DINESH KUMAR SINGHI,BANGALORE vs. DCIT, BANGALORE

Per Bench : These are a bunch of six appeals filed by the assessee before this

Tribunal. The appeals in ITA Nos.699 to 701/Bang/2015, ITA Nos.1053 &

2 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 1054/Bang/2015 are directed against the orders of the CIT (Appeals)-11,

Bangalore dt.27.2.2015 for Assessment Years 2005-06 to 2007-08, 2010-

11 & 2011-12. The appeal in ITA No.639/Bang/2015 is directed against

the order of the PCIT (Central), Bangalore dt.23.02.2015 for Assessment

Year 2007-08.

ITA No.699/Bang/2015 for A.Y. 2005-06

3 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 thereto, the assessee filed return of income on 31.1.2012. The consequent assessment was concluded under Section 153A r.w.s. 143(3) of the Act wherein the assessee's income was determined at Rs131,01,19,435, in view of, inter alia, disallowance of Rs.86,63,23,825 claimed as deduction under Section 10B of the Act. The assessee's appeal was dismissed by the CIT (Appeals) – 11, Bangalore vide the impugned order dt.27.2.2015. 3. Aggrieved by the order of the CIT (Appeals) – 11, Bangalore dt.22.5.2.2015 for Assessment Year 2005-06, the assessee has filed this appeal, wherein the following grounds have been raised :

4 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 6. The authorities below erred in not providing sufficient and adequate opportunity to the appellant as required under law, thereby violating the principles of natural justice, hence the order requires to be cancelled.

5 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 15. The authorities below erred in relying on material seized from others in framing the order u/s 153A r.w.s 143(3) without following the procedure as is envisaged u/s 153C. 16. That the approval granted u/s 153D is not as per law.

4.0 In the course of hearing oral arguments were put up and both parties have filed written submissions which are extracted hereunder.

6 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 4.1 Assessee's submissions.

The assessee’s premises were subjected to search purportedly u/s 132 of the Income Tax Act on 19/07/2010. The said search was initiated presumably under a warrant of authorization in the name of Dinesh Kumar Singhi. The highlights of the search proceedings and other events in relation to search was that the premises at No.19, Singhi Villa, Norris Road, Shanthinagar, Bangalore was subjected to search, the ingress to which was at 10.40a.m and outgress was at 11.15p.m and the search was stated to be temporarily closed as mentioned in panchanama drawn dated 19/07/2010. On the said date certain books of accounts and other documents which were found and seized vide annexure to the panchanama marked as C/DKS-1 & A/DKS -1 (copy of panchanama is found in pages 550 to 556 of paperbook-1). Thereafter in continuation of earlier warrant the assessee’s premises was again searched on 10/08/2010, 06/09/2010 and the search proceeding came to be closed on 14/09/2010 vide panchanama drawn on the even date or the said date. The premises at Kamala Niwas, Infantry Road, Cantonment, Bellary was subjected to search, the ingress to which was at 4p.m and outgress was at 8.45p.m and the search was stated to be temporarily closed as mentioned in panchanama drawn dated 19/07/2010. Thereafter in continuation of earlier warrant the assessee’s premises was again searched on 11/08/2010 and the search proceeding came to be closed on 16/09/2010 vide panchanama drawn on the even date or the said date. Thereafter the officer, the DDIT(Inv), Unit II(2) issued summons and sought for several documents and also recorded statements inter alia on dates 19/07/2010,10/08/2010,11/08/2010,06/09/2010 & 16/09/2010.

The assessee during the course of search filed a conditional disclosure u/s 132(4) making a declaration of Rs.14,13,015/- & Rs.20.10 crores for the assessment years 2007-08 & 2011-12 respectively. Since there was no incriminating material for the year there was no disclosure of undisclosed income for the impugned year. In the meantime to the utter surprise, shock & dismay the assessee received a notice u/s 153A dt. 21/09/2010 from the DCIT, central circle 1(2) and was served on the assessee on 28/09/2010 directing the assessee to file his return of income for AY 2005-06 (PB-1 page 13). In response, the assessee filed a return of income on 31/01/2012 declaring an income of Rs.44,37,95,600/- with the following caption at the top of the return.“Without prejudice and subject to our letters” (PB-1 page 14).

