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Income Tax Appellate Tribunal, HYDERABAD BENCHES “A”, HYDERABAD
Before: SHRI LALIET KUMAR, HON’BLE & SHRI G. MANJUNATHA, HON’BLE
O R D E R PER BENCH : The appeals of the assessee for A.Ys. 2011-12 to 2014-15 arise from the separate orders of Commissioner of Income Tax (Appeals) – 12, dated 19.08.2024 for A.Y.2011-12, dt.17.08.2024 for A.Y. 2012-13, dt.20.08.2024 for A.Y. 2013-14 and 2014-15, respectively. Since, the facts are identical and issues are common but for the figures, for the sake of convenience, these four appeals were heard together and are being disposed of, by this consolidated order.
“1.The order of the Ld. CIT(A) is erroneous on the facts of the case and contrary to the provisions of law.
The Ld. CIT(A) erred on facts and in law in not allowing the claim of additional deduction of expenditure of Rs.13,55,225/- as evidenced by the entries of cash outflows in the names of the employees found in the seized material against the gross unaccounted cash receipts from sale of spent solvents and scrap of Rs.15,89,486/- for arriving at the real income thereon.
3. In the facts and circumstances of the case and in law, the Ld. CIT(A) erred in failing to consider the notarized affidavits of the employees and labour contractors furnished as additional evidence which substantiate the additional claim of expenditure towards labour payments by corroborating and supplementing the entries of cash outflows in the names of the employees found in the seized material.
4. In the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the deduction of expenditure to the extent of Rs.1,58,949/- only on estimate basis at 10% of the gross unaccounted cash receipts from sale of spent solvents and scrap.”
5. The LD.CIT(A) crossly erred in law in holding that A.Y. 2011-12 falls under the scope of “relevant Assessment Year or Years” as defined in Explanation-1 to section 153A of the Act, though the said assessment year is later than 10 assessment years from the end of the assessment year relevant to the previous year in which search was conducted.
6. In the facts and circumstances of the case, the Ld.CIT(A) erred in law in holding that the Assessing Officer has validly assumed jurisdiction u/s 153A of the Act though the satisfaction note recorded by him omitted to provide any justification for reaching the conclusion that the income escaping assessment, being the unaccounted income from sale of spent solvents, is represented in the form of an asset, which is a mandatory condition precedent for assuming jurisdiction to issue notice u/s 153A for assessment years falling beyond six assessment years preceding the assessment year relevant to the previous year in which search was conducted as per the fourth proviso to section 153A(1) of the Act.”
The brief facts of the case are that the appellant company is engaged in the business of manufacturing of bulk drugs. A search and seizure operation under Section 132 of the Income tax Act, 1961 (“the Act”) was carried out in M/s. MSN Group of cases on 24.02.2021. The appellant M/s. MSN Organics Private Limited (hereinafter referred to as “MSN Organics”) is one of the companies covered under Section 132 of the Income Tax Act as part of the search. Consequent to search, notice under Section 153A of the Act was issued to the assessee on 04.04.2022. Notice u/s 142(1) was issued on 26.08.2022 calling for certain information. After considering the information submitted by the assessee, the assessment was completed under Section u/s 143(3) r.w.s. 153A of the Act, making addition of Rs.15,89,486/- towards unaccounted receipts from sale of spent solvent / scrap.
3.1. The assessee has filed an appeal against the assessment order passed by the AO for A.Y. 2011-12 and challenged the disallowance of the claim deduction of expenditure of Rs.15,89,486/- made by the AO towards expenses incurred against unaccounted cash receipts from sale of spent solvents / scrap and also challenged the legal validity of notice issued u/s 153A for the assessment year 2011-12 in light of Explanation - 1 to Section 153A(1) of the Act and argued that the assessment year in question falls beyond the ‘relevant assessment year or years’ and therefore, notice issued u/s 153A and consequent assessment order passed by the Assessing Officer is bad-in-law and is liable to be quashed. The assessee further challenged the legal validity of assumption of jurisdiction by the Assessing Officer for issuance of notice u/s 153A of the Act. The LD.CIT(A), for the reasons stated in the appellate order dated 19.08.2024, partly allowed the appeal filed by the assessee wherein the LD.CIT(A) has allowed the deduction of expenditure to the extent of Rs.15,89,486/- only on estimate basis at 10% of the expenditure incurred against unaccounted receipts from sale of spent solvent / scrap.
Aggrieved by the order of LD.CIT(A), the assessee is now in appeal before the Tribunal.
4.1 GROUND NO.5 OF ASSESSEE’S APPEAL FOR A.Y. 2011-12
“5. The LD.CIT(A) crossly erred in law in holding that A.Y. 2011-12 falls under the scope of “relevant Assessment Year or Years” as defined in Explanation-1 to section 153A of the Act, though the said assessment year is later than 10 assessment years from the end of the assessment year relevant to the previous year in which search was conducted.”
Ground No.5 of assessee appeal for A.Y. 2011-12 pertains to the legality of notice issued by the Assessing Officer u/s 153 of the Act.
With respect to this ground, the learned counsel for the assessee referring to the date of search submitted that the search u/s 132 of the Act was conducted in the case of the appellant on 24.02.2021 and as per Explanation 1 to Section 153A(1) of the Act, the ‘relevant assessment year’ shall be the assessment year preceding the assessment year relevant to the previous year in which search is conducted or requisition is made which falls beyond six assessment years but not later than the ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made.
In the present case, going by the date of search i.e., on 24.02.2021, the expression “relevant Assessment Year” will start from A.Y. 2021-22 and upto A.Y. 2012-13. Therefore, notice issued by the Assessing Officer u/s 153A for A.Y. 2011-12 is beyond the relevant assessment year and therefore, any assessment order passed in consequent to the said invalid notice is void ab initio and is liable to be quashed. In this regard, he relied upon the decision of Hon'ble Madras High Court in the case of A.R. Safiullah Vs, ACIT in WP(MD) No.4327 of 2021 and also the decision of Hon'ble Delhi High Court in the case of PCIT Vs. Ojjus Medicare Pvt. Limited reported in (2024) 161 taxmann.com 160 (Delhi).
8. The learned CIT-DR, on the other hand, supporting the orders of the LD.CIT(A) submitted that the Explanation - 1 defines the “relevant assessment year”, the assessment year preceding the assessment year relevant to the previous year in which search is conducted or requisition is made which falls beyond six assessment years but not later than ten assessment years from the end of the assessment year relevant to the previous year in which such search is conducted or requisition is made. If we consider the date of search, the assessment year preceding the assessment year relevant to the previous year in which search is conducted starts from A.Y. 2020-21 and tenth assessment year will be A.Y. 2011-12. Therefore, the notice issued by the Assessing Officer u/s 153A(1)(a) for assessment year is in question and is as per the Explanation – 1 to Section 153A(1) and therefore, the argument of the assessee is devoid of merit and needs to be rejected.
