DCIT, CENTRAL CIRCLE-1, JAIPUR, JAIPUR vs. VIDHUSHI KOTHARI, JAIPUR

The brief facts of the case are that the assessee is an Individual and derives income from salary, house property and income from other sources during the year under consideration. The appellant filed her return of income on 31.08.2015 declaring total income of Rs. 27,12,600/-. Search proceedings under section 132 of the Income Tax Act, 1961 was conducted at the residential premises of the assessee on 31.10.2017. Pursuant to this, the case was selected for compulsory scrutiny. Notice under section 153A of the IT Act, 1961 was issued by the AO to the assessee on28.03.2019. In compliance to the notice the assessee filed return on 25.04.2019 declaring the total income of Rs. 27,12,600/- as filed by the assessee in her earlier return filed on 31.08.2015. Accordingly, notice under section 143(2) of the IT Act, 1961 was issued by the AO on 16.09.2019. Further notice under section 142(1) was also issued by the AO the assessee. In compliance to the said notice, the assessee furnished required documents and details which were examined and placed on record. Assessment Order under section 143(3) read with section 153A of the IT Act, 1961 was passed by the AO at assessed total income of Rs. 1,40,35,004/- on 28.12.2019 after making addition of Rs. 1,11,00,396/- on account of deemed income under section 68 of the IT Act, 1961 and Rs. 2,22,008/- on account of commission on accommodation entry. Aggrieved by the order of AO, the assessee preferred an appeal before the ld. CIT (A). The ld. CIT (A) after considering the submissions of the assessee and elaborately discussing the matter, allowed the appeal of the assessee.

Now, the Revenue has filed the present appeal before us. The additional ground relates to challenging the invalidating the assessment order passed under section 153A of the Income Tax Act, 1961. 5. Before us, the ld. D/R has submitted the written submission which are reproduced hereunder :- "4.4 The appellant has challenged the ground of appeal that no incriminating material was unearthed during the course of search and seizure action and hence no addition could have been done in the assessment order under section 153A of the Act. The appellant has also relied upon various judgements in support of his legal argument. The issue is no longer res integra after the judgement of Honourable Supreme Court in the case of 'Abhisar Buildwell' (supra). As per principles emanating from the Judgements of Hon'ble High Courts and Hon'ble Supreme Court the addition in assessment u/s 153A should be connected with something found during the search or requisition and that in such a scenario the ld. assessing authority while determining the total income may also make addition on other issues even if not emanating from incriminating material found in search. Principal Commissioner of Income-tax, Centra-3 v. Abhisar Buildwell (P) Ltd. [2023] 149 taxmann.com 399 (SC)/[2023] 293 Taxman 141 (SC)/[2023] 454 ITR 212 (SC)[24-04-2023] In para 7.1 Hon'ble Supreme Court has observed as under :- "7.1 In the case of Kabul Chawla (supra), the Delhi High Court, while considering the very issue and on interpretation of section 153A of the Act 1961, has sut aised the legal position as under. “Summary of the legal position”. On a conspectus of section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under : ii. vii. Completed assessments can be interfered with by the AO while making the assessment under section 153A onlyon 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.” (emphasis supplied) In para 7.2 Hon'ble Supreme Court has observed as under :-

2 Thereafter in the case of Saumya Construction (supra), the Gujarat High Court, while referring the decision of the Delhi High Court in the case of Kabul Chawla (supra) and after considering the entire scheme of block assessment under section 153A of the Act, 1961, had held that in case of completed assessment/unabated assessment, in absence of any incriminating material, no additional can be made by the AO and the AO has no juri iction to re-open the completed assessment. In paragraphs 15 & 16, it is held as under :- “When, the very purpose of the provision is to make assessment in case of search or requisition, it goes without saying that the assessment has to have relation to the search or requisition. In other words, the assessment, should be connected with something found during the search or requisition, viz., incriminating material which reveals undisclosed income. Thus, while in view of the mandate of sub-section (1) of section 153A of the Act, in every case where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish returns of income for the six years preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made, any addition or disallowance can be made only on the basis of material collected during the search or requisition ...." (emphasis supplied) Further in para 14 Hon'ble Supreme Court has held as under :- "

