DCIT, CENTRAL CIRCLE-1(4), KOLKATA, KOLKATA vs. SOUTHWINDS PROJECT LLP, KOLKATA

ORDER

Per Shri Rajesh Kumar, AM

Southwinds Project LLP, AY 2013-14 Thereafter, notice u/s. 142(1) along with questionnaire was issued to the assessee which was replied by the assessee by filing evidences/information as called for by the Assessing Officer. During the proceedings u/s. 153A, the Assessing Officer noted that the assessee has received unsecured loans in the books of account of the assessee which could not be explained and accordingly, treated the said loans as unexplained cash credit u/s. 68 of the Act and added the same to the income of the assessee. Similarly, the Assessing Officer also made addition @ 0.5% of the total amount of unsecured loans towards commission for arranging the said loans and added the same in the income of the assessee. The Assessing Officer also calculated the interest @ 9% on the said loans as interest paid in cash and added the same as unexplained expenditure to the income of the assessee.

“5.1 I have carefully considered the facts of the case and submission of the appellant. Assessee had filed original return of income u/s.139(1) of the I.T. Act and no proceedings were pending in respect of the said return. Time for selecting the case for scrutiny was over long before the date of search. Thus, the assessment year falls in the category of un-abated assessment year/completed assessment year. Appellant has cited several judicial decisions which have held that additions in search assessment could not be made in respect of any incriminating material not found during search in the case of un-abated/completed assessment. Nature of additions in the current year reveals that the decisions are based on the information reflected in the return of income/Audit report and not on the basis of any incriminating evidences found during search. No incriminating evidence appears to have been found during search on this issue. This issue was raised before the A.O. as well. It appears that A.O. has acknowledged that no incriminating evidences were found during search but he has rejected assessee’s contentions on some other basis. According to the A.O. section 153A does not restrict assessment in search proceedings to the incriminating evidence found during search. However, A.O’s views are not acceptable as there are several judicial pronouncements, some of which are quoted by the appellant in his submission which have held that additions without incriminating evidence found during search, in the cases of completed assessments, are not sustainable. In the case of CIT vs. Kabul Chawla (2016), 380 ITR 573(Delhi) the Hon’ble Delhi High Court has held that once a search takes place, notice u/s. 153A (1) has to be mandatorily issued. Assessment and re-assessment pending on the date of search shall abate. But, an assessment under the section 153A has to be made only on the basis of seized materials. In absence of any incriminating materials, the completed assessment can be only reiterated and assessment can be made only in respect of abated assessment or re-assessment. Completed assessment can be only interfered with by the AO while making the assessment u/s.153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in course of search which were not produced or not already disclosed or made known in the course of original assessment. While delivering the judgment; the Hon'ble Delhi High Court followed the judgment of the Bombay High Court in CIT vs Continental Warehousing Corporation (Nhava Sheva)