7 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 On merits the brief facts and background are explained hereunder: The assessee is an individual carrying on the business of mining and iron ore export through an undertaking approved as a 100% EOU. For the AY 2005-06 the assessee filed the regular return of income declaring total income of Rs.39,97,93,335/- on 30/10/2005. Thereafter a notice u/s 143(2) was issued. The assessee was directed to file various details. Notice u/s 142(1) was also issued and several hearings were held wherein the assessee submitted elaborate details. Before passing order u/s 143(3) the department conducted a survey u/s 133A and physical inspection of the premises of the new undertaking on 23/02/2006 and statements were also recorded. Order u/s 143(3) was passed on 29/03/2006 restricting the allowance u/s 10B to Rs.85,16,56,168/- as against a claim made by the assessee of Rs.88,82,67,868/- (PB-1 page 6 to 8). In the original return the assessee had made a claim for deduction u/s 10B in respect of the undertaking known as M/s Bharat Mines & Minerals which was established in pursuance of the legal agreement executed with Development Commissioner of CSEZ dt. 03/06/2003 and their confirmation letter dt. 04/07/2003 (PB-1 page 103 to 108). The first year of the undertaking was AY 2004-05 wherein the assessee had claimed deduction u/s 80HHC. However impugned assessment year being the second year of the undertaking, a claim for deduction u/s 10B was made. The survey was conducted with an intention to rectify a claim of the assessee u/s 10B. The department substantially allowed the claim for deduction by partially disallowing Rs.3,66,10,700/-. The issue on eligible profits again became a subject matter of notice u/s 154 dt. 19/09/2006 and proceedings u/s 154 were closed by accepting the reply filed by the assessee (PB-1 page 9). Thereafter, again a notice u/s 148 was issued dt. 25/06/2009 (PB-1 page 11). When reasons for notice u/s 148 was sought, the reason given by the AO for revisiting the issue was that, as to why the freight charges amounting to Rs. 1,25,22,56,620/- should not be excluded from the export turnover and accordingly compute the claim of deduction u/s 10B of the Act. After the reply was filed, proceedings u/s 148 was not pursued by the department. The issue of notice u/s 148 itself is against law and the notice is vitiated by change of opinion. However the assessee has not received any order of reassessment in pursuance of notice u/s 148. As explained, sec 153A notice was issued on 21/09/2010 and the assessee filed the return on 31/01/2012. Thereafter notice u/s 143(2) dt. 21/05/2012 and notices u/s 142(1) dt. 10/07/2012, 29/08/2012, 05/10/2012 & 19/12/2012 were issued seeking several details which was duly filed by the assessee. The assessment came to be concluded u/s 153A r.w.s 143(3) on 11/03/2013 disallowing already

8 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 allowed claim of Rs. 85,16,56,168/- and determining the total income at Rs.131,01,19,435/-.

The reasons for withdrawal of the section 10B deduction which was already granted has been summarized by the AO in para 6.2 of the assessment order extracted as hereunder:

‘’6.2 The question now arises is whether the assessee Mr.Dinesh Kumar Singhi and later the firm Bharat Mines and Minerals are entitled for exemption u/s 10B as the DTA was established more than ten years ago as evidenced by the following: - The assessee has been in this business for more than 20 years. - The assessee has been using the Crushing and screening plants for more than 15 years* as evidenced by the accounts where he/BMM was using crushing and screening plants and was producing fines, c-ore and lumps at their factory at Ranjitpura.(*profit and loss account available with department since FY 1994-95 showing processing charges received) - The assessee has been exporting the products through MMTC and later directly and the records show that the assessee is carrying out this business atleast from 1994. - The unit in which processing/production of ore was made was established on 01.04.1994 as per Format of Registration cum Membership Certificate issued by Export Promotion Council/Commodity Board/Development Authority in Appendix-4A dated 21.06.2005. - In the application for membership to EPC, the assessee has clearly stated that the date of establishment as 1/4/1994 for manufacture of iron ore upto 64%. The same is reproduced here…. - The same DTA at Ranjithpura which was established long back continued as such till the formation of EOU. The photographs taken during the search proceedings show that the old plant and machinery is still in place in the EOU. - The assessee also applied for the conversion of existing DTA at Ranjitpura into EOU. - As per the returns of Income*, the assessee has been claiming deduction u/s 80HHC from AY 1996-97 till 2004-05 and the claim was as a manufacturer exporter. (* available records with the department. He might have claimed prior to his also)

The AO in para 5.20.2 of the assessment order has relied on a letter from the office of the DC, CSEZ and has stated as under:

9 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 ‘’b) The office of DC, CSEZ, the regulating authority for EOUs has stated that the EOU is said to be set up only after the custom bonding of the premises, which is compulsory…’’

The said reasons were also conveyed to the assessee vide show cause notice dt.19.12.2012 (PB-1 page 47 to 50) and subsequent notices. The assessee filed replies vide letters dt31.12.2012, 25.02.2013 & 26.02.2013 (replies available at pages 51 to 142 of PB-1). Kind attention may be drawn towards the same.

The AO concluded the issue vide para 9 and in particular para 9.1 (assessment order page 44).

The CIT-A vide consolidated order dt.12.04.2013 for the years AY 2005-06 to 2007-08 upheld the action of the AO as per the discussion in para 7 of the order (page 6 of CIT-A order). The conclusions of the CIT-A is more or less a reiteration of the findings of the AO. The assessee has raised several grounds. The preliminary ground being that neither the show cause notice issued by the AO nor the assessment order refer to any seized material seized from the assessee. The only seized material seized from the assessee as per panchanama was A/DKS-1 (paper book -1 page 556) consisting of 4 pages- bunch of loose sheets serially no. from 1 to 4 containing details of billing/shipments/payments etc.

