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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI RAJESH KUMAR & SHRI AMARJIT SINGH
Per Rajesh Kumar, Accountant Member:
The above titled cross appeals have been preferred against the order dated 25.07.2019 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2012-13. We shall first take up ITA
2 Ms. Megha Kalpesh Shah No.5974/M/2019 assessee’s appeal for adjudication. The grounds raised are as under: “1. The Ld. CIT(A) has erred in law and in facts in confirming the action of the Ld. ing Officer treating the receipt of loans of Rs. 2,94,50,000/- from party namely, Tracom Pvt. Ltd. as unexplained without appreciating that no incriminating has been found as a result of search in respect of the same.
2. The Ld. CIT(A) has erred in law and in facts in upholding the allegations of Ld. Assessing Officer that the unsecured loans received by the appellant of Rs. 2,94,50,000/- were unexplained.
3. The Ld. CIT(A) has erred in law and in facts in confirming the addition on the basis of peak credit theory to the tune of Rs. 23,73,000/-.
4. The appellant craves leave to add to, alter, amend and/or delete in all the foregoing grounds of appeal.”
2. The issue raised in the ground no. 1 is against the order of CIT(A) dismissing the appeal of the assessee on jurisdictional issue raised by the assessee that no addition can be made in an unabated assessment year in absence of incriminating materials seized during the search.
The facts in brief are that the assesse filed the return of income on 30.07.2012 declaring an income of Rs.16,62,580/- which was processed u/s 143(1) of the Act. Thereafter a search action was conducted u/s 132(1) of the Act on the JSK Group of companies including the assesse on 25.10.2016 as stated hereinabove in the facts narrated in AY 2010-11. Consequently notice u/s 153A of the Act was issued 07.11.2017 which was duly served upon the assessee. The assesse complied with the said notice by filing return of income on 03.12.2017 declaring same income as was declared in the original return of income filed on30.07.2012. Thereafter notice u/s 143(2) of the Act dated 06.09.2018 was issued by the AO besides issuing notices u/s 142(1) dated 13.07.2018 and 10.08.2018 to the assesse which were duly served upon the assessee. During the course of assessment proceedings, the AO called for various details from 3 Ms. Megha Kalpesh Shah the assesse as regards unsecured loans taken during the year of Rs.2,94,50,000/- which were duly filed before the AO giving details comprising information of the lenders like names, addresses and PANs of the parties, bank statements, ledger account of the parties in the books of the appellant, confirmations, ITRs, financial statements, bank statements and ROC master data etc. of lenders. The AO also issued notices u/s 133(6) of the Act to all the lenders in order to verify these transactions.
At the outset, the Ld. Counsel of the assessee submitted before the Bench that issues raised on jurisdiction of the AO to make addition in an unabated assessment year is fully covered by the decision of the co-ordinate Bench of the Tribunal in A.Y. 2011-12 & ors. vide order dated 28.10.2021 wherein the similar issue has been decided in favour of the assessee. The Ld. A.R. therefore prayed before the Bench that the present appeal of the assessee may kindly be allowed following the said decision of the co-ordinate Bench of the Tribunal as this is an unabated assessment year and there is no incriminating materials seized during search. The Ld. D.R., on the other hand, fairly conceded that issues involved are similar to one as decided in the above referred appeal decided by the co-ordinate Bench of the Tribunal, however, he relied on the order of AO.
We have heard the rival submissions and perused the material on record including the consolidated decision of the co- ordinate Bench of the Tribunal in A.Y. 2011-12 & ors. dated 28.10.2021 and find that the issue on 4 Ms. Megha Kalpesh Shah jurisdiction has been decided in favour of the assessee. The operative part of the decision on the jurisdictional issue in A.Y. 2011-12 that no addition can be made in case of unabated assessment year in absence of seized incriminating material during the course of search is as under: “26. We have heard the rival submissions of both the parties and perused the material on record including the orders of authorities below and various decisions cited before us. In the instant case, the assessee filed the return of income under section 139(1) of the Act on 29.09.2011 whereas the search was conducted under section 132(1) of the Act on 25.10.2016 on JSK group of concerns and its directors including the assessee. Since there was no assessment pending for the instant year on the date of search and therefore the present assessment year has not abated on that that. It is also a settled position of law that any addition in a non abated assessment year can only be made on the basis of incriminating material found during the course of search and not otherwise. We observe from the appellate order that in order to ascertain whether there was seizure of any incriminating material during the search, the ld CIT(A) directed the AO to furnish a remand report however no remand report was furnished by the AO before the ld CIT(A). So the ld CIT(A) decided the issue on the basis of material before him. The ld, CIT(A) observed that the incriminating materials were there in the form of confessional statements and categorical findings that the huge unsecured loans were advanced by Kolkata based shell /penny stock companies to the assessee and related entities without having any financial strength, creditworthiness and business activities. Ld CIT(A) also noted that the funds were credited in the bank accounts of these entry providers from various Kolkatta based shell/penny stock companies which were owned and managed by Shri Paraj Mehta. The ld CIT(A) also observed that Mr Anish Shah Director of the appellant had accepted that when three entities namely M/S Pragyachand Ashok Kumar Pvt. Ltd, M/S Eklavya Management Services Pvt Ltd and Purak trading Pvt Ltd were acquired by his family there were huge funds in these entities which could not be explained by Mr Anish Shah. Finally the ld CIT(A) concluded that the incriminating materials were in the form of confessional statements and findings of the search team that the assesse alongwith group entities has taken huge unsecured loans from shell/penny stocks companies. Upon perusal of the appellate as well as assessment order, we find that during the course of search no such incriminating materials/evidences were found by the search team except the confessional statements statement of various key persons in the assessee’s group recorded under section 132(4) of the Act during search and material gathered in post search proceedings such as findings of the search team as to the loans taken by the assessee. Now the issue before us whether or not statements recorded during search u/s 132(4) of the Act or findings of the search team constitute incriminating materials found during search or not. We have perused the facts on records and after analyzing them in the light of various decisions of tribunal and Hon’ble High Courts we opine that such materials/evidences can not be said to be found during the course of search. We further find merits in the contentions of the assessee that materials/evidences have to be found during search beside being incriminating which was not the case
5 Ms. Megha Kalpesh Shah before us. So much so that when the ld CIT(A) called remand report from the AO on the incriminating seized materials, the AO has not bothered to file even a report on the incriminating material before the ld CIT(A) and the ld CIT(A) decided the appeal on the basis of available materials on records before him and thus dismissed the appeal of the assesse on legal issue on the ground that the confessional statements and findings during post search proceedings constituted incriminating materials which in our opinion is not the correct position of law. Therefore, we are not in agreement with the conclusion drawn by the Ld. CIT(A) on this issue. Further , the findings of the search team qua the loans taken by the appellant can not be said to have been found during search and hence same can not be construed or considered as incriminating evidences found during the course of search in order to make the addition in an unabated assessment year. It is undisputed that during the course of search proceedings on the assesse, no incriminating materials were found indicating that the appellant is a beneficiary of hawala loans from Kolkata based bogus/shell companies. The assessee has also categorically denied in the statement recorded under section 132(4) of the Act that the loans taken from these companies were bogus. In the instant case, the assessee filed the return of income under section 139(1) of the Act on 29.09.2011 whereas the search was conducted under section 132(1) of the Act on 25.10.2016 and the assessment u/s 143(3) was already framed even prior to the date of search . Therefore the present assessment year has not abated on the date of search. It is also a settled position of law that any addition in a non abated assessment year can only be made on the basis of incriminating material found during the course of search and not otherwise. In view of these facts and circumstances, we are of the opinion that during the course of search no such incriminating material/evidences were found by the search team. Now the issue before us whether the statement recorded during search u/s 132(4) of the Act or material gathered during post search proceedings constitute incriminating materials found during search or not. We have perused the facts on records and after analyzing them in the light of various decisions of tribunal and Hon’ble High Courts, we opine that such materials/evidences can not be said to be found during the course of search. We further find merits in the contentions of the assessee that materials/evidences have to be found during search and have to be incriminating which was not the case before us. Therefore, we are not in agreement with the conclusion drawn by the Ld. CIT(A) on this issue. We note that information was available with the revenue authorities qua the bogus loans even before the date of search and search was, in fact, carried out on the basis of said the said information and therefore same can not be construed or considered as incriminating evidences found during the course of search in order to make the addition in an unabated assessment year.
26.1. We also note that Ld. CIT(A) has held that the statement recorded of the assessee under section 132(4) of the Act during the search on 25.10.2016 constituted the incriminating material. In our considered opinion, the findings of the ld CIT(A) that statement recorded during search constituted incriminating material appears to be not correct as the same can not be said to be found during the course of search but is recorded to elicit more information/explanation of the searched person on the incriminating documents/gold/jewellery found during search. Thus after perusing the material on record and considering rival contentions and also the decisions cited before us, we are of the considered view 6 Ms. Megha Kalpesh Shah that a statement recorded during the course of search can not be considered an incriminating material in order to make addition in an unabated assessment year. The case of the assessee is supported by the decisions of the co-ordinate bench of the Tribunal which are dealt with as follows: a)In the case of DCIT vs. Shivali Mahajan & others (supra). The relevant paras are reproduced below: “3……. During the course of search, statement of Shri Lalit Mahajan i.e., the assessee in appeal No.5590/Del/2015 was recorded, in which, he admitted of cash investment by him and other family members in respect of booking of space in Indirapuram Habitat Centre…… 4. ……..
Learned DR, on the other hand, stated that during the course of search of Aerens Group who is the builder and developer of Indirapuram Habitat Centre……………..….. That the statement under Section 132(4) has a legal sanctity and that by itself constitutes an evidence and addition can be made on the basis of assessee’s statement………… 8. ……..
We have carefully considered the arguments of both the sides and perused the material placed before us. After considering the facts of the case and the rival submissions, we find that in these appeals, following two questions arise for our consideration : (i) Whether any material found in the search of any other person than the assessee in appeal can be considered in the assessment under Section 153A of the assessee. (ii) Whether the addition can be made only on the basis of statement given by the assessee during the course of search. ……………. 16 Now, coming to question No.2, we find that this issue is also covered by the decision of Hon'ble Jurisdictional High Court in the case of Harjeev Aggarwal (supra) and Best Infrastructure (India) (P.) Ltd. (supra). In the case of Harjeev Aggarwal (supra), Hon'ble Jurisdictional High Court considered the evidentiary value of the statement recorded during the course of search. The relevant portion is paragraph 19, 20 & 24, which are reproduced below for ready reference :-………..
Thus, Hon'ble Jurisdictional High Court has held “The words “evidence found as a result of search” would not take within its sweep statements recorded during search and seizure operations”. Their Lordships further observed “However, such statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the AO to make a block assessment merely because any admission was made by the assessee during search operation”. In paragraph 24, their Lordships have mentioned about the prevailing practice of extracting statement by exerting undue influence or coercion by the search party. Though the above decision in the case of Harjeev Aggarwal is with reference to the meaning of undisclosed income u/s 158BB of the Income-tax Act, however, in our opinion, the above observation of Hon'ble
18. In the case of Best Infrastructure (India) (P.) Ltd. (supra), Hon'ble Jurisdictional High Court reiterated in paragraph 38 “Fifthly, statements recorded under Section 132(4) of the Act do not by themselves constitute incriminating material as has been explained by this Court in Harjeev Aggarwal”.
b) Similar ratio has been laid down in the cases of PCIT vs Best Infrastructure (India) Pvt. Ltd. & Ors. (supra)(Del) ,CIT v. Harjeev Aggarwal (Del)(Supra), PKSS Infrastructure Pvt. Ltd. v. DCIT and vice-versa (Mum ITAT) (supra), Geetanjali Space Pvt. Ltd. v. DCIT (supra)
26.2. Therefore, on this count also, we are not in agreement with the conclusion drawn by the Ld. CIT(A). In our considered view, the statement recorded under section 132(4) of the Act can not be considered as incriminating material found in the course of search. This is an undisputed position of law that in case of unabated assessment year, no addition can be made in absence of any incriminating materials found during the course of search. The case of the assessee is squarely covered by series of decisions which are dealt with as under: a) In CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra), the Honble Bombay high Court has held that no addition can be made in respect of assessments which have become final on the date of search if no incriminating material is found during search and the SLP filed by the revenue against the order of Bombay high in SLP (Civil) Diary Nos.18446/2018 has also been dismissed vide order dated 09.07.2018. b) The case of the assessee is supported by the decision of the Apex Court in the case of PCIT vs. Meeta Gutgutia (supra) wherein the Hon’ble Supreme Court has held that invocation of section 153A of the Act to reopen the concluded assessment was not justified in absence of any incriminating material found during the course of search and thus dismissed the SLP filed by the Revenue against the decision of Hon’ble Delhi High Court as reported in PCIT vs. Meeta Gutgutia (2017) 82 taxmann.com 287 (Delhi).
26.3. In view of the above facts and circumstances and various decisions as discussed above, we are inclined to set aside the order of Ld. CIT(A) on this issue and direct the AO to delete the addition. The ground No.1 is allowed.
Since the facts before us are materially same as involved in the above decision ,therefore we are inclined to set aside the order of ld CIT(A) on this issue by holding that the addition made by the AO is without valid jurisdiction as no incriminating
7. The issue raised in ground no. 2 & 3 of appeal is against the part confirmation of addition of Rs.23,73,000/-as against the addition of Rs. 2,94,50,000/- made by the AO by treating the loans as unexplained.
At the outset, the ld AR submitted that the issue on merit is squarely covered by decision of the co-ordinate Bench of the Tribunal by the same consolidated order as referred to above by following the decision in assessee own case in A.Y. 2010-11 in which is also adjudicated vide above said consolidated order of the co-ordinate Bench of the Tribunal. The operative part of the decision in A.Y. 2011-12 is as under:
“27. The issues raised in the other ground no. 2 & 3 on merits are similar to ones as decided by us in ground no. 3 to 5 in AY 2010-11. Therefore our finding on merits in in ground no. 3 to 5 in ITA No. 5891/M/2019 AY 2010-11 would ,mutatis mutandis, apply to ground no. 2 & 3 of this appeal as well. Consequently the ground no.2 and 3 are allowed.
Following the above decision of the coordinate bench , we are inclined to set aside the order of AO and direct the AO to delete the addition. Ground No. 2 & 3 are allowed.
9. The assessee has also raised additional ground which is extracted below. “On the facts and circumstances of the case, the Ld. AO and CIT(A) ought to have appreciated that education cess on tax payable by the appellant should have been allowed as deduction while computing income of the appellant.”
The Ld. Counsel of the assessee submitted that a similar issue has been adjudicated by the co-ordinate Bench of the Tribunal in the above order in A.Y. 2010-11 & 2011-12 in above
9 Ms. Megha Kalpesh Shah referred order of the coordinate bench by directing the AO to allow the deduction of education cess after verification of the same as the issue is covered by the Hon’ble Bombay High Court in the case of Sesa Goa Ltd. v. JCIT [423 ITR 426(Bom)].
After hearing the rival parties and perusing the materials on records, we observe that the issue is squarely covered by the decision of the coordinate bench as referred to above in A.Y. 2010-11. The operative part is extracted below: “17. We have heard the rival contentions of both the sides and perused records placed before us including the orders of the lower authorities. Undisputedly the claim of education cess was made for the first time before tribunal. The issue being purely legal and also covered by the jurisdictional high court in favour of the assesse on merits. In our opinion all the facts qua this issue are available on records and no new facts or independent verification of facts are required. Besides, the assessee can raise the legal issue at any appellate stage even if the same is not raised before the authorities below. Besides the admissibility of the additional ground is squarely covered by the decisions of the Apex Court National Thermal Power Corporation Ltd. Vs. CIT (Supra), Jute Corporation of India Ltd. Vs CIT (Supra) as well as Jurisdictional High Court as cited by the assessee’s counsel. Therefore respectfully following the ratio laid down in these decisions, we are inclined to admit the issue of education cess for adjudication.
We find that the issue raised in the additional ground is squarely covered by the recent order of the Hon’ble High Court of Bombay in the case of Sesa Goa Limited vs. Joint Commissioner of Income-tax (2020) 107 CCH 375 (Bom). However, as the aforementioned claim had been raised by the assessee for the very first time before us, we, therefore, in all fairness restore the matter to the file of the A.O for considering the said claim of the assessee in the backdrop of our observations recorded hereinabove, though, subject to verification of the factual position as had been claimed by the assessee before us. The additional Ground is allowed for statistical purposes in terms of our observations recorded hereinabove.”
Since the issue is identical as decided by the coordinate bench, we therefore respectfully following the same allow the additional ground for statistical purpose. The AO is directed to allow the deduction of educational cess after verifying the amount of educational cess.
10 Ms. Megha Kalpesh Shah ITA No.6249/Mum/2019 13. The issue raised in this appeal by the revenue is against the order of CIT(A) partly allowing the relief to the tune of Rs. 2,70,77,000/- to the assessee as against the addition of Rs. 2,94,50,000/- made by the AO towards unsecured loans by treating them as unexplained.
Since we have allowed the appeal of the assessee on legal as well on merits in ground no. 1 to 3 in the cross appeal of the assessee in (supra), the appeal of the revenue becomes infructuous and is dismissed accordingly.
In the result the appeal of the assessee is allowed for statistical purpose and appeal of the revenue is dismissed.
Order pronounced in the open court on 17.11.2021.