Southwinds Project LLP, AY 2013-14 Ltd. (2015) 374 ITR 645. These two judgments have been followed by various High Courts and Tribunals on this issue. The position as on today is that in respect of completed assessment any addition can be made under proceedings u/s.153A only if any incriminating documents are found. 5.2 Issue relating to additions being based on incriminating evidences found during search, has been examined by the Hon’ble Supreme Court. Several SLPs pending in the Hon’ble Supreme Court were heard together with the lead case in Pr. CIT, Central-3 vs. Abhisar Buildwell Pvt. Ltd., Civil Appeal No.6580 of 2021, order dated 24-04-2023. While deciding this appeal several judgements of various High Courts were discussed. Lead judgements by Delhi High Court in the case of Kabul Chawla and judgement of Gujarat High Court in the case of Saumya Construction were specifically discussed elaborately. After considering the arguments of the Department and the Assessee’s Advocates, the Hon’ble Supreme Court has upheld the judgement of the Hon’ble Delhi High Court in the case of Kabul Chawla and the judgement of Gujarat High Court in the case of Saumya Construction. Thus, the Hon’ble Supreme Court has held that no addition can be made in respect of completed assessment in absence of any incriminating material found during search. The operative part of the judgement is as under : “14. In view of the above and for the reasons stated above, it is 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 section 153A; 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.” 5.3 As mentioned above, no incriminating documents have been found during search against the assessee relevant to this particular assessment year. In the current case, additions (disallowances) have been made on the basis of information available in the Audit Report/Return of Income or on the basis of information gathered during post search enquiries. Hence, respectfully following the judgments/decisions of various High Courts and the Tribunals, including those of the jurisdictional High Court and ITAT and the judgement of the Hon’ble Supreme Court in PCIT, Central-3 vs. Abhisar Buildwell Pvt. Ltd., Civil Appeal No.6580 of 2021, order dated 24-04-2023, it is held that the disallowances/additions made are not sustainable. 5.4 The appellant has further stated that the A.O. has unlawfully invoked jurisdiction for the AY 2013- 14 u/s. 153A of the IT Act, 1961. The additional power given to the Assessing Officer to re-open beyond six assessment years upto ten assessment years (7th to 10th AY’s) were conferred by the Finance Act, 2017 w.e.f. 01.04.2017. However, this power can be exercised only on satisfaction of the essential condition precedent as specified in the fourth proviso to section 153A of the Act. Therefore, the invocation of jurisdiction under section 153A of the Act in respect of seventh to tenth Southwinds Project LLP, AY 2013-14 assessment years were not automatic as is in the case of six assessment years preceding the year of search. If the AO wants to re-open the seventh to tenth assessment years, then he should be empowered to do so by legal/valid assumption of jurisdiction as per the fourth proviso to section 153A of the Act. The jurisdictional fact to be met under the fourth proviso to section 153A of the Act is that, the AO should have in his possession incriminating evidence/material which could reveal that income valued Rs. 50 lakhs or more represented in ‘form of asset’ had escaped assessment. Only if, the AO had in his possession this jurisdictional fact i.e. undisclosed/unaccounted ‘asset’ valued Rs. 50 lakhs or more, which was discovered during search, relating to seventh to tenth assessment years, that he can rightly invoke the jurisdiction to re-open the said assessment years, or otherwise the AO cannot reopen the assessment. 5.5 Further, as per appellant for invoking/assumption/usurpation of jurisdiction u/s. 153A of the Act following are pre conditions: • There must be search action conducted u/s 132 of the Act on or after 01/04/2017 AO must be in possession of books of account/documents/evidence which should reveal income amounting Rs. 50 Lakh or more, represented in the form of assets That income must be escaped assessment. 5.6 In the present case search has been conducted on 05-01-2021 i.e. after 01/04/2017 but Assessing Officer was not in possession of any documents/evidence which suggest that there is any undisclosed income for the A.Y. 2013-14. The Assessing Officer merely on the basis of facts that appellant has taken loan/advance during the AY 2013-14 assumed that the said loan/advance was undisclosed/unexplained without any corroborative material in his possession. The Assessing Officer failed to bring any such assets on record which found to be undisclosed in the books of the appellant. 5.7 The appellant states that in the present case the Assessing officer has added loan/advance which is in the nature of “liability” whereas the law clearly speak as discussed above, to assume the jurisdiction beyond six year preceding the year in which search conducted. The Assessing officer has to record his satisfaction which should speak about the “Assets” which is undisclosed before invoking fourth proviso of section 153A of the I.T. Act, 1961. Whereas in the present case Assessing officer has failed to bring such asset on record and unlawfully made addition on account of loan/advance which is infact in the nature of liability. 5.8 The Parliament by specifying the jurisdictional fact as undisclosed asset valued Rs. 50 Lakhs or more, has impliedly excluded other items of income viz., liabilities/credit, unexplained expenditure etc. A reading of the fourth proviso to section 153A of the Act and Explanation (2) to fourth proviso to section 153A of the Act which defines ‘Asset’ for the purpose of fourth proviso to section 153A of the Act, clarify the intention of the Parliament to permit the AO to enlarge the assessment u/s. 153A after search u/s. 132 of the Act beyond six assessment years to ten assessment years preceding the searched assessment year, provided the AO has in his possession the essential jurisdictional fact i.e. “undisclosed/unaccounted asset” valued Rs 50 lakhs or more of the assessee discovered during search pertaining to 7th to 10th Assessment Year preceding the searched assessment year. Since the Parliament has used the expression ‘income in the form of asset’ and the definition of asset has been spelled out in the fourth proviso, this itself necessarily implies that the liability/items falling in the left side of the Balance Sheet stands excluded. By express mention of ‘Assets’ and definition given to it specifically, it is implied that the Parliament silently excluded the items of ‘revenue’, ‘expenditure’ & ‘liabilities’ from its jurisdictional fact for invoking/assumption/usurpation of jurisdiction u/s. 153A of the Act for the seventh to tenth assessment year preceding the searched assessment year.

