KAMLA SHUBHAM ESTATE,MUMBAI vs. DCIT- CC -(3)(4),, MUMBAI

Since the issues raised and the additions involved in all the appeals pertaining to unabated AYs are similar, we first take up the 2008-09 appeal filed by the assessee for AY in as the lead case. It is noted that, the assessee is engaged in the business of real estate development. During the course of the search, on 10-12-2013, one of the key persons of the Group, Shri Jitendra Jain was confronted with the statements recorded of various persons who were purportedly engaged in the business of providing accommodation entries in the form of unsecured loans in lieu of cash, to which Shri Jitendra Jain in his statement recorded u/s 132(4) of the act on 13-12-2013 explained the manner in which they got unsecured loans from various parties by paying 0.25% brokerage A.Ys. 2008-09 to 2012-13 & 2014-15 Kamla Shubham Estate and that they paid interest in the range of 9% to 24% of interest to the lenders, depending upon the amount, tenure and requirement of group companies. The Investigating authorities had put forth names of twenty eight (28) unsecured loans creditors from whom the Kamla Group has taken unsecured loans, to which Shri Jain admitted in his statement that these parties were providing accommodation entries. The AO taking note of the statement recorded u/s 132(4) of the Act, came to the conclusion that the assessee had adopted the aforesaid modus operandi to convert cash received by way of “on monies” into unsecured loans. The AO thereafter discuss various modus operandi and chronology arrangement of the transactions in his order and after analysing the parties from whom assessee had taken unsecured loans came to the conclusion that these lenders are mere entry operators who are giving accommodation entries for purchases/sale, unsecured loans advances etc. After examining the financials and credentials of these loan creditors, the AO recorded his comments at Para 6.2 of the assessment order. The AO accordingly show caused the assessee as to why the unsecured loans procured/shown to have been taken from the twenty eight (28) lenders/accommodation entry providers should not be assessed as undisclosed income of the assessee u/s 68 of the Act and the interest paid on such bogus loans claimed as expenditure u/s A.Ys. 2008-09 to 2012-13 & 2014-15 Kamla Shubham Estate 37 of the Act, be disallowed. In response, the assessee had sought for the copies of the statements of the key persons including Shri Jitendra Jain, which according to the AO, was provided to the assessee on 25- 02-2016. However since the AO did not receive any explanation on or before the specified due date i.e. 01-03-2016, he proceeded to make the addition u/s 68 of the Act in the relevant AY 2008-09, since according to him, the assessee failed to prove the nature and the source of the credit entries in the books of account of the assessee. The AO also disallowed the interest paid on such unsecured loans u/s 37 of the Act, across all the AYs. The AO further made addition on account of notional commission expense which the assessee would have incurred for obtaining such accommodation entries in the relevant AY 2008-09. Further, the AO is also noted to have made adhoc disallowances out of several items of expenses viz., brokeage professional fees, labour charges, etc. in other the AYs. The AO also made partial disallowance of interest on partner’s capital u/s 36(1)(iii) of the Act in AY 2008-09.

4. Aggrieved the assessee preferred an appeal before the Ld. CIT(A) and brought to the notice of the Ld. CIT(A) that, admittedly the statement recorded from Shri Jitendra Jain u/s 132(4) of the Act, was provided to the assessee by the AO only on 25-02-2016 and until A.Ys. 2008-09 to 2012-13 & 2014-15 Kamla Shubham Estate then the assessee was in complete dark as to basis of the allegation regarding it obtaining accommodation entries in the form of loans. The Ld. AR of the assessee pointed out to us that, when the statement was provided to it ultimately on 25-02-2016, then only it came to their notice that certain admission was extracted from one of the Directors of the Group under duress /coercion, and that purported admission made by Shri Jitendra Jain has been retracted and the same was filed before the AO, along with the relevant details/documents for proving the identity, creditworthiness and genuineness of the lenders from whom the assessee had taken unsecured loans and paid interest thereon, vide letter dated 18-03-2016. In the said letters the assessee had also sought cross-examination of the so-called entry operators based on whose statements, admission was extracted under duress from Shri Jitendra Jain. Taking note of the submissions put forth by the assessee, the Ld. CIT(A) held that, the AO had indeed not considered the letter dated 18-03-2016 before passing the assessment order. Exercising the co-terminus powers vested in him u/s 250 of the Act, the Ld. CIT(A) observed that these submissions of the assessee would be duly considered in the appellate proceedings and accordingly admitted the same. The relevant findings of the Ld. CIT(A) are as follows: A.Ys. 2008-09 to 2012-13 & 2014-15 Kamla Shubham Estate “6.1 I have considered the submissions/contention of the assessee. The assessee submits that its letter dated 18.03.2016 has not been considered by the AO, whereby it had enclosed the retraction statement of Shri Jitendra Jain confirmations along with financials of the said alleged bogus lenders, details of expenses, etc. It was further submitted that in the said letter it had / requested the AO to provide the statements of the 3 parties relied upon by the AO to draw adverse inference and had also requested for cross-examination of the said parties, Accordingly, the assessee contended that there has been a violation of principles of natural justice. On the said submissions of the assessee, it is noted that the powers of the First Appellate Authority (FAA) are co-terminus with that of the AO and therefore, in the present appellate proceedings, the submissions made by the assessee vide the said letter dated 18.03.2016 which were allegedly not considered by the AO will be duly considered while dealing with the specific grounds of appeal