The said material does not find a place in the notice nor in the assessment order. The assessment order is based on certain material seized from others being A/BMM-OFF/4, A2/BMM/3 & A2/BMM/4, the details of which have been submitted during the course of hearing (enclosed as Annexure 1 for ready reference). The said material seized from Bharat Mines and Minerals (BMM) has been used in the assessee’s assessment without there being any proceeding as envisaged u/s 153C of the Act. The said material belonged to BMM, a firm established from 01.04.2007 having a separate PAN AAIFB5964G from that of the assessee AEFPS2551F. The EOU established by the assessee during the previous year 2003-04 mentioned supra came to be owned by the firm wef 01.04.2007. During the impugned assessment year the EOU unit belonged to the assessee. Thus the material seized from BMM registered firm did not belong to the assessee and consequently could not be used in the assessment without a prior proceeding u/s 153C. It is further submitted that even the so called material seized from BMM was all regular bills maintained

10 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 during the regular business which was already subjected for assessment proceeding etc and was not incriminating in nature in as much no undisclosed income could have said to arise from the seized material. Further even the seized material referred i.e, A/BMM-OFF/4, A2/BMM/3 & A2/BMM/4 etc, all pertain to later years i.e AY 2006-07 & 2007-08 and no material for the impugned assessment years. The Hon’ble Gujarat High Court in PCIT vs. Devangi Alias Rupa - 98 CCH 51 (CLPB page 200) has held as under ‘’AO while framing the assessment under section 153A of the Act for the block period may make addition considering the incriminating material found for the year under consideration only which was collected during the search’’ The material which does not pertain to the year nor incriminating cannot be the basis for framing assessment as is done in this case.

In view of this it has to be concluded that there is no incriminating material in the hands of the assessee. When there is no incriminating material, settled assessment could not be disturbed and the action of the AO in denying the already allowed assessment is contrary to law.

In support of this contention, the assessee relies on the following case laws: 1) CIT vs Lancy Constructions - ITA 528 to 531/2014 - KAR HC. 2) CIT vs Continental Warehousing Corporation - 374 ITR 645 - Bombay HC. 3) Jai Steel (India) vs ACIT - 259 CTR 281 - RAJASTHAN HC. 4) PCIT vs Desai Construction Pvt Ltd - 387 ITR 552 - GUJ HC. 5) CIT vs Kabul Chawla - 380 ITR 573 - Delhi HC.

Further seized material in third party hands cannot be used in the hands of the assessee unless it is held that the same belonged to the assessee. In this case, the material referred A/BMM-OFF/4, A2/BMM/3 & A2/BMM/4 etc belonged to the firm Bharat Mines and Minerals. In support of this contention, the assessee relies on the following case laws: 1) P.Srinivas Naik vs ACIT - 114 TTJ 856 - ITAT Bangalore. 2) PCIT vs Saumya Construction P Ltd - 387 ITR 529 - GUJ HC.

In view of this it is prayed that the assessment and the addition therein required to be vacated. It is further submitted that while making the assessment and the addition u/s 10B, the AO relied on statements of Mr.Rajagopal Upadhyaya and Mr.Lakshminarayan. The statements were neither mentioned in the show cause notices nor given to the assessee for cross

11 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 examination. The assessee has sought for cross examination in PB page 60 in its reply dt.25.02.2013. It is submitted that unless all the material and evidence which the AO relies on for holding against the assessee must be supplied before the assessee is called upon to explain. Also the assessment based on statements of third persons is not valid. Further unless the statement is subjected to cross examination especially when the assessee has made a request for the same, no reliance can be placed. The following case laws are relied upon in this regard: 1) Obulapuram Mining Company Pvt Ltd vs DCIT - ITA 653/Bang/2015 - ITAT Bangalore. 2) CIT vs SMC Share Brokers Ltd - 288 ITR 345 - Delhi HC. 3) Suraj Mall Mohta & Co. vs A.V.Visvanatha Sastri & Anr - 26 ITR 1 – SC – CLPB page 143 4) PCIT vs Saumya Construction P Ltd - 387 ITR 529 - GUJ HC.

Accordingly it is prayed that the addition on this ground also to be vacated.

On the issue of section 10B deduction, it is seen that the impugned assessment year is a second year of establishment of the EOU unit, first year being AY 2004-05 and the deduction was allowed in the original assessment u/s 143(3) dt.29.03.2006. It is submitted that eligibility for deduction u/s 10B having been decided in the initial year also reiterated in the second year cannot be disturbed firstly in the absence of any incriminating material and secondly in the later years of its operation. The action of the AO in withdrawing the deduction and examining the claim afresh amounts to deduction and examining the claim afresh amounts to revisiting the same without any reason for the same, which is clearly against law and in support the assessee relies on the following case laws: 1) Sami Labs Ltd vs ACIT – KAR HC – 334 ITR 157. 2) CIT vs International Tractors - DELHI HC.