Southwinds Project LLP, AY 2013-14 5.9 The appellant in the discussion placed reliance on the decision of Hon’ble ITAT, Guwahati in the case of ACIT Circle-1 Guwahati vs Goldstone Cements Ltd Vide to 131/GAU/2020 and C.O. No. 03 to 08/Gau/2020, where it has been held as “In view of the above and on perusal of the impugned re-assessment order, we note that the only addition made by the AO in AY 2011-12 was on account of unexplained cash credit represented by share application monies of Rs.5,38,35,000/- u/s. 68 of the Act. According to the AO, the source of source of the monies received from shareholder, M/s Hari Trafin Pvt Ltd was not properly explained, and therefore the same was added as unexplained cash credit u/s 68 of the Act. As noted above, the additions on account of unexplained cash credit and that too share capital, which is in the nature of ‘liability’ could not have been made by AO, unless he first made an addition of undisclosed ‘asset’ valued at Rs. 50 Lakhs or more. So in this case, as there was no addition made by AO on account of undisclosed asset, we can safely infer that there was no jurisdictional fact in the AO’s hand or in his possession when he assumed jurisdiction u/s 153A for AY 2011-12 in the first place itself. As, the very usurpation of jurisdiction u/s. 153A of the Act is found to be bad in law for want of jurisdiction, the AO was precluded from making any other addition in the assessment for AY 2011-12. Hence, the AO’s action of making addition u/s 68 of the Act in the relevant AY 2011-12 is held to be unsustainable for want of jurisdiction and is therefore is quashed. The assessee thus succeeds on this ground raised in the cross objections and the same is allowed.” Further in the case of DCIT Central Circle- 3(4), Kolkata vs. M/s. Followel Engineering Ltd vide ITA No. I.T. (SS)A. 25 to 32/Kol/2023, held that: “Now once the basic condition i.e., availability of “asset” as defined under explanation 2 to 4th proviso to Section 153A of the Act, if any, found during the course of search with the assessee/group concern is absent, nor there is any reference to any incriminating material referring to ownership of such undisclosed assets by assessee and only there is a reference of the credits received by the assessee/s which are duly disclosed in the regular books of accounts are part of the audited financial statements, issuing of notice u/s 153A of the Act then invoking the 4th proviso to Section 153A of the Act, is invalid and bad in law and beyond jurisdiction and thus on this ground itself, the assessment order passed u/s 153A of the Act, which is the subject matter of the instant appeals before us has rightly been quashed by the ld. CIT(A) and which thus does not call for any interference.” 5.10 Therefore in view of the above facts and discussion made herein above and relying on the Judicial decisions of Hon’ble ITAT, Guwahati in the case of Goldstone Cements (supra) and the decision of Hon’ble ITAT, Kolkata in the case of M/s. Followel Engineering Ltd. (supra), I am of the opinion that no jurisdictional fact was not in the possession of A.O. when he assumed jurisdiction u/s.153A for A.Y. 2013-14, as no addition has been made by him on account of undisclosed asset. Hence, the usurpation of jurisdiction u/s.153A of the Act in this case is found to be bad in law for want of jurisdiction. As a result the action of the A.O. in making addition of Rs.30,00,00,000/- u/s.68 of the Act in the relevant A.Y. 2013-14 is held to be unsustainable for want of jurisdiction and therefore, is quashed. Accordingly addition of Rs.30,00,00,000/- is deleted. Furthermore, the facts narrated and the discussion above, clearly suggest that the disallowances / additions made by the AO vide order u/s.153A read with section 143(3) in this particular assessment year are not sustainable, as these are not linked to any incriminating material found at the time of search. Hence, the additions of Rs.30,00,00,000/- u/s.68 and Rs.2,85,00,000/-(Rs.2,70,00,000 + Rs. 15,00,000/-) u/s.69 are deleted. 6.0 In the result, the appeal of the assessee is Allowed.”