We have heard both the parties, perused the details, documents and submissions along with the judicial precedents relied upon by both sides. The first ground raised

In appeal, the CIT(A) held that the addition of an amount of Rs.43.67 lakhs as deemed dividend has to be deleted. This on the ground that there were no accumulated profits available with M/s K.P. Developers (P) Ltd. to distribute amongst it's shareholders. However, so far as the addition in respect of the unexplained gifts aggregating to Rs. 93.70 lakhs is concerned, the CIT(A) did not disturb the finding of the Assessing Officer.

On further appeal before the Tribunal, the assesseeinteralia challenged the validity of the assessment made under Section 153A of the Act. This on account of the fact that no assessment in respect of the six assessment years were pending so as to have abated. The impugned order accepted the aforesaid submission of the respondent- assessee by interalia placing reliance upon the decision of the Special Bench of the Tribunal in Al-Cargo Global Logistics Ltd. rendered on 6 July 2012. The Tribunal in the impugned order further held that no incriminating material was found during the course of the search. Thus the entire proceedings under Section 153A of the Act were without jurisdiction and therefore the addition made had to be deleted on the aforesaid ground. The impugned order also thereafter considered the issues on merits and on it also held in favour of the respondent-assessee. A.Ys. 2008-09 to 2012-13 & 2014-15 Kamla Shubham Estate

Mr. Kotangale, the learned Counsel for the revenue very fairly states that the decision of the Special Bench of the Tribunal in Al- Cargo Global Logistics Ltd. was a subject matter of challenge before this Court as a part of the group of appeals disposed of as CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd. [2015] 374 ITR 645/58 taxmann.com 78/232 Taxman 270 (Bom.) upholding the view of the Special Bench of the Tribunal in Al- Cargo Global Logistics Ltd. Consequently, once an assessment has attained finality for a particular year i.e. it is not pending then the same cannot be subject to tax in proceedings under Section 153A of the Act. This of course would not apply if incriminating materials are gathered in the course of search or during proceedings under Section 153A of the Act which are contrary to and/or not disclosed during regular assessment proceedings.

In view of the above, on issue of jurisdiction itself the issue stands concluded against the revenue by the decision of this Court in Continental Warehousing Corpn. (Nhava Sheva) Ltd. (supra). In the appeal before us, the revenue has made no grievance with regard to the impugned order of the Tribunal holding that in law the proceedings under Section 153A of the Act are without jurisdiction. This in view of the fact that no assessment were pending, so as to abate nor any incriminating evidence was found. The grievance of the revenue is only with regard to finding in the impugned order on the merits of the individual claim regarding gifts and deemed dividend. However once it is not disputed by the revenue that the decision of this Court in Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra) would apply to the present facts and also that there are no assessments pending on the time of the initiation of proceedings under Section 153A of the Act. The occasion to consider the issues raised on merits in the proposed questions becomes academic. A.Ys. 2008-09 to 2012-13 & 2014-15 Kamla Shubham Estate

