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Facts
During a search conducted in 2017, the Revenue issued a notice u/s 153C to the assessee. The Assessing Officer (AO) added Rs.3,55,42,588/- as unexplained cash deposits made during demonetization, claiming it was not supported by any incriminating material found during the search. The assessee claimed the deposits were from beedi sales, with the source of cash not being identifiable.
Held
The Tribunal held that the addition of unexplained cash credit u/s 68 was unsustainable as it was not based on any incriminating material found during the search. The assessment was considered unabated, and without incriminating material, no addition could be made u/s 153C.
Key Issues
Whether additions made u/s 153C are sustainable without incriminating material found during search, especially in an unabated assessment, and whether the AO correctly recorded satisfaction for issuing notice u/s 153C.
Sections Cited
153C, 143(2), 68, 132, 132A, 147, 148, 143(3), 44AD, 250, 139(1)
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Before: SHRI MANU KUMAR GIRI & SHRI S.R.RAGHUNATHA
The captioned appeal filed by the Revenue is directed against the order of the Ld. Ld. Commissioner of Income Tax (Appeals), Chennai-19 [CIT(A)] dated 11.11.2024 for Assessment Year 2017- 18. In this appeal, a Cross Objection No.28/Chny/2025 is also filed by the assessee.
The registry has noted delay of 20 days in filing the cross objection. Considering the reasons stated in the affidavit by the Assessee, we condone the delay and treat the reasons as ‘sufficient cause’ and admit the cross objection for adjudication.
The revenue has raised the following grounds of appeal: “1. The order of the learned commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.
2. The Ld. CIT (A) erred in deleting the addition of Rs.3,55,42,588/-made or account of unexplained credit u/s 68 on account of deposit of the same in Specified Bank Notes (SBN) as per Notifications dated 08/11/2016 &09/11/2016 of the Govt. of India. 3.The Ld. CIT (A) erred in holding that the above deposits were legal when as per the Notifications dated 08/11/2016 &09/11/2016 of the Govt, of India, the cash received by the assessee in SBNs from its customers after 8th November, 2016 had no legal validity as the SBNs were declared were not legal tender in these specified transactions &the assessee deposited the same SBNs specified in bank accounts, which were not recognised as legal tenders by the Government order thereby rendering the transactions null and void legally, thereby they cannot be accepted as a satisfactory explanation to explain the source of cash deposits in the assessment proceedings.
4. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the Order of Ld.CIT(Appeals) may be set aside and that of Assessing officer may be restored.”
4. The grounds raised by the assessee in its cross objection read as under:- “1. For that the Learned Commissioner of Income Tax (Appeals) has erred in upholding the Order u/s 153C of the Act in the absence of any incriminating material pertaining to the Appellant found from the persons searched.
2. For that the Learned Commissioner of Income Tax (Appeals) erred in upholding the order of the Assessing Officer, who failed to follow the legal provisions of the Act by concluding the proceedings with a statement "subject to verifications," thereby passing the order without properly verifying the matters presented before him.
3. For these and such other grounds that may be adduced at the time of hearing with the leave of the Honourable ITAT, it is most humbly prayed that the appeal of the department be dismissed and/or provide such other relief to the respondent.”
Brief facts are that a search was conducted u/s.132 of the Act on 28.06.2017 in the case of Syed group of concerns, Tirunelveli. On the basis of material evidences gathered during the course of search, notice u/s.153C of the Act was issued to the assessee on 04.03.2019 and assessee company filed its return of income. During the course of assessment proceedings, the AO noticed that assessee firm deposited huge cash amounting to Rs.20,43,80,403/- in its three bank accounts during demonetization period. The assessee claimed that above said deposits were made out of beedi sales effected by it and from whom said cash was received were not identifiable as sales effected to small traders and their name & addresses were not entered in bills. In regard to deposit of SBNs, the assessee submitted that cash deposits were out of cash balance available as on 08.11.2016 as per books of account. Rejecting the contentions of the assessee, the AO made addition of Rs.3,55,42,588/- u/s.68 of the Act as unexplained cash deposits.
6. Aggrieved, the assessee challenged the order of assessment dated 24.12.2019 before the ld.CIT(A), who after thoroughly examining the case of the assessee on the issue of cash deposits made during demonetization period directed the AO to delete the addition of Rs.3,55,42,588/- made u/s.68 of the Act on account of unexplained cash deposits as unsustainable.
Aggrieved by the order of CIT(A), the Revenue is now in appeal before us. The ld. DR vehemently argued that AO erred in deleting the addition of Rs.3,55,42,588/-made on account of unexplained credit u/s 68 on account of deposit of the same in Specified Bank Notes (SBN) as per Notifications dated 08/11/2016 &09/11/2016 of the Govt. of India. The aforesaid cash received by the assessee in SBNs from its customers after 8th November, 2016 had no legal validity as the SBNs were declared were not legal tender in these specified transactions & the assessee deposited the same SBNs specified in bank accounts, which were not recognised as legal tenders by the Government order thereby rendering the transactions null and void legally, thereby they cannot be accepted as a satisfactory explanation to explain the source of cash deposits in the assessment proceedings.