On the issue of custom bonding the assessee relies on the following case laws wherein it is held that custom bonding is not compulsory: 1) Lakshminarayana Mining Company vs DCIT - ITA 379 to 381/B/15 - Bang ITAT. 2) CIT vs Caritor (India) P Ltd - 369 ITR 463 - KAR HC. 3) CIT vs Arts Beauty Exports - 357 ITR 276 - Del HC. 4) Clarification letter given by the STPI authorities that commercial production may be commenced before bonding – PB-1 page 116

12 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015

On the issue of 10B, the assessee also relies on the decision of Hon’ble ITAT Bangalore in M/s.Sameera Trading Co. vs DCIT - ITA 298/B/14 – CLPB page 95 wherein elaborate discussion is made on the issue of processing of ore amounting to manufacture.

On the issue of approval granted u/s 153D, it is the contention of the assessee that the approval has been granted without application of mind and in a mechanical manner. In support of its contention, the following case laws are relied on: 1) Chhugamal Rajpal vs. S.P.Chaliha & Ors - 79 ITR 603 – SC. 2) CIT vs. Akil Gulamali Somji - 84 CCH 53 - Mum HC. 3) Smt.Shreelekha Damani vs. DCIT - 173 TTJ 332 - Bombay ITAT. 4) AAA Paper Marketing Ltd vs ACIT - ITA 167/Lkw/2016 - Lucknow ITAT.

The levy of interest u/s 234 A/B is consequential in nature. The AO has also levied interest u/s 234D of Rs.13,22,26,019/-. The levy of interest u/s 234D is not sustainable as the assessment in question is not an original assessment but reassessment u/s 153A. In reassessment no fresh levy can be made in the absence of levy in the original assessment. In support of this contention, the assessee relies on the following case laws: 1) Director of Income tax (Intl Tax) vs. Delta Airlines Inc – BOM HC – 358 ITR 367. 2) Misc Berhad vs. ADIT (Intl Tax) – Mum ITAT – 165 TTJ 185.

The Ld.Departmental representative has relied on the decisions of ILC Industries –Bang ITAT – and IBC Knowledge Park- KAR HC. The facts in these cases are not the same as that of the assessee. Moreover the decision in IBC Knowledge Park supports the case of the assessee far from supporting the case of the department. In the case of the assessee, the eligibility of deduction has already been looked into by successive AO’s and having satisfied, the deduction has been allowed.

In view of all of the above, the assessment requires to be vacated in the interest of justice and equity.”

13 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 4.2 Revenue has put forth the following written submissions :- 1. Assessee is engaged in the business of mining. Search under section 132 of the Act was conducted on 19/7/2010. Notice under section 153A of the Act was issued on 21/9/2010, served on 28/9/2010. 2. Mining lease was granted in favour of M/s.Bharat Mines and Minerals and was extended from time to time. M/s. Bharat Mines and Minerals was a partnership firm during the Assessment Year 1996–97. On the death of his father, the assessee conducted the business as proprietary till 31/3/2007. Later from 1/4/2007 the business was conducted as firm with M/s.BMM Ispat Ltd joining as partner. Thus from the date of establishment, the business undertaking of M/s. Bharat Mines and Minerals was carried on either as a proprietary concern or as a partnership firm till date in respect of mining lease.

14 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 production and the date of registration as 100% EOU was left blank. iv. In the application filed before the SEZ dated 3/4/2003 for conversion of existing DTA into 100% EOU for manufacture and export of iron ore, in the Pro-Forma the assessee has stated manufacturer exporter and age of machineries installed in the DTA as 10 to 12 years. v. The letter of permission dated 6/5/2003 by SEZ under Exim Policy was subject to conditions stated in Annexure. One of the condition is that the production of EOU under the scheme has to be carried out in the custom bonded area. Only when the licenses are issued, the EOU is said to be set up and it can be demarcated from the DTA by way of bonding. Without necessary license, the assessee cannot claim as an EOU. Without EOU was being set up the assessee has exported iron ore and the export invoices did not depict that the exports were from 100% EOU. From the date of Letter of Permission(LOP) till 2006, the assessee has been communicating to the SEZ authorities that the project is still under implementation and the EOU has not commenced production. The license for private bonded warehouse was issued by the customs on 29/5/2006. Without setting up valid EOU, exports were made by printing “Shipment by 100% EOU” on the invoices. The various seized material found in the course of search establishes that the assessee has failed to implement the EOU project as per the letter of permission and the exports continued in the DTA status only. vi. The letter by the assessee (Bharat mines and minerals) dated 30/4/2006 (page 9 of assessment order) seeking for extension of time from a SEZ would clearly indicates the nonexistence of the 100% EOU. The letter of the SEZ dated 5/5/2006 (page 11 of assessment order) would further justify the nonexistence of 100% EOU. The letter dated 17/4/2006 written by assessee to SEZ authorities (page 13 of assessment order) expressing readiness of commencing the production by end of June 2006 would further justify the above stand of the

