DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, LUDHIANA, LUDHIANA vs. MALBROS INTERNATIONAL PVT LTD, TEHSIL ZIRA, FARIDKOT -151203, LUDHIANA

That even the approval as sought by the assessing officer of the order u/s 143(3) from the Addl. CIT is non est / bad in law and the granting of the approval of the order u/s 143(3) by the Addl. CIT is null and void and thus, assessment as framed u/s 143(3) vide order dated 26.03.2024 deserves to be quashed.

That it was incumbent of the Assessing Officer of the searched and the AO concerned to record a satisfaction about the material ought to be used against the assessee before confronting the same to the assessee for making addition in the case of the assessee. Since additional grounds are merely legal grounds which do not require appreciation of new facts, the same are admitted for adjudication in terms of decision of Hon’ble Apex Court in the case of National Thermal Power Co. Ltd. (229 ITR 383). 1.4 The grounds as raised by the revenue read as under: - 1. Whether upon facts and circumstances of the case, the Ld. CITIA) was justified in reducing the addition of bogus purchase from Rs.103,79,51,710/- made by AO to Rs.6,60,00,000/-? 2. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of Rs.10,84,62,625/ ignoring the facts of the case and statements of Sh. Prem Singh? 3. Whether upon facts and circumstances of the case, the Ld CIT (A) was justified in deleting addition of Rs.10,84,62,625/ by ignoring the fact that the copy of trial balance was found and seized from residential premises of Sh. Prem Singh who when confronted, deposed that PML Sale account pertains to out of books sale of Country Liquor? 4. The appellant craves leave to add, amend, modify, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal. 1.5 The Ld. AR advanced arguments on legal grounds as well as on merits and referred to various judicial decisions to support the same. The copies of the same have been placed on record. The Ld. AR contended that as per amended provisions, the assessment should have been framed u/s 148 for which requisite satisfaction of specified authority

We find that the return of income for this year was already been filed by the assessee on 31-10-2022. Pursuant to search action, the case was picked up for scrutiny and the assessment has been framed. First, we take up the legal grounds as urged by Ld. AR since the same assail 19 the very jurisdiction of Ld. AO in making an assessment u/s 143(3) of the Act. It has been stated that while framing the impugned assessment, Ld. AO has relied upon and utilized various documents found and seized from the residential and office premises of third parties namely Shri Prem Singh and Shri Rajinder Singh. These documents include digital data and loose papers as found during search on third parties. The reliance of such material, in the absence of any valid satisfaction recorded u/s 148 read with Explanaion-2(iv) would render the assessment bad-in-law and accordingly, liable to be quashed. To support the same, Ld. AR has submitted following tabulation: - Name of searched Name of Nature of Nature of Data recovered from Relevant person along with Digital Device Addition the digital device and alleged as Page of the premises from incriminating material Assessment whom such data Order was recovered Prem Singh Digital Data Bogus Recovered from his residence 27 Purchase Digital Data On account Alleged Bogus purchases from 36-53 of Bogus inaccurate tally data seized from Purchase his residence Digital Data Unexplained Found and seized from his 53-63 expenditure residence u/s 69C Digital Data On account Found and seized from his 63-81 of Gross residence Profit Rajinder Singh Digital Data Bogus Extracted from the mobile of ex- 4-29 Purchase employee, Shri Rajinder Singh during post search assessment proceedings and statement 20 6. On the basis of above tabulation, Ld. AR asserted that AO was mandatorily required to record requisite satisfaction with the prior approval of Pr. CIT to the effect that document / digital data as seized u/s 132 in the case of other persons viz. Shri Prem Singh and certain data as recovered from the mobile phone of Shri Rajinder Singh during post search and information contained thereto pertained to the assessee. Since, no such satisfaction was recorded by AO and no prior approval as statutorily required has been obtained by Ld. AO, the same would render the assessment to be without jurisdiction. Our attention has been drawn to Explanation-2(iv) to Sec.148. This Explanation provide that, in case where material belonging to or pertaining to the assessee is found during a search on another person, the AO is mandatorily required to record proper satisfaction that such material pertains to the assessee and accordingly, required to obtain prior approval of Ld. Pr. CIT / CIT to initiate any action against the assessee. To support the same, reference has been made to various decisions of this Tribunal taking the same view. The Ld. AR stated that memorandum explaining the provision of Finance Bill, 2021 categorically provide that for search operations conducted on or after 01-04-2021, a new assessment procedure is to be followed particularly under the provisions introduced through Sec.148 and Sec. 148B read with amended Scheme of reassessment under Finance Act, 2021. In the present case, search has bene conducted on 18-05-2023 which is after 01-04-2021 and therefore, as per amended law, the assessment or reassessment for the years failing within period immediately preceding the search year must be initiated and completed through the new assessment procedure only. As against this, Ld. AO 21 has framed the assessment u/s 143(3) which is not applicable in the present context. Therefore, the assessment is invalid and without the authority of law. The Ld. AR stated that the requirement of new procedure is not shown to have been fulfilled in the present case.

