M/S. BHARAT BEEDI WORKS PRIVATE LIMITED,MANGALURU vs. DEPUTY COMMISIONER OF INCOME TAX, CENTRAL CIRCLE - 2, MANGALURU

ORDER PER BENCH These are the appeals filed by the assessee challenging the orders of the Ld.CIT(A) -2, Panaji dated 30/01/2024 in respect of the A.Ys. 2017-18, 2018-19, 2019-20 and 2020-21. The grounds raised by the assessee for each of the assessment years are extracted hereunder for the sack of convenience. to 645/Bang/2024 Assessment Year 2017-18:

1. The impugned orders of the lower authorities are not justified in law and on the facts and circumstances of the case.

2. The impugned assessment proceedings and the impugned assessment order under Section 143(3) dated 29.11.2021 are bad and non-est since the notice under Section 143(2) dated 13.08.2018 was issued without affixing any signature either manually or digitally.

3. Without prejudice to the above, impugned assessment proceedings and the impugned assessment order under Section 143(3) dated 29.11.2021 are bad and non-est being based on the notice under Section 143(2) dated 13.08.2018 which is vague, without of application of mind and contrary to section 143(2) and applicable board circulars and instructions.

4. As regards disallowance under Section 14A u/s Rule 8D(2)(ii): 4.1. The Lower Authorities have failed to appreciate that the Learned AO cannot invoke Section 14A in the absence of recording non-satisfaction with regard to the claim of the assessee and without examining the accounts of the appellant and without rejecting its books of account. 4.2. The Lower Authorities were not justified in making disallowance of Rs.78,49,684/- under section 14A r/w Rule 8D(2)(ii) when the Appellant had voluntarily disallowed the expenses of Rs.7,81,121/- which was directly attributable and Rs.4,00,000/- which was indirectly attributable to portfolio management services. 4.3. The Lower Authorities were not justified in making any disallowance under Section 14A r/w Rule 8D(2)(ii) without appreciating that disallowance under Section 14A cannot be made in the absence of any proximate cause i.e. relationship of expenditure with exempt income. 4.4. The Learned AO was not justified in invoking Section 14A r/w Rule 8D(2)(ii) without first recording the exact expenditure incurred to earn exempt income to justify the impugned disallowance. to 645/Bang/2024 4.5. The Learned AO was not justified in making any disallowance under Section 14A r/w Rule 8D(2)(ii) on the wrong notion that the disallowance is presumptive in nature even when the expenditure is not actually incurred. 4.6. Without prejudice, the Lower Authorities were not justified in acting inconsistently in as much as while they chose to disturb the voluntary disallowance of Rs.11,81,121/- under Section 14A in the return, they blindly taxed the non-existent income reflected in the revised returns filed for the AYs 2019-20 and 2020-21 and the belated return filed for AY 2019-20. 4.7. Without prejudice, the Lower Authorities have failed to appreciate that as per Rule 8D(2)(ii), only the average value of those investments, income from which are not includible shall be taken into consideration. 4.8. Without prejudice, the Lower Authorities have failed to appreciate that as per Rule 8D(2)(ii), only the average value of those investments can be considered wherein all streams of income related to such investments are exempted. 4.9. The Lower Authorities have failed to appreciate that the disallowance of expenditure incurred to earn exempted income has to be a smaller part of exempt income and should be a reasonable proportion to exempted income earned by assessee in that year. 4.10. Without prejudice, the Lower Authorities were not justified in disallowing Rs.78,49,684/- under Section 14A when the exempted income of the Appellant during the impugned AY 2017-18 itself was Rs.58,07,422/-. 4.11. The Lower Authorities have failed to appreciate that no disallowance under Section 14A can be made towards the interest expenditure where the Appellant's interest-free funds exceed its interest-free investments.

For the above Grounds and for such other Grounds which may be allowed by the Honourable Members to be urged at the time of hearing, it is prayed that the aforesaid appeal be allowed.” to 645/Bang/2024 Assessment Year 2018-19: “1. The impugned orders of the lower authorities are not justified in law and on the facts and circumstances of the case.

2. As regards the impugned proceedings under Section 153A and the impugned order under Section 153A dated 29.09.2021 being invalid and without jurisdiction: 2.1. The impugned proceedings under Section 153A and the impugned order under Section 153A dated 29.09.2021 are bad and non-est as the notices under Section 153A dated 04.11.2020 and under Section 143(2) dated 27.02.2021 were issued by the Learned Assistant Commissioner of Income Tax Central Circle 2 before obtaining the jurisdiction vide order of centralization of the Principal CIT, Mangalore dated 28.07.2021. 2.2. Without prejudice to the above, the proceedings under Section 153A and the impugned order under Section 153A dated 29.09.2021 are bad and non-est as the notices under Section 153A dated 04.11.2020 and under Section 143(2) dated 27.02.2021 were issued by the Learned Assistant Commissioner of Income Tax Central Circle 2 while the jurisdiction over the Appellant vests with the Learned Deputy Commissioner of Income Tax Central Circle 2 vide order of centralization of the Principal CIT, Mangalore dated 28.07.2021. 2.3. Without prejudice to the above, the proceedings under Section 153A and the impugned order under Section 153A dated 29.09.2021 are bad and non-est as the notice under Section 143(2) dated 27.02.2021 was issued by the Learned Assistant Commissioner of Income Tax Central Circle 2 instead of Additional Commissioner, NaFAC. 2.4. Without prejudice to the above, the proceedings under Section 153A and the impugned order under Section 153A dated 29.09.2021 are bad and non-est being based on the notice under Section 143(2) dated 27.02.2021 which is vague, without of application of mind and contrary to section 143(2) and applicable board circulars and instructions.

3. The impugned searches conducted in the Appellant’s premises on 26.02.2020, 22.05.2020 and 02.06.2020 on the basis of a single authorization of to 645/Bang/2024 PDIT(Inv), Bangalore dated 20.02.2020 are bad and illegal thus rendering the impugned assessment null and void.

4. The impugned order under Section 153A dated 29.09.2021 is bad and invalid as the Learned AO has obtained a consolidated approval of the JCIT Central Range vide letter F.No.26/Jt.CIT/CR/MNG/2021-22 dated 28.09.2021 contrary to the phrase “in respect of each assessment year” under Section 153D.

5. The search is invalid rendering resultant statements taken and consequent assessment invalid as the Authorised Officers appointed the witnesses who are not the inhabitants of the locality contrary to Rule 112(6) of the IT Rules and the search and seizure manual published by the department.

6. The Lower Authorities erred in making disallowance of Rs.37,40,326/- under section 14A r/w Rule 8D(2)(iii) for the impugned AY 2018-19 without appreciating that no addition can be made in respect of completed/unabated assessments in absence of any incriminating material found during the course of search.

7. As regards assessment proceedings being bad as there is no valid return in response to notice under Section 153A: 7.1. The Lower Authorities have failed to appreciate the impugned belated return filed by the Appellant on 09.02.2021 in response notice under Section 153A is invalid as the same was not filed within the time of 15 days [i.e. 18.11.2021] specified in the notice under 153A dated 03.11.2020 . 7.2. The Learned AO has no jurisdiction to accept the belated return filed on 09.02.2021 in response to notice under Section 153A as provisions of Section 153A do provide any authority to the Learned AO to condone any delay. 7.3. The notice under Section 143(2) issued in pursuance to an invalid return under section 153A is bad and non-est and without prejudice, issue of notice under section 143(2) is contingent on a valid return but the same does not validate an invalid return. to 645/Bang/2024

8. As regards disallowance under Section 14A r/w Rule 8D(2)(iii): 8.1. The Lower Authorities have failed to appreciate that the Learned AO cannot invoke Section 14A in the absence of recording non-satisfaction with regard to the claim of the assessee and without examining the accounts of the appellant and without rejecting its books of account. 8.2. The Lower Authorities were not justified in making disallowance of Rs.37,40,326/- under section 14A r/w Rule 8D(2)(iii) when the Appellant had voluntarily disallowed the expenses of Rs.5,16,249/- which was directly attributable and Rs.4,00,000/- which was indirectly attributable to portfolio management services. 8.3. The Lower Authorities were not justified in making any disallowance under Section 14A r/w Rule 8D(2)(iii) without appreciating that disallowance under Section 14A cannot be made in the absence of any proximate cause i.e. relationship of expenditure with exempt income. 8.4. The Learned AO was not justified in invoking Section 14A r/w Rule 8D(2)(iii) without first recording the exact expenditure incurred to earn exempt income to justify the impugned disallowance. 8.5. The Learned AO was not justified in making any disallowance under Section 14A r/w Rule 8D(2)(iii) on the wrong notion that the disallowance is presumptive in nature even when the expenditure is not actually incurred. 8.6. Without prejudice, the Lower Authorities were not justified in acting inconsistently in as much as while they chose to disturb the voluntary disallowance of Rs.9,16,249/- under Section 14A in the original and belated returns, they blindly taxed the non-existent income reflected in the revised returns filed for the AYs 2019-20 and 2020-21 and the belated return filed for AY 2019-20. 8.7. Without prejudice, the Lower Authorities have failed to appreciate that as per Rule 8D(2)(iii), only the average value of those investments, income from which are exempt shall alone be taken into consideration. 8.8. Without prejudice, the Lower Authorities have failed to appreciate that as per Rule 8D(2)(iii), only the to 645/Bang/2024 average value of those investments wherein all streams of income are exempted, shall alone be taken into consideration. 8.9. The Lower Authorities have failed to appreciate that the disallowance of expenditure incurred to earn exempted income has to be a smaller part of exempt income and should be a reasonable proportion to exempted income earned by the assessee in that year. 8.10. The Lower Authorities have failed to appreciate that no disallowance under Section 14A can be made towards the interest expenditure where the Appellant's interest-free funds exceed its interest-free investments. For the above Grounds and for such other Grounds which may be allowed by the Honourable Members to be urged at the time of hearing, it is prayed that the aforesaid appeal be allowed.”

Assessment Year 2019-20: “1. The impugned orders of the lower authorities are not justified in law and on the facts and circumstances of the case.

2. As regards the impugned proceedings under Section 153A and the impugned order under Section 153A dated 29.09.2021 being invalid and without jurisdiction: 2.1. The impugned proceedings under Section 153A and the impugned order under Section 153A dated 29.09.2021 are bad and non-est as the notices under Section 153A dated 04.11.2020 and under Section 143(2) dated 27.02.2021 were issued by the Learned Assistant Commissioner of Income Tax Central Circle 2 before obtaining the jurisdiction vide order of centralization of the Principal CIT, Mangalore dated 28.07.2021. 2.2. Without prejudice to the above, the proceedings under Section 153A and the impugned order under Section 153A dated 29.09.2021 are bad and non-est as the notices under Section 153A dated 04.11.2020 and under Section 143(2) dated 27.02.2021 were issued by the Learned Assistant Commissioner of Income Tax Central Circle 2 while the jurisdiction over the Appellant vests with the Learned Deputy Commissioner of Income Tax Central to 645/Bang/2024 Circle 2 vide order of centralization of the Principal CIT, Mangalore dated 28.07.2021. 2.3. Without prejudice to the above, the proceedings under Section 153A and the impugned order under Section 153A dated 29.09.2021 are bad and non-est as the notice under Section 143(2) dated 27.02.2021 was issued by the Learned Assistant Commissioner of Income Tax Central Circle 2 instead of Additional Commissioner, NaFAC. 2.4. Without prejudice to the above, the proceedings under Section 153A and the impugned order under Section 153A dated 29.09.2021 are bad and non-est being based on the notice under Section 143(2) dated 27.02.2021 which is vague, without of application of mind and contrary to section 143(2) and applicable board circulars and instructions.

3. The impugned searches conducted in the Appellant’s premises on 26.02.2020, 22.05.2020 and 02.06.2020 on the basis of a single authorization of PDIT(Inv), Bangalore dated 20.02.2020 are bad and illegal thus rendering the impugned assessment null and void.