15 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 revenue. The letter dated 2/7/2006 (page 15 of the assessment order) to SEZ by the assessee communicating inspection by Central excise and customs authorities and commencement of commercial production on 30/5/2006 is self explanatory regarding the commencement of commercial production in the 100% EOU. vii. In the quarterly and annual reports submitted by the assessee to SEZ for the first quarter financial year 2006–07, the date of commencement of production is clearly mentioned as 30/5/2006. viii. The customs authorities by letter dated 19/8/2010 has confirmed designation of private bonded warehouse from 29/5/2006 and the first shipment from 100% EOU on 11/7/2006 (page 18 of assessment order). ix. The Development Commissioner CSEZ has confirmed by letter dated 7/9/2010 (page 21 of assessment order) that exports prior to 30/5/2006 is not treated as exports from EOU. x. EOU manufacturers required to file application for removal of goods in prescribed Form-ARE-1 before the jurisdictional Central Excise authorities providing full description of the goods being exported from the unit and invoice would bear the description that “THE SHIPMENT IS UNDER EOU”. The above requirement has been fulfilled only after 29/5/2006 and prior to this date no ARE-1 forms were submitted. This is evident from seized material marked as A2/BMM/3. The above aspect also has been confirmed by accountant of Bharat Mines and Minerals whose statement were recorded under section 132(4) of the Act. No specific request for cross examination was made by the assessee. xi. The quarterly and annual performance report submitted to SEZ the assessee declared that the unit has commenced production from the EOU only since 30/5/2006. From the about is clear that EOU was not established till 30/5/2006 and not entitled for deduction under section 10 B of the Act.

16 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 4. INCORRECT CLAIM MADE AFTER THE EXPIRY OF 10 YEARS TAX HOLIDAY PERIOD a. In the application filed for conversion of existing DTA into EOU, the assessee has declared that it is manufacturer- exporter and the age and remaining life of the machineries already installed as 10 to 12 years. It is clearly stated that the application is for conversion of existing DTA into 100% EOU b. The assessee and later the firm Bharat Mines and Minerals are not entitled for exemption under section 10B as the DTA was established more than 10 years ago as evidenced as under: – i. The assessee is in business for more than 20 years. ii. The assessee is using the same machinery for crushing and screening plants for more than 15 years as evidenced by the accounts. iii. It is not disputed that the assessee is exporting the products and is carrying on the business at least from 1994. iv. The unit which is converted to EOU was established at least on 1/4/1994 as per format of registration-cum- membership certificate issued by Export Promotion Council dated 21/6/2005. v. In the application for membership to Export Promotion Council the assessee has declared that the date of establishment as 1/4/1994 for manufacture of iron ore and the same is evident from extract at (page 27 of assessment order). vi. The assessee’s claiming deduction under section 80HHC from 1996–97 till 2004–05 and may be even prior to this period, would demonstrate the existence of unit 10 years much prior to the current year and period of 10 years has expired. 5. On the above aspects the Assessing Officer has summarised as under: – i. DTA was established at Ranjitpura more than 15 years back and the assessee was processing the iron ore in that

17 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 plant and exporting the same through MMTC and are directly. ii. The existing DTA at Ranjitpura was converted into EOU and the nature of business continue to remain the same and has continued utilising the old plant and machinery. iii. The assessee is consistently claiming deduction under section 80HHC as manufacturer – exporter from Assessment Year 1996–97 till 2004–05 as per the records and even maybe prior to that period. After the expiry of tax benefit under that section, the DTA was converted into EOU. Though conversion is not prohibited, the benefit would be applicable for a period of 10 consecutive years from the date of manufacture and that has expired much prior to the current Assessment Year. iv. The assessee has formed EOU by purchasing the used machinery and such used machinery is in excess of 20% of the total machinery installed in the unit. 20% of the old machinery is contemplated only in the circumstances when the EOU is formed by the transfer to a new business of machinery and plant previously used for any purpose. The said exception is not applicable to the present case as the EOU is not formed by transfer to a new business of machinery or plant previously used for any purpose. v. Though conversion of DTA into EOU is permissible under section 10B and the same is applied for section 10A, it would be applicable for the unexpired period of 10 consecutive assessment years from the year in which undertaking begins to manufacture or produce any article or thing and exports such articles or things. In view of the admission made by the assessee regarding the existence of DTA as on 1/4/1994, period of 10 Conservative years has expired and the same is not extendable to the current Assessment Year. 6. CORRECTNESS OF SECTION 153A PROCEEDINGS i. Search under section 132 of the Act was conducted in the premises of the assessee on 19/7/2010. Incriminating material were found and seized. Further search investigation also brought fresh information. The export invoices seized during course of search clearly indicated export from non-100% EOU. Seized documents further revealed that no EOU was established it till 29/5/2006 these information and documents were not in possession