The Ld. AR further asserted that in the present case, no approval u/s 148B was obtained by Ld. AO despite the fact that the assessment was completed pursuant to search action. As per the amended provisions as applicable post 01-04-2022, AO is mandatorily required to obtain prior approval u/s 148B from prescribed authority before passing any assessment order based on search proceedings. The seized material including the documents seized from the third parties (Shri Prem Singh and Shri Rajinder Singh) was never forwarded to approving authority. The provisions of Sec.148B, as per amendment by Finance Act, 2022, provide that no order for assessment or reassessment or recomputation under this section shall be passed by an AO below the rank of Joint Commissioner, in respect of an assessment year to which clause (i) or clause (ii) or clause (iii) or Clause (iv) of Explanation 2 to Sec.148 apply, except with the prior approval of the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director. No such approval has been obtained in the present case. Thus, the assessment order passed u/s 143(3) is in violation of express requirements of Sec.148B and therefore, liable to be quashed on this score also. Even otherwise, the purported approval was obtained and the assessment order was passed on the very same day and therefore, the assessment would be bad-in-law since the approval was taken without sharing the seized material and other document. The approval taken for 22 administrative purpose was mechanical one and taken in perfunctory manner without any application of mind. Reference has been made to various judicial decision of this Tribunal taking the same view in favour of the assessee. It has further been stated that the approval as granted by Addl. CIT was faulty since the said approval has been granted for the order to be passed u/s 143(3) which is evident from copies of approval as sought by DCIT, Central Range u/s 143(3) vide letter dated 24-03-2024 and the same was approved b Addl. CIT vide letter dated 26-03-2024. There was no application of mind by Addl. CIT since the data or other digital record as relied upon to make the assessment were not forwarded to him. This being so, the assessment would be liable to be quashed.

The Ld. AR also advanced arguments on merits and stated that the basic raw material for the assessee was Rice Nakku since the assessee was engaged in grain-based distillery. The assessee had maintained complete day-to-day stock register and the production activity was carried on under direct supervision of State Excise officials stationed at the manufacturing unit of the assessee day and night. Entire procurement, production and sale was carried under the strict supervision of State Excise officials. The sales were made on the basis of permit issued by the State Excise department which was forwarded to Excise personnel deputed at the factory premises and only then country liquor and Ethanol was dispatched to the customers. The assessee has maintained all the relevant records viz. purchase invoices, lorry receipts, weighment receipts for procurement of Rice Nakku. The receipt of raw material was entered in ‘Grain procurement register’ which was authenticated by the Excise Officials. The same contained day-to-day 23 opening balance, grain purchased and consumed during the year and day-to-day closing stock of the grain. The Ld. AO did not doubt on the same. The copies of purchase invoices, builty giving details of vehicles, weight and weighment of grain at factory premises was also already furnished to Ld. AO along with inward gate receipts along with sample copies of Lab Report for testing of Rice Nakku etc. The confirmed ledger copies of suspicious suppliers were also furnished which are kept on page nos. 422 to 438 of the paper book. It was stated that the assessee made sales to oil marketing companies and the same were duly accepted. The sales and purchase of the assessee was duly disclosed in the GST returns and none of the documentary evidences has been doubted by Ld. AO. The payments to all the suppliers were made through banking channels. The Ld. AR also stated that the assessee’s accounts were duly audited as required under law and no flaw was found by Ld. AO in the books of the assessee. Rather the whole assessment is merely based on third-party material. No opportunity of cross-examination has ever been granted to the assessee and therefore, the additions could not be sustained on merits. No independent enquiry has been conducted by Ld. AO from any of the parties concerned. The statement of third parties as made u/s 132(4) could not bind the assessee. No presumption could be made and no conclusion could be drawn against the assessee on the basis of third-party evidences. Pertinently, similar addition of bogus purchases as made by Ld. AO for AYs 2016-17 & 2017-18 stood deleted in first appeal. Similar arguments were made for addition of unaccounted expenditure of Rs.940.75 Lacs. The Ld. AR also referred to the findings of Ld. CIT(A) on the issue of deletion of addition of alleged out-of-books 24 sales. The Ld. CIT-DR, on the other hand, drew attention to the findings of Ld. AO and justified the assessment so made on the assessee.

