the impugned assessment year and the assessee had opening cash balance of ₹.1,49,57,146/- as on 01.04.2016 and during the year assessee has recorded cash sales of ₹.30,39,945/- all the above said figures were reflected in the audited books of accounts submitted by the assessee for the A.Y. 2016-17 and 2017-18. It is fact on record that the above book results were not rejected by the Assessing Officer. We also observe that Assessing Officer has not doubted the trade results declared by the assessee and no defect in the documentary evidences filed during the assessment proceedings. We observe that Assessing Officer has analysed the trend for past three years and has not found nothing on record to prove that the cash deposited by the assessee are
35 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah outside the Books of Accounts. He merely interpreted he trends and imagination. The assessee has submitted all the relevant information before the Assessing Officer in support of making of cash deposits during the year which is out of the cash balances available in hand as well as out of the cash sales recorded during this year. Further, we observe that even the statements made by the Executive Vice-President as well as directors of the company were in line with the informations available on record. We also observe that assessee was carrying huge cash balances as on 01.04.2016 which clearly indicates that assessee has sufficient funds in the business and the search was conducted subsequently on 16.11.2017. Therefore, there is a proper evidence on record to support the contention of the assessee that assessee had huge cash balances as well as assessee is habitually depositing the cash over the years out of cash sales. Therefore, we do not see any reason to interfere with the findings of the Ld.CIT(A) in deleting the additions made by the Assessing Officer. Accordingly, grounds raised by the revenue are dismissed.
With regard to cross objections filed by the assessee, since we have already decided the issue against the revenue and sustained the
36 ITA NOs. 2312, 2311 & 2356/MUM/2022 C.O. Nos. 138, 139 & 140/MUM/2022 Shri MishalNickunj Shah order of the Ld.CIT(A), the cross objections filed by the assessee are accordingly, dismissed.
Order pronounced in the open court on 28th December, 2022
Sd/- Sd/- (AMIT SHUKLA) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai /Dated 28.12.2022 Giridhar, Sr.PS
Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER
(Asstt. Registrar) ITAT, Mum