The ld. counsel for the assessee submitted that before deciding the revenue appeal, the cross objection filed by the assessee may be taken up first as issue raised is jurisdictional one. The ld. counsel in support of his jurisdictional issue submitted as under: Dates Events 28.06.2017 Date of search in the case of M/s. Seyad Beedi Company (153A case) 01.11.2017 Date of filing the return of income u/s 139(1) of the Act 07.11.2017 Extended due date for filing the return of income 30.09.2018 Time limit for issuing note u/s 143(2) of the Act 07.12.2018 Date of recording satisfaction note in the case of the appellant 04.03.2019 Notice issued u/s 153C of the Act 24.12.2019 Date of assessment order On 07.12.2018, the Assessing Officer had recorded a satisfaction in the case of the appellant basing on a ledger account Charity in the books of M/s.Seyad Beedi Company (153A case) to the effect that the purchase cost booked by the assessee included charity amount which needs to be disallowed for AY 2014-15 to AY 2017-18 and accordingly, the notice u/s 153C of the Act were issued for AY 2014- 15 to AY 2017-18 on 04.03.2019. Thereafter, assessments u/s.153C r.w.s 143(3) of the Act was completed on 24-12-2019 for AY 2014- 15 to AY 2017-18 wherein the AO had made the following disallowance:
AY Disallowances made Charity Rs. Cash deposit Rs. Total Rs. 2014-15 33,78,780 - 33,78,780/- 2015-16 33,73,815 - 33,73,815/-
2016-17 40,06,345 - 40,06,345/- 2017-18 48,58,395 3,55,42,588/- 4,04,00,983/- The assessee, aggrieved by these orders, filed appeals before the Commissioner of Income Tax (Appeals) [CIT(A)] for AY 2014-15 to AY 2017-18. On 22.03.2021, the CIT(A) had passedan order dismissing the appeal by confirming the disallowance of charity amount for AY 2014-15 to AY 2016-17. Thereafter, the assessee had filed a further appeal before this Tribunal. The Tribunal, in to 128/Chny/2021 dt 13.07.2022, had deleted the disallowance of charity amount as expenses for AY 2014-15 to AY 2016-17. The issue of ‘charity expenses’ had attained finality as the revenue had not challenged the Order of Tribunal dt 13.07.2022. For AY 2017-16, the CIT(A) passed an Order u/s. 250 of the Act by following the Order of Tribunal in assessee’s own case had directed the Assessing Officer (AO) to delete the disallowance at charity amount as expenditure and also deleted the issue of cash deposits on the merits.
The revenue, being aggrieved by the Order of CIT(A)-l9, Chennai filed an appeal before the Tribunal on 30.01.2025 challenging only the deletion of the cash deposits issue Rs.3,55,42,588/- under section 68 as unexplained cash credit. Subsequently, the assessee filed cross-objections on 21.04.2025 raising the argument that the assessment under section 153C was invalid due to the absence of any incriminating material found during the search.
The ld. counsel further submitted the following points:
1. 1. It is respectfully submitted that the assessee filed the original return of income on November 1, 2017. According to Section 143(2) of the Act, the time limit for issuing a notice is 6 months from the end of the financial year in which the return was filed. Therefore, in this case, the deadline for issuing such notice was September 30, 2018. By that date, the return had not been selected for scrutiny.
2. Given that no notice u/s 142(1) of the Act was issued within the stipulated time frame, the assessment has become an "unabated assessment" as per the provisions of the Act. Furthermore, since no satisfaction was recorded regarding the disputed cash deposits, and the revenue has not presented any incriminating material related to these deposits before this Hon'ble Tribunal, the assessment lacks legal validity. Therefore, based on the judgment of the Hon'ble Supreme Court in the case of Principal Commissioner of Income- tax, Central-3 vs. Abhisar Buildwell (P.) Ltd.454 ITR 212 (SC) dated April 24, 2023, the assessment should be annulled.
3. It is submitted that the primary issue for reopening u/s 153C of the Act pertains to the disallowance of charity amount included in purchase cost. The Assessing Officer recorded satisfaction to issue a notice u/s 153C of the Act. However, this specific issue has not been further challenged by the department before this Hon'ble Tribunal.
4. Section 153C permits the AO to issue a notice if there is a reasonable belief, based on seized documents or material, that income has been concealed or is undisclosed. In the present case, the AO, while recording the satisfaction note, did not mention the issue of cash deposits being treated as unexplained cash credits u/s 68 of the Act. This omission is significant, especially considering that the cash deposits in question were made from sale proceeds that had already been offered as income in the hands of the assessee.