After due consideration of material facts on record as well as arguments of Ld. AR, we find substantial merit in legal arguments as urged by Ld. AR. The arguments of Ld. AR are duly backed up by various judicial decisions taking the same view. The pertinent legal ground as raised by Ld. AR is that the assessment has been framed u/s 143(3) without fulfilling the mandatory conditions prescribed u/s 148 read with Explanation 2(iv) thereof. Another pertinent legal issue is that mandatory approval as required u/s 148B has not been obtained from the competent authority even though the impugned AY was immediately preceding the search assessment year. Another line of argument is that approval as obtained by Ld. AO from Addl. CIT before passing the assessment order was invalid one since the approval ought to have been obtained u/s 148B of the Act which was not done in the present case. Further, whatever approval was taken, the same was mechanical and without application of mind. All these legal issues, as rightly been pointed out by Ld. AR, has adequately been dealt with by co-ordinate bench of Chandigarh Tribunal in the case of M/s Homelife Buildcon Pvt. Ltd. (ITA No.880/Chd/2024 & ors. dated 17-07-2024). We find that on identical facts, the coordinate bench held as under: - 22. The core question before the Bench is whether, in the facts and circumstances of the case, the assessment ought to have been framed under section 143(3) or under section 147 of the Income-tax Act, 1961. From the plain reading of the statutory provisions and in light of Explanation 2 to section 148, it becomes abundantly clear that the legislature has widened the scope of reassessment, particularly through the Finance Act, 2021, which introduced significant changes to the reassessment regime. These amendments explicitly include instances involving third-party search material and make it incumbent upon the 25 Assessing Officer (AO) to follow the procedure under section 148, including obtaining prior approval from the Principal Commissioner of Income Tax (PCIT).

In the present case, the AO proceeded to frame the assessment under section 143(3) despite relying heavily on material found during searches conducted on third parties. The AO, instead of complying with the jurisdictional preconditions laid down under the reassessment provisions, proceeded without recording the mandatory satisfaction and without obtaining prior sanction from the competent authority. This conduct not only, violates the express mandate of law, but also renders the assessment a jurisdictional error. The AO has, in fact, gone a step further by bypassing the legal safeguards embedded in section 147, thereby vitiating the assessment proceedings ab initio.

Furthermore, a plain reading of the Finance Act, 2021 and the Explanatory Memorandum to the Finance Bill clearly indicates that the legislative intent was to bring all searches conducted on or after 1st April 2021 within the ambit of the new reassessment regime under section 147 of the Income-tax Act, 1961. This new regime was introduced through significant amendments to section 147 and section 148, along with the insertion of Explanations 1 and 2, and the concept of "information suggesting escapement of income" was explicitly defined. From the reading of Explanation 2 to Section 147, it is evident that in cases where a search is initiated on or after 1st April 2021, the Assessing Officer shall be deemed to have information, which suggests that income chargeable to tax has escaped assessment for three assessment years immediately preceding the assessment year relevant to the previous year, in which, the search is initiated, provided that books of account, documents, assets, bullion, jewellery, or other valuable articles are seized or requisitioned in the course of the search. This deeming provision is not limited only to the person searched, but also extends to "other persons", provided that due procedure under the law-specifically, the recording of satisfaction that such seized material belongs to the assessee and obtaining prior approval from the PCIT-is followed.