Identical view was expressed by the Hon’ble jurisdictional Bombay High Court in the case of CIT Vs SKS Ispat & Power Ltd (398 ITR 584) wherein it was held as follows: “5. We have considered the arguments canvassed by the learned counsel for the respective parties. On perusal of section 153A of the Act, it is manifest that it does not make any distinction between assessment conducted under section 143(1) and 143(3). This court had occasion to consider the scope of section 153A of the Act in the case of Gurinder Singh Bawa and in the case of Continental Warehousing Corpn. (Nhava Sheva) Ltd. (referred to supra). It has been observed that section 153A cannot be a tool to have a second inning of assessment either to the Revenue or the assessee. Even in the case of Gurinder Singh Bawa (referred to supra) the assessment was under section 143(1) of the Act and the court held that the scope of assessment after search under section 153A would be limited to the incriminating evidence found during the search and no further. In the said judgment, the judgment of this court in Continental Warehousing Corpn. (Nhava Sheva) Ltd. (referred to supra) has been followed. 6. Considering the authoritative pronouncements of this court in the above referred cases one of which is also with regard to assessment under section 143(1), the issue is no longer res integra and stands concluded in the above referred judgments.”

In light of the above judicial precedents, and particularly the judgment of the Hon’ble Bombay High Court (supra) which is binding upon this Tribunal, we hold that in the case of unabated assessments of an assessee, no addition is permissible in the order u/s 153A of the A.Ys. 2008-09 to 2012-13 & 2014-15 Kamla Shubham Estate Act unless it is based on any relevant incriminating material found during the course of search qua the assessee and qua the AY.

In view of the above legal position, the issue which now requires our consideration is whether the additions/disallowances which the AO made in the order impugned in this appeal was based on or made with reference to any incriminating material/document found in the course of search. The only material referred to by the lower authorities impugned to justify the addition/s was the statement of Shri Jitendra Jain which was recorded u/s 132(4) of the Act. In this regard, we find that the coordinate Bench of this Tribunal in the batch of cases decided in the matters of the sister concerns, M/s Kamla Landmarc Enterprises Vs DCIT & Others (supra) of the Kamla Group, has already held that the statement of Shri Jitendra Jain recorded u/s 132(4) of the Act alone did not constitute incriminating evidence to justify the additions made in the unabated AYs, particularly when the statement was not recorded on the basis of any incriminating material found in the course of search. The Tribunal accordingly in absence of any incriminating material found in the course of search, deleted similar additions made by the same AO. The relevant findings of this Tribunal are as follows: A.Ys. 2008-09 to 2012-13 & 2014-15 Kamla Shubham Estate “14. We have heard the parties and perused the details, documents and submissions alongwith case laws relied upon by the Ld. AR as well as Ld.DR. The Ld. Representative of the assessee has argued that no incriminating materials were found during the search carried out on 10.12.2013 at the various premises of the Kamla Group, therefore, the assessment is not liable to be reopened in accordance with law. It is also argued that the period for issuing the notices u/s 143(2) of The Income Tax Act, 1961 expired by the time of search for the assessment years from 2009 - 2010 to 2012 - 2013 and no notices were issued u/s 143(2) for the aforesaid assessment years. It is also argued that the assessment order for A.Y. 2008 - 2009 was passed u/s 143(3) of the Act as observed by the Assessing Officer while passing the assessment order u/s 143(3) r.w.s 153A dated 18.03.2016 for AY 2008-09, therefore, the assessment in relation to the assessment years 2008-2009 to 2012-2013 are non-abated assessments and are not liable to be sustainable. It is specifically argued that the statement recorded u/s 132(4) of the Act itself cannot be treated as incriminating evidence. In support of these contention, the Ld. Representative of the assessee has placed reliance upon the decision in the case of Commissioner of Income Tax v. Harjeev Aggarwal [(2016) 290 CTR 263]. The Ld.DR raised the contention that the statement recorded u/s 132(4) in itself is an incriminating material and also argued that in the absence of supporting documentary evidences for the unsecured loans borrowed are also considered as incriminating facts and therefore, the additions are rightly made by the Assessing Officer in respect of loan borrowed from the parties who were allegedly indulged in providing accommodation entries and upheld by the Ld.CIT(A) for the aforesaid year for which the assessment is non-abated.