Southwinds Project LLP, AY 2013-14 4. The Ld. AR vehemently submitted before us that in this case a search action was also conducted on Primarc Group of Companies on 31.08.2015 besides conducting survey operation on group entities and on the basis of such search a notice u/s. 153A was issued to the assessee on 05.04.2017 calling upon the assessee to file return of income for AY 2011- 12 to 2016-17 which assessee duly filed on 04.05.2017. The Ld. AR submitted that the assessment u/s. 143(3)/153C was framed by order dated 31.12.2017 for AY 2013-14. The assessment was framed u/s. 143(3)/153C by assessing income at Rs.2,75,459/- by making addition of the equal amount in AY 2015-16. The Assessing Officer assessed the income u/s. 153C/143(3) at Rs.3,58,025/- by making an addition of Rs.2,88,755/-. The said order was also appealed before the Ld. CIT(A) and the ld. CIT(A) deleted the addition by observing that no incriminating material was discussed by the Assessing Officer in the assessment order and, therefore, additions were not sustainable. The Ld. AR further submitted that again a search action u/s. 132 was conducted on Primarc Group of Companies including the assessee on 05.01.2021 and proceedings were initiated u/s. 153A by issuing notice on 25.03.2022. The assessee was issued show cause notice on 26.03.2022 along with notice u/s. 153A which was replied by the assessee on 29.03.2022 objecting to the proceedings initiated u/s. 153A for the instant year i.e. AY 2013-14 on the ground that this being the 8th assessment year from the searched assessment year and the reopening has not been made in terms of explanation (1) of section 153A beyond six years but upto 10th assessment year. The Assessing Officer has jurisdiction to issue such notice if he has in his possession the books of accounts or other documents/evidences which revealed that the income represented in the form of asset which has escaped assessment amount to or is likely to the amount to Rs. 50 lakh or more in the relevant assessment year or in aggregate in the relevant assessment years. The ld. AR also submitted that the addition could be made on the basis of incriminating searched material found during the course of search and not otherwise as the year under consideration is an unabated assessment year and has already attained finality. The Ld. AR further submitted that assessee was not provided any opportunity to cross examine Mr. Mantosh Kumar Yadav and Mr. Pritam Ghosh whose statements were primarily relied on for making the additions against the assessee. The Ld. AR while submitting that the assessee raised Rs. 30.00,000/- as unsecured loan from M/s. Blue Star Advisory Pvt. Ltd. and M/s. Richfield Vinimay Pvt.