In the present case, where the AO has admittedly relied upon material seized during searches conducted on other persons, i.e., Sh. Ravi Kapoor and Sh. Ajay Kumar Prabhakar, it was mandatory for the AO to invoke the provisions of section 147 and not to bypass the statutory framework by proceeding under section 143(3). Granting such unfettered powers to the AO to rely on third-party material without adhering to the safeguards under section 147 would defeat the very purpose of the amendment and open the floodgates to arbitrary assessments.

The relevant extract Memorandum explaining the finance bill is reproduced as under:- ‘(ii) Assessments or reassessments or in re-computation in cases where search is initiated under section 132 or requisition is made under 132A, after 31st March 2021, shall be under the new procedure. (vi) Further, in search, survey or requisition cases initiated or made or conducted, on or after 1st April, 2021, it shall be deemed that the Assessing officer has information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the three assessment years immediately preceding the assessment year relevant to the previous year, in which, the search is initiated or requisition is made or any material is seized or requisitioned or survey is conducted.”

The notice issued under section 143(2) was also produced by the AR. Upon perusal of the said notice, it is evident that the assessment under section 143(3) was initiated solely for the purpose of verifying the return of income filed by the assessee. In such circumstances, the importing and reliance upon material seized from third-party searches, namely, those conducted on Sh. Ajay Kumar Prabhakar and Sh. Ravi Kapoor, goes beyond 26 the jurisdiction conferred under section 143(3). Particularly, where the applicable law— Explanation 2 to section 148 (as amended by the Finance Act, 2021) mandates prior approval from the Principal Commissioner of Income Tax (PCIT) before initiating reassessment proceedings on the basis of such material, the failure to comply with that requirement renders the assessment legally untenable.

In the present case, the AO did not issue a notice under section 148, nor did he follow the due process of law under the new reassessment framework, including recording of satisfaction and obtaining prior sanction from the PCIT. Therefore, the assessment framed under section 143(3), because of being based on third-party material without adhering to statutory safeguards, is bad in law. The AO was only empowered to verify the return of income and restrict his scope of inquiry accordingly; he was not permitted to expand the assessment by importing and relying upon third-party seized material without following the mandatory procedure laid down under the law.

Furthermore, there exists a mandatory statutory requirement that in all cases involving search-related assessments falling within the assessment year, immediately preceding the year of the search, the prior approval of the Joint Commissioner is required under section 148B of the Income-tax Act, 1961. In the present case, the Assessing Officer (AO) has proceeded without obtaining such approval, which is a clear violation of the procedural safeguards envisaged under the law and, as such, vitiates the assessment proceedings. In the present case, approval has been granted for assessment framed u/s 143(3) only. The relevant provision of section 148B reads as under: Prior approval for assessment, reassessment or recompilation in certain cases. 148B. No order of assessment or reassessment or recompilation under this Act shall be passed by an Assessing Officer below the rank of Joint Commissioner, in respect of an assessment year to which clause (i) or clause (ii) or clause (iti) or clause (iv) of Explanation 2 to section 148 apply except with the prior approval of the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director.