18 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 of the Assessing Officer at the time of completion of original assessments. The aspect of nonexistence of EOU for the period is also clear from the statements of the key employees of the assessee. ii. On plain reading of section 153A of the Act, section does not contemplate either incriminating material found in the course of search or undisclosed income being unearthed in the course of search. As per the law laid down by the Supreme Court in the case of Calcutta Knitwear (2014) 362 ITR 673 (SC), section has to be read in plain and reading new words into the section is not permissible. If the contention of the assessee is to be accepted regarding incriminating material, the same would amount to rewriting of the section 153A of the Act. iii. The above position has also been clearly held by the jurisdictional High Court in the case of Canara Housing (2015) 274 CTR 122 and further being held by the High Court in the case of IBC knowledge Park (2016) 385 ITR 346. The same principle has been reiterated by Delhi High Court in the case of Anilkumar Bhatia (2013) 352 ITR 493. The same principle has been reiterated by various high courts. iv. Further the material on record referred to in the order of assessment for the Assessment Year 2006–07 demonstrate that no manufacturing activity is carried on by the appellant and finished products were purchased and exported without any value addition by the appellant. The invoices found in the course of search demonstrated that what was purchased by the assessee for the purpose of processing the same in the EOU were the fines. When the said aspects were confronted to the assessee, the same has been accepted. 7. REPLY TO ASSESSEE SUBMISSIONS i. The contention of the assessee that material were seized from the business premises of the Bharat Mines and Minerals and hence the same cannot be used in the case of the assessee unless proceedings under section 153C of the Act are initiated. The assessee has continued the business of partnership firm as proprietary concern and then is partnership firm and hence the same would not be bar. ii. If for the sake of argument the stand of the assessee is to be accepted, any permissions granted by the SEZ or

19 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 mining authorities or customs authorities cannot be taken shelter by the assessee. iii. In view of the judgement of the High Court in the case of Canara Housing, proceedings under section 153A of the Act is not confined only to the incriminating material found and seized in the case of the assessee. The material available with the Assessing Officer also can be used for the purpose of assessment under section 153A of the Act. The said fact has also not been disturbed in the judgement of IBC knowledge Park and the same is clear as per para- 54 which reads as under: – iv. The contention of the assessee that the Assessing Officer has relied on the statements of various persons of the assessee and the same is not been provided for cross examination. The assessee has merely made a request for copies of the statements and the same has been provided vide letter dated 3/1/2013 as recorded by the AO at page 39 of the assessment order. Request for cross examination is imaginary and an afterthought before this Hon’ble tribunal. v. The assessee has contended that eligibility of the assessee for claim of deduction under section 10B of the Act has been considered in the proceedings under section 143(3) of the Act and hence the present order would amount to change of opinion. The above contention is not correct. No doubt the assessment has been completed under section 143(3) of the Act. As is clear from the order of assessment placed at page 6 in paper book–1, what was considered is regarding the method of computation and not the eligibility. From the law laid down by the Hon’ble court in the case of IBC knowledge Park para-54, without the aid of the new material found in the course of search the earlier finding which has reached finality cannot be disturbed. Without admitting, even if it is assumed that the above referred judgement is applicable in favour of the assessee, in view of the fact that examination of eligibility for claim under section 10B of the Act was never being an issue examined by the AO in the course of regular assessment, there is no restriction for examining the same in the proceedings under section 153A of the Act, especially with the aid of the material found in the course of search. vi. The contention of the assessee that Assessment Year 2004–05 being the first year of establishment of EOU, eligibility conditions cannot be examined in the

20 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 subsequent year is incorrect. As stated earlier, the eligibility was never examined by the AO. Though valid material was found in the course of search, the assessment for the Assessment Year 2004–05 has not been reopened maybe for the reasons of applicable limitations. Only because the remedial action cannot be taken, it cannot be presumed that the mistake committed or the wrong claim made by the assessee would continue to be allowed for the subsequent period also. vii. The further contention of the assessee that approval granted under section 153D of the Act is without application of mind and in mechanical manner is incorrect. The approval has been granted strictly in conformity with the provisions of the Act. viii. Insofar as the contention of the assessee with respect to levy of interest under section 234A and 234B and 234D of the Act are concerned, the same being mandatory, the levy is justified and is strictly as per the provisions of the Act. For the reason stated above, the revenue seeks leave of this Hon’ble Tribunal to rely on the findings recorded by the Appellate Commissioner also. Wherefore it is respectfully prayed that the appeal filed by the assessee may be rejected in the interest of justice and equity.” 5. Ground No.7 - Validity of Search. 5.1 On the issue of validity of the search, the assessee placed reliance

on the decision of the Hon'ble Karnataka High Court in the case of C.

Ramaiah Reddy (339 ITR 210) (Kar) and the decision of the Hon'ble Apex

Court in the case of Ess Dee Aluminium Ltd. Vs. DDIT wherein the Hon'ble

Court has held as under :-

“ The petitioners have approached this Court only on the ground that under section 246A of the Income Tax Act, 1961, the Commissioner of Income Tax (Appeals) has no jurisdiction to examine the validity of the search operations carried out

21 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 under Section 132 of the said Act. Learned Senior Counsel appearing for the petitioners has further submitted that the foundation of the assessment made hereunder in the search operations carried out against the petitioners. We are of the considered opinion that if the assessment order which is based on the search operations is under challenge, the validity of the search proceedings can also be gone into by the Commissioner of Income Tax (Appeals).”