We have heard the rival submissions, perused the material on record and gone through the orders of the authorities below. Provisions of Section 153A(1) deals with assessment of search cases, where the Assessing Officer shall have power to assess or reassess total income of the assessee, in respect of each assessment year falls within six assessment years and for the relevant assessment year or years referred to in clause (b). For the sake of better understanding, provisions of Section 153A(1) and the Explanation - 1 are reproduced as under :
“Assessment in case of search or requisition. 153A. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the 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 the 31st day of May, 2003 (but on or before the 31st day of March, 2021), the Assessing Officer shall- (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years and for the relevant assessment year or years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) 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 and for the relevant assessment year or years:
Provided 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: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years and for the relevant assessment year or years referred to in this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate: Provided also that the Central Government may by rules62 made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated under the second proviso), specify the class or classes of cases in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years: Provided also that no notice for assessment or reassessment shall be issued by the Assessing Officer for the relevant assessment year or years unless- (a) the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income, represented in the form of asset, which has escaped assessment 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. Explanation 1 For the purposes of this sub-section, the expression "relevant assessment year" shall mean an assessment year preceding the assessment year relevant to the previous year in which search is conducted or requisition is made which falls beyond six assessment years but not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made.”
10. As could be seen from the provisions of Section 153A of the Act, the Assessing Officer is required to issue notice u/s 153A in respect of each assessment year falling within six assessment years and for the relevant assessment year or years in the case of a person, who has been searched u/s 132 of the Act or requisition is made u/s 132A of the Act. The six assessment years referred to in Section 153A(1) of the Act, for which notice is required to be issued, and assessment is required to be made, is further specified in Section 153A(1)(b) of the Act to mean the six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted. On the other hand, the ‘relevant assessment year or years’ referred to in Section 153A(1)(a) of the Act for which notice is required to be issued and assessment is required to be made, specifically defines in Explanation - 1 to Section 153A(1) of the Act to mean the assessment year preceding the assessment year relevant to the previous year in which search is conducted or requisition is made, which falls beyond six assessment years but not later than ten assessment years from the end of assessment year relevant to the previous year in which search is conducted or requisition is made. Therefore, it is evident from the Explanation 1 to Section 153A of the Act, the statue has prescribed different modes of counting the “six assessment years” and the ‘relevant assessment years’ and as per the said Explanation – 1, the identity of the “six assessment years” has been defined as the six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted. On the other hand, the identity of the assessment years beyond six assessment years but not later than ten assessment years referred to as “relevant assessment year or years” has been defined as the assessment year preceding the assessment year relevant to the previous year in which search is conducted which fall beyond six assessment years but not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted.
In this legal background, if we examine the facts of the present case of the assessee, a search was conducted on 24.02.2021 and the previous year means the F.Y. 2020-21 and the relevant assessment year is A.Y. 2021-22. The “six assessment years” immediately preceding the said assessment years are A.Ys 2015-16 to 2020-21. The “relevant assessment year or years” has been defined in Explanation 1 to Section 153A(1) of the Act shall be counted from the end of the assessment year relevant to the previous year in which search is conducted i.e., from the end of A.Y. 2021-22. The terminal date of such A.Y. 2021-22 is 31.03.2022 and the assessment year which fall beyond six assessment years but not later than ten assessment years from such terminal date constitutes the “relevant assessment year “as per the definition in Explanation – 1 to Section 153A(1) of the Act. If we consider the terminal date of such A.Y. 2021-22 is 31.03.2022, the assessment year which fall beyond six assessment years but not later than ten assessment years from the end of A.Y. 2021-22 are A.Ys. 2012-13 to 2015-16. Since the terminal date i.e., 31.03.2022, being the end of A.Y. 2021-22, the first year considered backwards from the said terminal date is A.Y. 2021-22 and the tenth year is A.Y. 2012-13, but not A.Y. 2011-12, as considered by the Assessing Officer. This legal position has been explained by the Hon'ble Madras High Court in the case of A.R.
Safiullah Vs. ACIT (supra) wherein the Hon'ble High Court after considering the relevant provisions of Section 153A(1) and Explanation - 1 provided therein has held that while the ‘six assessment years’ as per Section 153A(1)(b) are the six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted, thereby excluding the search assessment year, the starting point for the purpose of computing the ten assessment years as per Explanation - 1 to Section 153A(1) of the Act has to be the end of the search assessment year, which implies that the search assessment year is also to be excluded in the latter case. The relevant portion of the Hon'ble Madras High Court’s order is extracted below :
“7. The principles of interpreting a taxation statute have been authoritatively laid down by the Constitution Bench of the Supreme Court in Commissioner of Customs (Import), Mumbai vs. Dilip Kumar and Company and others (2018) 9 SCC 1. It was held therein that other tools of interpretation such as contextual or purposive interpretation cannot be applied, nor any resort be made to look to other supporting material in taxation statutes. There is no room for any Intendment. Regard must be had to the clear meaning of the words. Equity has no place. One has to strictly look to the language used. There is no room for searching intendment nor drawing any presumption. Nothing has to be read into nor should anything be implied other than essential inferences while considering a taxation statute. (Para 29). This judgment is now a leading authority for the proposition that in the event a provision of fiscal statute is obscure such construction which favours the assessee may be adopted would have no application to construction of an exemption notification, as in such a case it is for the assessee to show that he comes within the purview of exemption.
In fact, I am prepared to sail along with the learned standing counsel and hold that if there is any ambiguity while construing a provision meant for rooting out or investigating evasion of tax, it must be resolved in favour of the revenue and against the assessee. Jurisprudentially speaking, the very object of law is to lay down norms for general behaviour and prescribe sanction to ensure their compliance. Unless sanction is strictly enforced, it will incentivise deviation. Even in criminal law, while when it comes to substantive offences, retrospective application is forbidden, contrary approach is adopted in matters of procedure. I agree with the submission that Section 153 A of the Income Tax Act is intended to unearth tax evasion. But I can endorse the stand of the respondent as regards computation of the period of ten years only if there is ambiguity or obscurity in Explanation-I. To me, there is absolutely no ambiguity.
9. Explanation-I is clear as to the manner of computation of the ten assessment years. It clearly and firmly fixes the starting point. It is the end of the assessment year relevant to the previous year in which search is conducted or requisition is made. There cannot be any doubt that since search was made in this case on 10.04.2018, the assessment year is 2019- 20. The end of the assessment year 2019-20 is 31.03.2020. The computation of ten years has to run backwards from the said date i.e., 31.03.2020. The first year will of course be the search assessment year itself. In that event, the ten assessment years will be as follows: 1st year 2019-20 2nd year 2018-19 3rd year 2017-18 4th year 2016-17 5th year 2015-16 6th year 2014-15 7th year 2013-14 8th year 2012-13 9th year 2011-12 10th year 2010-11 The case on hand pertains to AY 2009-10. It is obviously beyond the ten year outer ceiling limit prescribed by the statute. The terminal point is the tenth year calculated from the end of the assessment year relevant to the previous year in which search is conducted. The long arm of the law can go up to this terminal point and not one day beyond. When the statute is clear and admits of no ambiguity, it has to be strictly construed and there is no scope for looking to the explanatory notes appended to statute or circular issued by the department.