5. The absence of any reference to the cash deposits in the satisfaction note raises concerns about the validity of the proceedings. As per the legal precedents, including the decision in Principal Commissioner of Income-tax, Central-3 vs. Abhisar Buildwell (P.) Ltd., 454 ITR 212 (SC), the recording of satisfaction by the AO is a mandatory requirement before initiating proceedings under Section 153C. Without a proper satisfaction note on the issue of cash deposits, the additions cannot be sustained.
Therefore, in light of the above, it is prayed that the Hon'ble Tribunal may consider annulling the assessment proceedings on the grounds of lack of jurisdiction.
In light of the above submissions, we respectfully request that the delay in filing the cross objections be condoned. Furthermore, we pray that the assessment made u/s 153C of the Act be declared invalid, as the Assessing Officer (AO) has failed to record a specific satisfaction regarding the treatment of cash deposits as unexplained cash credits u/s 68 of the Act.”
Before us, the assessee has raised a purely legal ground, hence the legal ground is taken up first for consideration.
The assessee has raised as many as 2 effective grounds in its cross objectionin appeal which are in relation to the completion of assessment u/s 153C of the Act after making addition when no incriminating material was found as a result of search qua the addition.
Before us, the Ld. AR argued that in this case the search u/s 132 of the Act was carried out on 28.06.2017. Ld.AR submits that when the notice u/s.153C has been issued to assessee no proceedings was pending with respect to the assessment year under consideration as the return of income was filed on 01.11.2017 and the time limit for issue of notice u/s.143(2) was upto 30.09.2018 and no notice was issued u/s.143(2) in the case of assessee. Ld. AR further argued that from the perusal of the assessment order it is evident that not a single paper found as result of search was referred by the AO for making unexplained cash deposited during demonetization period u/s.68 of the Act. He, therefore, submitted that in the scheme of search assessment u/s.153C no addition could be made in the absence of incriminating material and for this he placed reliance in the case of PCIT Vs. Abhisar Buildwell (P) Ltd. reported in [2023] 149 taxman.com 399 (SC)/(2023) 293 Taxman 141 (SC)/(2023) 454 ITR 212 (SC). The ld. AR also filed a written submission on this issue which has been referred supra.
12. Per contra ld. CIT-DR vehemently supported the order of the AO and argued that in the case of the assessee, during the course of assessment proceedings assessee himself has accepted unaccounted sales on which GP rate was applied by the AO. Such additional sales were accepted by the assessee in his statement of affairs filed before the AO and the return was filed declaring income u/s.44AD of the Act. Ld. CIT-DR thus prayed that the assessment has rightly been completed u/s.153C r.w.s.143(3) of the Act by making additions including cash deposit during demonetization and such order deserves to be upheld. He prayed accordingly.
We have considered the rival submissions. A perusal of the assessment order for the year under consideration clearly shows that the AO has not referred to any incriminating material found in the course of search. We find force in the legal plea raised on behalf of the assessee. In the case of PCIT Vs. Abhisar Buildwell (P) Ltd the Hon’ble Supreme Court opined as under:
In the case of PCIT Vs. Abhisar Buildwell (P) Ltd. the Hon’ble Supreme Court has concluded as under: i) that in case of search Under Section 132 or requisition Under Section 132A, the AO assumes the jurisdiction for block assessment Under Section153A; ii) all pending assessments/reassessments shall stand abated; iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the 'total income' taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers Under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned Under Sections 147/148 of the Act and those powers are saved.
From the aforesaid facts, it clearly emerges that the addition of unexplained cash credit u/s.68 is not based on any incriminating material as found and seized from the Seyad group of concerns / assessee during the course of search. The return of income, for the year, had already been filed by the assessee before the notice u/s.153C of the Act and the same had attained finality. No notice u/s.143(2) was issued till the date of notice u/s.153C for the year and the time limit for issuance of such a notice had already been expired for the year in question. To make this addition, the AO has merely referred to bank accounts of the assessee which forms part of regular books of account. Nothing has been shown to us that this addition is based on any incriminating material. In such a case, the ratio of recent decision of Hon'ble Supreme Court in the case of Pr.CIT vs. Abhisar Buildwell Pvt. Ltd. (149 Taxmann.com 399), considering all the earlier decisions holding the field, would squarely apply to the facts of the case settling the impugned issue in favor of the assessee. Hence, in the absence of any incriminating material in an unabated assessment, additions/disallowances made by the AO is unsustainable within the remit of s.153C of the Act and consequently the addition under challenge in the captioned appeal requires to be quashed. We also find that the issue of ‘charity expenses’ had attained finality as the revenue had not challenged the Order of Tribunal dt 13.07.2022.In this view of the matter, we do not consider it necessary to adjudicate the appeal of the revenue concerning addition. Accordingly, the grounds raised
by the assessee in its cross objection are allowed.
15. Since we have already decided the legal ground raised by the assessee in its cross objection in its favour, the appeal of the revenue is not adjudicated.
16. In the result, cross objection of assessee is allowed and appeal of the revenue is dismissed. Order pronounced in the open court on 27th May, 2025