In view of the above and for reasons stated above, it is concluded as under :- (i) (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) ......" (emphasis supplied) It is important tonote that in the judgements i.e. CIT v. Kabul Chawla [2015] 61 taxmann.com 412/234 Taxman 300/[2016] 380 ITR 573 (Delhi) and Pr. CIT vs. Saumya Construction (P) Ltd. (2017) 81 taxmann.com 292/2016] 387 ITR 529 (Guj.) the scope of “incriminating material is not restricted to the "seized material". The judgement refer to should be connected with something found during the search or requisition" and "some incriminating material unearthed during the course of search or requisition of documents” and “undisclosed income or property discovered in the course of search". These judgements have been approved by Hon'ble Supreme Court in Abhisar Buildwell (supra) and conclusion is stated in para 14(iii) of the judgement as referred above. Incriminating material has to be found or unearthed during the search / requisition and there is no restriction placed to limit the scope to addition to be based on seized material i.e. material found or unearthed during search which cannot be seized and/or material which has not been seized, can also be the basis of addition. The word “incriminating”, in the context of section 153A has to be seen as something which can have or may have a bearing on the assessment of correct total income u/s 2(45) as per provisions of the Act. Incriminating material for the purposes of section153A has to be necessarily construed to be in the nature of a prima facie evidence only (including a circumstantial evidence). Such evidence may or may not turn out to be conclusive evidence after the verification/inquiry during the assessment proceedings. Explaining the above discussion with reference to judgement of Hon'ble Supreme Court in Abhisar Buildwel (supra) and judgement of Hon'ble Kerala High Court in ST. Francis Clay Décor Tiles (supra) as discussed above, the ‘incriminating material' can be in any form such as evidence in the nature of :- i) a document, content of any document; ii) an entry in books of account iii) an asset; iv) a statement given on oath ; v) absence of any fact claimed earlier but coming to notice during search; vi) absence of the office/business premises as claimed during return filed or any other documents, etc. In short, any fact/evidence which could suggest that the documents/transactions claimed or submitted in any earlier proceedings were not genuine, being only a device/make belief based on non-existent facts or suppressed/misrepresented facts, would constitute an incriminating material sufficient to make assessment for the purposes of the Act. A mere statement u/s 132(4) is an evidence for making an assessment as held by Apex Court in B Kishore Kumar vs. DCIT 234 Taxman 771 (SC) and even a statement u/s 132(4) shall also constitute incriminating material to dislodge any earlier finding for the purpose of making an The provisions of section 153A/153C are not the normal assessment provisions like 143(3); rather they are curative provisions to plug the mischief of evasion of table income based on evidence found in pursuance to search and if on account of search, the facts and circumstances suggest that any entry already appearing in books or accepted in earlier assessments based on documents submitted at that point of time, are camouflaged or manipulated or reflected to be in the nature or from a source which is different from the real nature or source as appearing from the evidences found during a subsequent search, then such material/facts coming to fore now will definitely constitute an incriminating material. In consequence of the same the earlier recorded entries/earlier admitted documents and evidence shall have no force as genuine evidence. If it were held not to be so, then the purpose of 153A would be defeated as it would fail to prevent the mischief, which irt sought to prevent just because the entries were already recorded in the books or some documents had already been accepted. Applying the Hayden's Rule of Mischief, the mere fact that such entries rerecorded in the books of accounts or some fabricated or colourful documents have already been accepted as correct, will not prevent such material or entry from being incriminating, if the circumstances suggest otherwise. The Hayden's rule of mischief has been judicially accepted and applied by Calcutta High Court in Reckitt Colman of India Ltd. vs. ACIT (2001) 252 ITR 550 (Cal.). The Hon'ble Madras High Court in case of L. Mohanam vs Mohamed Idris on 24 June, 2011 in O.S.A. No. 310 of 2010 has observed as under :-