In the case on hand, the statute has prescribed one mode of computing the six years and another mode for computing the ten years. Section 153 A(1)(b) states that the assessing officer shall assess or reassess the total income of six years immediately preceding the assessment year relevant to the previous year in which search is conducted. Applying this yardstick, the six years would go up to 2013-14. The search assessment year, namely, 2019-20 has to be excluded. This is because, the statute talks of the six years preceding the search assessment year. But, while computing the ten assessment years, the starting point has to be the end of the search assessment year. In other words, search assessment year has to be including in the latter case. It is not for me to fathom the wisdom of the parliament. I cannot assume that the amendment introduced by the Finance Act, 2017 intended to bring in four more years over and above the six years
already provided within the scope of the provision. When the law has prescribed a particular length, it is not for the court to stretch it. Plasticity is the new mantra in neuroscience, thanks to the teachings of Norman Doidge. It implies that contrary to settled wisdom, even brain structure can be changed. But not so when it comes to a provision in a taxing statute that is free of ambiguity. Such a provision cannot be elastically construed.”
The appellant had also relied upon the decision of Hon'ble High Court of Delhi in the case of PCIT Vs. Ojjus Medicare Pvt. Limited (supra), wherein the Hon'ble High Court held that the significant difference between computation of relevant assessment year for identification of six assessment years and to construct a block of ten assessment years is that while “six assessment years” hinge upon the phrase “immediately preceding” six assessment year pertaining to search year, “ten assessment years” are liable to be computed or reckoned from the end of the assessment year relevant to year of search. The Hon'ble High Court by considering the ratio laid down by the Hon'ble Madras High Court in the case of A.R. Safiullah Vs, ACIT (supra) has held as under :
“85. That then takes us to the principal question of identifying the point of origin for the purposes of computation of the six AYs' and the "relevant assessment year" as defined by section 153A. As is manifest from a plain reading of section 153C, the six AYs' are ordained to be those which immediately precede the AY relevant to the previous year in which the search may have been conducted or requisition made. The block of six AYs' would thus have to be identified bearing in mind the AY pertaining to the FY in which the search had been conducted or requisition made. The aforesaid AY would thus constitute the anchor point for the purposes of identification of the six AYs'. The statute envisages a similar process to be adopted for the purposes of computation of the "relevant assessment year" and where applicable constructs a block of ten AYs'. The significant difference between the two however is that while the six AYs' hinge upon the phrase "Immediately preceding" the AY pertaining to the search year, the ten AYs' are liable to be computed or reckoned from the end of the AY relevant to the year of search. In our considered opinion, the petitioners have correctly identified the aforesaid distinction as being crucial and determinative for the purposes of reckoning the six and the ten AY block period. G. COMPUTATION OF THE SIX AND TEN YEAR BLOCK IN THE PRESENT BATCH OF WRIT PETITIONS 86. In the present batch, List I pertains to writ petitions which have Satisfaction Notes recorded or section 153C notices issued between the period 01 April 2021 to 31 March 2022. Undisputedly, the First Proviso to section 153C, and which has been consistently recognized to also embody the commencement point for reckoning the six or the ten AYs', shifts the relevant date from the date of Initiation of search or a requisition made to the date of receipt of books of account or documents and assets seized by the jurisdictional AO of the non- searched person. Consequently, the block of six or ten AYs' would have to be reckoned bearing the aforesaid date in mind. Although in the present batch of writ petitions, the date of actual handing over has not been explicitly mentioned in a majority of the writ petitions, learned counsels for respective sides had addressed submissions based on the assumption that it would be the date of issuance of the Satisfaction Note by the AO of the non-searched person and in the case of non-availability of such a note, the date of issuance of the section 153C notices which would be pertinent for the purposes of the First Proviso to section 1530.
Assuming, therefore, that the handover of material gathered in the course of the search and pertaining to the non-searched person occurred between 01 April 2021 to 31 March 2022, the same would essentially constitute FY 2021-22 as being the previous year of search for the purposes of the non-searched entity. As a necessary corollary, the relevant AY would become AY 2022-23. AY 2022-23 would thus constitute the starting point for the purposes of identifying the six years which are spoken of in section 153C. The six AYs' are envisaged to be those which immediately precede the AY so identified with reference to the previous year of search. It would thus lead us to conclude that it would be the six AYS' immediately preceding AY 2022-23 which could have formed the basis for initiation of action under section 153C. Consequently, and reckoned backward, the six relevant AYs' would be:- Computation of the six-year block No. of years period as provided under section 153C of the Act AY 2021-22 1 AY 2020-21 2 AY 2019-20 3 AY 2018-19 4 AY 2017-18 5 AY 2016-17 6 Consequently, AY 2021-22 would become the first of the six preceding AYs' and would as per the table set out hereinabove terminate at AY 2016-17.
Section 153A replicates the basis on which the six AYs' are to be identified and computed with the solitary distinction being that in the case of the searched person, the six AYs' are liable to be computed from the AY pertaining to the FY in which the search was conducted. The starting point for the purposes of identifying the six AYs' in the case of section 153A would thus turn upon the year of search as opposed to the handover of material which is spoken of in the First Proviso to section 153C. If one were to therefore assume that a search took place on a person between 01 April 2021 to 31 March 2022, the pertinent AY would become AY 2022-23 and the corresponding six AYs' would be as follows:- Computation of the six-year block No. of years period as provided under section 153C of the Act AY 2021-22 1 AY 2020-21 2 AY 2019-20 3 AY 2018-19 4 AY 2017-18 5 AY 2016-17 6
That takes us then to the issue of identifying the "relevant assessment year" for the purposes of computing the ten year block. Explanation 1 to section 153A specifies the manner in which the entire ten AY period is to be computed. While the computation of six AYs' follows the position as enunciated and identified above, Explanation 1 prescribes that the ten AYs' would have to be computed from the end of the AY relevant to the FY in which the search was conducted or requisition made. The ten AY period consequently is to be reckoned from the end of the AY pertaining to the previous year in which the search was conducted as distinct from the preceding year which is spoken of in the case of the six relevant AYS'.
Viewed in that light, and while keeping the period of 01 April 2021 to 31 March 2022 as the constant, the relevant AY would be AY 2022-23. The ten AYs' would have to be computed from 31 March 2023 with the said date indubitably constituting the end of the AY relevant to the previous year of search. Viewed in light of the above, the block period of 10 AYs' would be as follows:-
Computation of the ten-year block No. of years period as provided under section 153C of the Act AY 2022-23 1 AY 2021-22 2 AY 2020-21 3 AY 2019-20 4 AY 2018-19 5 AY 2017-18 6 AY 2016-17 7 AY 2015-16 8 AY 2014-15 9 AY 2013-14 10
The above-mentioned decisions of Hon'ble High Courts of Madras and Delhi are squarely applicable to the facts of the present case. The “ten assessment years” from the end of the assessment year relevant to the previous year in which search was conducted in the case of the appellant in accordance with the definition in Explanation -1 to Section 153A(1) of the Act commences from A.Y. 2021-22 and ends with A.Y. 2012-13 and therefore, the notice issued u/s 153A of the Act for the instant assessment year i.e., A.Y. 2011- 12 is clearly beyond the tenth year and it falls outside the scope of ‘relevant assessment year’. Therefore, we are of the considered view that the notice issued u/s 153A of the Act and consequent assessment order passed by the Assessing Officer for the assessment year under consideration is bad-in-law, illegal, void ab initio and is liable to be quashed and thus, we quash the assessment order passed by the Assessing Officer u/s 153A of the Act dt. 31.03.2023 for A.Y. 2011-12. Thus, ground no.5 is allowed.