4. The impugned order under Section 153A dated 29.09.2021 is bad and invalid as the Learned AO has obtained a consolidated approval of the JCIT Central Range vide letter F.No.26/Jt.CIT/CR/MNG/2021-22 dated 28.09.2021 contrary to the phrase “in respect of each assessment year” under Section 153D.

5. The search is invalid rendering resultant statements taken and consequent assessment invalid as the Authorised Officers appointed the witnesses who are not the inhabitants of the locality contrary to Rule 112(6) of the IT Rules and the search and seizure manual published by the department.

8. The Learned AO erred in making various additions merely based on the statements under Section 132(4) and under Section 131 when the same were retracted in entirety by the Appellant by filing letters dated 06.01.2021 (the copy of same was also filed before Learned Ad.CIT) and dated 12.07.2021.

9. As regards the revised return filed on 29.10.2020 being invalid and not binding the Appellant: 9.1. The revised return filed on 29.10.2020 is non-est as the same cannot stand on the basis of original return dated 30.09.2019 which abated due to search initiated on 26.02.2020. 9.2. Without prejudice, the Learned AO erred in accepting the revised return on 29.10.2021 as a valid return and relying solely on it without appreciating that the said return cannot be regarded as a return eligible to fall under Section 139(5). 9.3. The Learned AO failed to appreciate that the alleged artificial income of Rs.20,29,07,399/- shown in the “Schedule BP - Computation of income from business or profession” of revised return filed only to avoid exorbitant penalty under Section 270A, without any basis and contrary to evidence on record, books of account, the audited financial statements and tax audit reports in Form 3CA & 3CD. 9.4. Without prejudice, the Learned AO was not justified in making the alleged artificial income of Rs.20,29,07,399/- merely based on the revised return on 29.10.2020, which is liable to be regarded as a defective return under Explanation to Section 139(9). 9.5. The Learned AO erred in making various additions on the basis of the revised return filed on 29.10.2020 when making such addition was objected vide Appellant’s letters filed on 06.01.2021 (the copy of same was also filed before Learned Ad.CIT) and 12.07.2021 in to 645/Bang/2024 reply to the notice under Section 142(1) dated 02.07.2021. 9.6. Without prejudice, the Learned AO erred in selectively using the revised return to his convenience by adopting pick and choose. 9.7. The Learned AO ought not to have assessed Rs.20,29,07,399/- merely based on the revised return filed on 29.10.2020, without appreciating that there is no estoppel in law and the Learned AO should assess correct income based on material evidence without taking the advantage of vulnerability of the Appellant.

10. As regards the return filed in response to notice u/s 153A on 09.02.2021 being invalid and not binding the Appellant: 10.1. The Lower Authorities have failed to appreciate the impugned belated return filed by the Appellant on 09.02.2021 in response notice under Section 153A is invalid as the same was not filed within the time of 15 days [i.e. 19.11.2021] specified in the notice under 153A dated 04.11.2020 . 10.2. The Learned AO has no jurisdiction to accept the belated return filed on 09.02.2021 in response to notice under Section 153A as provisions of Section 153A do provide any authority to the Learned AO to condone any delay. 10.3. The notice under Section 143(2) issued in pursuance to an invalid return under section 153A is bad and non-est and without prejudice, issue of notice under section 143(2) is contingent on a valid return but the same does not validate an invalid return. 10.4. The Learned AO erred in making various additions on the basis of the belated return filed on 09.02.2021 when making such addition was objected vide Appellant’s letter dated 12.07.2021 in reply to the notice under Section 142(1) dated 02.07.2021. 10.5. Without prejudice, the Learned AO erred in selectively using the belated return to his convenience by adopting pick and choose. 10.6. The Learned AO ought not to have assessed Rs.20,29,07,399/- merely based on the belated return filed on 09.02.2021, without appreciating that there is no to 645/Bang/2024 estoppel in law and the Learned AO should assess correct income based on material evidence without taking the advantage of vulnerability of the Appellant. 10.7. Without prejudice, the Learned AO was not justified in making the alleged artificial income of Rs.20,29,07,399/- merely based on the revised return on 09.02.2021, which is liable to be regarded as a defective return under Explanation to Section 139(9).

11. The Learned CIT(A) was not justified in failing to adjudicate various grounds raised

by the Appellant, by wrongly holding that the income incorrectly offered in the revised return was “fait accompli and cannot be reopened for appeal purpose” and his actions are contrary to provisions of section 251 and settled principle that the duty of the Appellate Authority is to remove the defects or irregularities that occur in the course of the assessment proceeding.

12. As regards addition of Rs.1,32,15,180/- on account purchase of tendu leaves; 12.1. The impugned addition of Rs.1,32,15,180/- towards account purchase of tendu leaves is not justified in the absence of any real income, without any incriminating evidence, not based on audited financial statements and tax audit report but being based exclusively on statements extracted under coercion and made contrary to F. No. 286/2/2003/I.T. (Inv.) dated 11.03.2003 and F.No.286/98/2013-IT (Inv.II) dated 18.12.2014. 12.2. The Learned AO erred in treating Rs.5,50,150 as cash paid over and above three bills to M/s Patel & Co., and extrapolating it to entire quantity of tendu leaf purchased from all vendors during the impugned year and making an addition of Rs.1,32,15,180/- even after noticing that the said amount was adjusted by M/s Patel & Co, in their subsequent invoice and after conceding that there is neither any cash payment nor any payment outside the books. 12.3. The Learned AO having found that the claim of the Appellant was tenable at para 5.6 and having not controverted to the Appellant’s statement that “all the vouchers have been properly documented post search and there is no discrepancy on this issue anymore” at para 5.7 to 645/Bang/2024 of the impugned order dated 29.09.2021, was not justified in making the impugned addition of Rs.1,55,45,376/- on account purchase of tendu leaves. 12.4. The Learned AO erred in making the aforesaid addition without rejecting the books of accounts maintained by the Appellant. 12.5. The Learned AO erred in making the impugned addition that cannot be made merely based on the loose sheet found during the search, without any corroborative evidence merely based on suspicion, presumptions, surmises and conjectures. 12.6. The Learned AO erred in making the impugned addition merely on the basis of statements extracted from the Appellant during search proceedings under coercion, when the same were retracted by the Appellant vide letters dated 06.01.2021 (the copy of same was also filed before Learned Ad.CIT) and 12.07.2021. 12.7. Without prejudice, Learned AO erred in making the impugned addition for AY 2019-20 by way of extrapolation of the loose sheets found during the search which did not pertain to the impugned financial year 2018- 19 and nothing pertaining to the impugned FY 2018-19 was found during the search.

13. As regards the valuation of stock: 13.1. The impugned addition of Rs.18,70,77,528/- towards account purchase of tendu leaves is not justified in the absence of any real income, without any incriminating evidence, not based on audited financial statements and tax audit report but being based exclusively on statements extracted under coercion and made contrary to F. No. 286/2/2003/I.T. (Inv.) dated 11.03.2003 and F.No.286/98/2013-IT (Inv.II) dated 18.12.2014. 13.2. The Learned AO erred in making the impugned addition of Rs.18,70,77,528/- by failing to appreciate that valuation of stock on net basis consistently is revenue neutral as compared to gross basis and is sufficient compliance with section 145A. 13.3. The Learned AO erred in making the aforesaid addition without rejecting the books of accounts maintained by the Appellant. to 645/Bang/2024 13.4. The Learned AO having conceded that “the duties/tax component in purchases is not included in valuation of Inventories resulting in lower gross profit if not followed consistently” has failed to appreciate that the Appellant has consistently valued the stock on net basis and the question of lowering the gross profit does not arise. 13.5. The Learned AO erred in failing to follow the doctrine of consistency which is evident from the fact that no addition was made in the AYs 2017-18 and 2018-19 even though the provisions of Section 145A and ICDS II were equally applicable for the said impugned years. 13.6. Without prejudice to the above, the Learned AO erred in making the impugned addition by presuming that reflection of Rs.20,29,07,399/- under “Any other item or items of addition under section 28 to 44DA” of the revised return dated 29.10.2020 and the belated return dated 09.02.2021 was towards undervaluation of stock whereas the appellant reflected the same value of stocks as supported by its books, audited financials and tax audit report, in all its returns. 13.7. The Learned AO erred in making the impugned addition merely on the basis of statements extracted from the Appellant during search proceedings under coercion, when the same were retracted by the Appellant vide letters dated 06.01.2021 (the copy of same was also filed before Learned Ad.CIT) and 12.07.2021. 13.8. Without prejudice, the Learned AO erred in making addition of Rs.18,70,77,583/- to the closing stock by applying section 145A read with ICDS II making corresponding adjustment to the opening stock.

14. As regards ad-hoc disallowance of labelling wages of Rs.26,14,691/:- 14.1. The impugned ad-hoc disallowance of Rs.26,14,691/- towards labelling wages is not justified in the absence of any real income, without any incriminating evidence, not based on audited financial statements and tax audit report but being based exclusively on statements extracted under coercion and made contrary to F. No. 286/2/2003/I.T. (Inv.) dated 11.03.2003 and F.No.286/98/2013-IT (Inv.II) dated 18.12.2014.

to 645/Bang/2024 14.2. The Learned AO was not justified in making aforesaid ad-hoc disallowance of Rs.26,14,691/- arbitrarily and on an estimate basis, by extrapolating Rs.25 for every lakh beedies sold by the Appellant during the impugned year, without rejecting the books of accounts maintained by the Appellant. 14.3. The Learned AO was not justified in perversely stating that “Mr. Nagendra Pai, Executive Director of the company was provided with the relevant finding and the deposition of Mr Srinivas Acharya on the issue of Rs.1,97,021/- due to variation in record entered in cash book and wages ledger maintained for the PF and non PF workers”, without application of mind when Mr. Srinivas Acharya has not given any such statement either on 26.02.2020 under Section 132(4) or on 25.06.2020 under Section 131. 14.4. The Learned AO was not justified in making the ad-hoc addition of Rs.26,14,691, without any evidence and on an erroneous presumption that there was inflation of Rs.25 for every lakh beedies sold by the Appellant in the impugned FY 2018-19 merely based on a statement of under Section 133A of one third party labelling contractor. 14.5. The Learned AO was not justified in making the addition of Rs.26,14,691/- on an erroneous presumption that the Appellant was inflating the labelling wages without appreciating the fact that the alleged inflations, if any, were made by third-party labelling contractors. 14.6. The Learned AO erred in making the impugned addition merely on the basis of statements extracted from the Appellant during search proceedings under coercion, when the same were retracted by the Appellant vide letters dated 06.01.2021 (the copy of same was also filed before Learned Ad.CIT) and 12.07.2021. 14.7. The Learned AO erred in making the impugned addition that was based on a statement of one, Mr. Ashok Shenoy, manager of M/s. Shenoy & Co u/s 133A which has no evidentiary value, as the officer taking such statement u/s 133A was not authorised to administer an oath and record a sworn statement. 14.8. Without prejudice, the Learned AO was not justified in making the impugned addition merely on the mistaken statements of Sri. Nagendra Pai, without any cogent evidence and without providing an opportunity to to 645/Bang/2024 cross-examine Mr. Ashok Shenoy, manager of M/s. Shenoy & Co. or other managers. 14.9. Without prejudice, Learned AO erred in making the impugned addition for AY 2019-20 on the basis of a statement under 133A of a third party which did not pertain to the impugned financial year 2018-19 and nothing pertaining to the impugned FY 2018-19 was found during the search. 14.10. Without prejudice, the Learned AO could have made addition of income only to the extent of alleged inflation of Rs.1,97,021/- made by Mr. Ashok Shenoy, manager of M/s. Shenoy & Co.