In support of his contention, thelearned senior counsel for the appellant/plaintiff relied on the decision of the Hon'ble Supreme Couert in Hamza Haji V. State of Kerala and another reported in (2006) 7 SCC 416, wherein it has been observed that a decision obtained by playing a fraud on Court is liable to be set aside on the hbasis principle that the party who secured such a decision by fraud cannot be allowed to enjoy its fruits. The learned senior counsel also relied on the observation of the Hon'ble Supreme Court in State of Andhra Pradesh and another Vs. T. Suryachandra Rao reported in (2005) 6 SCC 149 to the effect that the fraud itiates every solemn Act and fraud and justice never dwell together. A.V. Papayya Sastry and Others Vs. Gocvt. Of Andhra Pradesh and others reported in (2007) 4 Supreme Court Cases 221 also, the Hon'ble Supreme Court has observed that fraud vitiates all judicial acts whether in rem or in personam and that a judgment, decree or order obtained by fraud has to be treated as non-est and nullity, whether by the Court of first instance or by the final Court and that the same can be challenged in any Court, at any time, in appeal, revision, writ or even in collateral proceedings. In North Eastern Railway Administration, Gorakhpur Vs. Bhagwan Das (dead) By Ls reported in (2008) 8 Supreme Court Cases 51, the Hon'ble Supreme Court has again reiterated the point that a judgment or decree obtained by fraud either in the first court or in the highest Court, is a nullity in the eye of law. The sufficiency or otherwise of the material gathered during the search an seizure for the purpose of making of assessment is to be seen from prospective of the stage at which assessment enquiry on the issue is initiated in the assessment proceedings. Such material may or may not be fully conclusive in its self as the same is subject to verification and enquiries and replies of the assessee in the case of MG Automobiles Ltd. vs. ACIT (ITAT Delhi) ITA Nos. 4212 & 4213/DEL/2011 dt. 28.06.2013, the issue whether statement recorded u/s 132(4) can be considered as incriminating material was discussed as under :- "

Similar views were held by ITAT (Mum) in the case of Shri Gurinder Singh Bawa Vs. Dy. CIT, ITA No. 2075/Mum/2010 and LMJ International Ltd. Vs. DCIT (20080 119 itj (Kol)214 and in the case of Anil P. Khimani vs. DOT, 2010- TIOL-1 77-ITAT-Mum. During proceedings before us, the bench asked a question to Ld. AR as to whether any statement u/s 132(4) was recorded during search to which the Ld. AR replied in negative and Ld. Departmental Representative also showed his ignorance about such statement. This question was asked because the view of theBenchis that if during course of search, some statement is recorded/s 132(4) and, in that statement certain facts are recorded from the interpretation of which Assessing Officer could conclude that there was some undisclosed income, then the statement can be considered as incriminating material”. In Commissioner of Income-tax, Thichur v. ST. Francis Clay Décor Tiles [2016] 70 taxmann.com 234 (Kerala)/[2016] 240 Taxman 168 (Kerala)/[2016] 385 ITR 624 (Kerala) [2016] 287 CTGR 187 (Kerala)[22-03-2016], what can be considered as incriminating material was discussed as under :- 66

