M/S. MAHINDRA ORCHARDS PVT. LTD.,BANGALORE vs. ACIT, CC-1(2), CHENNAI

During the course of assessment proceedings, the assessee contested the jurisdictional validity of notice issued under section153A of the Act on the ground that the assessment year under consideration is an unabated assessment year and no incriminating documents were found during the course of search proceedings in regard to the addition involved. However, the Assessing Officer did not accept the contentions of the assessee and after verification of the books of the assessee company, added an amount of ₹.59,00,000/- under section 68 r.w.s. 115BBE of the Act on account of preferential share allotment received during the year and completed the assessment under section 153A of the Act dated 27.09.2021.

On appeal, the assessee has contended before ld.CIT(A) that no fresh funds were received by the assessee for allotment of preferential shares during the year under consideration but only advances received in earlier years were converted to preference share capital. It was stated that since no fresh credit was received during the year, addition made under section 68 of the Act cannot be sustained. On an examination of the financials of the company for the AY 2017-18 along with the submissions of the assessee, the ld.CIT(A) deleted the addition of ₹.50,35,000/- and confirmed the addition of ₹.1,70,000/- by holding as under : “5.6.3. I have also perused the financials for the assessment year 2017-18, wherein an amount of Rs.50,35,000/- was shown towards liabilities. There is no change in the fixed assets of the company. As such, there is no fresh flow of funds towards allotment of preferential shares except that they said loan creditors were converted into preferential shareholders during the year. However, as could be seen from the above figures, the loan outstanding as on 31.03.2017 towards liabilities is only ₹.50,35,000/- against the amount of preferential shares issued at ₹.52,05,000/-. Thus, there is a difference of ₹.1,70,000/- in the amounts and the appellant had not furnished any details of sources for the said differential amount. Therefore, the addition made by the AO to the extent of this differential amount of ₹.1,70,000/- is sustained and the balance amount of ₹.50,35,000/- is directed to be deleted. Hence, ground No. 2 raised is therefore partly allowed”.

Further, the ld.CIT(A) based on the finding in the appeal filed by the assessee for A.Y.2019-20 before him, enhanced the addition by ₹.35,00,000/- under section 68 of the Act, for increase in the current liabilities as on 31.03.2018 by holding as under:

The ld. AR Shri Rakesh Joshi, CA submits that no search was conducted in the case of the assessee and no Panchnama executed in its name and therefore, the Assessing Officer has erroneously invoked the provisions of section 153A of the Act. He submits that the assessee made deposits in regular bank account duly recorded in the books of accounts and therefore, the same cannot be treated as incriminating documents being found during the course of search. He refers to assessment order and submits there was no search in the case of the assessee and no incriminating material was referred in the assessment order. He argued vehemently that the assessment under section 153A of the Act made in the hands of the assessee without there being search and incriminating material found or seized in the case of the assessee, is not justified. He refers to the decision of the Hon’ble High Court of Gujarat in the case of CIT v. Ramesh D. Patel reported in [2014] 42 taxmann.com 540 (Gujarat) and argued that the provisions under section 153A of the Act make it very clear that only in the case of a person where search was initiated under section 132 or books of account or other documents or any assets were requisitioned under section 132A of the Act after 31.03.2002, the Assessing Officer could after issue of notice, assess or reassess the total income of such person for six assessment years. He prayed to allow ground No. 1 and quash the assessment.

The ld. DR Shri Shiva Srinivas, CIT supported the order passed by the ld. CIT(A).

We have heard both the parties and perused the material available on record. On perusal of the assessment order, we note that a search under section 132 of the Act was carried out at the residential/ business premises in the cases of M/s Golden Shelters Private Ltd, NKV Krishna Group on 16.10.2019 and admittedly, no Panchnama has been executed in the case of the assessee and no search and seizure operation has been carried out in the case of the assessee. On perusal of the assessment order, we note that the Assessing Officer stated that the assessee’s case is covered by the search carried in the case of NKV Krishna & group vide para 2 of the assessment order, but, however, nothing was referred to in the said assessment order that there was search in the case of the assessee. Further, we find the Assessing Officer made addition in the hands of the assessee under section 68 of the Act only on the statement of search in the case of M/s. Golden Sheltors Pvt. Ltd., NKV Krishna and the alleged seized material. Therefore, it clearly shows that the impugned addition is only on the basis of the statement of the above said person and also seized material therein. In this regard, the ld. AR relied on the decision of the Hon’ble High Court of Gujarat in the case of PCIT v. Sunrise Finlease (P) Ltd. reported in [2018] 89 taxmann.com 1 (Gujarat), wherein, it is clearly held that no addition could be made on the basis of statement of the Director of the assessee company therein vide para 6 & 7. Therefore, we find force in the arguments of the ld. AR that the Panchnama is the result of search in terms of warrant of authorization, but, when there is no Panchnama in the name of the assessee, we can safely conclude that there is no search in the case of the assessee covering the warrant of authorization and accordingly, the addition under section 68 of the Act and made thereon under section 153A of the Act based on the statement of searched person and seized material, is not justified in the case of the assessee.