15. As regards disallowance under Section 14A r/w Rule 8D(2)(iii): 15.1. The Lower Authorities have failed to appreciate that the Learned AO cannot invoke Section 14A in the absence of recording non-satisfaction with regard to the claim of the assessee and without examining the accounts of the appellant and without rejecting its books of account. 15.2. The Lower Authorities were not justified in making disallowance of Rs.43,02,821/- under section 14A r/w Rule 8D(2)(iii) when the Appellant had voluntarily disallowed the expenses of Rs.6,59,082/- which was directly attributable and the expense of Rs.4,00,000/- which was indirectly attributable to portfolio management services. 15.3. The Lower Authorities were not justified in making any disallowance under Section 14A r/w Rule 8D(2)(iii) without appreciating that disallowance under Section 14A cannot be made in the absence of any proximate cause i.e. relationship of expenditure with exempt income. 15.4. The Learned AO was not justified in invoking Section 14A r/w Rule 8D(2)(iii) without first recording the exact expenditure incurred to earn exempt income to justify the impugned disallowance. 15.5. The Learned AO was not justified in making any disallowance under Section 14A r/w Rule 8D(2)(iii) on the wrong notion that the disallowance is presumptive in nature even when the expenditure is not actually incurred. to 645/Bang/2024 15.6. Without prejudice, the Lower Authorities were not justified in acting inconsistently in as much as while they chose to disturb the voluntary disallowance of Rs.10,59,082/- under Section 14A in the revised and belated returns, they blindly taxed the non-existent income reflected in the very same returns. 15.7. Without prejudice, the Lower Authorities have failed to appreciate that as per Rule 8D(2)(iii), only the average value of those investments, income from which are exempt shall alone be taken into consideration. 15.8. Without prejudice, the Lower Authorities have failed to appreciate that as per Rule 8D(2)(iii), only the average value of those investments wherein all streams of income are exempted, shall alone be taken into consideration. 15.9. The Lower Authorities have failed to appreciate that the disallowance of expenditure incurred to earn exempted income has to be a smaller part of exempt income and should be a reasonable proportion to exempted income earned by the assessee in that year. 15.10. The Lower Authorities have failed to appreciate that no disallowance under Section 14A can be made towards the interest expenditure where the Appellant's interest-free funds exceed its interest-free investments. For the above Grounds and for such other Grounds which may be allowed by the Honourable Members to be urged at the time of hearing, it is prayed that the aforesaid appeal be allowed.”

Assessment Year 2020-21: “1. The impugned orders of the lower authorities are not justified in law and on the facts and circumstances of the case.

2. As regards the assessment proceedings and the impugned assessment order dated 29.09.2021 being invalid and without jurisdiction: 2.1. The assessment proceeding and the impugned assessment order dated 29.09.2021 are bad and non-est as the notice under Section 143(2) dated 27.02.2021 was issued by the Learned Assistant Commissioner of Income to 645/Bang/2024 Tax Central Circle 2 before obtaining the jurisdiction vide order of centralization of the Principal CIT, Mangalore dated 28.07.2021. 2.2. Without prejudice to the above, the assessment proceeding and the impugned assessment order dated 29.09.2021 are bad and non-est as the notice under Section 143(2) dated 27.02.2021 was issued by the Learned Assistant Commissioner of Income Tax Central Circle 2 while the jurisdiction over the Appellant vests with the Learned Deputy Commissioner of Income Tax Central Circle 2 vide order of centralization of the Principal CIT, Mangalore dated 28.07.2021. 2.3. Without prejudice to the above, the assessment proceeding and the impugned assessment order dated 29.09.2021 are bad and non-est as the notice under Section 143(2) dated 27.02.2021 was issued by the Learned Assistant Commissioner of Income Tax Central Circle 2 instead of Additional Commissioner, NaFAC. 2.4. Without prejudice to the above, the assessment proceeding and the impugned assessment order dated 29.09.2021 are bad and non-est being based on the notice under Section 143(2) dated 27.02.2021 which is vague, without of application of mind and contrary to section 143(2) and applicable board circulars and instructions.

3. As regards the impugned assessment order and the demand notice dated 29.09.2021 are passed in violation of the Board’s Circular No. 19/2019 dated 14.08.2019: 3.1. The impugned assessment order and the demand notice dated 29.09.2021 are bad and non-est as the same were not generated electronically on the ITBA Platform and communicated electronically in contravention of the aforesaid circular. 3.2. Without prejudice to the above, the impugned assessment order and the demand notice dated 29.09.2021 are bad and non-est as the same bear manually typed DIN in contravention of the aforesaid circular which requires auto generation and auto printing of DIN on the electronically generated document. 3.3. Without prejudice to the above, the impugned assessment order and the demand notice dated 29.09.2021 are bad and non-est as the same DIN viz to 645/Bang/2024 ITBA/AST/M/143(3)/2021-22/1035997134(1) was allotted to both documents thus rendering DIN non est which in turn rendered the above documents also non est.

4. The impugned searches conducted in the Appellant’s premises on 26.02.2020, 22.05.2020 and 02.06.2020 on the basis of a single authorization of PDIT(Inv), Bangalore dated 20.02.2020 are bad and illegal thus rendering the impugned assessment null and void.

5. The impugned assessment order under Section 143(3) dated 29.09.2021 is bad and non-est as the same was subject to illegal intervention of the JCIT Central Range vide his approval letter F.No.26/Jt.CIT/CR/MNG/2021-22 dated 28.09.2021 which interfered with the independence of the Learned AO.

6. The search is invalid rendering resultant statements taken and consequent assessment invalid as the Authorised Officers appointed the witnesses who are not the inhabitants of the locality contrary to Rule 112(6) of the IT Rules and the search and seizure manual published by the department.

7. The statement under Section 132(4) dated 28.02.2020 taken from Nagendra Pai is invalid and without jurisdiction being fraught with material infirmities, without application of mind, and contrary to section 132(4) and board instructions and consequently the impugned additions of Rs.20,59,84,960/- based on such statements are liable to be set aside.

8. The statements under Section 132(4) dated 26.02.2020 taken from Mr. Subraya M Pai, Mr. Anand Pai and K Shrinivasa Acharya are invalid being without witnesses and contrary to section 132(4) and board instructions and consequently the impugned additions based on such statements are liable to be set aside.

11. As regards the revised return filed on 09.02.2021 being invalid and not binding the Appellant: 11.1. The Learned AO erred in accepting the revised return on 09.02.2021 as a valid return and relying solely on it without appreciating that the said return cannot be regarded as a return eligible to fall under Section 139(5). 11.2. The Learned AO failed to appreciate that the alleged artificial income of Rs.20,59,84,960/- shown in the “Schedule BP - Computation of income from business or profession” of revised return filed only to avoid exorbitant penalty under Section 270A, without any basis and contrary to evidence on record, books of account, the audited financial statements and tax audit reports in Form 3CA & 3CD. 11.3. Without prejudice, the Learned AO was not justified in making addition of Rs.20,59,84,960/- merely based on the revised return on 09.02.2021, which is liable to be regarded as a defective return under Explanation to Section 139(9). 11.4. The Learned AO erred in making various additions on the basis of the revised return filed on 09.02.2021 when making such addition was objected vide Appellant’s letter dated 12.07.2021 in reply to the notice under Section 142(1) dated 02.07.2021. 11.5. Without prejudice, the Learned AO erred in selectively using the revised return to his convenience by adopting pick and choose. 11.6. The Learned AO ought not to have assessed to 645/Bang/2024 Rs.20,59,84,960/- merely based on the revised return filed on 09.02.2021, without appreciating that there is no estoppel in law and the Learned AO should assess correct income based on material evidence without taking the advantage of vulnerability of the Appellant.

12. The Learned CIT(A) was not justified in failing to adjudicate various grounds raised

by the Appellant, by wrongly holding that the income incorrectly offered in the revised return was “fait accompli and cannot be reopened for appeal purpose” and his actions are contrary to provisions of section 251 and settled principle that the duty of the Appellate Authority is to remove the defects or irregularities that occur in the course of the assessment proceeding.

13. As regards addition of Rs. 1,55,45,376/- on account purchase of tendu leaves; 13.1. The impugned addition of Rs. Rs. 1,55,45,376/- towards account purchase of tendu leaves is not justified in the absence of any real income, without any incriminating evidence, not based on audited financial statements and tax audit report but being based exclusively on statements extracted under coercion and made contrary to F. No. 286/2/2003/I.T. (Inv.) dated 11.03.2003 and F.No.286/98/2013-IT (Inv.II) dated 18.12.2014. 13.2. The Learned AO erred in treating Rs.5,50,150 as cash paid over and above three bills to M/s Patel & Co., and extrapolating it to entire quantity of tendu leaf purchased from all vendors during the impugned year and making an addition of Rs.1,55,45,376/- even after noticing that the said amount was adjusted by M/s Patel & Co, in their subsequent invoice and after conceding that there is neither any cash payment nor any payment outside the books. 13.3. The Learned AO having found that the claim of the Appellant was tenable at para 5.6 and having not controverted to the Appellant’s statement that “all the vouchers have been properly documented post search and there is no discrepancy on this issue anymore” at para 5.7 of the impugned order dated 29.09.2021, was not justified in making the impugned addition of Rs.1,55,45,376/- on account purchase of tendu leaves. to 645/Bang/2024 13.4. The Learned AO erred in making the aforesaid addition without rejecting the books of accounts maintained by the Appellant. 13.5. The Learned AO erred in making the impugned addition that cannot be made merely based on the loose sheet found during the search, without any corroborative evidence merely based on suspicion, presumptions, surmises and conjectures. 13.6. The Learned AO erred in making the impugned addition merely on the basis of statements extracted from the Appellant during search proceedings under coercion, when the same were retracted by the Appellant vide letters dated 06.01.2021 (the copy of same was also filed before Learned Ad.CIT) and 12.07.2021. 13.7. Without prejudice, Learned AO erred in making the impugned addition for AY 2020-21 by way of extrapolation of the loose sheets found during the search which did not pertain to the impugned financial year 2019- 20 and nothing pertaining to the impugned FY 2019-20 was found during the search.

14. As regards the valuation of stock; 14.1. The impugned addition of Rs.68,53,999/- towards account purchase of tendu leaves is not justified in the absence of any real income, without any incriminating evidence, not based on audited financial statements and tax audit report but being based exclusively on statements extracted under coercion and made contrary to F. No. 286/2/2003/I.T. (Inv.) dated 11.03.2003 and F.No.286/98/2013-IT (Inv.II) dated 18.12.2014. 14.2. The Learned AO erred in making the impugned addition of Rs.68,53,999/- by failing to appreciate that valuation of stock on net basis consistently is revenue neutral as compared to gross basis and is sufficient compliance with section 145A. 14.3. The Learned AO erred in making the aforesaid addition without rejecting the books of accounts maintained by the Appellant. 14.4. The Learned AO having conceded that “the duties/tax component in purchases is not included in valuation of Inventories resulting in lower gross profit if not to 645/Bang/2024 followed consistently” has failed to appreciate that the Appellant has consistently valued the stock on net basis and the question of lowering the gross profit does not arise. 14.5. The Learned AO erred in failing to follow the doctrine of consistency which is evident from the fact that no addition was made in the AYs 2017-18 and 2018-19 even though the provisions of Section 145A and ICDS II were equally applicable for the said impugned years. 14.6. Without prejudice to the above, the Learned AO erred in making the impugned addition by presuming that reflection of Rs. 20,59,84,960/- under “Any other item or items of addition under section 28 to 44DA” of the revised return dated 09.02.2021 was towards undervaluation of stock whereas the appellant reflected the same value of stocks as supported by its books, audited financials and tax audit report, in all its returns. 14.7. The Learned AO erred in making the impugned addition merely on the basis of statements extracted from the Appellant during search proceedings under coercion, when the same were retracted by the Appellant vide letters dated 06.01.2021 (the copy of same was also filed before Learned Ad.CIT) and 12.07.2021.