The Ld. AR responded to the said contention of the Ld.DR relying on various case laws wherein it is categorically observed and held that the statement recorded u/s 132(4) of the Act itself cannot be treated as incriminating material for making any additions in respect of non -abated assessments. Considering the above said contention, it is to be seen A.Ys. 2008-09 to 2012-13 & 2014-15 Kamla Shubham Estate whether the statement recorded u/s 132(4) is liable to be treated as incriminating evidence or not. In case CIT v. Harjeev Aggarwal (supra), it is held that: - “23. In view of the settled legal position, the first and foremost issue to be addressed is whether a statement recorded under Section 132(4) of the Act would by itself be sufficient to assess the income, as disclosed by the Assessee in its statement, under the Provisions of Chapter XIV-B of the Act.”

In our view, a plain reading of Section 158BB(1) of the Act does not contemplate computing of undisclosed income solely on the basis of a statement recorded during the search. The words “evidence found as a result of search” would not take within its sweep statements recorded during search and seizure operations. However, the statements recorded would certainly constitute information and if such information is relatable to the evidence or material found during search, the same could certainly be used in evidence in any proceedings under the Act as expressly mandated by virtue of the explanation to Section 132(4) of the Act. However, such statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the AO to make a block assessment merely because any admission was made by the Assessee during search operation 25. (...) However, as stated earlier, a statement on oath can only be recorded of a person who is found in possession of books of accounts, documents, assets, etc. Plainly, the intention of the Parliament is to permit such examination only where the books of accounts, documents and assets possessed by a person are relevant for the purposes of the investigation being undertaken. Now, if the provisions of Section 132(4) of the Act are read in the context of Section 158BB(1) read with Section 158B(b) of the Act, it is at once clear that a statement recorded under Section 132(4) of the Act can be used in A.Ys. 2008-09 to 2012-13 & 2014-15 Kamla Shubham Estate evidence for making a block assessment only if the said statement is made in the context of other evidence or material discovered during the search. A statement of a person, which is not relatable to any incriminating document or material found during search and seizure operation cannot, by itself, trigger a block assessment. The undisclosed income of an Assessee has to be computed on the basis of evidence and material found during search. The statement recorded under Section 132(4) of the Act may also be used for making the assessment, but only to the extent it is relatable to the incriminating evidence/material unearthed or found during search. In other words, there must be a nexus between the statement recorded and the evidence/material found during search in order to for an assessment to be based on the statement recorded.”

We also took into notice of the CBDT Circular F No. 286/2/2003- IT(Inv) dated 10.03.2003 addressed to all the Chief Commissioners of income Tax (Cadre Contra) and Directors Generals of Income Inv, relied by the Ld. Representative of the assessee wherein the emphasis was given to collection of incriminating materials rather than obtaining confession of additional income during the course of search and seizure proceedings. No doubt, the Ld. DR placed reliance upon the case of B. Kishore Kumar (T.C.A 738 to 744 of 2014, dated 3.11.2014) of Hon'ble Madras High Court for considering the statement given by the assessee has good evidence value, does not override the contentions of the Ld. AR, as the facts of the said case of B Kishore Kumar are distinguished with the facts of the case of the Assessee mainly on the ground that the sworn statement of B Kishore Kumar was taken by showing him the three print outs of the amount of loan given found during the search and not recorded in his regular books of accounts and in response to the same he admitted in his statement that there is a separate business carried out by him the income of which is not included in his return of income. In the case of the assessee, the statement was not recorded on the basis of any incriminating materials found during the search. The assessee relied upon the case law of the A.Ys. 2008-09 to 2012-13 & 2014-15 Kamla Shubham Estate Hon’ble Bombay High Court in the case of CIT v. Continental Warehousing Corporation (NhavaSheva) Ltd. [2015] 58 taxmann.com 78 (Bom) wherein it is held that for assessment under section 153A in case of unabated assessment, if no incriminating material was found during the course of search in respect of an issue, then no additions in respect of any issue can be made to the assessment under Section 153A and 153C of the Act. The relevant extract of the order is reproduced as under: "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 132/4 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 for 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). "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 A.Ys. 2008-09 to 2012-13 & 2014-15 Kamla Shubham Estate 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.”