A comparison of the requirement of approval under section 153D and section 148B is drawn, from which it is evident that approval under section 153D was earlier required only in cases where assessments were completed under section 153A/153C and also for search year. However, under the amended provisions, approval under section 148B is now required in all cases where proceedings are initiated pursuant to a search, requisition, or survey, or where asset/material/documents found during such search pertain to or relate to another person. In such cases, the Assessing Officer must take the approval under section 148B from the specified higher authority. Aspect Section 153D Section 148B (with Explanation 2 to Section 148) Applicable Period Search initiated between 01.06.2003 to Search/survey initiated on or after 31.03.2021 01.04.2021 but before 01.09.24 Context Search assessment under Section 153A/153C All cases where assessment/reassessment is based in respect of an assessment year to which clause (i) or clause (ii) or clause (iii) or clause (iv) of Explanation 2 to section 148 Triggering Event Search or requisition on the assessee under 1. Search/requisition 2. Survey Sections 132 /132A or material is used against (except under 133A(2A)) on assessee from third party search assessee 3. Search/requisition on another person, but 27 assets/documents relate to assessee Purpose of Approval Supervisory check in search assessments to assessments to ensure fairness and ensure fairness and oversight oversight Prevent misuse of powers in reassessment based on search/survey-related information under new regime Who gives approval Joint Commissioner (mandatory) Any of: Joint Commissioner / Addl. Commissioner / Joint Director / Addl. Director Aspect Section 153D Section 148B (with Explanation 2 to Section 148) Deeming Presumption Not expressly stated Explanation 2 creates a legal presumption: AO is deemed to have information suggesting income escaped assessment in specified cases 31. This requirement has also been explicitly discussed in the Explanatory Memorandum to the Finance Bill, 2022, which emphasizes the need to protect taxpayer rights by ensuring that no reassessment is carried out without proper sanction and due process. It is further seen that the Joint Commissioner has not even been supplied seized material relied upon as seized from third-party in the present assessment. There exists a prescribed procedure under which such seized material (including material found from third-party premises) is to be forwarded to the approving authority at least 30 days in advance of granting approval. This procedural safeguard is crucial to prevent arbitrary and unregulated use of third-party material.

In the present case, there is no evidence to demonstrate that the prescribed procedure was followed, or that the Joint Commissioner was apprised of the seized material by forwarding copies of the documents found from the third party prior to framing the assessment. The complete failure to comply with the mandatory provisions of section 148B renders the reassessment not only. procedurally defective but also without jurisdiction.

Even we find while framing the assessment under section 143(3), the Assessing Officer (AO) has, on the last page of the assessment order, referred to an approval obtained from the supervisory authority. However, a bare perusal of this approval shows that it was obtained in reference to F. No. 299/36/2020/1DAR/INV3(3)/577 dated 15.07.2022, i.e., in accordance with the CBDT Circular dated 15th July 2022, and not under the mandatory provisions of section 148B of the Income-tax Act, 1961. At the outset, it is important to note that the approval so obtained does not mention or consider any of the seized materials sourced from the third party. searches conducted on Sh. Ajay Kumar Prabhakar and Sh. Ravi Kapoor, despite the AO having heavily. relied on those materials in framing the additions. The approval merely states that the appraisal report was considered, without any reference to the original documents seized or to the statutory procedure outlined under section 148B. It is pertinent to refer to the Manual of Office Procedure in February 2003, which lays down a mandatory protocol: that in all search cases, especially where material pertains to persons other than the one searched, such material is to be forwarded in original to the approving authority, and a draft order is required to be submitted for approval at least 30 days in advance. In the present case, the approval letter was issued by the DCIT only on 22nd August 2023, which clearly contravenes this procedural requirement. This procedural 28 lapse is further compounded by the judgment of the Hon'ble Supreme Court in Serajuddin and Co. case, [2024] 163 taxmann.com 118 (SC) wherein it was held that in search cases, strict adherence to the approval protocol as laid down in the departmental Manual of Office Procedure in February 2003 and law is essential to uphold the validity of the assessment.