15. As regards ad-hoc and arbitrary disallowance of expenses of Rs.17,92,25,000/-: 15.1. The impugned ad-hoc and arbitrary disallowance of expenses of Rs.17,92,25,000/- is not justified in the absence of any real income, without any incriminating evidence, not based on audited financial statements and tax audit report but being based exclusively on statements extracted under coercion and made contrary to F. No. 286/2/2003/I.T. (Inv.) dated 11.03.2003 and F.No.286/98/2013-IT (Inv.II) dated 18.12.2014. 15.2. The impugned disallowance of Rs.17,92,25,000/- is bad being vague, without proper reasons, purely ad-hoc and being based on one isolated finding in one branch i.e. Karkala in respect of Rs.1,80,000/-, particularly when the said figure appears to be a balancing figure in the offer of Rs.60 Crores as extracted from the appellant under coercion during search proceedings vide statement of Mr. Nagendra Pai dated 18.08.2020 u/s 131. to 645/Bang/2024 15.3. The Learned AO erred in making aforesaid disallowance of Rs.17,92,25,000/- without rejecting the books of accounts maintained by the Appellant. 15.4. The Learned AO erred in making the above disallowance for alleged reasons of “improper documentation or non-production during the search” or “improperly vouched or the relevant vouchers were not made available for perusal and verification” when such accusations were neither made by the search team and nor were made by himself in his notice under Section 142(1) dated 02.07.2021 whereas on the contrary, the impugned disallowance was proposed to be made on account of “Cash expenditure in violation of provisions of section 40A(3)” in the said notice.

15.5. The Learned AO erred in perversely converting the offer of Rs.17,92,25,000/- under section 40A(3) extracted from the Appellant during search proceedings under coercion into a case of “improper documentation or non-production during the search” or “improperly vouched or the relevant vouchers were not made available for perusal and verification” 15.6. The Learned AO failed to appreciate that the proposed addition was towards “Cash expenditure in violation of provisions of section 40A(3)” in the notice under Section 142(1) dated 02.07.2021 which established that the entire expenditure of Rs.17,92,25,000/- otherwise qualified for deduction under Section 28 or 37(1). 15.7. The impugned addition is bad being based on the Learned AO’s perverse and wrong narrative in para 7.4 and 7.5 of what transpired during search proceedings. 15.8. The Learned AO was not justified in making such ad-hoc disallowance on perverse allegation of “improper documentation or non-production during the search” or “improperly vouched or the relevant vouchers were not made available for perusal and verification” without seeking any such documents in the impugned notice under Section 142(1) dated 02.07.2021. 15.9. The Learned AO erred in making the impugned addition merely on the basis of statements extracted from the Appellant during search proceedings under coercion, when the same were retracted by the Appellant vide to 645/Bang/2024 letters dated 06.01.2021 (the copy of same was also filed before Learned Ad.CIT) and 12.07.2021. 15.10. The Learned AO having not controverted to the Appellant’s statement that “all the vouchers have been properly documented post search and there is no discrepancy on this issue anymore” at para 7.7 of the impugned order dated 29.09.2021, was not justified in making any addition on account of alleged improper documentation. 15.11. Without prejudice, the impugned addition is bad as Learned AO perversely stated that the executive director in his statement u/s 132(4) admitted the voluntary disclosure of Rs.20 Crores to cover up all the discrepancies detected during the search when no such admission was made by the executive director in his statement u/s 132(4) dated 28.02.2020. 15.12. Without prejudice to the above, the Learned AO erred in relying upon the statement u/s 132(4) dated 26.02.2020 of Mr. Srinivas Acharya, Manager of Karkala Branch when the same was administered by ADIT(Inv.) Mysuru without any witness. 15.13. Without prejudice to the above, even if the impugned disallowance was taken to be under Section 40A(3), the same is unsustainable as such disallowance can be made only in respect of clearly identified transactions and not on the basis of surmise, conjuncture and ad hoc estimate, particularly when the tax auditors have not pointed out any violation of said section. 15.14. Without prejudice to the above, the Learned AO failed to appreciate that the impugned payment made for the purchase of the timber/wood is covered under Rule 6DD(e)(i). 15.15. Without prejudice to the above, the Learned AO failed to appreciate that circumstances envisaged under Rule 6DD are only illustrative and not exhaustive and the case of Appellant does not warrant invocation of section 40A(3) as the impugned payments are genuine and are made out of business exigency. 15.16. Without prejudice to the Learned AO erred in making disallowance under section 40A(3) on the basis of unsigned post-dated vouchers. to 645/Bang/2024 15.17. Without prejudice to the Learned AO to appreciate that even in case of any transaction disallowed under Section 40A(3), disallowance has to be restricted only to the payment in excess of Rs.10,000/-.

16. As regards income declared by the directors of Rs.20,00,000: 16.1. The impugned addition of Rs.20,00,000/- declared by the directors is not justified in the absence of any real income, without any incriminating evidence, not based on audited financial statements and tax audit report but being based exclusively on statements extracted under coercion and made contrary to F. No. 286/2/2003/I.T. (Inv.) dated 11.03.2003 and F.No.286/98/2013-IT (Inv.II) dated 18.12.2014. 16.2. The Learned AO erred in making the impugned addition of Rs.20,00,000/- when no income accrued in the hands of the Appellant. 16.3. The Learned AO making the impugned addition of Rs.20,00,000/- merely based on suspicion, presumptions, surmises and conjectures as neither the directors nor even the Learned AO have clarity about the transaction, let alone accrual of any income to the Appellant. 16.4. The Learned AO erred in making aforesaid addition of Rs.20,00,000/- without rejecting the books of accounts maintained by the Appellant. 16.5. The Learned AO erred in making the impugned addition merely on the basis of statements extracted from the Appellant during search proceedings under coercion, when the same were retracted by the Appellant vide letters dated 06.01.2021 (the copy of same was also filed before Learned Ad.CIT) and 12.07.2021. 16.6. Without prejudice to the above, the Learned AO erred in relying upon the statements u/s 132(4) dated 26.02.2020 of Mr. Anand Pai and Subraya M Pai when the same were administered by DDIT(Inv) Unit 3(2) and ACIT Central Circle 2 respectively without any witness. 16.7. The Learned AO erred in making the impugned addition of Rs.20,00,000/- without appreciating that the statements of the Directors recorded in their residences could not have been taken under Section 132(4). to 645/Bang/2024 16.8. The Learned AO erred in making the impugned addition merely on the basis of statements extracted from the Appellant during search proceedings under coercion, when the same were retracted by the Appellant vide letters dated 06.01.2021 (the copy of same was also filed before Learned Ad.CIT) and 12.07.2021. 16.9. The Learned AO erred in making the impugned addition of Rs.20,00,000/-, on an ad-hoc basis without ascertaining the nature of the transaction, merely based on the WhatsApp chats which are inadmissible in the court and has no evidentiary value. 16.10. The Learned AO erred in making the impugned addition of Rs.20,00,000/- without appreciating that the Appellant is engaged in the manufacture of beedies and could not have earned any commission during the impugned year by engaging in real estate activity and the alleged WhatsApp message does not indicate any such transactions.

17. As regards ad-hoc disallowance of labelling wages of Rs.23,60,587: 17.1. The impugned ad-hoc disallowance of Rs.23,60,587/- towards labelling wages is not justified in the absence of any real income, without any incriminating evidence, not based on audited financial statements and tax audit report but being based exclusively on statements extracted under coercion and made contrary to F. No. 286/2/2003/I.T. (Inv.) dated 11.03.2003 and F.No.286/98/2013-IT (Inv.II) dated 18.12.2014. 17.2. The Learned AO was not justified in making aforesaid ad-hoc disallowance of Rs.23,60,587/- arbitrarily and on an estimate basis, by extrapolating Rs.25 for every lakh beedies sold by the Appellant during the impugned year, without rejecting the books of accounts maintained by the Appellant. 17.3. The Learned AO was not justified in perversely stating that “Mr. Nagendra Pai, Executive Director of the company was provided with the relevant finding and the deposition of Mr Srinivas Acharya on the issue of Rs.1,97,021/- due to variation in record entered in cash book and wages ledger maintained for the PF and non PF workers”, without application of mind when Mr. Srinivas Acharya has not given any such statement either on to 645/Bang/2024 26.02.2020 under Section 132(4) or on 25.06.2020 under Section 131. 17.4. The Learned AO was not justified in making the ad-hoc addition of Rs.23,60,587/-, without any evidence and on an erroneous presumption that there was inflation of Rs.25 for every lakh beedies sold by the Appellant in the impugned FY 2019-20 merely based on a statement of under Section 133A of one third party labelling contractor. 17.5. The Learned AO was not justified in making the addition of Rs.23,60,587/- on an erroneous presumption that the Appellant was inflating the labelling wages without appreciating the fact that the alleged inflations, if any, were made by third-party labelling contractors. 17.6. The Learned AO erred in making the impugned addition merely on the basis of statements extracted from the Appellant during search proceedings under coercion, when the same were retracted by the Appellant vide letters dated 06.01.2021 (the copy of same was also filed before Learned Ad.CIT) and 12.07.2021. 17.7. The Learned AO erred in making the impugned addition that was based on a statement of one, Mr. Ashok Shenoy, manager of M/s. Shenoy & Co u/s 133A which has no evidentiary value, as the officer taking such statement u/s 133A was not authorised to administer an oath and record a sworn statement. 17.8. Without prejudice, the Learned AO was not justified in making the impugned addition merely on the mistaken statements of Sri. Nagendra Pai, without any cogent evidence and without providing an opportunity to cross-examine Mr. Ashok Shenoy, manager of M/s. Shenoy & Co. or other managers. 17.9. Without prejudice, the Learned AO could have made addition of income only to the extent of alleged inflation of Rs.1,97,021/- made by Mr. Ashok Shenoy, manager of M/s. Shenoy & Co.

18. As regards disallowance under Section 14A r/w Rule 8D(2)(iii): 18.1. The Lower Authorities have failed to appreciate that the Learned AO cannot invoke Section 14A in the absence of recording non-satisfaction with regard to the claim of the assessee and without examining the accounts to 645/Bang/2024 of the appellant and without rejecting its books of account. 18.2. The Lower Authorities were not justified in making disallowance of Rs.65,99,480/- under section 14A r/w Rule 8D(2)(iii) when the Appellant had voluntarily disallowed the expense of Rs.4,79,802/- which was directly attributable to portfolio management services. 18.3. The Lower Authorities were not justified in making any disallowance under Section 14A r/w Rule 8D(2)(iii) without appreciating that disallowance under Section 14A cannot be made in the absence of any proximate cause i.e. relationship of expenditure with exempt income. 18.4. The Learned AO was not justified in invoking Section 14A r/w Rule 8D(2)(iii) without first recording the exact expenditure incurred to earn exempt income to justify the impugned disallowance. 18.5. The Learned AO was not justified in making any disallowance under Section 14A r/w Rule 8D(2)(iii) on the wrong notion that the disallowance is presumptive in nature even when the expenditure is not actually incurred. 18.6. Without prejudice, the Lower Authorities were not justified in acting inconsistently in as much as while they chose to disturb the voluntary disallowance of Rs.4,79,802/- under Section 14A in the revised return, they blindly taxed the non-existent income reflected in the very same revised return. 18.7. Without prejudice, the Lower Authorities have failed to appreciate that as per Rule 8D(2)(iii), only the average value of those investments, income from which are exempt shall alone be taken into consideration. 18.8. Without prejudice, the Lower Authorities have failed to appreciate that as per Rule 8D(2)(iii), only the average value of those investments wherein all streams of income are exempted, shall alone be taken into consideration. 18.9. The Lower Authorities have failed to appreciate that the disallowance of expenditure incurred to earn exempted income has to be a smaller part of exempt income and should be a reasonable proportion to exempted income earned by the assessee in that year. to 645/Bang/2024 18.10. The Lower Authorities have failed to appreciate that no disallowance under Section 14A can be made towards the interest expenditure where the Appellant's interest-free funds exceed its interest-free investments. For the above Grounds and for such other Grounds which may be allowed by the Honourable Members to be urged at the time of hearing, it is prayed that the aforesaid appeal be allowed.”