Ld. Representative of the assessee also relied upon the case titled as All Cargo Global Logistic [374 ITR 645 (2015) (BOM)], wherein the Hon'ble Bombay High Court held that that no addition can be made in respect of completed assessment u/s.153A without incriminating materials found during the search. We are of the view that the original assessment for the Assessment Year 2008-2009 was completed u/s.143(3) and for the assessment years 2009-2010 to 2012-2013, the period for issuing the notice u/s 143(2) has elapsed on the date of search i.e. 10.12.2013 and no notices were issued u/s 143(2) for the aforesaid years. Therefore, the assessment for the assessment years 2008-2009 to 2012-2013 are non abated and no additions can be made in respect of the non abated assessment years without referring to any incriminating materials found during the search. It is apparent that no incriminating material was found during the search.

The learned departmental representative and the learned CIT appeals have tried to distinguish this decision from Hon’ble Bombay High Court by referring to Hon’ble Delhi High Court decision in the case of Kabul Chawla (supra).

In this regard we are of the considered opinion that the decision from honourable jurisdictional High Court in Continental Warehousing (supra) is clear and unambiguous. It was clearly held in that case that assessments which are not pending and which have attained finality, addition under section 153(A) cannot be done without reference to incriminating seized material. We may gainfully refer to the relevant order of the honourable High Court as under: …….

As regards the issue of seized material it is clear that in the appeals which have remained unabated the addition is without reference to any seized material. The materials referred are only the statement obtained of the assessee under section 132 (4). These have been duly retracted. Hence without corroborative material addition only based upon the retracted statement is not sustainable. For this proposition following case laws are germane: • CIT Vs. Sunil Agarwal (379 ITR 367) • CIT Vs. Naresh Kumar Agarwal (369 ITR 171) A.Ys. 2008-09 to 2012-13 & 2014-15 Kamla Shubham Estate • DCIT Vs. Narendra Garg & Ashok Garg (AOP) (ITA No. 1531 & 1532 of 2007 dated 28.7.2016) • DCIT Vs. Marathon Fiscal Pvt. Ltd. (ITA no. 5783 & 5784/Mum/2017 dated 28.8.2019) • TribhuvandasBhimji Zaveri (ITA 2250 & 2251/Mum/2013 dt. 4.11.2015) 48. It may also be pertinent to note here that no seized material said to be incriminating was produced before us. In light of above said case laws the observation of learned CIT(A) that incriminating material need not be specific has no legs to stand. This very observation by the learned CIT(A) itself is an admission that no specific incriminating material has been seized and referred in the assessment order Hence, in all cases of unabated assessment the assessment fails on defect. No. 6519/MUM/2019, jurisdictional Thus, ITA 6520/MUM/2019, 6515/MUM/2019, 6516/MUM/2019, 6513/MUM/2019 & 6514/Mum/2019 are dismissed on account of jurisdictional defect.

We note that, the Ld. CIT, DR was unable to point out any change of fact or any change in the position of law. Having regard to the foregoing, the judicial discipline demands that we follow the decision rendered by this Tribunal (supra) on same set of facts and circumstances in the assessee’s sister concern cases. Respectfully following the same, we are of the considered view that, the additions / disallowances made in the unabated AYs by the AO u/s 68 of the Act on account of unsecured loans, interest incurred thereon, and the alleged notional commission expense incurred for procurement of such loan, were not backed by any incriminating material found as a result of search, and therefore the AO is directed to delete the same.

Since the facts and circumstances in the lead case under consideration, being A.Y. 2008-09 are identical to the other unabated AYs 2010-11, 2011-12 & 2012-13 in 4218/Mum/2019 &1577/Mum/2019, our A.Ys. 2008-09 to 2012-13 & 2014-15 Kamla Shubham Estate decision in the case of A.Y. 2008-09 of the assessee’s appeal shall apply mutatis mutandis to the assessee`s Nos. 4217/Mum/2019, 4218/Mum/2019 appeals in ITA &1577/Mum/2019. Hence, the appeal for the AYs 2010-11, 2011-12 & 2012-13 also stands allowed.

Now we take up the appeals of the assessee for the abated assessments for AYs 2009-10 & 2014-15. Having heard both the parties, we find that on similar facts and circumstances, this Tribunal in the batch of cases decided in the matters of the sister concerns, M/s Kamla Landmarc Enterprises Vs DCIT & Others (supra) of the Kamla Group, had set aside the addition/s back to the file of the AO to review and decide the issue afresh, by holding as under: