DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-3, JAIPUR vs. SAPNA KARNANI, TONK PHATAK

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर
IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR

Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k
BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, vk;dj vihy la-@ITA Nos. 709 to 712/JP/2025
fu/kZkj.k o"kZ@Assessment Years : 2013-14, 2014-15, 2016-17 & 2017-18

Deputy
Commissioner of Income-Tax,
Central Circle-03, Jaipur cuke
Vs.
Sapna Karnani
M-8, Mahesh Colony Tonk
Phatak, Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AEFPB5035B vihykFkhZ@Appellant izR;FkhZ@Respondent

CO. Nos. 28 to 31 /JP/2025
(Arising out of ITA. Nos. 709 to 712/JP/2025) fu/kZkj.k o"kZ@Assessment Year : 2013-14, 2014-15, 2016-17 & 2017-18

Sapna Karnani
M-8,
Commissioner of Income-Tax,
Central Circle-03, Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AEFPB5035B vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Deepak Sharma, CA jktLo dh vksj ls@ Revenue by : Ms. Alka Gautam, CIT, DR lquokbZ dh rkjh[k@ Date of Hearing

: 11/09/2025
mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 14/10/2025

vkns'k@ ORDER

PER: RATHOD KAMLESH JAYANTBHAI, AM
2. As agreed by the parties the lead case of revenue is considered in ITA no. 709/JP/2025 for assessment year 2013-14 and the connected cross objection of assessee on it numbered as CO no. 28/JP/2025 is taken up for discussion as lead case and the finding shall apply mutatis mutandis on the similar issue in the subsequent assessment year.

Ground 2. Whether on the facts and in the circumstances of the case, the Id.
CIT(A) is justified in deleting the addition of Rs. 1,96,250/-made by the AO u/s 69C on account of unexplained expenditure i.e. commission expenses incurred for acquiring accommodation entry.

Ground 3. Whether on the facts and in the circumstances of the case, the Ld.
CIT(A) is justified in deleting the addition of Rs. 3,79,776/-made by the AO u/s 69C on account of unexplained interest expenses incurred for obtaining accommodation entry in the form of unsecured loan.

Ground 4. The appellant craves leave or reserves right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.

Accordingly, notice u/s 153A of the IT Act, 1961 for this year was issued on 29.05.2019 which was duly served upon the assessee. In compliance to the notice u/s 153A of the Act, return of income was e-filed on 25.06.2019 declaring total income of Rs. 74,460/- for the year under consideration. The assessee has shown income from salary, business income. Statutory notices as required u/s 143(2) & 142(1) of the Act were issued along with questionnaire requiring certain details/information, which was duly served upon the assessee and the assessee placed on record the details / information as called.
78,50,226/-. As there was search and seizure action were also carried out on 21.05.2018 in the case of Banka Group, Kolkata. During the search and post search proceedings, it was noticed that various paper/shell companies controlled and managed by Shri Mukesh Banka were identified. All these companies were categorically accepted that Shri Mukesh Banka as paper/shell companies controlled and managed by him for the purpose of providing accommodation entries in the nature of bogus unsecured loans or in other forms. Following the lead as obtained from the statement of Shri
Mukesh Banka and the material seized during the course of search operation, the bank accounts of the paper/shell companies, controlled and managed by Shri Mukesh Banka was requisitioned from respective banks and analyzed.
On verification of the bank accounts of paper/shell companies of Banka group, various beneficiaries have been identified who have obtained accommodation entry in the nature of bogus unsecured loan or in other forms, from the paper/shell companies of Banka Group. Furthermore, the financial analysis of such paper/shell companies of Banka Group from DCIT vs. Sapna Karnani which such beneficiaries have been identified, has been carried out to ascertain their financial creditworthiness. From the above analysis, it was detected that (i) No profit accumulation in the company(s) across various financial year. (ii) No actual business done by the company(s) being zero turnover reported in various financial years. (iii) Most of the companies have shown income under the head 'Other income' which shows that these companies have no actual business activities and only getting interest income under the head 'other income' for providing bogus unsecured loan to different beneficiaries (iv) The admission of Shri Mukesh Bank vide his statement recorded u/s 131 & 132(4) of the Act on 30.05.2018 &
19.07.2018 that these companies are paper/shell companies, controlled and managed by Shri Mukesh Banka. (v) The directions of these companies are dummy directors of Shri Mukesh Banka as per the statement of Shri Mukesh Banka recorded u/s 132(4) of the Income tax Act,
1961 on 19.07.2018 (vi) These companies were found to be non-existent as per enquiry made by the Director of Income Tax. More, during the course of analysis and examination of the bank statement of paper/shell companies of Banka Group, the entire scheme of arrangement regarding the withdrawal of cash from various account of paper/shell companies of Shri Mukesh Bank was clearly established and substantiated. These
Banka regarding the pattern of cash withdrawals from his various companies. Huge withdrawal of cash from the bank accounts of paper/shell companies of Banks Group clearly established the fact that withdrawal of unaccounted cash was one of the main features of modus operandi of Banka Group. In respect to the above, statement of Shri Mukesh Banka,
Key person of Banka Group recorded u/s 131 & 132(4) of the Act, were placed on record. Based on those facts ld. AO noted that the company M/s
Kalyankari Exports Pvt. Ltd. Rs. 31,00,056, Mangalvani Infrabuild Pvt. Ltd.
Rs. 20,50,055/-, Telequip Marketing Pvt. Ltd. Rs. 27,00,115/- were shell company of Kolkata based from which the assessee have taken accommodation entry in the nature of bogus unsecured loan and also paid commission and also claimed interest expenses in the return of income.
Considering that facts a show cause notice dated 27.03.2021 was issued to the assessee through which the assessee was asked to furnish explanation with establishing the creditworthiness and genuineness of these loan creditors on or before 30.03.2021 failing which it was proposed that the whole scheme would be treated as an attempt to introduce undisclosed income by way of bogus unsecured loans amounting to Rs. 84,26,026/-
(78,50,000 (unsecured loan) + 196250 (commission) + 379776 (interest
DCIT vs. Sapna Karnani expenses as claimed in ITR)] was proposed to be added on account of undisclosed income accordingly. In response to the above show cause, assessee filed his written submission on 19.04.2021 which was placed on record. The ld. AO noted that the written submission of the assessee has been duly consideration and not found acceptable for the reasons that:-

During the search in Banka Group, Kolkata, various documents were found wherein data of various shell companies recorded. On examination of the details and Balance sheets it is seen that above companies from whom the loans were taken by the assessee are declaring very low income or declared loss in their return of income filed for the year under consideration, which raised doubts about the creditworthiness of these companies which evident from the following data:-

Category of addition
Amount (Rs.)
Nature of addition
Unexplained income u/s 68
78,50,000
Unsecured loans found explained and found as accommodation entries
Undisclosed expenditure u/s 69C
1,96,250
Commission on acquiring accommodation entries for Bogus unsecured loan
Unexplained interest expenditure u/s 69C
3,79,776
Interest expenses on such loan as claimed in ITR

On the issue of additions the learned AO has noted in the assessment order that during the course of assessment proceedings, it is noticed that the assessee has taken unsecured loan from the Kolkata based companies and the same has been repaid during the year under consideration. the search and seizure action were carried out on 21.05.2018 in the case of Banka Group, Kolkata. During the search and post search proceedings, it was noticed that various paper/shell companies controlled and managed by Sh. Mukesh Banka were identified. All these companies were categorically accepted by Sh. Mukesh Banka as paper/shell companies controlled and managed by him for the purpose of providing accommodation entries in the nature of bogus unsecured loans or in other forms.
Following the lead as obtained from the statement of Sh. Mukesh Banka and the material seized during the course of search operation, the bank accounts of the paper/shell companies, controlled and managed by Sh. Mukesh Banka was requisitioned from respective banks and analyzed. On verification of the bank accounts of paper/shell companies of Banka group, various beneficiaries have been identified who have obtained accommodation entry in the nature of bogus unsecured loan or in other forms, from the paper/shell companies of Banka
Group. Furthermore, the financial analysis of such paper/shell companies of Banka Group from which such beneficiaries have been identified, has been DCIT vs. Sapna Karnani carried out to ascertain their financial creditworthiness. From the above analysis, it was detected that (i) No profit accumulation in the company(s) across various financial year. (ii) No actual business done by the company(s) being zero turnover reported in various financial years. (iii) Most of the companies have shown income under the head 'Other income' which shows that these companies have no actual business activities and only getting interest income under the head
'other income' for providing bougs unsecured loan to different beneficiaries (iv)
The admission of Sh. Mukesh Bank vide his statement recorded u/s 131 & 132(4) of the Income tax Act, 1961 on 30.05.2018 & 19.07.2018 that these companies are paper/shell companies, controlled and managed by Sh. Mukesh Bank. (v) The directions of these companies are dummy directors of Sh. Mukesh Banka as per the statement of Sh. Mukesh Banka recorded u/s 132(4) of the Income tax Act,
1961 on 19.07.2018. (vi) These companies were found to be non-existent as per enquiry made by the Director of Income Tax. More, during the course of analysis and examination of the bank statement of paper/shell companies of Banka Group, the entire scheme of arrangement regarding the withdrawal of cash from various account of paper/shell companies of Sh. Mukesh Bank was clearly established and substantiated. These findings got further authenticated from the statements of Sh. Mukesh Banka regarding the pattern of cash withdrawals from his various companies. Huge withdrawal of cash from the bank accounts of paper/shell companies of Banks Group clearly established the fact that withdrawal of unaccounted cash was one of the main features of modus operandi of Banka
Group. Further the learned AO has added the consequent commission payment expenditure and also consequently added back and disallowed the deduction of interest payment claimed by the appellant

In this ground of appeal the appellant has contended that a perusal of Page-3 of assessment order reveals that addition with respect to unsecured loans taken by the assessee has been prompted on the basis of a search and seizure action carried out at "Banka Group of Kolkata. The impugned addition u/s 68 was made in AY 2013-14, and the search was done on 01/10/2018, nearly five years after the appellant took out the loans. The entries were recorded in the appellant's accounts during the fiscal year 2012-13. The original return of income was filed on 07.12.2013, thus as on the date of search, time limit for issuance of notice u/s 143(2) was already expired and no scrutiny assessment was possible, in other words it was a concluded assessment

Appellant has also contended that during the course of search, no incriminating documents concerning these loans and relating to the assessee for impugned assessment year were found. It is important to note that the validity of DCIT vs. Sapna Karnani proceedings u/s 153A hinges critically on the presence of incriminating evidence obtained during a search. In the present case, it is essential to highlight that assessment year under question comes under the definition of concluded assessment, therefore, assessment is to be made strictly on the basis of incriminating material found during the course of search at the assessee. The information received from other source cannot be equated with material found in the course of search. The lack of incriminating material not only undermines the proceedings but also raises questions about the procedural fairness and integrity of the assessment process. Given the absence of any incriminating evidence discovered during the search, it is evident that the proceedings initiated u/s 153A are invalid and unjustified. Appellant has also relied upon judgement in the case of PCIT, Central-3 VsAbhisharBuildwell P Ltd in Civil Appeal No.6580 of 2021

From the notings in the assessment order as briefly discussed in the earlier paragraphs it is noted that prima facie the additions have been made on the basis of incriminating material unearthed during the course of search and seizure action
Mukesh Banka group which took place before the search and seizure action of the appellant. Further in this regard a letter was issued to the learned AO calling for the incriminating material unearthed during the course of search and seizure action on the appellant with respect to the additions made in the assessment order under appeal. In this regard in the remand report the learned AO has stated as under:-

4 During the course of search, information was received from DDIT(Inv.) Unit-1(3), Vide his letter No. 6428 dated 18.12.2018. On perusal of the said information, it was noticed that assessee had taken unsecured loans from Kolkata based shell companies, which were detected in search of Banka Group, Kolkata and accordingly after considering the facts and issues discussed in the report of DDIT (Inv.), Kolkata, necessary additions were made. Thus, the incriminating material in the form of information disseminated by office of DDIT(Inv.), Unit-1(3), Kolkata is being forwarded for your kind perusal along with Statements of Shri Mukesh Banka (Key person of Banka Group) recorded during the course of search at Banka Group on 19.07.2018."

In response to the remand report rejoinder comments the appellant has submitted that a perusal of the remand report shows that information was received from DDIT (Inv.) Unit-1(3), Kolkata vide letter No.6428 dated 18.12.2018. Thus, this information was received subsequent to the search at assessee, which is 01.10.2018. Which means during the course of search, no such incriminating document or material was found. In the remand report, Ld.AO has stated tha incriminating document in the form of information disseminated by office of DDI
(Inv.) Unit-1(3), Kolkata is being forwarded for your kind perusal along wit
DCIT vs. Sapna Karnani statements of Shri Banka. This implies that the only information Ld.AO is possession of is information received from Investigation Wing, Kolkata. Admitted such information was not found during the course of search at assessee. In view the above, it is clear that during the course of search, no incriminating documents material were found from the assessee. Subsequent to conclusion of search, some other information was received from Investigation Wing, Kolkata and considering same as incriminating in nature, additions has been made in the assessment proceedings concluded u/s 153A

As per the remand report the incriminating material is in the form of information disseminated by office of DDIT(Inv.), Unit-1(3), Kolkata along with Statements of ShriMukesh Banka. However this material was not found in the course of search and seizure action of the appellant and was received from DDIT(Inv.). Unit-1(3),
Kolkata Accordingly, the addition in the assessment order is without basis of incriminating material unearthed during the search action on the appellant

In the judgement in the case of Principal Commissioner of Income-tax, Central-3
v. AbhisarBuildwell (P.) Ltd. [2023] 149 taxmann.com 399 (SC)/[2023] 293
Taxman 141 (SC)/[2023] 454 ITR 212 (SC)(24-04-2023], the Hon'ble Supreme
Court in para 14 has held as under.-

"14. In view of the above and for the reasons stated above, is concluded as under (1).....

(ii)

(iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the juri iction to assess or reassess the 'total income taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns, and (iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabiated assessments.
Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under section 132 or requisition under section 132A of the Act, 1961 However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved."
On the issue there is similar judgement of Hon'ble Supreme Court in the case of Deputy Commissioner of Income-tax v. U. K. Paints (Overseas) Ltd. [2023] 150
Maxmann.com 108 (SC)/[2023] 454 ITR 441 (SC)[25-04-2023] The judgement has been carefully considered. In para 1 and 3 the Hon'ble Supreme Court has held as under:-

(emphasis supplied)

In para 11 of the order in case of Principal Commissioner of Income-tax, Central-3
v. AbhisarBuildwell (P.) Ltd. (Supra), the Hon'ble Supreme Court inter-alia has held as under:-

“11. However, in case during the search no incriminating material is found, in case of completed/unabated assessment, the only remedy available to the Revenue would be to initiate the reassessment proceedings under sections 147/48 of the Act, subject to fulfilment of the conditions mentioned in sections 147/148, as in such a situation, the Revenue cannot be left with no remedy.

Therefore, even in case of block assessment under section 153A and in case of unabated/completed assessment and in case no incriminating material is found during the search, the power of the Revenue to have the reassessment under sections 147/148
of the Act has to be saved, otherwise the Revenue would be left without remedy."
The assessment order and submissions of the appellant in the appeal and the remand report on the issue and the rejoinder reply of the appellant on the remand report, all have been duly and carefully considered. Neither in the assessment order nor in the remand report there is any reference to incriminating material unearthed during the course of search and seizure action in the case of the assessee appellant for the year under appeal w.r.t. the addition made in the assessment order. There was no pending/abated assessment on the date search and seizure action took place and the time to issue notice u/s 143(2) of the Act had expired already.

Accordingly, the judgement of Hon'ble Supreme Court in the case of AbhisarBuildwell (supra) and U. K. Paints (supra) are squarely applicable to the facts of the case. Accordingly, following the judgment of honorable Supreme
Court it is held that the Id. AO rightly issued notices u/s 153A of the Act and at the same time the impugned addition made in assessment order u/s 153A cannot be sustained and is hereby deleted as the same is without basis of incriminating material unearthed during the search action on the appellant and ordinarily the impugned addition could have been done by the learned assessing officer in re- assessment proceedings by issuance of notice under section 147/148 and a direction would have been issued to the Id. AO is directed to take necessary action in this regard for issuance of notice u/s 148 of the Act in accordance with section 150 of the Act. However in the present case the action should have been taken u/s 153C of the Act and not u/s 148 of the Act, in view of the ratio of the judgements of Hon'ble High Court in the cases of Shyam Sunder Khandelwal v.
Assistant Commissioner of Income-tax [2024] 161 taxmann.com 255 (Rajasthan)
[19-03-2024] and Tirupati Construction Company v. Income-tax Officer [2024] 165
taxmann.com 176 (Rajasthan)/[2024] 465 ITR 611 (Rajasthan)[21-03 2024].

It is held in the case of Shyam Sunder Khandelwal v. Assistant Commissioner of Income-tax [2024] 161 taxmann.com 255 (Rajasthan) [19-03-2024] as under:-

Further, in the case of Tirupati Construction Company v. Income-tax Officer
[2024] 165 taxmann.com 176 (Rajasthan)/[2024] 465 ITR 611 (Rajasthan) [21-03
2024] it is held by the Hon'ble Rajasthan High Court as under:-

15 Learned counsel for the petitioner is correct in submitting that in fact search was carried out in the year 2016 and the respondents had the authority to reopen the assessment by invoking the powers under section 1530 of the Act of 1961 and draw reassessment proceedings under section 1534 of the Act of 1961 That was not done within the period of limitation prescribed under section 153B of the Act of 1961. The respondent authority was fully aware of the fact that proceedings under section 153C of the Act of 1961 would be barred by limitation, therefore, recourse was taken to the provisions contained in Section 148 and Section 148A of the Act of 1961 which has no application in the present cases.
16. Learned counsel for the revenue does not dispute the legal position that where the basis for reassessment is incriminating material and information collected during search, the only legally permissible course of action is the one provided under section 153C of the Act of 1961 and not under section 148 of the Act of 1961. Admittedly, present are not the cases where search was carried out after 1-4-2021, ie, after coming into force the Finance Act, 2021. Present are the cases of search of prior period.”

As per the ratio of the above judgement in the case of Tirupati Construction
(supra). collection of further additional details relating to search would not mean collection of new incriminating material and information, independent of the incriminating material and information collected during search proceedings.
Respectfully following the judgement of Hon'ble High Court, the right course of action for the AO of the searched assessee and AO of the appellant would have been to take action as per section 153C of the Act. In the judgement of Hon'ble
High Court in the case of Shyam Sunder Khandelwal (supra), it has also been held that "However, the respondents shall be at liberty to proceed against the petitioners in accordance with law". In view of the totality of the facts and circumstances and the applicable law and the ratio of the judgements, in the present case, the Id. AOs of the searched person and of the appellant shall proceed as per section 153C of the Act in accordance with law after independent examination and recording of satisfaction as required as per this section.

This ground of appeal is adjudicated in above terms and is treated as allowed for statistical purposes.

In the earlier part of this order it has already been held that the additions done by the learned assessing officer in the assessment order are not sustainable on the technical ground that the addition is not based on any incriminating material unearthed during the search and seizure action on the appellant. Since the additions do not survive on technical ground, the other grounds of appeal on the merits of such addition are rendered only academic and do not warrant detailed adjudication. In view of this discussion, the subject grounds of appeal raised by the appellant are treated as disposed off.

Ground No. 6: That the appellant craves your indulgence to add, amend or alter all or any grounds of appeal before or at the time of hearing.

Written Submissions on appeal of Revenue:
No valid Juri iction u/s 153A:
1
The impugned addition u/s 68 was made in AY 2013-14, 2014-15, 2016-
17 and 2017-18 and the search was done on 01/10/2018, nearly five years after the appellant took out the loans. The entries were recorded in the appellant's accounts during the fiscal year 2012-13 and as on the date of search, time limit for issuance of notice u/s 143(2) was already expired in all the assessment years and no scrutiny assessment was possible, in other words it these were concluded assessments.

2
A perusal of the assessment order clearly shows that during the course of search, no incriminating documents concerning these loans and relating to the assessee for impugned assessment year were found. It is important to note that the validity of proceedings u/s 153A hinges critically on the presence of incriminating evidence obtained during a search. In the present case, it is essential to highlight that assessment year under question comes under the definition of concluded assessment, therefore, assessment is to be made strictly on the basis of incriminating material found during the course of search at the assessee. The information received from other source cannot be equated with material found in the course of search. Therefore, being the concluded assessment, addition on the basis of information received from other source is not permissible as the same is not falling under the category of incriminating material found during the course of search at the assessee. .This absence of incriminating evidence fundamentally undermines the juri ictional basis for proceeding under Section 153A and resultantly the addition so made deserves to be deleted in full.

3
The issue, whether any incrimination material was found during the course of search or not was duly investigated by Ld.CIT(A) by calling a remand report from Ld.AO and Ld.AO vide its remand report dated 03.02.2025, with respect to the incriminating material found, stated as under:

4
Thus, it is evi material was found.
at Page-27, which is “In response to the submitted that a p received from DD
18.12.2018. Thus, t assessee, which is such incriminating d has stated that incrim office of DDIT (Inv.) along with statemen is in possession of Admittedly such inf assessee. In view o incriminating docum to conclusion of sea
Wing, Kolkata and c been made in the as As per the remand r disseminated by offi
ShriMukesh Banka.
and seizure action o
Kolkata. Accordingly incriminating materia dent that, during the course of search, n
In this regards, Ld.CIT(A) has also given being relied upon and reproduced hereu remand report in the rejoinder commen perusal of the remand report shows th
DIT (Inv.) Unit-1(3), Kolkata vide let this information was received subseque
01.10.2018. Which means during the c document or material was found. In the re minating document in the form of informa
) Unit-1(3), Kolkata is being forwarded f ts of Shri Banka. This implies that the on f is information received from Investiga formation was not found during the c of the above, it is clear that during the c ments or material were found from the as arch, some other information was receive considering the same as incriminating in n ssessment proceedings concluded u/s 15
report the incriminating material is in the ice of DDIT(Inv.), Unit-1(3), Kolkata along
However this material was not found in of the appellant and was received from D y, the addition in the assessment order al unearthed during the search action on ITA Nos. 709/JP/2025
DCIT vs. Sapna Karnani no such incriminating a categorical finding under:
nts the appellant has hat information was tter No.6428 dated ent to the search at course of search, no emand report, Ld.AO ation disseminated by for your kind perusal nly information Ld.AO ation Wing, Kolkata.
course of search at course of search, no sessee. Subsequent ed from Investigation nature, additions has 53A.
e form of information g with Statements of the course of search
DDIT(Inv.), Unit-1(3), r is without basis of the appellant”
(Bom), is particularly instructive in this context. The Bombay High Court held that for assessments made u/s 153A to be valid, they must be based on material that has been specifically unearthed during the search on assessee. The court emphasized that the absence of any incriminating evidence negates the justification for conducting assessments under this section.

6
In the present case, the search did not yield any incriminating material.
Therefore, the case of assessee is squarely covered by the decision of Apex
Court in the case of PCIT, Central-3 Vs Abhishar Buildwell P Ltd in Civil Appeal
No.6580 of 2021 vide order dated 24.04.2023 holding as under:
“iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved. ”

7
With these uncontested facts and established principles of law in mind, it is abundantly evident that an abated assessment cannot be reopened u/S.153A if no incriminating material for the relevant assessment year is found during the course of search, thus order passed u/s 153A is erroneous, bad in law and rightly quashed by CIT(A) vide order dated 21.02.2025 by holding as under:

“The assessment order and submissions of the appellant in the appeal and the remand report on the issue and the rejoinder reply of the appellant on the remand report, all have been duly and carefully considered. Neither in the assessment order nor in the remand report there is any reference to incriminating material unearthed during the course of search and seizure action in the case of the assesse appellant for the year under appeal w.r.t. the addition made in the assessment order. There was no pending/abated assessment on the date search and seizure action took place and the time to issue notice u/s 143(2) of the Act had expired already

Accordingly, the judgement of Hon’ble Supreme Court in the case of AbhisarBuildwell (supra) and U. K. Paints (supra) are squarely applicable to the facts of the case. Accordingly, following the judgment of honorable Supreme
Court it is held that the ld. AO rightly issued notices u/s 153A of the Act and at the same time the impugned addition made in assessment order u/s 153A cannot be sustained and is hereby deleted as the same is without basis of incriminating material unearthed during the search action on the appellant and ordinarily the impugned addition could have been done by the learned assessing officer in re-
DCIT vs. Sapna Karnani assessment proceedings by issuance of notice under section 147/148 and a direction would have been issued to the ld. AO is directed to take necessary action in this regard for issuance of notice u/s 148 of the Act in accordance with section 150 of the Act. However in the present case the action should have been taken u/s 153C of the Act and not u/s 148 of the Act, in view of the ratio of the judgements of Hon’ble High Court in the cases of Shyam Sunder Khandelwal v.
Assistant
Commissioner of Income-tax
[2024]
161
taxmann.com
255
(Rajasthan)[19-03-2024] and Tirupati Construction Company v. Income-tax
Officer [2024] 165 taxmann.com 176 (Rajasthan)/[2024] 465 ITR 611
(Rajasthan)[21-03 2024].

It is held in the case of Shyam Sunder Khandelwal v. Assistant Commissioner of Income-tax [2024] 161 taxmann.com 255 (Rajasthan)[19-03-2024] as under:
******
Further, in the case of Tirupati Construction Company v. Income-tax Officer
[2024] 165 taxmann.com 176 (Rajasthan)/[2024] 465 ITR 611 (Rajasthan)[21-03
2024] it is held by the Hon’ble Rajasthan High Court as under ********

As per the ratio of the above judgement in the case of Tirupati Construction
(supra), collection of further additional details relating to search would not mean collection of new incriminating material and information, independent of the incriminating material and information collected during search proceedings.
Respectfully following the judgement of Hon’ble High Court, the right course of action for the AO of the searched assessee and AO of the appellant would have been to take action as per section 153C of the Act. In the judgement of Hon’ble
High Court in the case of Shyam Sunder Khandelwal (supra), it has also been held that “However, the respondents shall be at liberty to proceed against the petitioners in accordance with law”. In view of the totality of the facts and circumstances and the applicable law and the ratio of the judgements, in the present case, the ld. AOs of the searched person and of the appellant shall proceed as per section 153C of the Act in accordance with law after independent examination and recording of satisfaction as required as per this section. This ground of appeal is adjudicated in above terms and is treated as allowed for statistical purposes. ”

8
The following judicial pronouncements elucidate this principle:

i. The Hon’ble High court of Delhi in the case of PCIT Vs Bhadani Financiers Pvt.
Ltd. (Delhi High Court) [ITA 81/2020] on 09/09/2021 held that “Completed assessments could be interfered with by AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. No addition could be made under Section 153A as the cases of respondents were of DCIT vs. Sapna Karnani non-abated assessments. Held: Revenue contended that ITAT had erred in confirming the orders of CIT (Appeal) and directing AO to delete the additions made under Section 68 on account of unexplained credits and under Section 69C on account of unexplained expenses. Revenue further contended that incriminating documents or materials had been found during the course of the searches and consequently by virtue of Section 153A, AO had to assess the total income of six years under Section 153A. Since the assessments were not completed under Section 143(3), consequently, prior to the date of search i.e.
18th June, 2013, the assessment of the respondents had not attained finality and ITAT had erred in restricting the applicability of the section u/s 153A in respect of completed assessment, only to undisclosed income and assets detected during search u/s 132. It was held that in the case of CIT vs Kabul Chawla, (2016) 380
ITR 573, the Court held that the completed assessments could be interfered with by AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. Since assessment of the respondents had attained finality prior to the date of search and no incriminating documents or materials had been found and seized at the time of search. Consequently, no addition could be made under Section 153A as the cases of respondents were of non-abated assessments.”

ii. The Hon’ble Supreme Court Of India in the case of Principal Commissioner of Income-tax v. Gaurav Arora [2021] 133 taxmann.com 293 (SC) on 17.09.2021
held that “Notice issued in SLP against order of High Court holding that completed assessments can be interfered with by Assessing Officer while making assessment under section 153A only on basis of some incriminating material unearthed during course of search which was not produced or not already disclosed or made known in course of original assessment and since there was no incriminating material or facts/circumstances justifying additions made under section 2(22)(e), Tribunal was justified in deleting addition. After hearing counsel for the parties and considering the grounds urged in support of the Revenue's appeal, this Court is of the opinion that there is no infirmity with the decision of the ITAT. In Kabul Chawla (supra), the Court had clearly indicated that the AO cannot arbitrarily complete the block assessment under section 153A without any relevance or nexus with the seized material. The Court also held that an assessment in such circumstances has to be made under the provision only on the basis of seized material. Furthermore, it was held that in the absence of any incriminating material, the completed assessment can be reiterated and abetted assessment or re-assessment can be made. In the present case, the Revenue does not urge that it discovered any new material justifying the addition under section 2(22)(e). Rather, there was no material to connect the additions made under that head. Clearly, there was no incriminating material or facts and circumstances justifying the addition of Rs.17,19,14,701/- .”
DCIT vs. Sapna Karnani iii. The Hon’ble Delhi High Court in the case of Pr. CIT Vs Meeta Gutgutia Prop.
Ferns ‘N’ Petals [2017] 395 ITR 526 (Del) : 152 DTR 153 (Del) held “that it is only if during the course of search under section 132, incriminating material justifying the reopening of the assessments for six previous years is found that the invocation of section 153A qua each of the assessment years would be justified.
If no incriminating material was found during the course of search in respect of an issue, then no additions in respect of any issue can be made to the assessment under sections 153A / 153C. It was also held in this case that section 153A is titled “Assessment in the case of search or requisition”. It is connected to section 132, which deals with “search and seizure”. Both these provisions, therefore, have to be read together. Section 153A is indeed an extremely potent power which enables the Revenue to reopen at least six years of preceding assessment year of search. It is not to be exercised lightly. It is only if during the course of search under section 132, incriminating material justifying the reopening of the assessments for six previous years is found that the invocation of section 153A qua each of the assessment year would be justified. If no incriminating material was found during the course of search in respect of an issue, then no additions in respect of such an issue can be made to the total income in the assessment under sections 153A and 153C of the Act.”

iv. The Hon’ble Delhi High Court in the case of PCIT (Central) vs Agson Global Pvt
Ltd “dismissed a bunch of appeals against deletion of addition u/s 68 towards
Share capital/ share premium, bogus purchases and deposit in bank account vide judgment delivered on 19.01.2022. It has held that where the ITAT decided the matter based on appreciation of evidences placed on record and the order of ITAT not being challenged on ground of perversity, no substantial question of law arises. It also held that the investigation wing directed the A O to frame the assessment in a manner that would protect the revenue’s interest. The A O performs a quasi-judicial function while framing an assessment. The revenue cannot dictate the manner, in which, the AO frames the assessment order. The Tribunal records a finding of fact that “no unaccounted income of the assessee”
had been introduced in its books of accounts in the form of share capital. Based on this, the Tribunal concluded that there was “no confession” made by Mr
Arpesh Garg that unaccounted income had been introduced by the assessee in the form of share capital. Therefore, according to the Tribunal, the statement made under Section 132(4) of the Act did not constitute incriminating material.
the Tribunal concluded that the assessee had been able to prove the identity of the investors, their creditworthiness and genuineness, which are the ingredients of Section 68 of the Act. The relevant observations made in paragraph 86 by the Tribunal read as follows :
86. Considering the facts of the case in the light of material on record in voluminous paper books and confirmations of the parties and the summary of transfer of funds reproduced above, it is clear that assessee produced sufficient documentary evidences before the A.O. to prove that money routed from the assessee itself which came back to the assessee in the form of share
DCIT vs. Sapna Karnani capital/premium, therefore, assessee proved identity of the Investors, their creditworthiness and genuineness of the transaction in the matter and as such have been able to prove ingredients of Section 68 of the I.T. Act. The A.O.
however did not make any further enquiry on the documentary evidences filed by the assessee. The A.O. did not verify the trail of the source of funds received by assessee through various entities as explained above. We may also note that during the course of hearing of these appeals, A.O. was present in the Court, but, did not make any adverse comment upon the documentary evidences filed in the paper book filed by the assessee. The A.O. thus, failed to conduct scrutiny of the documents at assessment stage and merely suspected the transaction between the Investor Companies and the assessee company despite the fact that in the deviation report the A.O. expressed doubts in making addition into the matter. It may also be noted here that no cash have been reported to have been deposited in the accounts of the assessee, the Investor Companies and other related parties. Considering the totality of the facts and circumstances of the case and material on record, we are of the view that assessee has been able to prove that it has received genuine amounts which is routed through various companies.
Therefore, there was no justification to make any addition under section 68 of the I.T. Act.
The moot point which the Tribunal, thus, dealt with, as noted by us hereinabove, was- that as long as there was no material on record which established that unaccounted money (i.e., income generated which was not recorded in the books of accounts) had been funnelled in the form of investment by way of share capital/share premium, it could not be made the basis for making addition under Section 68 of the Act.”
9. As far as merits of the case are concerned, it is important to note that extensive details with respect to each borrower were submitted before ld.AO as well as Ld.CIT(A), which were examined in detail by Ld.CIT(A), however since the issue was already answered in favour of assessee on legal ground, therefore, no detailed adjudication was given, however, it is important to note that the facts of the case along with findings of Ld.AO and details submitted in respect of each borrower were checked in detail. Below details were submitted before CIT(A) in respect of borrowing so made to prove identity, creditworthiness and genuineness:

At the outset, it is submitted that S.68 mandates that if any sum is credited in the books of an assessee, and the explanation regarding its nature and source is either not provided or deemed unsatisfactory by the AO, then such sum may be treated as income of the assessee for that previous year.

In this case, the assessee has provided comprehensive documentation, including
PAN details, Complete addresses, confirmations of accounts, audited financial statements, and confirmations from lenders. All documents included the complete addresses and PAN numbers of the lenders. Furthermore, all lenders confirmed
DCIT vs. Sapna Karnani the balances reported in the assessee’s accounts. The assessee also demonstrated repayment of the loans during the assessment year and in subsequent years. Hence, the evidence presented clearly satisfies the requirements of Sec.68. 11. Establishing Key Elements:
Identity Established:
11.1
During the year under consideration, the identity of the lenders has been clearly established through comprehensive documentation such as Confirmations, PAN, Forms filed with the ROC, Audited Financial Statement.

Crucially, the funds were transferred from the lenders' respective bank accounts, which is a significant factor in establishing their capacity to lend.