3. In respect of the A.Y. 2017-18, the AO had made the assessment u/s. 143(3) in which the AO had made an addition u/s. 14A of the Act. Apart from the said addition, there was no income added to the returned income.

4. Similarly, in respect of the A.Y. 2018-19, the AO had made an addition u/s. 14A of the Act since the assessee had received exempt income, to 645/Bang/2024 by not accepting the expenses shown by the assessee to earn the said exempted income.

5. Insofar as the assessment year 2019-20 is concerned, the AO made the additions under the following heads. a) Disallowing the quantum of purchases of tendu leaves for want of documentation – Rs. 1,32,15,180/- b) The addition made under the head undervaluation of stock u/s. 145A of the Act – Rs. 18,70,77,582/- c) Labelling expenses – Rs. 26,14,691/- d) Disallowance u/s. 14A – Rs. 53,61,903/-

6. Insofar as the assessment year 2020-21 is concerned, the AO made the additions under the following heads. a) Disallowing the quantum of purchases of tendu leaves for want of documentation – Rs. 1,55,45,376/- b) The addition made under the head undervaluation of stock u/s. 145A of the Act – Rs. 68,53,999/- c) Addition for the contravention of section 40A(3) and insufficiency of vouchers – Rs. 17,92,25,000/- d) Addition made based on the declaration given by the Director – Rs. 20 Lakhs e) Labelling Expenses – Rs. 23,60,587/- f) Addition based on the seizure of cash – Rs. 63 Lakhs g) Disallowance u/s. 14A – Rs. 70,79,282/-

7. The AO made the additions based on the results of the search and also based on some discrepancy noticed at the time of search and also based on the survey conducted at the premises of the labour contractors. The AO also relied on the statements given by the Executive Director and his voluntary acceptance to add the income in order to cover the defects pointed out by the authorities at the time of search. Insofar as the Sec.14A disallowance, the AO had not accepted the claim made by the assessee for to 645/Bang/2024 the reason that the assessee had invested the surplus funds in the securities and earned exempt income when the assessee had borrowed funds from the banks and therefore the assessee had not utilised the surplus funds for investing in the business and invested the said amount in the securities and earned exempt income and therefore disallowed the expenditure and estimated the disallowance u/s. 14A r.w.Rule 8D.

9. The assessee challenged the assessment orders before the Ld.CIT(A)-2, Panaji and disputed the additions made pursuant to the search action conducted on 26/02/2020. Before the Ld.CIT(A), the assessee had disputed the addition made based on the statement given u/s. 132(4) when there is no incriminating materials available. The assessee further submitted that the authorities had made the additions based on the loose sheets without any corroborative evidence and therefore the said additions are also not warranted. Insofar as the addition on account of valuation of closing stock u/s. 145A of the Act, the assessee pointed out that if the method of adding the duties and taxes on the value of the closing stock is adopted, then similarly, the opening stock should also be valued in the same manner and therefore there is no reason for making the said addition on the valuation of the closing stock alone. Similarly, in respect of the labelling expenses to 645/Bang/2024 inflated, that too based on the statement given u/s. 132(4) and without having any incriminating evidence, it was submitted that addition could not be made on the assessee since the assessee had not inflated the labelling expenses.

10. The assessee also disputed the other additions and also relied on the judgment of the Hon’ble Supreme Court as well as the various High Courts in support of their contention that the additions are not required to be made. The Ld.CIT(A) had granted the partial relief in respect of the disallowance made u/s. 14A and directed the AO to grant deduction from the disallowance made u/s. 14A, the voluntary disallowance made by the appellant.

12. The Ld.CIT(A) had confirmed the other additions on the ground that the appellant had honoured the voluntary admissions made during the search and filed returns and paid taxes accordingly. Therefore the Ld.CIT(A) had considered the other grounds as infructuous. As against the said orders, the assessee is on appeal before this Tribunal.

13. The assessee also filed applications seeking the leave of this Tribunal to admit the additional legal grounds in respect of the A.Ys. 2018-19, 2019- 20 and 2020-21 which are extracted as below: Assessment Year 2018-19 “1. With reference to the above appeal, we request the Honourable Members to kindly permit us to take the following additional ground for the AY 2018-19: Ground 3A: The impugned assessment order under Section 153A dated 29.09.2021 is bad and invalid to 645/Bang/2024 as the same is barred by limitation under Section 153B(1).

2. It is submitted that the aforesaid ground was inadvertently not raised in the appeal memorandum. The aforesaid ground, being legal ground, may be decided on the basis of facts which are already on record. The omission to raise the aforesaid ground is not mala fide and willful.

3. Therefore, it is sincerely prayed before the Honourable Members that the leave to take up the aforesaid ground may kindly be granted for AY 2018-19.

4. The Affidavit in this regard is enclosed.”

Assessment Year 2019-20 “1. With reference to the above appeal, we request the Honourable Members to kindly permit us to take the following additional ground for the AY 2019-20: Ground 3A: The impugned assessment order under Section 153A dated 29.09.2021 is bad and invalid as the same is barred by limitation under Section 153B(1).

2. It is submitted that the aforesaid ground was inadvertently not raised in the appeal memorandum. The aforesaid ground, being legal ground, may be decided on the basis of facts which are already on record. The omission to raise the aforesaid ground is not mala fide and willful.

3. Therefore, it is sincerely prayed before the Honourable Members that the leave to take up the aforesaid ground may kindly be granted for AY 2019-20.

4. The Affidavit in this regard is enclosed.” Assessment Year 2020-21 “1. With reference to the above appeal, we request the Honourable Members to kindly permit us to take the following additional grounds for the AY 2020-21: Ground 5A: The impugned assessment order under Section 143(3) dated 29.09.2021 is bad and invalid as the same is barred by limitation under Section 153B(1). Gound 5B: The impugned assessment order under Section 143(3) dated 29.09.2021 is bad and non-est to 645/Bang/2024 as the Learned AO has obtained a single approval of the JCIT Central Range vide letter F.No.26/Jt.CIT/CR/MNG/2021-22 dated 28.09.2021 contrary to the phrase “in respect of each assessment year” under Section 153D.

2. It is submitted that the aforesaid grounds were inadvertently not raised in the appeal memorandum. The aforesaid grounds being legal grounds, may be decided on the basis of facts which are already on record. The omission to raise the aforesaid grounds is not mala fide and willful.

3. Therefore, it is sincerely prayed before the Honourable Members that the leave to take up the aforesaid grounds may kindly be granted for the AY 2020-21.

4. The Affidavit in this regard is enclosed.”

14. The assessee filed the above additional legal grounds in addition to the legal grounds raised

in the memorandum of appeal in form

36. We allowed the assessee to raise the additional grounds since they are all legal grounds, that can be raised at any stage by following the judgment of the Hon’ble Supreme Court reported in 229 ITR 383 in the case of National Thermal Power Co. Ltd. vs. CIT.

15. At the time of hearing, initially the Ld.Sr. Counsel made his submissions about the various legal grounds raised by the assessee in the main grounds of appeal as well as in the additional grounds filed before us. The Ld.Sr. Counsel attacked the assessment orders based on the single approval granted by the Joint Commissioner and also relied on the various judgments in support of his contention that the single approval for all the A.Ys. is bad in law and therefore the consequential orders passed pursuant to the said approval is also bad in law. The Ld.Sr. Counsel further submitted that the revised return filed u/s. 139(5) of the Act is not a correct revised return and he relied on the several judgments to his contention and prayed that the income declared under the revised return could not be taken as the correct income. The Ld.Sr. Counsel further submitted that the additions made based on the statements recorded and based on the loose to 645/Bang/2024 sheets also are not sustainable when there is no corroborative evidence available with the department. The Ld.Sr. Counsel also took us through the approval given by the Joint Commissioner u/s. 153D of the Act and pointed out that the Ld.JCIT had not applied his mind properly before granting approval u/s. 153D of the Act. The Ld.Sr. Counsel also brought to our notice the various discrepancies in the approval letter dated 28/09/2021 and therefore submitted that the approval granted by the Joint Commissioner is bad in law and consequently assessment orders made based on the said approval has to be set aside. The assessee also filed 3 volumes of paper book enclosing the various notices issued by the authorities and the statements recorded u/s. 132(4), copy of panchanama and also the copies of the loose sheets, two bills of M/s. Patel & Co. and postdated invoices which are all seized at the time of search as incriminating materials. The assessee also filed separate paper books for A.Ys. 2017-18, 2018-19 and 2019-20 in which the written submissions were also enclosed. The assessee also filed Convenience Compilation I to IV in which the various rulings were enclosed in support of their legal as well as other grounds raised by the assessee.

16. The assessee also filed a summary of arguments made by the Ld.Sr. Counsel to the objections filed by the Ld.DR and prayed to allow the appeal filed by the assessee.

17. The Ld.DR relied on the orders of the lower authorities and he relied on the written submissions filed by him in which the Ld.DR had differentiated the judgments relied on by the Ld.Sr. Counsel and prayed to dismiss the appeals filed by the assessee.

18. We have heard the arguments of both sides and perused the materials available on record.

Assesse cited case deals with condonation of delay in filing a revised return of income for the Assessment Year 1997-98 under Section 119(2)(b) of the Income" Tax Act, 1961. The petitioner, Sharavathy Conductors (P.) Ltd., had filed a revised return Sharavathy claiming deduction under Conductors (P.) Section 80HHC, which was Ltd. not claimed in the original [2017] 87 V. return. However, the Chief 2 Taxmann.Com 244 Chief Commissioner of Income- (Karnataka) Commissioner Tax rejected the petitioner's of application for condonation Income-Tax, of delay, stating that the Bengaluru-2* claim was debatable and not a genuine hardship. The court upheld the decision of the Chief Commissioner, stating that the condonation of delay is a discretionary matter and the authority's decision cannot be interfered with unless it is arbitrary or unreasonable. to 645/Bang/2024 The case law citied by the Assesse, The Head Note which reads below Section 14A of the Income-tax Act, 1961, read with rule 8D of the Income-tax Rules, 1962 - Expenditure incurred in relation to income not includible in total income (Quantum of disallowance) - Assessment year 2009-10 - Assessing Officer made addition amounting to Rs. 23.27 lakhs under section 14A, read with rule Principal 8D-Commissioner (Appeals) Commissioner restricted disallowance to [2023] 155 of Rs. 13.46 lakhs which was Taxmann.Com 606 Income-Tax-7 3 sustained by Tribunal - On (Delhi) V. appeal to High Court it was Optimal Media found that Assessing Solutions Ltd. Officer had wrongly taken into account investments other than investments made to earn exempt income – Commissioner (Appeals) had correctly applied formula prescribed under rule 8D(2)(iii) - Whether thus, no substantial question of law arose for consideration - Held, yes. As such the matter considered by The High Court of Delhi that's not impugned upon facts of the case of the Assesse. to 645/Bang/2024 Assesse cited case relates Commissioner to u/s. 132 of the Income of Tax Act 1961. Whereas the Income-Tax citied case law pertains to V. the Sec. 32 r. w. 34 of the Mahendra Income Tax Act 1961. 2000] 109 Taxman 4 Mills/Arun Allowability of the claim of 225 (Sc) Textile the depreciation has never `C'/Humphreys been the subject matter in / case of the Assess either of Glassgow the below authorities. i.e. Consultants Assessing officer and C.I.T.(Appeals). The assesse cited case law deals with the issue of refund of excess tax paid by the assessee. The assessee, K. Nagesh, had filed a revised return of income declaring additional income and paid tax accordingly. However, the revised return was later held to be invalid by the authorities. K. Nagesh The key question before the V. court was whether the Assistant assessee was entitled to a [2015] 57 5 Commissioner refund of the excess tax Taxmann.Com 439 of paid on the revised return. Income-Tax, The court ultimately held Bangalore that the assessee was not entitled to a refund, as the tax paid on the revised return was not "legally recoverable" '. In the present case of assessee the invalid return filing is deliberate and intentional and present case is search case which is completely different from the assessee cited case law. to 645/Bang/2024

The assessee cited case deals Where draft assessment orders for 38 cases which included assessee's case as well were placed before Approving Authority which were approved on same day and further final assessment orders were also passed on same day itself, it was humanly impossible to peruse records of all 38 cases in one day to apply independent mind to appraise material before Approving Authority and, therefore, Tribunal rightly concluded that it was Principal mechanical exercise of Commissioner power which vitiated entire of proceedings. However, in Income-Tax [2023] 149 the present case it is to 6 V. Taxmann.Com 373 be mentioned; that the Subodh copy of approval dated Agarwal 28/09/2021 as not been brought on record and placed for evaluation. In this regard on similar facts in the case of M/s. M.S.P.L. vs. ACIT in to 374 /BNG/2011 dated 14/08/2024 for the Assessment years 2006/07 to 2008/09. This Hon'ble tribunal as held as under in Para 11 "It is also worthy to note that this plea was never raised before the CIT(A). However, being a legal plea, it can always be raised before the Tribunal at any time of the appellate proceedings, provided no fresh facts are to be looked into Further we find force to 645/Bang/2024 in the contention of the learned DR in his written submissions that without seeing the copy of approval under section 153D, it is not justifiable to comment whether the same was mechanical or after due application of mind. Therefore, in the interest of justice, we remit this matter back to the file of CIT(A) with a direction that the Ld CIT(A) will * call for the assessment record and observe as to the wordings of the approval (bearing number 51(2) /Addl/CIT/CR/09-10/20 dated 31.12.2009) used by authority, whether it was a consolidated approval for all years or separate etc. If this document is there, then the CIT(A) would decide the issue in accordance with law as declared by Hon'ble Orrisa High Court, Delhi High Court and Allahabad High Court. In case there is no such letter 51(2) /Addl/CIT/CR/09-10/20 dated 31.12.2009 then also the CIT(A) will also ponder on the issue as per the law. Since we have set aside the matter for reconsideration on the legal issue raised in additional ground application as ground number-2, we are not deciding the other issues raised in additional ground application as well as grounds relating to the merits of the case." to 645/Bang/2024 The assessee cited case deals Where draft assessment orders for 43 cases which included assessee's case as well were placed before Approving Authority which were approved on same day and further final assessment orders were also passed on same day itself, it was humanly impossible to peruse records of all 38 cases in one day to apply independent mind to appraise material before Approving Authority and, therefore, Tribunal rightly Principal concluded that it was Commissioner mechanical exercise of [2024] 163 of power which vitiated entire 7 Taxmann.Com 9 Income-Tax proceedings. However, in (Delhi) V. the present case it is to be Shiv Kumar mentioned that the copy Nayyar of approval dated 28/09/2021 as not been brought on record and placed for evaluation. In this regard on similar facts in the case of M/s. M.S.P.L. vs. ACIT in to 374 /BNG/2011 dated 14/08/2024 for the Assessment years 2006/07 to 2008/09. This Hon'ble tribunal as held as under in Para 11 "It is also worthy to note that this plea was never raised before the CIT(A). However, being a legal plea, it can always to 645/Bang/2024 be raised before the Tribunal at any time of the appellate proceedings, provided no fresh facts are to be looked into Further we find force in the contention of the learned DR in his written submissions that without seeing the copy of approval under section 153D, it is not justifiable to comment whether the same was mechanical or after due application of mind. Therefore, in the interest of justice, we remit this matter back to the file of CIT(A) with a direction that the LdCIT(A) will call for the assessment record and observe as to the wordings of the approval (bearing number 51(2) /Addl/ CIT/CR/09-10/20 dated 31.12.2009) used by authority, whether it was a consolidated approval for all years or separate etc. If this document is there, then the CIT(A) would decide the issue in accordance with law as declared by Hon'ble Orrisa High Court, Delhi - High Court and Allahabad High Court. In case there is no such letter 51(2) /Addl/CIT/CR/09-10/20 dated 31.12.2009 then also the CIT(A) will also ponder on the issue as per the law. Since we have set aside the matter for reconsideration on the legal issue raised in additional ground application as ground not number-2, we are deciding the other issues raised in additional ground application as well as the grounds relating to merits of the case." to 645/Bang/2024

Assessee cited case law Saksham relates to reopening or Commodities assessing all over again all [2024] 161 Ltd. ten assessment years that 8 Taxmann.Com 485 V. could possibly form part of (Delhi) Income Tax block of ten years which officer obviously is not the facts of the case of the asssessee.

The Assesse cited case law pertains to the penalties related to income concealment under the Income-tax Act. It establishes a clear precedent that intentional concealment of income is punishable regardless of subsequent disclosures or revised returns. The court extensively analysed previous precedents to solidify its stance on the Commissioner interpretation and of Income-Tax applicability of sections V. 139(5) and 271(1)(c) of the [1977] 110 ITR 602 J.K.A. Act. The assesse himself 9 (Mad.) Subramania admitted and revised the Chettiar returns along with some additions after the search which has made assesse to pay the tax amount mere filing of a revised return does not absolve the assessee from the consequences of intentional concealment. As such the facts of the case of the assessee not impacted by the above decision of the Hon'ble High court. to 645/Bang/2024 20. We have also gone through the summary of arguments submitted by the Ld.Sr. Counsel in respect of the disputed assessment years which reads as follows: Assessment Year 2017-18: 1. It is submitted that the Assessee’s Appeal in for the AY. 2016-17 was heard by the Hon’ble Bench on 22.01.2025. We had instructed Senior Counsel Mr. K.K. Chythanya to argue this matter. During the hearing, following two grounds were argued. a) The impugned assessment proceedings and the impugned assessment order under Section 143(3) dated 29.11.2021 are bad and non-est since the notice under Section 143(2) dated 13.08.2018 was issued without affixing any signature either manually or digitally. (Ground 2) b) The Lower Authorities have failed to appreciate that the Learned AO cannot invoke Section 14A in the absence of recording non- satisfaction with regard to the claim of the assessee and without examining the accounts of the appellant and without rejecting its books of account. (Ground 4.1)

2. After hearing the aforesaid 2 grounds, the Hon’ble Bench directed the Learned Department Representative (DR) file his objection on the aforesaid grounds by 30.01.2025. The Learned DR accordingly has filed his objections on 30.01.2025.

5.1. Refer 143(2) notice dated 13.08.2018 issued by ACIT CIRCLE 2(1), Mangalore. The same is invalid as the same was not signed either manually or digitally. {PB Annexure 1 – Pg.121 -122} 5.2. The Learned DR has not furnished a signed copy of the notice under Section 143(2) in his objection dated 30.01.2025.

5.3. In the absence of a digital/manual signature on the said notice under Section 143(2), the said notice is bad and invalid.

5.4. The requirement of affixing a signature either manually or digitally is still mandatory under Section 282A of the Act. Reliance is placed on the following decisions: Cases Reference Reuters Asia Pacific Ltd. v. DCIT [2023] 157 CLI 3 – Pg. taxmann.com 705 (Mumbai - Trib.) (para 10 to 18) 1774 -1776 M/S TOYOTA TAUSHO INDIA PRIVATE LIMITED CLI 3 – Pg. v. DCIT WP NO. 19053 OF 2021 (T-IT) (KAR HC) 1778 – 1779 (para 7 & 8) Yeshoda Electricals v. Dy. CIT [ITA No. CLI 3 – 1175/B/2016, dated 03.02.2021] (Bang. – Trib.) Pg.1800 – (para 38 -39_ 1803 CLI 3 – Vikas Gupta v. UOI [2022] 448 ITR 1 (Allahabad) Pg.1814 - (para 22 to 25) 1816 5.5. The assessment is bad without a valid notice under Section 143(2). Reliance is placed on: Cases Reference Himalaya Drug Company [TS-992-HC-2021(KAR)], CLI 1 – Pg.18 -24 (para 15 – 20) [Revenue’s SLP dismissed in TS-834-SC-2024] CLI 4 – Pg.1886 CIT v. Kurban Hussain Ibrahimji Mithiborwala, CLI 1 – Pg.29 (1972) 4 SCC 394 (page 2) ACIT vs. Hotel Blue Moon, [2010] 321 ITR 362 CLI 1 – Pg.33 (SC) (para 13 & 15) to 645/Bang/2024

6. As regards absence of recording non-satisfaction for invoking satisfaction:

6.1. It is submitted that the Learned AO cannot invoke Section 14A in the absence of recording non-satisfaction with regard to the claim of the assessee and without examining the accounts of the appellant and without rejecting its books of account. Section 14A(2) emphasises “if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee”.

6.2. In the instant case, it is submitted that the claim made by the Appellant was not accepted by the AO without even verifying the Appellant’s books of account. AO could not have arrived at the requisite satisfaction for invoking Section 14A without verifying the Appellant’s books of accounts.

6.3. Learned AO was not justified in invoking Section 14A r/w Rule 8D(2)(iii) without first recording the exact expenditure incurred to earn exempt income to justify the impugned disallowance. This is contrary to Appellant’s own case in ITA 177/2019, the Hon’ble Jurisdictional High Court (para 15) {CLI 3 – Pg.1534 & 1535}.

6.4. AO has failed to appreciate that satisfaction contemplated in section 14A(2) is an objective one and not a subjective one based on some vague assumptions Cases Reference Maxopp Investment Ltd. vs. CIT, [2018] 402 ITR 640 CLI 3 – SC (para 41) Pg.1601 CIT v. Brigade Enterprises [2020] 429 ITR 615 CLI 3 - (Karnataka) (para 9) Pg.1606 6.5. A reference may be made to para 4.7 of the assessment order {App Annexure 3: Pg.51}. The Learned AO states that “The methodology provided under rule 8D clearly allow working of such expenditure on proportionate basis, even if it is not actually incurred. It is not that the same has to be actually incurred and the expenditure is presumptive in nature, as could be seen from the method prescribed under rule 8D”. This again is contrary to Appellant’s own case in ITA 177/2019, the Hon’ble Jurisdictional High Court (para 15) wherein it was held that AO should record exact expenditure incurred to earn exempt income. Hence the Learned AO to 645/Bang/2024 has made disallowance under Section 14A on a wrong notion that the disallowance is presumptive in nature even when the expenditure is not actually incurred. 6.6. It is submitted that the Learned DR has not brought anything contrary to the above submissions in his objections dated 30.01.2025. Therefore, the disallowance made by the Learned AO under Section 14A without recording the satisfaction is bad and invalid.