As we have allowed Ground No.5 of the assessee’s appeal in for A.Y. 2011-12, no addition can be made by the Assessing Officer in the hands of the assessee for A.Y. 2011- 12 as a consequence. Accordingly, the assessee’s appeal is allowed and the remaining grounds of appeal have become academic. to 1063/Hyd/2024 for A.Ys. 2012-13 to 2014-15
16. The common issue that came up for our consideration from Ground Nos.2 to 4 of the assessee's appeals for A.Y.s 2012-13 to 2014-15 pertains to the disallowance of claim of deduction of expenditure against the unaccounted cash receipts from sale of spent solvents / scrap. The facts with regard to the impugned dispute are that the assessee is engaged in the manufacturing and sale of bulk drugs. In the process, the assessee purchased various solvents and used them for manufacturing bulk drugs. The used solvents had to be discarded by the assessee. During the course of search at the registered office of the assessee on 24.02.2021, a Sony make pen-drive of 16 GB was found in the possession of Shri R. Buchi Reddy, Cashier, which contained various Excel sheet data. From the excel sheets, it was found that the spent solvents / scrap was sold in cash and such transactions were not recorded in the books of accounts for the relevant assessment years. A sworn statement under Section 132(4) of the Act was recorded from Shri R. Buchi Reddy on 24.02.2021, and in response to Question No. 18, he has stated that details of cash generated from the sale of utilized solvents and scrap has been maintained by him in an excel work book - APRIL 19.29.04.19XZ. xls, found in the seized pen-drive, and further stated that the said cash receipts are not recorded in the books of accounts for the relevant assessment year and further, he has furnished the entity-wise and financial year-wise working of the said cash receipts. As per the details furnished by Shri R. Buchi Reddy, the total cash receipts from the sale of spent solvents / scrap for the financial years 2012-13 to 2020-21, in respect of the appellant and four other group companies, were worked out at Rs.63,61,27,585/- and the total cash receipts from the sale of spent solvents / scrap for the financial years 2015-16 to 2020-21 were worked out at Rs.18,76,02,606/-. The sworn statement recorded from Shri R. Buchi Reddy along with the Excel sheet data found in the pen-drive was confronted to Shri MSN Reddy, the Managing Director of the appellant and other group companies, and his statement on oath was recorded on 27.04.2021. In response to a specific Question No. 5, he stated that the spent solvents / scrap used for manufacturing of bulk drugs, after such reuse are categorized as hazardous waste and the same are required to be disposed of at the earliest. He further explained that he was given to understand that such waste is sold to local buyers, and some of the employees of the group companies have utilized such money for their own purposes, and the said money has not reached the respective companies. He further explained that the interest of the management in this regard is the quick disposal of such hazardous waste, and the management has not paid much attention to any other aspect. With regard to the sale of scrap, he explained that the same is generated out of dismantling of old building / units purchased by the companies and the proceeds from the disposal of such scrap have never reached the respective companies since the immediate disposal of such scrap for paving the way for further construction or development, is the priority of the management. However, considering the fact that the data was found in the registered office of the appellant company and in order to put a quietus to the issue, he stated that the cash receipts from the sale of spent solvents / scrap of Rs.15,89,486/- as additional income in the hands of the assessee for the year under consideration.
17. Subsequently, during the post-search investigation, Shri MSN Reddy has furnished a sworn affidavit dated 05-07-2021 to the DDIT(Investigation), Unit – II(2), Hyderabad, and reiterated his statements made during the course of the search in the statement recorded on 27-4-2021. Apart from reiterating the explanation furnished in his sworn statement dated 27-4-2021, he explained in the affidavit that the disposal of hazardous waste of spent solvents / scrap does not attract serious attention of the management from the financial perspective since the revenue generated from the disposal of the same is insignificant in relation to the operational revenue of the group companies. The only interest of the management is the quick disposal of the said waste due to its hazardous nature, failing which it may invite problems from the pollution regulatory authorities. He further stated that after examination of the issue that the data contained in the pen-drive in respect of sale of spent solvents / scrap represented the amounts collected in excess of the actual consideration for the purpose of distribution among the workers, who involved in handling the said waste and further submitted that since the workers used to demand payment of high remuneration in cash for handling and disposal of spent solvents/ scrap, the excess amount so collected, being in the nature of remuneration paid to workers for handling hazardous waste never reached the respective companies and accordingly, the same cannot be treated as income in the hands of the respective companies. However, he once again, to put a quietus to the issue and avoid prolonged litigation, reiterated his stand with regard to offering additional income in the hands of the respective companies in the relevant assessment year. The details of party- wise and year-wise additional income offered towards unaccounted receipts from the sale of spent solvents / scrap is as follows:
A.Y MSN MSN Maithri MSN API Chem Total MSN Life Laboratories Pharmachem Laboratories Organics Sciences Laboratories Pvt Ltd Pvt Ltd Pvt Ltd Pvt Ltd Pvt Ltd Pvt Ltd 2013-14 3,61,75,014 2,05,91,892 - 19,42,003 35,29,191 - 6,22,38,100 2014-15 5,35,06,633 1,09,57,678 - 22,84,403 28,30,031 - 6,95,78,745 86,43,206 2015-16 5,27,90,633 17,94,442 51,22,781 - 6,83,51,062 2016-17 4,55,32,945 1,28,39,052 - 14,20,467 47,71,521 - 6,45,63,985 2017-18 4,12,58,374 1,99,12,082 57,87,267 18,43,047 47,61,798 - 7,35,62,568 2018-19 6,77,03,448 1,74,25,120 93,97,572 26,08,388 61,56,891 - 10,32,91,419 2019-20 5,12,80,827 4,51,88,803 1,26,36,584 49,90,673 2,68,95,756 - 14,09,92,643 2020-21 5,12,22,731 3,27,38,075 1,02,22,479 48,55,404 2,67,81,999 - 12,58,20,688 2021-22 5,57,69,012 1,62,07,177 58,57,556 41,70,416 3,24,22,875 9,03,945 11,53,30,981 Total 45,52,39,617 18,45,03,085 4,39,01,458 2,59,09,243 11,32,72,843 9,03,945 82,37,30,191
During the course of assessment proceedings, in the written submissions furnished to the AO on 21-4-2022 in response to notice under Section 142(1) of the Act, the appellant reiterated the explanation furnished by MSN Reddy, the Managing Director of the appellant company, in the sworn statement dated 27-04-2021 and the affidavit dated 05-07-2021, and contended that the unaccounted cash receipts from the sale of spent solvents / scrap offered as additional income in the return of income filed under Section 153A of the Act do not represent the real income of the assessee, as the said amounts were expended for the purpose of business by way of disbursement to the workers who were involved in handling of the said material as per their demand considering the risks and inconveniences they had to face in handling the hazardous waste. Therefore, the appellant requested for deduction towards expenditure incurred for disposal of such hazardous material and claimed that the appellant and other group companies incurred a sum of Rs. 66,80,52,108/- towards the cash payments made to workers through the head office employees for Assessment Years 2011-12 to 2021-22, as per the seized material for all six group companies. The AO, however, was not convinced with the explanation furnished by the assessee, completed the assessment by accepting the additional income declared by the appellant towards unaccounted cash receipts from the sale of spent solvents / scrap of Rs.15,89,486/-.