On going through Section 132 of the Income Tax Act, what we find is that if the authority specified therein has reason to believe that any person to whom a summons under sub-section (1) of section 37 of the Indian Income-tax Act, 1922 (11 of 1922), or under sub- section (1) of section 131 of the 1961 Act, or a notice under sub-section (4) of section 22 of the Indian Income-tax Act, 1922 (11 of 1922), or under sub-section (1) of section 142 of 1961 Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account or other documents as required by such summons or notice etc. etc., can authorize the officers referred therein to enter and search any building etc. etc. Such authorized officer under sub-section (4) of Section 132 may during the course of search or seizure examine on oath any person who is found to be in possession or control of any books of account, document, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922 or under the Act 1961. Therefore, going by the said provision not only the books, documents etc. etc. that are unearthed during the course of search but a statement made by such person during such examination can also be used in evidence in any proceeding under the Income Tax Act, 1961. Thus viewing the provision in such manner, it is an admitted fact that the Managing Partner of the firm in question has given a voluntary statement to the Assessing Officer that there is a undisclosed income of R. 2.75 crores, which according to the learned counsel, was retracted by the Managing Partner subsequently. Thus it can be seen that even according to the assessee, there was no sized document or disclosure made but findings of asset (FDR) from undisclosed sources the Assessing Officer, by virtue of the power conferred on him under section 153A was competent to issue notice under the said provision and require the assessee firms to furnish the returns as provided thereunder. Neither under section 132 or under section 153A, the phraseology “incriminating" is used by the Parliament. Therefore, any asset which was unearthed during search operations or any Statement made during the course of search by the assessee is a valuable piece of evidence in order to invoke section 153A of the In view of the above it is held that evidence in statement u/s 132(4) of the Act is “connected with something found during the search” or in itself “something found during the search" and also is “somed incriminating material" and further also certainly discloses the otherwise “undisclosed income", as referred in judgements including in the judgements of Principal Commissioner of Income-tax, Central-3 v. Abhisar Buildwell (P) Ltd. (supra), CIT v. Kabul Chawla [2015] 61 taxmann.com 412/234 Taxman 300/[2016] 380 ITR 573 (Delhi) and Pr. CIT v. Saumya Construction (P) Ltd. [2017] 81 taxmann.com 292/[2016] 387 ITR 529 (Guj.) where the scope of “incriminating material” is not restricted to the “seized material”.

5 A. Analysis of the Show Cause Notice and Assessee's Replies

On the other hand, the ld. A/R of the assessee reiterated the submissions as made before the ld. CIT (A). He, further, submitted the Fact Sheet, which is reproduced as under :-