Southwinds Project LLP, AY 2013-14 Ltd. for which no incriminating material was found during the course of search and similarly, the additions made in respect of commission and interest paid in cash was also passed on surmises and conjecture without there being any incriminating material seized during search. The Ld. AR also submitted that the loans taken from M/s. Blue Star Advisory Pvt. Ltd. and M/s. Richfield Vinimay Pvt. Ltd. were repaid during AY 2015-16 which the Assessing Officer has duly accepted and has not made any addition when these were repaid. The Ld. AR, therefore, submitted that once the repayment of loans was accepted by the department then no addition could be made in the financial year in which the said loans were taken by relying on the decision of Hon’ble Gujarat High Court in the case of CIT Vs. Ayachi Chandrashekhar Narsangji [2014] 42 taxmann.com 251 (Guj). Finally, the ld. AR summed up his arguments by submitting that the assessment framed by the Assessing Officer is bad in law on many scores namely, - (i) that the proceedings u./s. 153A of the Act were initiated in violation of provision of 4th proviso to section 153A of the Act; (ii) the loans taken from M/s. Blue Star Advisory Pvt. Ltd. and M/s. Richfield Vinimay Pvt. Ltd. during the impugned financial year were duly repaid in FY 2015-16 and the copy of confirmations are available at page 70, 71 and 87 to 88 of the paper book. The Ld. AR contended that once the transactions of repayment were accepted by the department, no addition could be made qua the loans taken by the assessee, and (iii) this being an unabated assessment year on the date of search as there was no pending proceedings against the assessee and also the time limit available by issuing notice u/s. 143(2) of the Act had already expired and, therefore, there being no incriminating seized material during the course of search and the addition made by the Assessing Officer based on statement of Mr. Mantosh Kumar Yadav and Mr. Pritam Ghosh were without jurisdiction in view of the decision of the Hon’ble Apex Court in the case of PCIT Vs. Abhisar Buildwell Pvt. Ltd. [2023] 454 ITR 212 (SC). The ld. AR, therefore, prayed that the order passed by Ld. CIT(A) considering all these aspects is a valid reasoned and speaking order and accordingly, the appellate order may kindly be upheld by dismissing the appeal of the revenue.

Further ,the impugned assessment year being the 8th assessment year from the searched 7. year and, therefore, the same falls beyond the 6th assessment year but before the 10th assessment year from the searched year and, therefore, the provisions of section 153A can only be invoked subject to fulfillment of certain conditions as envisaged in 4th proviso to section 153A and are extracted below: a) the AO has in his possession books of accounts or other documents or evidence which reveal that the income, represented in the form of asset has escaped assessment and which amounts to or is likely to amount to fifty lakh rupees or more in the relevant assessment year or in aggregate in the relevant assessment years; b) the income referred to in clause (a) or part thereof has escaped assessment for such year or years; and c) the search under section 132 is initiated or requisition under section 132A is made on or after the 1st day of April, 2017.

The very 1st condition requires the Assessing Officer to have in his possession the 8. books of account and other documents or evidences which reveal that income of the assessee in the form of assets has escaped assessment and such books of account should be seized books of account or other documents and not the books of account from other sources. We note that in this case, there was no reference made by the Assessing Officer to any such books of account or documents or seized documents which revealed that income has escaped assessment nor has provided that income in the form of asset as defined in explanation 2 to section 153A has escaped assessment. We note that the Assessing Officer has relied on the statement which were not recorded in the course of search on the assessee but recorded in some other proceedings u/s. 131 of the Act. We also note that the assessee was not provided or furnished or confronted with the said statements and it is not even on the record and also under which proceedings the statements were recorded. The clause 9(b) provides that income referred to in clause (a) above or part thereof has escaped for such year or years and clause (c) provides that search u/s. 132 is initiated or requisition u/s. 132A is made on n or after 1st day of April, 2017. Thus, the Assessing Officer has jurisdiction to reopen the assessment u/s. 153A if the amount of income represented in the form of asset which has escaped assessment is likely to be Rs. 50 lakh or more in the relevant assessment year or in aggregate in the relevant assessment years but none of these conditions are fulfilled and there was no such reference ever made or noted by the Assessing Officer to this effect. Therefore, even on this plea of the assessee, the order passed by the Assessing Officer cannot be sustained.