5.2 However, in the light of the amendment in Finance Act, 2017 to Sec. 132 of the Act by which the Tribunal is precluded from examining this issue, we decline to get into the issue of validity of search action. The ITAT is a creation of statute and has to apply the law as laid down in the Act. In this view of the matter, this issue is decided against the assessee and the grounds raised in this regard are dismissed. 6. Grounds 1 to 6, 8 & 9. 6.1.1 We have heard the rival contentions, perused and carefully considered the material on record. On these grounds (supra), the assessee contends that the proceedings under Section 153A of the Act, and the consequent order of assessment for Assessment Year 2005-06 is bad in law, as in this year there is no abatement of assessment and also no incriminating seized material has been utilized for making the impugned order of assessment. In this regard, the learned Authorised Representative placed copies of panchanama (placed at page 556 of Paper Book) and the seized material indicated therein; (i) A/DKS (pages 1 to 4) and (ii) C/DKS – recording Rs.31 lakhs cash seized. A conjoint perusal of these seized material vis-à-vis the order of assessment for Assessment Year 2005-06 under Section 153A r.w.s. 143(3) dt.11.3.2013

22 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 and the computation of income therein reveals that the Assessing Officer has made no reference to the seized material in assessee's case (supra) and the only issue of addition / disallowance, i.e. of deduction claimed under Section 10B of the Act which is not based on any of the aforesaid seized material in the assessee's case, as has been contended by the assessee. Revenue’s submissions (supra) do not controvert the above contention of the assessee that no incriminating seized material in the assessee's case was utilized by the Assessing Officer to pass the order of assessment for Assessment Year 2005-06. According to the assessee, the judicial precedents in this regard are that where there is no incriminating material, settled assessments cannot be disturbed.

6.1.2 As per the record before us, the return of income for Assessment Year 2005-06 was filed on 29.3.2006 and assessment was completed under Section 143(3) of the Act vide order dt.29.3.2006 wherein the Assessing Officer restricted the deduction under Section 10B of the Act to Rs.85,16,56,168 as against Rs.88,82,67,868 claimed by the assessee. The assessment was completed after the Dept. conducted a survey under Section 133A of the Act on 23.2.2006; recorded statement and made enquiries in respect of the assessee's claim for deduction under Section 10B of the Act; which establishes that the Department had accepted the assessee's eligibility to claim and be allowed deduction under Section 10B of the Act. It is in the above factual and legal context that the assessee has submitted that fresh proceedings under Section 153A of the Act, wherein the deduction under Section 10B already

23 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 allowed has been withdrawn without any fresh incriminating seized material coming to the Department’s knowledge is not warranted under the Act.

6.1.3 In this regard, the Hon'ble Karnataka High Court in the case of CIT Vs Lancy Constructions in its order in ITA Nos.528 to 531 has held as under :

“ In our view, if assessment is allowed to be reopened on the basis of search, in which no incriminating material is found, and merely on the basis of further investigating the books of accounts which have been already submitted by the assessee and accepted by the Assessing Officer at the time of regular assessment, the same would amount to the Revenue getting a second opportunity to reopen the concluded assessment, which is not permissible under the law. Merely because a search is conducted in the premises of the assessee, would not entitle the revenue to initiate the process of reassessment, for which there is a separate procedure prescribed in the statute. It is only when the conditions prescribed for reassessment are fulfilled that a concluded assessment can be reopened. The very same accounts which were submitted by the assessee; on the basis of which assessment had been concluded cannot be reappreciated by the Assessing Officer merely because a search had been conducted in the premises of the assessee.”

24 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015

6.1.4 According to the assessee, the impugned order of assessment passed under Section 153A r.w.s. 143(3) of the Act for Assessment Year 2005-06, makes a mention of seized material A/BMM-OFF/4, A2/BMM/3 and A2/BMM/4 seized in the case of Bharat Mines and Minerals and has been used in the assessee's case for passing the impugned order of assessment without there being any proceeding as envisaged in the provisions of Sec. 153C of the Act. The EOU, established by the assessee in 2003-04, mentioned above in connection with the assessee's claim for deduction under Section 10A of the Act in this year, came to be owned by the firm Bharat Mines and Minerals w.e.f. 1.4.2007. Therefore, the material admittedly seized from Bharat Mines and Minerals should not have been used in the assessment in the assessee's case for Assessment Year 2005-06, other than as per the provisions of Sec. 153C of the Act. It was also submitted that even the seized material seized from Bharat Mines and Minerals (supra) did not pertain to Assessment Year 2005-06.