We have heard the rival submissions and perused the material available on record and gone through the orders of the lower authorities. We note that the assessment order dated 28.12.2019 has been passed by AO under section 153A of the Income Tax Act, 1961. An order u/s 153A can be passed only when a person is searched. In the present case, we note that Ld. CIT(A) has given a categorical finding at page 11 of his order that the AO could not provide evidence that search was conducted on the assessee. The Ld. D/R has also accepted that warrant was issued in the name of other individuals sharing the premises which confirm that warrant was not issued in the name of assessee. Thus when the search was not conducted on the assessee, the Ld. CIT(A) has rightly held that assumption of juri iction u/s 153A is not found to be valid. We further note that in the remand report submitted by AO during the appellate proceedings it is categorically asserted that no incriminating material is found with respect to the assessee and, therefore, it would be relevant to reproduce para 4.10 of the order of CIT(A) as under:- " 4. 10. I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the AO in the assessment order for the year under consideration. The contentions/submissions of the appellant are being discussed and decided as under :- In ground number 1, the appellant has raised the issue that no incriminating material was found during the search. The assessee also claimed that there was no search conducted on the assessee. The appellant has raised the issue of assumption of juri iction by the AO in the ground number 1. Therefore, this issue needs to be dealt first before examining the other grounds. Therefore, this issue is discussed and decided first. On going through the assessment order, it is seen that no reference has been made by the AO about any incriminating material found during search. Since, in this issue raised by the appellant, the appellant challenged the assumption of juri iction by the AO u/s 153A of the Act, a remand report was called for from the AO with regard to incriminating material found during search. It was also asked to the AO whether any assessment proceedings were pending as on date of search which got abated. The AO, DCIT, Central Circle-1, Jaipur reported in the remand report that no seized material was received by him from earlier AO (DCIT, Circle-2, Kota). The DCIT, Circle-2.Kota informed that all assessment records has already been transferred to the Deputy Commissioner of Income Tax, Central Circle-1, Jaipur vide this office letter No. 359 dated 02.11.2023. Since, the assessment records and present juri iction of this case lies with Deputy Commissioner of Income tax, Central Circle-1, Jaipur. It was requested by DCIT, Circle-2, Kota to seek directly compliance report from the Deputy Commissioner of Income tax, Central Circle-1 Jaipur in respect of remand report. The DCIT, Central Circle-1 Jaipur has again stated vide letter dated 23.04.2024 that his office is not having any seized material or any other information in respect to the search dated 30.10.2017 in the case of the assessee. In these circumstances, no evidence could be furnished to establish that incriminating documents were seized during the course of search proceedings on the issue of addition made during the course of assessment proceedings. On going through the assessment order passed by the AO, it is seen that there is no incriminating material referred by the AO while making additions. The AO has not referred to any of incriminating material found during the search. In these circumstances, the contention of the appellant with regard to no incriminating material found during the search proceedings with regard to the additions made for the current Assessment Year is found to be acceptable. The AO in the remand report also could not provide any incriminating documents seized during the course of search proceedings on the issue of addition made during the course of assessment proceedings. Considering the facts of the case, it is found that there was no incriminating material unearthed which is relevant for any of the addition made by the AO during the year. This is also noted that assessment of this year was not abated because though assessment was pending on the date of search but the assessment u/s 143(3) was completed on 22.12.2017. Hence, the pending assessment was not abated. As noted above, this is an unabated assessment. In caseof unabated assessment, the additions cannot be made if any incriminating material is not found. In case no incriminating material have been found addition cannot be made in an unabated assessment as held by Hon'ble Apex Court held in the Civil Appeal No. 6580 OF 2021 in the case of Principal Commissioner of Income Tax, Central-3 Versus Abhisar Buildwell P. Ltd. [2023] 149 taxmann.com 399 (SC)/[2023] 293 Taxman 141 (SC)/[2023] 454 ITR 212 (SC)[24-04-2023] as under – “14. In view of the above and for the reasons stated above, it is concluded as under :- i) ii) iii) iv) That in case of search under Section132 or requisition under Section 132A, the AO assumes the juri iction for block assessment under section 153A; All pending assessments/reassessments shall stand abated; 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; 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 Secion132A 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 fulfillment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved. The question involved in the present set of appeals and review petition is answered accordingly in terms of the above and the appeals and review petition preferred by the Revenue are hereby dismissed. No costs.” This assessment was an unabated assessment as the pending assessment is already completed. Therefore, requirement of incriminating material is not met as far as this year is concerned. Therefore, the AO was not found to be justified in making addition on other material available with him and when there was no incriminating material with him. Following the above decision of Hon'ble Apex Court, the additions made by the AO in this year are not found to be sustainable. It is also argued by the assessee that there was no search conducted on the assessee. The AO could not provide evidence that search was conducted on the assessee. In the absence any material brought on record. The assumption of juri iction u/s 153A is not found to be valid on this ground also. On these facts, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments, therefore, the additions made by the AO which the appellant has raised in ground number 1 are not found to be sustainable and deleted. The CBDT instruction no. 1 of 2023 dated 23rd August 2023 is to be followed in all such cases.

Since we have set aside the reassessment order on legal issue, therefore, we do not propose to go to the other grounds raised by the revenue.

In the result, this appeal of the Revenue is dismissed. Order pronounced in the open court on 04/04/2025. (राठौड़ कमलेश जयन्तभाई ) (Rathod Kamlesh Jayantbhai) लेखा सदस्य / Accountant Member *Santhosh जयपुर / Jaipur दिनांक / Dated:- 04/04/2025. (डॉ.एस.सीतालक्ष्मी) (Dr. S. Seethalakshmi) न्यायिक सदस्य/ Judicial Member आदेश की प्रतिलिपि अग्रेषित / Copy of the order forwarded to: 1. 2. 3. 4. 5. 6. अपीलार्थी / The Appellant-The DCIT, Central Circle-1, Jaipur. प्रत्यर्थी / The Respondent-Vidushi Kothari, Kota. आयकर आयुक्त/CIT आयकर आयुक्त/CIT(A) विभागीय प्रतिनिधि, आयकर अपीलीय अधिकरण, जयपुर / DR, ITAT, Jaipur गार्ड फाईल / Guard File {ITA No. 1032/JPR/2024} आदेशानुसार / By order, सहायक पंजीकार / Asst.