Aggrieved by the assessment order, the appellant preferred an appeal before the LD.CIT(A).
During the course of appellate proceedings, the appellant brought to the notice of the LD.CIT(A) that the same seized material, which contains the details of unaccounted cash receipts from the sale of spent solvents / scrap also contains the details of the expenditure incurred by the appellant and other group companies against the said unaccounted cash receipts. The expenditure so incurred by the appellant and the group companies is represented through cash outflow entries in the names of various employees at the head office appearing in the seized material. The aggregate amount of such cash outflows worked out to Rs. 66,80,52,108/- for AYs. 2011-12 to 2021-22 and the same represented the expenditure incurred by the appellant and other companies for handling and disposal of spent solvents / scrap. The appellant further contended that, out of the cash outflow as recorded in the same seized material, an amount of Rs.17,63,52,315/- was in the name of MSN Reddy and his family members, which represents an amount drawn by the management out of unaccounted cash receipts from the sale of spent solvents / scrap and in respect of the said amount, no deduction has been claimed in the hands of the group companies. The appellant further contended that, in the case of the assessee for the instant assessment year, an amount of Rs.15,89,486/- was spent on various expenses against the unaccounted cash receipts. To corroborate and supplement the entries of cash outflows in the seized material, the appellant furnished notarized affidavits of various employees of the group who were involved in the process of collection of cash towards sale of spent solvents / scrap and disbursement of the same to the concerned workers and the labour contractors who have deployed such workers.
The LD.CIT(A), after considering the submissions of the assessee and also taken note of the Excel data sheet found on the pen-drive, allowed partial relief towards the additional claim of expenditure against unaccounted cash receipts from sale of spent solvents / scrap to the extent of 10% gross receipts on estimation basis by holding that the expenditure shown in the seized material containing entries of cash inflow towards unaccounted cash receipts from sale of spent solvents / scrap as well as cash outflow entries showing handling the cash to various persons. Since both debit and credit entries are simultaneously recorded in the same seized document, the document should be read as a whole and cherry picking of data according to convenience is not justified. The LD.CIT(A) further observed that it is evident from the sworn statement dated 27-4-2021 and the subsequent affidavit dated 5-7- 2021 of Shri MSN Reddy that since beginning, he adhered to his stand that the unaccounted cash receipts were utilized for making payments to workers who were involved in handling of disposal of hazardous waste. The appellant submitted notarized affidavits of the concerned employees and labour contractors as additional evidence to substantiate its claim of making excess payments to workers. Since the appellant's claim of expenditure incurred for making payments to workers is based on seized material, the sworn statement and subsequent affidavits, the claim of the appellant has some reasonable force even if additional evidence by way of notarized affidavits is ignored.
The LD.CIT(A) further observed that, at the same time, it is true that the expenditure out of unaccounted cash receipts is recorded in the seized material and corroborated by the sworn statement and affidavit of Shri MSN Reddy neither complete retraction from admission nor complete denial of claim of 22 expenditure to the appellant is justified. Therefore, the LD.CIT(A) observed that reasonable expenses incurred for earning unaccounted income is required to be considered. Therefore, considering the evidence filed during the course of appellate proceedings and also taking support from the financials of the MSN group of companies for the relevant financial years, the appellant and other companies have historically incurred an average of 11% of their turnover on salary and wages. Therefore, considering the disposal of such hazardous material associated with risk and challenges, the LD.CIT(A) has directed the AO to allow 10% of the gross amount realized on sale of spent solvent and scrap for the A.Y. 2011-12 as handling expenses.
Aggrieved by the order of the LD.CIT(A), the assessee is in appeal before us.
The Learned Counsel for the assessee Shri M.V. Prasad, C.A. submitted that the LD.CIT(A) has erred in allowing the deduction of expenditure to the extent of Rs.1,58,949/- only on estimate basis at 10% of the gross unaccounted cash receipts from sale of spent solvents and scrap without appreciating the fact that income cannot be earned without incurring any expenditure. The Learned Counsel for the assessee further submitted that the LD.CIT(A), having held that the entries in the seized material represents the cash inflow towards unaccounted cash receipts and that the cash outflow represents the amounts spent towards various expenditure as expended by the very same seized material but erred in allowing the additional claim of expenditure only to the extent of 10% of the gross cash receipts from sale of spent solvents / scrap on estimate basis by considering only one element of cost involved in the disposal of scrap without considering the other elements of cost like transportation, handling, and disposal of hazardous waste. The LD.CIT(A), referring to seized material found in the form of an Excel sheet, submitted that except few occasions, the amounts received from the sale of spent solvents / scrap have been given back for further disposal of hazardous waste, as additional wages, to employees who were involved in the disposal of said scrap. The AO conveniently ignored one part of the seized document, which contains details of expenditure incurred against unaccounted cash receipts from the sale of spent solvents / scrap, even though the Managing Director of the appellant company claimed that the management did not pay any attention to the financial aspects of the disposal of spent solvents / scrap, but only showed interest in the quick and early disposal of waste because of its hazardous nature and the impact that may be created on environment. Although, the appellant has furnished all the evidence, including the sworn affidavit from the persons deployed to disburse expenditure to various persons, but the LD.CIT(A) has ignored all the evidence filed by the assessee and allowed 10% of receipt as expenditure incurred against unaccounted cash receipts from the sale of spent solvents / scrap. Therefore, he submitted that the deduction towards expenditure incurred for handling and disposal of spent solvents / scrap, as per the very same seized material, which was quantified as Rs.15,89,486/- may be allowed as a deduction against the unaccounted cash receipts. The Learned Counsel for the assessee made an alternative claim that if at all a reasonable portion of expenditure needs to be estimated, then the same needs to be estimated by considering the various expenditures involved in handling spent solvents / scrap assets, but not only salary and wages as considered by the LD.CIT(A).