7. Based on the above submissions, it is humbly prayed that the impugned order for AY 2017-18 may be quashed.

Assessment Years 2018-19 to 2020-21: 1. It is submitted that the Assessee’s Appeal in 644 and 643/BANG/2024 for the AYs. 2020-21, 2019-20 and 2018-19 respectively were heard by the Hon’ble Bench on 22.01.2025. We had instructed Senior Counsel Mr. K.K. Chythanya to argue this matter. During the hearing, the following three grounds were argued: c) The impugned assessment order under Section 143(3) dated 29.09.2021 is bad and non-est as the Learned AO has obtained a single approval of the JCIT Central Range vide letter F.No.26/Jt.CIT/CR/MNG/2021-22 dated 28.09.2021 contrary to the phrase “in respect of each assessment year” under Section 153D. (Addnl. Ground 5B for AY 2020-21 and similar ground in Ground 4 for AY 2019-20 and 2018-19) d) The Learned AO erred in accepting the revised return on 09.02.2021 as a valid return and relying solely on it without appreciating that the said return cannot be regarded as a return eligible to fall under Section 139(5). (Ground 11.1 for AY 2020-21 and similar ground in Ground 9.2 for AY 2019-20) e) The Learned AO has no jurisdiction to accept the belated return filed on 09.02.2021 in response to notice under Section 153A as provisions of Section 153A do provide any authority to the Learned AO to condone any delay. (Ground 10.1 for AY 2019-20 and similar ground in Ground 7.2 for AY 2018-19)

2. After hearing the aforesaid 3 grounds, the Hon’ble Bench directed the Learned Department Representative (DR) file his objection on the to 645/Bang/2024 aforesaid grounds by 30.01.2025. The Learned DR accordingly has filed his objections on 30.01.2025.

3. Considering the said objections filed by the Learned DR, as directed by the Hon’ble Bench to file a summary of arguments of Senior Counsel Mr. K.K. Chythanya on the aforesaid grounds by 07.02.2025, the following submission is made;

4. As regards 153D dated 28.09.2021 approval being bad and invalid:

4.1. A reference may be made to Section 153D. The use of negative language like “no order of assessment or reassessment shall be passed” and “except” emphasize that the provisions of Section 153D have to be strictly construed. Further, Section 153D uses the word “shall” that clearly indicates the provision to be mandatory.

4.2. Section 153D emphasis the phrase “in respect of each assessment year”. In this regard, a reference may be made to Section 153A(1)(a). It states, “the return of income in respect of each assessment year falling within six assessment years and for the relevant assessment year”. The First Proviso to Section 153A(1)(a) already provides 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. Therefore, use of the phrase “in respect of each assessment year” all over again in section 153D which specifically deals with the prior approval only indicates that separate approval has to be obtained for each assessment year. If not so understood, the aforesaid phrase becomes nugatory. 4.3. In contrast to the above, Section 148B uses the phrase “in respect of an assessment year to which clause (i) or clause (ii) or clause (iii) or clause (iv) of Explanation 2 to section 148 apply except with the prior approval” It may be noted that though several assessment years may be involved, the Parliament has not used the word ‘each assessment year’ as used in Section 153D.

4.4. Hence, the Learned AO cannot pass the assessment orders for the AYs 2017-18, 2018-19, 2019-20 & 2020-21 without the separate approvals of the JCIT in respect of each assessment year. to 645/Bang/2024 4.5. However, in the instant case, a single approval u/s 153D dated 28.09.2021 is given for AYs 2014-15 to 2020-21. [PB Annexure 12 – Page 842] 4.6. It is submitted that AYs 2014-15 to 2019-20 fall in the 1st limb of 153D, while AY 2020-21 falls in the 2nd limb of 153D.

4.7. Hence the single approval u/s 153D dated 28.09.2021 and the assessment orders passed for the AYs 2020-21, 2019-20 and 2018- 19 are bad and invalid. Reliance is placed on the following decisions: Cases Reference PCIT v. Subodh Agarwal [2023] 149 taxmann.com CLI 1 – Pg. 373 (Allahabad) (para 15 to 20) 542-543 Shiv Kumar Nayyar [TS-343-HC-2024(DEL)] (para CLI 1 – Pg. 11-19) 545-547 Saksham Commodities Pvt. Ltd. v. ITO 464 ITR 1 CLI 1 – Delhi (para 58) Pg.583 Bangalore Golf Club v. ACCT - WP NO. 16500 OF CLI 1 – Pg. 2024 (T-RES) (KAR HC) (para 4-7) 537 – 538 Veremax Technologie Services Limited Vs ACCT CLI 4 – Pg. (Kar HC) WP No.15810 of 2024 (T-RES) (para 3 – 6) 1894-1896 Titan Co. Ltd. v. Commr. of GST, (2024) 124 GSTR CLI 4 - Pg. 449 (Mad) (para 15-16) 1900 Haries Muhammed v. AC SGST 2024-TIOL-1952- CLI 4 - HC-KERALA-GST (para 5) Pg.1980 CLI 1 – Pg. M/s. Mfar Holdings Pvt. Ltd., v. ACIT dated 25-10-2023 (para 7) 599-600 Aaryan Motels 88 Taxmann.com 7 Agra (para 12 & CLI 2 – Pg. 13) 611 Barnala Steel Industries 74 ITR TRI SN 83 Delhi CLI 2 – Pg. (para 12 & 13) 619 NR TMT (India) Pvt. Ltd. [TS-32-ITAT-2025(RAI)] 4.8. Apart from the above, the aforesaid approval dated 28.09.2021 [PB Annexure 12 – Page 842] is made by the Learned JCIT mechanically, erroneously and without verification of the assessment records. The same is evident from the following: a) As per the approval u/s 153D dated 28.09.2021, the Learned JCIT has received the drafts of the assessment orders for AYs 2014-15 to to 645/Bang/2024 2020-21 on 27.09.2021. Hence the Learned JCIT has approved these 7 assessment orders on 28.09.2021 within one day. It is submitted that as per the Learned JCIT’s letter dated 12.12.2024 (furnished before the Hon’ble Bench), the Learned JCIT has approved 27 assessment orders on 28.09.2021. Hence the approval is mechanical and invalid. Reliance is placed on Chhugamal Rajpal vs. S.P. Chaliha [1971] 79 ITR 603 (SC) (para 5) {CLI 2 – Pg. 664-665} b) Further, the aforesaid approval dated 28.09.2021 is not an approval at all. In the 2nd para of the approval, the Learned JCIT states : c) The aforesaid directions “You are directed to check the returned income, assessed income, tax calculations, older sheet notings. initiation of penalty if any, once again before passing the final order” shows that the Learned JCIT has not verified the said documents while approving. The same also indicates that the return and assessment records were not submitted by the Learned AO to Learned JCIT. d) Further, the aforesaid direction “to check the returned income, assessed income, tax calculations, older sheet notings. initiation of penalty if any, once again before passing the final order” to Learned AO after approving under Section 153D renders the approval non-est and invalid. It is submitted that once the draft of the assessment order is submitted to the Learned JCIT, Learned AO becomes functus officio. Reliance is placed on Panchamahal Steel Ltd. v. ITO [1997] 225 ITR 458 (SC) and NR TMT (India) Pvt. Ltd. [TS-32-ITAT-2025(RAI)]. e) The said approval dated 28.09.2021 bears two seals. One at the bottom belongs to DCIT; another at the right-hand top corner belongs to ACIT/DCIT. It is submitted that neither of the seals belong to the Learned JCIT. The extracts of the seals are as under: to 645/Bang/2024 f) The Appellant had not filed any return for the AY 2020-21 in reply to the notice under Section 153A. The said AY 2020-21 being the search year, no notice under Section 153A was issued by the Learned AO. However, in the table at 1st para of the approval dated 28.09.2021, the Learned JCIT erred in assuming that the return under Section 153A was filed for the AY 2020-21. This also supports our contention that the assessments records were not verified by the Learned JCIT. g) The correct returned income for the AY 2017-18 is Rs.67,82,12,350/- {Refer Assessment Order for the AY 2017- 18 in Form 36 for AY 2017-18; Pg.53}. However, in the table at 1st para of the approval dated 28.09.2021, the Learned JCIT erroneously states that the returned income of the AY 2017-18 was Rs.68,68,43,155/-. This also supports our contention that the assessments records were not verified by the Learned JCIT. h) The Learned JCIT gave an approval under Section 153D despite the Learned AO’s erroneous statement that the case of the assessee was centralized with the DCIT Central Circle-2, vide Order of the Pr. CIT, Mangalore in F.No./C-13/Pr.CIT/MNG/2020- 21 dated 28.07.2021 in all the assessment orders for AYs 2017-18 to 2020-21. As per the department’s own records, the centralization was ordered on 28.07.2020. 4.9. It is submitted that the Learned DR has not brought anything contrary to the above submissions in his objections dated 30.01.2025.

4.10. Further, it is submitted that the said approval dated 28.09.2021 is a manual approval without DIN. The same is contrary to Circular No. 19/ 2019 dated 14.08.2019. Hence the said approval is invalid. Reliance is placed on Finesse International Design (P.) Ltd. v. DCIT to 645/Bang/2024 [2023] 157 taxmann.com 271 (Delhi - Trib.) (para 20) {CLI 2 – Pg. 629}.

4.11. Hence the approval under Section 153D dated 28.09.2021 is bad and invalid. Consequently, the assessment orders for the AYs 2018- 19, 2019-20 and 2020-21 are bad and invalid without valid approval under Section 153D.

5.1. The Assessee filed the original return of income for the AY 2020-21 under Section 139(1) on 31.12.2020 {PB Annexure 22 – Pg.931} on the basis of the Audited financial statements; audited books of account and Tax Audit Report in form 3CA and 3CD.

5.2. In the said original return filed for the AY 2020-21, the Assessee has declared the correct income of Rs.106,64,35,620/-. The Assessee by declaring the correct income of Rs.106,64,35,620/- in the original return in substance retracted the Statements u/s 132(4) & 131(1A). Reliance is placed on CBDT letter F.No. 286/2/2003-IT(Inv.11) dt. 10-03-2003 {CLI 2 – Pg. 709}. After filing the original return of income on 31.12.2020, the Appellant also filed the 1st retraction letter on 06.01.2021 {PB Annexure 25 – Pg. 971}. 5.3. Subsequently, the Appellant filed a return on 09.02.2021 by including the artificial additional income of Rs.20,59,84,962 for the AY 2020- 21. {PB Annexure 27 – Pg.1063} 5.4. As demonstrated during the hearing, vide the said return dated 09.02.2021, the income of the Appellant was artificially enhanced to Rs.127,24,20,580/- as against the correct income Rs.106,64,35,620/- declared in original return. A comparison of “Schedule BP - Computation of income from business or profession” in original return {PB Annexure 22 – Pg.931} and in the return filed 09.02.2021 {PB Annexure 27 – Pg. 1088} makes this clear.

5.5. After filing the return on 09.02.2021, the Appellant has filed the 2nd retraction letter dated 12.07.2021 before the Learned AO {CLI 4 – Pg.1819}. In the said letter the Appellant also referred the 1st retraction letter dated 06.01.2021. A copy of the 2nd retraction letter dated 12.07.2021 was also furnished to Learned Ad. CIT. However, the Learned AO, without referring to the retraction letters, to 645/Bang/2024 conveniently made the addition of Rs.20,59,84,962/- merely relying on the return dated 09.02.2021.