The above said conclusion is supported by the decision of the Hon’ble High Court of Gujarat in the case of CIT v. Ramesh D. Patel (supra), wherein, the Hon’ble High Court of Gujarat has observed as under: 5. We have no reason to interfere with the order passed by the Tribunal. Section 153A of the Act pertains to assessment in case of search or requisition. Sub-section (1) thereof provides that notwithstanding anything contained in sections 139, 147, 148, 149, 151 and 153 of the Act, in case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after 31st of May 2003, the Assessing Officer shall issue a notice to such person requiring him to furnish the return of income and assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made, Section 153B of the Act provides for time limit for completion of assessment under section 153A. 6. Learned counsel for the assessee has rightly relied on a decision of the Orissa High Court in the case of Siksha 'O' Amusandhan v. CIT [2011] 336 ITR 112/[2012] 20 taxmann.com 798 in which it was held that provisions of section 153A make it clear that only in the case of a person where a search was initiated under section 132 or books of account or other documents or any assets were requisitioned under section 132A after 31.3.2002, the Assessing Officer could after issuing a notice, assess or reassess the total income of such person for six assessment years immediately preceding the assessment year relevant to the previous year in which such search was conducted or requisition was made. 7. In the present case, the Tribunal came to a factual finding that no search authorization was produced. This was necessary because the Assessing Officer had made contradictory references to the assessee being subjected to search or not. In absence of a search authorization, the Tribunal correctly held that assessment orders under section 153A could not have been passed. Reliance of the Revenue to section 124(3) of the Act would be of no avail. Section 124 pertains to jurisdiction of the Assessing Officers. Sub-section (1) thereof concerns the situation where, by virtue of any order or direction under sub-sections (1) or (2) of section 120, the Assessing Officer has been vested with jurisdiction over any area within the limits of such area. Sub-section (2) of section 124 provides, inter alia, that where a question arises under the said section as to whether an Assessing Officer has jurisdiction to assess any person, the question shall be determined by the Director General or the Chief Commissioner, etc. Sub- section (3) thereof provides as under: “(3) No person shall be entitled to call in question the jurisdiction of an Assessing Officer - (a) Where he has made a return under sub-section (1) of section 115WD or under sub-section (1) of section 139, after the expiry of one month from the date on which he was served with a notice under sub-section (1) of section 142 or sub- section (2) of section 115WE or sub-section (2) of section 143 or after the completion of the assessment whichever is earlier, (b) where he has made no such return, after the expiry of the time allowed by the notice under sub-section (2) of section 115WD or sub-section (1) of section 142 or under sub-section (1) of section 115WH or under Section 148 for making of the return or by the notice under the first proviso to section 115WF or under the first proviso to section 144 to show cause why the assessment should not be completed to the best of the judgment of the Assessing Officer, whichever is earlier.”

On careful reading of the above findings, we note that the Hon’ble High Court of Gujarat was pleased to hold that assessment under section 153A of the Act is not maintainable when no search under section 132 of the Act was carried out which is evident from the assessment order, resultantly no Panchnama is executed. On perusal of the assessment order dated 27.09.2021, we note that no reference whatsoever, taken in the said order with reference to conducting search in the case of the assessee and seizure of any incriminating material. We note that it is only stated that the assessee’s premises also covered under section 132 of the Act, but, nothing else concerning the incriminating material. Therefore, we find force in the arguments of the ld. AR that the Panchnama is the result of search when no Panchnama is executed, we can conclude safely that no search was taken place in the case of the assessee to make assessment under section 153A of the Act.

Further, we find that the additions are made based on the incriminating material found at the searched premises of the NKV group. Since, there is no Panchnama made in the names of the assessees, it can be concluded that the additions are made only based on the audited books of accounts and financials of the assessee. Further, the impugned assessment years are unabated and the additions made without any incriminating material is not tenable in the eyes of law. Our above view is supported by the decision of Hon’ble Supreme Court in the case PCIT v. Abhisar Buildwell (P.) Ltd. reported in 149 taxmann.com 399. Therefore, we are of the considered view that the Assessing Officer has erred in making the additions for the impugned assessment years being unabated. Thus, order of ld. CIT(A) is not justified and the assessment order dated 27.09.2021 passed under section 153A of the Act stands quashed. Consequently, the addition made thereon has no legs to survive. Thus, ground No. 1 raised by the assessee is allowed.

In view of our decision in ground No. 1 raised by the assessee, holding in favour of the assessee, consequently quashing the assessment order dated 27.09.2021 as invalid, other grounds raised in Form 36 becomes academic, requiring no adjudication.

The additional grounds raised by the assessee are not pressed and accordingly dismissed as not pressed. for AY 2014-15 in the case of M/s. Ojas Plantations Private Limited.

In this appeal, we find no dispute by the ld. AR and the ld. DR with regard to raising of ground No1. being legal issue, which is similar and based on same identical facts with that of appeal in AY 2018-19, wherein, we held ground No. 1 in favour of the assessee and consequently quashed the assessment order therein, as invalid. Therefore, the view taken by us in the said appeal in the aforementioned paragraphs are equally applicable to the facts and circumstances of the present appeal. Thus, ground No. 1 raised by the assessee is allowed and accordingly, the assessment order dated 29.09.2021 passed under section 153A r.w.s. 144 of the Act stands quashed and consequently other grounds raised in Form 36 becomes academic, requiring no adjudication.

The additional grounds raised

The additional grounds raised

The additional grounds raised

The additional grounds raised by the assessee are not pressed and accordingly dismissed as not pressed.

In the result, all the appeals filed by the assessees are allowed.