On the other hand, Shir B. Bala Krishna, CIT-DR supporting the order of the LD.CIT(A), submitted that there is no dispute regarding the fact that the amount received from sale of spent solvents / scrap has not been accounted in the books of account for the relevant assessment year. In fact, Shri R. Buchi Reddy, Cashier, who received the amount has clearly admitted in a statement recorded under Section 132(4) of the Act during the course of search that the said receipts are not accounted for in the books of accounts of the appellant company. The statements of Shri R. Buchi Reddy have been confirmed by Shri MSN Reddy, the managing director of the assessee company in his sworn statement recorded on 27.04.2021 and the affidavit filed on 05.07.2021 during the course of search. Further, the appellant had also offered additional income towards unaccounted cash receipts from the sale of spent solvents / scrap in all four companies for the relevant assessment years and also filed a revised return in response to notice under Section 153A of the Act and paid taxes on the said unaccounted income. Therefore, the claim of the assessee towards expenditure during the course of assessment proceedings and appellate proceedings is only an afterthought without there being any evidence to suggest that the amount received from the sale of spent solvents / scrap has been utilized for making payments to employees. Although the appellant has obtained a notarized affidavit from the employees, if you go by the seized document, it clearly shows the cash inflow towards unaccounted cash receipts from the sale of spent solvents / scrap and also the cash outflow towards various payments made to MSN Reddy and other Directors of the appellant and other companies. From the above, it is very clear that the LD.CIT(A) has rightly allowed 10% of the receipt as expenditure incurred against unaccounted cash receipts, considering the nature of the material and the risk involved in the disposal of the said hazardous waste. Therefore, CIT-DR submitted that the order of the LD.CIT(A) should be upheld.
We have heard both parties, perused the material available on record and gone through the orders of the authorities below. We find that, this issue is squarely covered in favour of the assessee by the decision of the ITAT Hyderabad Benches, in assessee’s own case for A.Y. 2018-19 in wherein the Tribunal has followed the decision in the case of MSN Pharmachem Private Limited for the A.Y 2019-20 in where the Tribunal has directed the Assessing Officer to allow 60% of expenditure against unaccounted cash receipts from sale of spent solvents / scrap for the year under consideration. The relevant findings of the Tribunal are as under:
“10. We have heard both parties, perused the material, and gone through the orders of the authorities below. There is no dispute with regard to the fact that during the course of the search in the office of the appellant and other group companies, a Sony make 16 GB pen drive was found and seized from the possession of cashier Shri R.
Buchi Reddy, which was marked as Annexure A/MSN/OFF/PD1. The entries contained in the Excel workbook in the seized pen drive pertains to the cash receipts of the appellant company as well as the other group companies about the sale of spent solvents / scrap. In fact, Shri R. Buchi Reddy, the cashier, in his sworn statement recorded on 24-02-2021, has admitted unaccounted cash receipts from sale of spent solvents / scrap and also stated that the said receipts are not accounted for in the books of accounts for the relevant assessment years. The statement of Shri R. Buchi Reddy has been confirmed by the MSN Reddy, the Managing Director of the appellant company. He has further explained the process involved in handling and disbursal of spent solvents / scrap, and according to MSN Reddy, the management did not pay any attention to the financial aspects of the disposal of spent solvents / scrap, but their only interest is the early disposal of the said material, considering the hazardous nature and environmental issues involved in handling and disbursal of the said material. Further, it is also an admitted fact that the appellant and other group companies have admitted additional income received from sale of spent solvents / scrap for the respective assessment years and filed returns in response to notices issued under Section 153A of the Act and paid taxes. Therefore, the issue of the additional claim of expenditure against unaccounted cash receipts from sale of spent solvents / scrap needs to be considered in light of the incriminating material found during the course of the search, statements recorded from the persons who handled the issue, and MSN Reddy, the Managing Director of the appellant company, as well as the subsequent additional evidence filed by the assessee before the LD.CIT(A), including the notarized affidavits from the employees who are involved in the disposal of the said hazardous waste. 10.1. There is no dispute regarding the fact that the Excel sheet in the seized material contains entries of cash inflow represents unaccounted cash receipts from the sale of spent solvents / scrap, as well as cash outflow represents cash payments made in the name of various persons. The AO considered one part of the entries contained in the seized material, which includes cash inflow representing unaccounted cash receipts from sale of spent solvents / scrap, however, he conveniently ignored the other part of the entries contained in the very same incriminating material, which represents cash outflow in the name of various employees. Since the cash inflow and outflow are recorded in the very same incriminating material, in our considered view, the said seized material should be read as a whole for the purpose of assessment instead of cherry- picking of data according to the convenience of the Assessing Officer or the assessee. Therefore, in our considered view, the findings recorded by the LD.CIT(A) on this issue while allowing adhoc deduction on estimate basis to the extent of 10% of such unaccounted cash receipts is in accordance with law and needs to be accepted. Furthermore, there is no dispute regarding the fact that, 27 right from the beginning, MSN Reddy, the managing director of the assessee company, made it very clear that the disposal of the hazardous waste material and amount received from sale of spent solvents / scrap does not attract serious attention of the management from the financial perspective, as the revenue generated from the dispersal of the same is insignificant when compared to the operational revenue of the group companies. He further stated that the only interest of the management is the quick disposal of the said waste, failing which, it may invite problems from the pollution regulatory authorities. Therefore, going by the averments made by the managing director of the assessee company during the early days of the search, during the post-search investigation, and during the assessment proceedings, in our considered view, the subsequent claim made by the appellant during the assessment proceedings towards the deduction of expenditure against unaccounted cash receipts from sale of spent solvents / scrap needs to be considered going by on the entries contained in the very same seized document, which represents cash outflow in the name of various employees. 10.2 It is an admitted fact that income cannot be earned without any expenditure. In order to earn any income, expenditure needs to be incurred. The only difference is that the quantum of expenditure may vary based on the nature of the income. In some cases, higher expenditure may be incurred and in some cases, expenditure may be less but it all depends upon the nature of income. But it cannot be said that there is no expenditure required to be incurred to earn any income. Going by the above analogy, it is true that for handling hazardous waste like spent solvents / scrap, there needs to be various expenditures, such as handling charges, packing, salary and wages, transportation and materials required for the quick disposal of the said hazardous waste. In the present case, although there is no direct evidence for incurring any expenditure, including salary and wages, transportation, and other materials required for the quick disposal of waste material, but the entries contained in the seized material clearly indicate that the appellant has incurred certain expenditure for handling and disposal of hazardous waste. This fact is further fortified by the entries in the very same seized material, where the cash outflow represents cash payments made in the name of various employees of the head office, who in turn had clearly admitted in their notarized affidavits that they have disbursed the amounts received out of unaccounted cash receipts from sale of spent solvents / scrap for the purpose of making higher payments to employees, who involved in handling and disbursal of hazardous waste. Therefore, in our considered view, the LD.CIT(A), having noticed the fact that the process involved in handling and disbursal of hazardous waste is cumbersome and also involves a certain amount of expenditure, but erred in allowing deduction of 10% on estimation basis from unaccounted cash receipts from the sale of spent solvents / scrap. 28