5.6. In the Form 35, the Appellant has raised the Ground 2 “assessing officer is not fair to accept the returned income declared in coercion” {App. Annexure 2 Pg.71 & 72}. 5.7. A letter dated 13.12.2023 was filed before the Learned CIT(A) requesting to disregard the return dated 09.02.2024 {PB Annexure 28 – Pg.1098-1103}. 5.8. The Learned CIT(A) passed order without adjudicating grounds holding the income incorrectly offered in the return 09.02.2021 was “fait accompli and cannot be reopened for appeal purpose” {App. Annexure 1- Pg. 58}. 5.9. It is submitted that the return filed on 09.02.2021 is an invalid return and cannot be regarded as a revised return under Section 139(5) as there was no discovery of an omission or a wrong statement in the original return filed on 31.12.2020. It is submitted a revised return under section 139(5) can be filed only if there is discovery of an omission or a wrong statement in the original return. The reliance is placed on PCIT v. Wipro Ltd. [2022] 446 ITR 1 (SC) {CLI 2 – Pg. 808}. 5.10. A reference may be made to the Statement u/s 132(4) of Mr. Nagendra Pai, Executive Director dated 28.2.2020. In the said statement, an ad hoc income of Rs.60 Crores was offered AYs 2019- 20 & 2020-21 {PB Annexure 14 – Pg. 849}. A reference may be made to Statement u/s 131(1A) of Mr. Nagendra Pai, Executive Director dated 18.8.2020. In the said statement, the above Rs. 60 Crores was broken down into various additions for AYs 2019-20 & 2020-21 {PB Annexure 17 : Pg.883 and 884}. 5.11. Despite the knowledge of the above statements, the Appellant subsequently filed the original return of income on 31.12.2020 for AY 2020-21 without offering the above income to tax {PB Annexure 22 – Pg.931}. The Appellant consciously did not include the above amounts in the original return filed on 31.12.2020. Therefore the return filed on 09.02.2021 cannot be treated as a revised return as there was no discovery of any omission or any wrong statement in the original return. Hence the return filed on 09.02.2021 is not a return filed under Section 139(5) and the same is an invalid return: to 645/Bang/2024 Cases Reference CIT v. J.K.A. Subramania Chettiar, 1977 SCC OnLine CLI 2 – Pg. Mad 260 : (1977) 110 ITR 602 (page 5 & 7) 814 & 817 CIT v. Andhra Cotton Mills Ltd., (1996) 219 ITR 404 : CLI 2 – Pg. 1994 SCC OnLine AP 386 822 [approved in Mahendra Mills/Arun Textile CLI 2 – Pg. ‘C’/Humphreys/ Glassgow Consultants [2000] 243 ITR 832-833 56 (SC) in paras 28 & 29 of the said decision] CLI 2 – Pg. F.C. Agarwal v. CIT [1976] 102 ITR 408 (Gauhati) 844 CLI 2 – Pg. G.C. Agarwal v. CIT [1990] 186 ITR 571 (SC) 849 Sharavathy Conductors (P.) Ltd. v. CCIT [2017] 87 CLI 2 – Pg. taxmann.com 244 (Karnataka) (para 7) 854 Jawahar Lal Jain (HUF) v. CIT [2015] 370 ITR 712 CLI 2 – Pg. (Punjab & Haryana) (para 7) 858 - 859 Deepnarayan Nagu & Co. v. CIT [1986] 157 ITR 37 CLI 2 – Pg. (Madhya Pradesh) (para 5 – 7) 860-861 CLI 2 – Pg. CIT v. A. Sreenivasa Pai [2000] 242 ITR 29 (Kerala) (para 12) 866 CLI 2 – Pg. Sunanda Ram Deka v. CIT [1994] 210 ITR 988 (Gauhati) 868 - 869 Golden Insulation and Engg. Ltd. v. CIT, (2008) 305 ITR CLI 2 – Pg. 871 427 : 2007 SCC OnLine Del 1268 (para 10 & 14)

5.12. The invalidity of return filed on 09.02.2021 may also be demonstrated by drawing two hypotheses: a) Hypothesis 1 : If it is accepted that Rs.20,59,84,960/- is not the real income, merely because the same is included in the return dated 09.02.2021, the same cannot be taxable at all as the revenue has no authority to tax any non-income. It is inconceivable for a non-income to accrue to the Appellant. In such case, non-inclusion of the same in the original return dated 31.12.2020 is perfectly in order. This would mean that there is no omission or wrong statement in the original return. b) Hypothesis 2: It is assumed without conceding that the Appellant had in fact earned an income of Rs.20,59,84,960/-, Appellant’s statements dated 29.02.2020 [u/s 132(4)] and 18.08.2020 [u/s 131(1A)] would be in line with the aforesaid to 645/Bang/2024 hypothesis. Despite this being the position, the Appellant consciously did not include the same in the original return dated 31.12.2020. Therefore, it is not a case of inadvertently omitting to include the said income. This cannot fall within the phrase “discovers any omission or any wrong statement therein” under Section 139(5).

5.13. Therefore, it is submitted that the return filed on 09.02.2021 is invalid and could not have been acted upon by the department. Thus, return filed on 09.02.2021 is invalid u/s 139(5) and the addition of Rs.20,59,84,962 included in the said return is invalid. Therefore, only the original return filed 31.12.2020 under Section 139(1) survives and can be accepted. Reliance is placed on the following decisions:

 K. Nagesh v. ACIT [2015] 376 ITR 473 (Karnataka) (para 19 to 24) {CLI 2 – Pg. 892 – 894}  CIT v. Shelly Products [2003] 261 ITR 367(SC) (para 30) {CLI 2 – Pg. 905} 5.14. It is submitted that the Learned DR has not brought anything contrary to the above submissions in his objections dated 30.01.2025.

6. On belated returns filed in response to notice under Section 153A for the AY 2018-19 and 2019-20 being bad and invalid:

6.1. The belated returns filed by the Appellant on 09.02.2021 for the AYs 2018-19 and 2019-2020 in response to the notices issued u/s 153A are invalid. The date of the notices and the date of returns filed are as under:

Due date for filing return Date of Date of filing Delay in AY (15 days from Notice return days the date of notice) 2018- 03.11.2020 18.11.2021 09.02.2021 83 days 19 2019- 04.11.2020 19.11.2020 09.02.2021 82 days 20 to 645/Bang/2024 6.2. The Learned AO has no jurisdiction to accept the belated returns filed on 09.02.2021 in response to notices under Section 153A as provisions of Section 153A do not provide any authority to the Learned AO to condone any delay. Reliance is placed on the following decisions:

Cases Reference CLI 3 – Pg. CIT Vs Shri V R Sreekumar 2014-TIOL-930-HC- 1688 - KERALA-IT (para 7 – 12) 1689 Nileshwar Rangekallu Chethu Vyavasaya CLI 3 – Pg. 1691 & Thozhilali Sahakarana Sangham v. CIT [2023] 459 ITR 730 (Kerala) (para 3 & 11) 1694 CLI 3 – Pg. P. Sathyanarayanan v. ACIT [2012] 20 1701 & taxmann.com 56 (Chennai) (para 16) 1702 6.3. It is submitted that the Learned DR has not brought anything contrary to the above submissions in his objections dated 30.01.2025.

At para 58 of the said decision, it is held that “a reading of the First Proviso to Section 153A and which speaks of the power of the AO to assess or reassess the total income in respect of “each assessment year”. The Saksham aforesaid phraseology stands replicated in Section Commodities 153B(1)(a) which again alludes to “each assessment Ltd. V. ITO year” falling within the six AYs or the “relevant [2024] 161 assessment year”. The aforesaid language is then Taxmann.Com reiterated in Section 153D and which prescribes 485 (Delhi) that no order of assessment or reassessment shall be passed by an AO in respect of “each assessment year” referred to in Section 153A or 153B , except with the prior approval of the Joint Commissioner.” {CLI 1 – Pg.583} In the said decision, it was held that In our opinion, section 139(5) will apply only to a limited category of cases, namely, where in the original return there was any omission or any wrong statement. The very word CIT V. J.K.A. "omission" connotes an unintentional act. Equally, the Subramania words "wrong statement" will not take in "a statement Chettiar [1977] known to be false to the person who made the 110 ITR 602 statement." However, the word "discovers" occurring in (Mad.) section 139(5) will make it clear that at the time of discovery only, a person who has furnished a return finds out that an inadvertent omission or an unintended wrong statement had crept in the return filed by him. If to 645/Bang/2024 a person who furnished the return was aware of the falsity of the statement and the incorrectness of the particulars of income even at the time when he filed the original return, there was no question of that person subsequently discovering the existence of the omission or creeping in of the wrong statement in the return already filed by him. Therefore, we are of the opinion that section 139(5) will apply only to cases of "omission or wrong statements" and not to cases of "concealment or false statements". This conclusion of ours derives support from the language used in section 139(5). {CLI 2 – Pg. 814 &817}

8. Based on the above submissions, it is humbly prayed that the impugned orders for AYs 2018-19, 2019-20 and 2020-21 may be quashed and the revised returns for AY 2019-20 and 2020-21 may held invalid.

25. In the said approval, JCIT had granted a composite approval and no separate approvals were granted in respect of each A.Ys. In the said approval order, the Ld.JCIT had stated in para 2 coln. 3 that the return was filed u/s. 153A for the A/Y 2020-21 whereas no such notice was received u/s. 153A since the A.Y. being the search year. Moreover, the assessment was made u/s. 143(3) of the Act since the assessment was not completed during the relevant period.

17. For the reasoning given in the case of Navin Jain (Supra), as extracted in the impugned order passed by the Tribunal, as noted above, there cannot be any two opinion to the requirement of prior approval of the Joint Commissioner to the draft assessment order prepared by the Assessing Officer, as per the mandate of Section 153D of the Income Tax Act.

19. The careful and conjoint reading of Section 153A(1) and Section 153D leave no room for doubt that approval with respect to "each assessment year" is to be obtained by the Assessing Officer on the draft assessment order before passing the assessment order under Section 153A.”

30. Now we will also consider the judgment of Hon’ble Delhi High Court cited supra wherein the Hon’ble High Court had held that the single approval granted for the A.Ys. 2011-12 to 2017-18 is bad in law. From the reading of the above said judgments, we are of the view that the Ld.JCIT should have passed separate approvals for each of the assessment years. Similarly, the various mistakes as pointed out earlier, also supports the view that the Ld.JCIT had not properly considered the material on record before granting the approval u/s. 153D.

18. The contention of the Revenue in those cases that the non- compliance of the said requirement does not entail civil consequences was negatived. Reiterating the view expressed in Rajesh Kumar (supra), the Supreme Court in Sahara India (Firm) Lucknow v. Commissioner of Income Tax (supra) held as under: "29. In Rajesh Kumar (2007) 2 SCC 181 it has been held that in view of Section 136 of the Act, proceedings before an Assessing Officer are deemed to be judicial proceedings. Section 136 of the Act, stipulates that any proceeding before an Income Tax Authority shall be deemed to be judicial proceedings within the meaning of Sections 193 and 228 of Indian Penal Code, 1860 and also for the purpose of Section 196 of I.P.C. and every Income Tax Authority is a court for the purpose of Section 195 of Code of Criminal Procedure, 1973. Though having regard to the language of the provision, we have some reservations on the said view expressed in Rajesh Kumar's case (supra), but having held that when civil consequences ensue, no distinction between quasi judicial and administrative order survives, we deem it unnecessary to dilate on the scope of Section 136 of the Act. It is the civil consequence which obliterates the distinction between quasi judicial and administrative function. Moreover, with the growth of the administrative law, the old distinction between a to 645/Bang/2024 judicial act and an administrative act has withered away. Therefore, it hardly needs reiteration that even a purely administrative order which entails civil consequences, must be consistent with the rules of natural justice. (Also see: Maneka Gandhi v. Union of India (1978) 1 SCC 248 and S.L. Kapoor v. Jagmohan (1980) 4 SCC 379).

19. To the same effect, are the decisions of the Delhi High Court in Yum! Restaurants Asia Pte. Ltd. v. Deputy Director of Income Tax (supra) which dealt with the requirement under Section 151 (2) of the Act for initiating proceedings under Section 147 read with 148 of the Act. It was observed as under: "11. The purpose of Section 151 of the Act is to introduce a supervisory check over the work of the AO, particularly, in the context of reopening of assessment. The law expects the AO to exercise the power under Section 147 of the Act to reopen an assessment only after due application of mind. If for some reason, there is an error that creeps into this exercise by the AO, then the law expects the superior officer to be able to correct that error. This explains why Section 151 (1) requires an officer of the rank of the Joint Commissioner to oversee the decision of the AO where the return originally filed was assessed under Section 143 (3) of the Act. Further, where the reopening of an assessment is sought to be made after the expiry of four years from the end of the relevant AY, a further check by the further superior officer is contemplated."

Order pronounced in the open court on 21st April, 2025.