Thus, from the above, it is quite evident from the approval granted by the Addl. CIT(Central), there is no mention or consideration of the seized material sourced from the third party, namely Sh. Ajay Prabhakar and Sh. Ravi Kapoor, though, we find that in the assessment order and in the order of CIT(A), both the authorities have heavily relied upon on such seized material and it only states that the appraisal report have been considered without any reference to any original documents seized for statutory procedure outlined has 16 u/s 148. Thus, in view of above, the assessment as framed by Assessing Officer vide order dated 24.08.2023 is quashed.” The coordinate bench, on identical facts, held that Ld. AO proceeded to frame the assessment u/s 143(3) despite relying heavily on material found during searches conducted on third-parties. The AO, instead of complying with the jurisdictional preconditions laid down under the reassessment provisions, proceeded without recording the mandatory satisfaction and without obtaining prior sanction from the competent authority. The said conduct not only violates the express mandate of law but also renders the assessment jurisdictionally erroneous. A plain reading of the Finance Act, 2021 coupled with Explanatory Memorandum to the Finance Bill clearly indicate that the legislative intent was to bring all searches conducted on or after 01-04-2021 within the ambit of the new reassessment regime u/s 147 of the Income-tax Act, 1961. This new regime was introduced through significant amendments to Sec.147 and Sec.148, along with the insertion of Explanations-1 and 2 and the concept of "information suggesting escapement of income" was explicitly defined. From the reading of Explanation-2 to Section 147, it would be evident that in cases where a search is initiated on or after 01-04-2021, AO shall be deemed to have information, which suggests that income 29 chargeable to tax has escaped assessment for three assessment years immediately preceding the assessment year relevant to the previous year, in which, the search is initiated, provided that books of account, documents, assets, bullion, jewellery, or other valuable articles are seized or requisitioned in the course of the search. This deeming provision is not limited only to the person searched, but also extends to "other persons", provided that due procedure under the law specifically, the recording of satisfaction that such seized material belongs to the assessee and obtaining prior approval from the PCIT is followed otherwise the assessment would be bad-in-law. It was further observed by the bench that AO relied upon material seized during searches conducted on other persons and therefore, it was mandatory for Ld. AO to invoke the provisions of Sec.147 and not to bypass the statutory framework by proceeding u/s 143(3). Granting such unfettered powers to the AO to rely on third-party material without adhering to the safeguards u/s 147 would defeat the very purpose of the amendment and open the floodgates to arbitrary assessments. It was further observed by the bench that assessment u/s 143(3) was initiated solely for the purpose of verifying the return of income as filed by the assessee. In such circumstances, the importing and reliance upon material seized from third-party searches would go beyond the jurisdiction conferred u/s 143(3) particularly, where the applicable law i.e., Explanation-2 to section 148 (as amended by the Finance Act, 2021) mandates prior approval from the Principal Commissioner of Income Tax (PCIT) before initiating reassessment proceedings on the basis of such material. The failure to comply with such requirement would render the assessment legally 30 untenable. The Ld. AO did not issue a notice u/s 148 nor did he followed the due process of law under the new reassessment framework, including recording of satisfaction and obtaining prior sanction from the PCIT. Therefore, the assessment framed u/s 143(3), because of being based on third-party material without adhering to statutory safeguards, would be bad-in-law. The AO was only empowered to verify the return of income and restrict his scope of inquiry accordingly and he was not permitted to expand the assessment by importing and relying upon third- party seized material without following the mandatory procedure laid down under the law. It was mandatory statutory requirement that in all cases involving search-related assessments falling within three assessment year, immediately preceding the year of the search, the prior