10.3. Having said so, let us come back how to quantify the amount of expenditure incurred by the appellant for earning unaccounted cash receipts from the sale of spent solvents / scrap. Admittedly, the seized material contains cash outflow in the name of various persons, including the employees of the appellant company, and their associates. The appellant has quantified the total amount of cash outflow in the seized document in the name of employees at Rs. 66,80,52,108/- for all assessment years and for all the assessees put together. The appellant has also quantified cash outflows of Rs.17,63,52,315/- in the name of MSN Reddy and family members out of unaccounted cash receipts. The appellant has not claimed deduction towards the amount received by MSN Reddy, the managing director and other directors of the appellant company amounting to Rs.17,63,52,315/-. In respect of cash outflow representing amounts paid to various employees, the appellant has quantified an amount of Rs. 66,80,52,108/-. Although the appellant claims that the said amount represents various expenditures incurred for handling and disbursement of spent solvents / scrap, but no evidence has been filed except for notarized affidavits from few employees. In the affidavits filed by employees, they have explained the process involved in handling and disbursement of spent solvents / scrap and the amounts incurred towards various expenditures for disposal of spent solvents / scrap. Further, the cash paid to various employees and the purpose of said payments have been explained by the employees in their notarized affidavits. Going by the entries contained in the seized document, coupled with the affidavits filed by the employees, in our considered view, the purpose of maintaining data in the Excel sheet by the cashier is only for internal control at his end regarding the source from sale of spent solvents / scrap and the disbursal of the said cash to various persons at his end. Once the cash is disbursed by him to the head office employees for the purpose of further disbursal of the said cash to the workers by them and the said fact is noted in the Excel workbook by him, it has served the purpose, and there is nothing more to be recorded by him. This explains the reasons why there is no evidence of material regarding the actual disbursement of cash by the head office employees to the workers. Having regard to the limited purpose of maintaining the said excel workbook, it is not correct to draw any adverse conclusion regarding the absence of evidence in the seized material regarding the actual disbursement of the cash by the head office employees to the workers. It is in this background of said circumstances only that the head office employees have submitted the notarized affidavits stating that the cash handed over to them periodically by the cashier has been fully utilized for making payments to the workers involved in collection and disposal of spent solvents / scrap needs to be accepted. The said notarized affidavits hold evidentiary value. However, the AO, in the remand report, even though not disputing the veracity of the said notarized affidavits or discrediting its contents or bringing any other 29 material on record to disprove the contents of the affidavits, has simply rejected the arguments made by the assessee regarding the expenditure incurred for handling the said scrap. We further noted that the cash outflow represents payments made to various employees are in the name of few employees, and during the course of search, simultaneously search was carried out at the residence of three employees, where no incriminating material has been found in their possession to allege that the cash received by them has been utilized for their personal purposes, including the acquisition of any assets. This fact is further strengthened the arguments of the assessee that the cash given to said employees has been utilized for the purpose of business and also for disbursal of cash to the workers, who involved in handling of hazardous waste. Therefore, we are of the considered view that the LD.CIT(A), having taken note of the affidavit filed by the employees of the assessee, who are involved in handling and disposal of scrap, but erred in considering only 10% of receipts as expenditure against unaccounted cash receipts from sale of spent solvents /scrap. 10.4. Having said so, let us come back to the issue of quantification of expenditure deductible against unaccounted cash receipts from sale of spent solvents / scrap. Admittedly, the LD.CIT(A) has directed the AO to estimate 10% of the receipts towards expenditure incurred against unaccounted receipts. The LD.CIT(A), while estimating the expenditure, has considered only salaries and wages historically incurred by the appellant and other group companies and observed that the appellant and other group companies have incurred 10% of earnings for salaries and wages; therefore, he estimated 10% expenditure against unaccounted receipts. In our considered view, the LD.CIT(A) has grossly erred in coming to the conclusion that the appellant needs to incur only the salary and wages for handling and disposal of hazardous material even though the prosses of collecting and disposal of hazardous waste requires careful attention in handling the material. The appellant also needs to take steps for quick disposal of such hazardous material. The process of collecting and disposal of spent solvents / scrap requires various other expenditure like transportation, packing, and other necessary items for safe handling of hazardous waste without any environmental impact. If we consider the other expenditure required for the disposal of spent solvents / scrap, in our considered view, the AO needs to consider transportation, packing, and other materials necessary for handling the disposal of spent solvents / scrap. Although there is no direct evidence for incurring these expenditures, the possibility of incurring these expenditures cannot be ruled out. This fact is further strengthened by the disbursal of the cash received from sale of spent solvents / scrap to various employees which accounted for 80% of the total amount received from sales, which is evident from the affidavits filed by the employees, wherein they claimed that the amount received from the head office has been utilized for making payments and incurring 30 other expenditures. Although there is no direct evidence for incurring 80% of the amount towards expenditure, going by the nature of the material, in our considered view, there needs to be certain amount of expenditure for other expenses like transportation, packing etc. Since there is no direct evidence regarding other expenditures, in our considered view, the only possible way is to estimate a reasonable amount of expenditure against unaccounted receipts from sale of spent solvents / scrap. Therefore, considering the fact that the appellant has already disbursed 80% of the amount received from unaccounted cash receipts in the name of various employees, and also going by the nature of the material, in our considered view, at least 60% of the receipts need to be considered as expenditure against unaccounted receipts from the sale of spent solvents / scrap. Therefore, we direct the AO to deduct 60% of the receipts as expenditure against unaccounted receipts from sale of spent solvents / scrap. In other words, out of the additional income offered by the assessee and assessed by the AO towards unaccounted receipts from sale of spent solvents / scrap, the assessee gets relief to the extent of 60%, and the balance amount of 40% of unaccounted cash receipts is hereby sustained for both the assessment years.”
In this view of the matter and by respectfully, following the decision of the ITAT Hyderabad Benches in the case of MSN Pharmachem Private Limited for the A.Y 2019-20 in (supra) and assessee’s own case for A.Y. 2018-19, we direct the Assessing Officer to allow 60% of the receipts as expenditure against unaccounted cash receipts from sale of spent solvents / scrap and sustain 40% of addition towards unaccounted sale of spent solvents and scrap. The ground nos.2 to 4 of assessee’s appeals in to 1063/Hyd/2024 for A.Y.s 2012-13 to 2014-15 are partly allowed.
GROUND NO.6 OF ASSESSEE’S APPEALS FOR A.YS. 2012-13 TO 2014-15
The next common issue that came up for our consideration from Ground No.6 of assessee’s appeal is the legal validity of assumption of jurisdiction by the Assessing Officer for issuance of notice u/s 153A of the Act. The ground no.6 raised by the assessee reads as under :
“6. In the facts and circumstances of the case, the Ld.CIT(A) erred in law in holding that the Assessing Officer has validly assumed jurisdiction u/s 153A of the Act though the satisfaction note recorded by him omitted to provide any justification for reaching the conclusion that the income escaping assessment, being the unaccounted income from sale of spent solvents, is represented in the form of an asset, which is a mandatory condition precedent for assuming jurisdiction to issue notice u/s 153A for assessment years falling beyond six assessment years preceding the assessment year relevant to the previous year in which search was conducted as per the fourth proviso to section 153A(1) of the Act.”
The learned counsel for the assessee, referring to date of search in the present case, submitted that admittedly, the assessment year in question is beyond six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted and therefore, for issuance of notice u/s 153A of the Act, the conditions prescribed in clauses (a), (b) and (c) are required to be fulfilled. This becomes very clear form the language employed in the 4th proviso which starts with phrase ‘no notice for assessment or re-assessment shall be issued to the assessee for ‘relevant assessment year or years’ unless” followed by the enumeration of the specific conditions which need to be fulfilled. Unless the conditions laid down in clauses (a), (b) and (c) specified in the said forth proviso are cumulatively fulfilled, the Assessing Officer does not get jurisdiction to issue notice u/s 153A of the Act for the “relevant assessment year or years”.
The learned counsel for the assessee further referring to the facts of the present case submitted that in the present case, admittedly, the Assessing Officer issued notice u/s 153A of the Act on the basis of “Satisfaction Note” and as per the said ‘satisfaction note’, the Assessing Officer referred to the incriminating material pertains to unaccounted receipts from sale of spent solvents and scrap. However, the ‘satisfaction note’ recorded by the Assessing Officer does not bring out the fulfilment of the conditions laid down in 4th proviso to Section 153A(1) of the Act. Further, the Assessing Officer considered the noting in the material found during the course of search which contains unaccounted receipts from sale of spent solvents and scrap, amounts given to the Director of the appellant company and considered that amount given to the directors as ‘advances’ within the meaning of “asset” as defined in clause (a)(o) of 4th proviso to Section 153A of the Act, but the fact remains that the ‘satisfaction note’ recorded by the Assessing Officer in light of incriminating material found during the course of search does not bring out the fulfilment of conditions for issuance of notice and thus, notice issued for the assessment years in question is invalid and consequent assessment order passed by the Assessing Officer is bad- in-law and is liable to be quashed.
On the other hand, the learned CIT-DR supporting the order of the LD.CIT(A) submitted that the incriminating material found during the course of search clearly shows the details of money advanced to the directors of the appellant company and the appellant company has admitted additional income during the course of search in respect of amounts received from sale of spent solvents and scrap by considering the fact that the amount advanced to the directors has been used for the purpose of investment and the same has been telescoped against the investments in lands by the directors and other group companies. Further, as per the seized material, the appellant company had given advances of Rs.17 crores to M.S.N. Reddy and other Directors and the said advances fall within the meaning of “asset” as per clause (a) of Section 153A(1) of the Act. Therefore, the arguments of the assessee that the ‘satisfaction note’ recorded by the Assessing Officer does not bring out the fulfilment of the conditions laid down u/s 153A of the Act is devoid of merit and needs to be rejected.
We have heard the rival submissions, perused the material on record and gone through the orders of the authorities below. Admittedly, the assessment year in question falls under the ‘relevant assessment year or years’ because going by the date of search in the present case on 24.02.2021, the assessment years in question i.e., A.Ys. 2011-12 to 2014-15 falls beyond six assessment years and within ten assessment years. Once an assessment year falls beyond six assessment years and within ten assessment years, then for assumption of jurisdiction and issuance of notice u/s 153A of the Act, the conditions laid down in clause (a) to (c) of 4th proviso to Section 153A(1) of the Act requires to be satisfied. As per 4th proviso to Section 153A(1) of the Act, the Assessing Officer can assess or reassess the total income of the assessee, provided the Assessing Officer has in his possession books of accounts or other documents or evidence which reveal that the income, represented in the form of “asset”, which has escaped assessment 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. From the 4th proviso to Section 153A(1) of the Act, it is undisputedly clear that, if the Assessing Officer has in his possession, the books of accounts or other documents or evidence which reveals that the income represented in the form of an “asset”, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more in the relevant assessment year or in the aggregate in relevant assessment years, then the Assessing Officer shall assume jurisdiction by issuance of notice u/s 153A and assess or re-assess the total income of the assessee.
33. In the present case, going by the ‘satisfaction note’ recorded by the Assessing Officer for issuance of notice u/s 153A of the Act for assessment year in question, we find that the Assessing Officer recorded satisfaction in light of incriminating material found during the course of search which reveals unaccounted receipts from sale of spent solvents and scrap and also advances given to various directors of the appellant company. Further, based on the said incriminating material, the appellant company has disclosed the additional income for the relevant assessment years and also filed an affidavit confirming the declaration of the additional income for the relevant assessment years. From the above, it is undisputedly clear that the Assessing Officer is having in possession books of accounts or other documents or evidence which reveal that the income represented in the form of “asset”, which has escaped assessment 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. Therefore, we are of the considered view that the arguments of the assessee based on the ‘satisfaction note’, that the Assessing Officer did not bring out the fulfillment of the conditions laid down for issuance of notice u/s 153A of the Act are devoid of merit and cannot be accepted.
Further, assuming for a moment, the incriminating material found during the course of search does not show any details of income which represented as “asset” on account of advances given to directors of the appellant company because of the fact that the appellant has retracted from the statement and has also disputed the additions made by the Assessing Officer towards amounts received as unaccounted receipts from sale of spent solvents and scrap, but fact remains that the Tribunal, in appellant’s own case for earlier assessment years has considered the issue of assessment of unaccounted receipts from sale of spent solvents and scrap and, after considering the relevant facts, has estimated the profits from receipts of unaccounted sale of spent solvents and scrap by allowing 60% deduction towards expenditure and treated balance 40% unaccounted cash receipts as income of the assessee. If we consider the profits estimated from unaccounted cash receipts from sale of spent solvents and scrap which becomes the income of the appellant. Therefore, in our considered view, the profits estimated from sale of unaccounted spent solvents and scrap becomes income represented in the form of an “asset” being the advances given to the directors and other parties and therefore, the ‘satisfaction note’ recorded by the Assessing Officer, in light of said incriminating material constitutes fulfillment of the conditions laid down for issuance of notice u/s 153A of the Act for the assessment years in question. Thus, we consider that the arguments advanced by the learned counsel for the assessee on this issue is devoid of merit and are hereby rejected.
In this view of the matter and considering the facts of the case, we are of the considered view that the notice issued u/s 153A of the Act for the assessment years in question and consequent assessment order passed by the Assessing Officer is valid and in accordance with the provisions of Section 153A(1) of the Act and 4th proviso provided therein. Thus, the grounds taken by the assessee challenging the legal validity of the assumption of jurisdiction by the Assessing Officer is hereby rejected. Thus, ground no.6 in the appeals of assessee for A.Ys. 2012-13 to 2014-15 is dismissed.
32. In the result, the appeals filed by the assessee for A.Ys. 2012- 13 to 2014-15 are partly allowed.
To sum up, the appeal of assessee in A.Y. 2011-12 is allowed and the remaining appeals of assessee i.e., to 1063/Hyd/2024 for A.Ys. 2012-13 to 2014-15 are partly allowed.
Order pronounced in the Open Court on 4th February, 2025.