approval of the Joint Commissioner u/s 148B would be required. However, Ld. AO proceeded without obtaining such approval which is a clear violation of the procedural safeguards envisaged under the law which would vitiate entire assessment proceedings. In the present case, approval was taken to frame assessment u/s 143(3) only. As against this, the provisions of Sec.148B mandate prior approval of specified authority. These provisions provide that no order of assessment or reassessment or recomputation under this Act shall be passed by an Assessing Officer below the rank of Joint Commissioner, in respect of an assessment year to which clause (i) or clause (ii) or clause (iii) or clause (iv) of Explanation-2 to Sec.148 apply except with the prior approval of the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director. The bench further observed that under the amended provisions, approval u/s 148B would be required in all cases where 31 proceedings were initiated pursuant to a search, requisition, or survey, or where asset / material / documents found during such search pertain to or relate to another person. In such cases, the Assessing Officer must take the approval u/s 148B from the specified higher authority. This requirement was explicitly discussed in the Explanatory Memorandum to the Finance Bill, 2022, which emphasizes the need to protect taxpayer rights by ensuring that no reassessment is carried out without proper sanction and due process. The Joint Commissioner was not even supplied with seized material as relied upon by Ld. AO. There exists a prescribed procedure under which such seized material (including material found from third-party premises) is to be forwarded to the approving authority at least 30 days in advance of granting approval. This procedural safeguard is crucial to prevent arbitrary and unregulated use of third-party material. There was no evidence to demonstrate that the prescribed procedure was followed, or that the Joint Commissioner was apprised of the seized material by forwarding copies of the documents found from the third party prior to framing the assessment. The complete failure to comply with the mandatory provisions of section 148B renders the reassessment not only procedurally defective but also without jurisdiction. The bench further observed that while framing the assessment u/s 143(3), the AO has, on the last page of the assessment order, referred to an approval obtained from the supervisory authority. However, this approval was obtained in reference to F.No.299/36/2020/1DAR/INV3(3)/577 dated 15-07-2022, i.e., in accordance with the CBDT Circular dated 15-07-2022 and not under the mandatory provisions of section 148B of the Income-tax Act, 1961. It was 32 to be noted that the said approval did not mention or consider any of the seized materials sourced from the third party despite the fact that AO heavily relied upon that material while making the additions. The approval merely states that the appraisal report was considered, without any reference to the original documents seized or to the statutory procedure outlined under section 148B. Pertinently, the manual of office procedure issued in February 2003 lays down a mandatory protocol that in all search cases especially where material pertains to persons other than the one searched, such material is to be forwarded in original to the approving authority and a draft order is required to be submitted for approval at least 30 days in advance. In the present case, the approval letter was issued by the DCIT only on 22-08-2023 which clearly contravenes this procedural requirement. This procedural lapse is further compounded by the judgment of the Hon'ble Supreme Court in Serajuddin and Co. case (163 Taxmann.com 118) wherein it was held that in search cases, strict adherence to the approval protocol as laid down in the departmental Manual of Office Procedure in February 2003 and law is essential to uphold the validity of the assessment. It was quite evident from the approval as granted by Ld. Addl. CIT that there was no mention or consideration of the seized material sourced from the third party though both the lower authorities heavily relied upon such seized material. The approval merely states that the appraisal report has been considered but without any reference to any documents seized from third parties. Finally, on the given facts, the bench quashed the assessment order. We find that similar facts exist in the present appeal before us. No change in facts could be demonstrated by revenue.

The Ld. CIT-DR has referred to CBDT Circular F.No.225/66/2023/ITA-II dated 24-05-2023 to state that the jurisdiction was validly acquired by Ld. AO. However, the said circular merely in the nature of guidelines for compulsory selection of returns for complete scrutiny during the financial year 2023-24. After going through the Circular, we find that this circular merely contains parameters for compulsory selection of returns for complete scrutiny. The relevant clause 2(ii) which apply to the facts of present case, provide that assessment in search & seizure cases / requisition cases u/s 132 / 132A conducted on or after 01-04-2021 shall be selected with prior administrative approval of Pr. CIT / Pr. DIT / CIT / DIT concerned who shall ensure that such cases are transferred to central charges u/s 127 of the Act within 15 days of service of notice u/s 143(2) / 142(1) of the act by the jurisdictional AO. The same is thus merely administrative in nature and prescribe a procedure to be followed in search cases which have been conducted after 01-04-2021. The same do not address the various legal issues as raised by Ld. AR before us and which have been enumerated in preceding paragraphs. Therefore, this circular does not render any assistance to the case of the revenue.

We find that the whole of the assessment is based in Hard Disk, Tally data and loose papers as found during search on assessee’s ex- employee and his statement as recorded u/s 132(4). However, it is a fact that no business was being carried out by assessee at its factory premises after July, 2022 due to agitation by the farmers raising environmental concerns. The staff of the assessee is stated to have taken various items / papers / data from assessee’s premises without the knowledge of the assessee after the closure of factory premises. The said digital data as well as loose papers coupled with the recorded statements form the very basis of impugned assessment in the hands of 38 the assessee. Post-search investigation, statement of another employee Shri Rajinder Singh was recorded which has been used to corroborate the findings in the assessment order. The data from his mobile phone was extracted. His statement and data so extracted has been used by Ld. AO to support the impugned additions. On the basis of the same, Ld. AO made allegation of bogus purchases of Rice Husk and Rice Nakku from M/s Krishna Agro, M/s Shri Sai Baba Foods and M/s Bharat Trading Co. It has been alleged that the payment made to these suppliers have been routed back to the assessee against commission. However, no independent enquiries have been conducted by Ld. AO from any of the suppliers to bring on record corroborative evidences to support the allegations. The assessee amply demonstrated that the seized Tally data was incomplete, unauthentic and no reliance could be placed on the same. The assessee also explained that two types of vouchers were being maintained. The person making the vouchers entered the bank payments on both sides of cash books i.e., the payments made through cheques / RTGS / NEFT were entered on credit side of the cashbook and to ensure double entry, a similar contra / receipt entry was posted on debit side through pink voucher. The same was in line with the old system of preparing a ‘combined cashbook’. The bank transactions would be recorded on both sides of the cashbook, although, it would not affect the cash balance. Thus, a valid explanation was furnished by the assessee with respect to different vouchers as referred to by Ld. AO. Further, in support of its purchases, the assessee furnished plethora of documents viz. ledgers of the suppliers, purchase invoices, e-way bills, weightment slips, transportation receipts and bank statement evidencing 39 payments through banking channels. The assessee purchases ‘Rice Nakku’ and ‘Rice Husk’ for Rs.181.38 Crores out of which substantial purchases to the extent of Rs.103.79 Crores has been held to be alleged bogus purchases. On consumption of raw material, the assessee has produced ENA / Ethanol which has been sold to oil marketing companies for Rs.171.10 Crores. The sales of liquor have been shown to be Rs.70.09 Crores. The sales turnover has been accepted by Ld. AO. It is quite logical that without purchases there could not be any sales. The purchase includes purchases of Rice Nakku for Rs.42.86 Crores from government undertaking FCI which could not be held to be bogus. The assessee also furnished Godown inward register containing complete details of supplies as received by the assessee. The purchases as well as sales transactions have been carried out under strict supervision of Excise officials stationed at the manufacturing unit of the assessee. The sales were carried out only on the basis of permit issued by State Excise Department. The assessee has maintained all purchase records and nothing deficient has been pointed out by Ld. AO in the same. The grain procurement register contained complete details of delivery vehicles, quantity, weighment of grain, vehicle number etc. The assessee has maintained quantitative details and the books have duly been audited as required under law. The assessee also furnished day-to-day production record. If the loose papers and incomplete data as relied upon by Ld. AO is ignored, nothing would be left with Ld. AO to support the impugned addition of alleged bogus purchases. Pertinently, none of the supplier has been confronted by Ld. AO and no independent enquiry is shown to have been done from any of the suppliers. It is trite law that no addition could 40 be made on mere presumption, conjectures and surmises. By furnishing plethora of documents, the assessee, in our considered opinion, had duly discharged the onus of substantiating its purchase. The onus was on Ld. AO to corroborate the findings of alleged bogus purchases. However, nothing of that sort emanates from assessment records. This being so, the estimated addition so made by Ld. AO by applying profit rate of 12% could not be sustained in law in toto. For the same very reasons, the additions as sustained by Ld. CIT(A) could also not be upheld. Pertinently, similar addition made by Ld. AO for AYs 2016-17 & 2017-18 stood deleted by first appellate authority itself. Considering all these facts, the impugned addition stand deleted in toto. We order so. The assessee succeeds in its corresponding grounds. The grounds raised

Facts as well as issues, in these appeals, are admittedly, substantially the same. It was an admitted position that the adjudication of cross-appeals in the case of M/s Malbros International Pvt. Ltd. would have an equal application to these cross-appeals also. The assessee has raised similar grounds as well as additional grounds of appeal s. The revenue has also filed similar grounds. In this background, the appeals are disposed-off as under.