6.1.5 Further, the Hon'ble Karnataka High Court in the decision rendered in M/s. IBC Knowledge Park Pvt. Ltd., ITA No.403/2009 dt.28.4.2016 has explained the entire scope and principles governing the provisions of Sec. 153A and 153C of the Act. In their judgment, the Hon'ble Court has considered several decisions on this issue including Lancy Constructions (supra) cited by the assessee and Canara Housing Development Co. (2015) 274 CTR 122 (Kar) cited by Revenue. In its

25 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 decision, in the case of IBC Knowledge Park Pvt. Ltd. (ITA No.403/2009 dt.28.4.2016) the Hon'ble Karnataka High Court has held that notice under Section 153A of the Act can be issued only if it is during a valid search when certain incriminating materials are detected. At paras 45 to 49 of its decision, the Hon'ble High Court has held as under :

26 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015

27 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015

28 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015

29 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015

30 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015

31 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015

32 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015

33 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015

6.1.6 Respectfully following the decision of the Hon'ble Karnataka High

Court in the case of IBC Knowledge Park Pvt. Ltd. (supra), we hold that in

the case on hand for Assessment Year 2005-06, no assessment had

abated and therefore the assessment under Section 143(3) r.w.s. 153A

of the Act could have been made based only on incriminating documents

/ material found and seized in the course of search of the assessee's

premises. That clearly not being the factual matrix in the case on hand,

since no incriminating material was found / seized, the order of

assessment for Assessment Year 2005-06 passed under Section 143(3)

r.w.s. 153A of the Act vide order dt.14.3.2013 is cancelled.

Consequently, the original assessment and income returned as per the

original return of income filed on 28.10.2005 at Rs.2,92,04,526 stands

restored. Assessee's appeal is allowed in terms of Grounds 1 to 6, 8 & 9.,

2, 4, 5, 7 and 8.

34 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 7. The assessee has raised other grounds of appeal at S.Nos.10 to 22,

inter alia, on addition / disallowances made by the Assessing Officer in

the order of assessment for Assessment Year 2005-06. Since we have

already held that the notice issued under Section 153A of the Act to be

infirm and the proceedings and subsequent impugned order of

assessment passed under Section 153A r.w.s. 143(3) of the Act not valid

and cancelled, therefore these grounds raised are only academic in

nature and do not require adjudication.

allowed as indicated above.

ITA No.700/Bang/2015 for Assessment Year 2006-07.

9.1 For Assessment Year 2006-07, the assessee filed his return of

income on 30.10.2006 declaring total income of Rs.39,52,03,773. The

assessment was concluded under Section 143(3) of the Act vide order

dt.31.12.2008 wherein the returned income was accepted. It is

submitted that thereafter; proceedings under Section 154 and 148 of the

Act were initiated but either dropped or not pursued by the Department.

35 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 9.2 A search and seizure operations under Section 132 of the Act was

carried out in the assessee's case on 19.7.2010. Subsequently, notice

under Section 153A was issued to the assessee and in response thereto,

the assessee filed a return of income on 31.1.2012. Consequently, the

assessment was concluded under Section 153A r.w.s. 143(3) of the Act

vide order dt.13.3.2013 wherein the assessee's income was determined

at Rs.95,24,45,804 in view of the disallowance of the assessee's claim for

deduction of Rs.55,72,42,004 under Section 10B of the Act. The

assessee's appeal was dismissed by CIT (Appeals) – 11, Bangalore, vide

order dt.27.2.2015.

dt.27.2.2015 for Assessment Year 2006-07, the assessee has filed this

appeal, raising the following grounds :-

36 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 4. The notice u/s 153A and subsequent proceedings are without jurisdiction and bad in law.

37 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 12. The authorities below erred in changing their opinion on the issue of allowance u/s 10B in the absence of any new information which was not already considered in the original order.

38 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 21. The appellant denies the liabilities for interest u/s 234D of the Act as this is not a case of first assessment as envisaged under Explanation 1 to section 234D. 22. No opportunity has been given before levy of interest under sections 234A, 234B & 234C of the I T Act. 23. Without prejudice to the appellant’s right of seeking waiver before appropriate authority, the appellant begs for consequential relief in the levy of interest under sections 234A, 234B & 234C of the Act. 24. The levy of interest u/s 234D is against the express provisions of the law. 25. For the above and other grounds and reasons which may be submitted during the course of hearing of this appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered.” 11. In the course of hearings before us, the counsels for both sides put forth arguments and also filed written submissions, which are extracted hereunder.

11.1 The assessee's written submissions are as under :-

“ For the impugned assessment year, the assessee received a notice u/s 153A dt. 21/09/2010 from the DCIT, central circle 1(2) and was served on the assessee on 28/09/2010 directing the assessee to file his return of income for AY 2006-07 (PB 2 page 592). In response, the assessee filed a return of income on 31/01/2012 declaring an income of Rs.38,77,87,828/- with the following caption at the top of the return.“Without prejudice and subject to our letters” (PB 2 page 593). For the AY 2006-07 the assessee filed the regular return of income declaring total income of Rs.39,52,03,773/- on 30/10/2006. Thereafter a notice u/s 143(2) dt. 21/07/2007 was issued. The assessee was directed to file various details. Notice u/s 142(1) dt. 01/09/2008 was also issued and several hearings were

39 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 held wherein the assessee submitted elaborate details. Before passing order u/s 143(3) the department conducted a survey u/s 133A and physical inspection of the premises of the new undertaking on 23/02/2006 and statements were also recorded. In the original return the assessee had made a claim for deduction u/s 10B in respect of the undertaking known as M/s Bharat Mines & Minerals which was established in pursuance of the legal agreement executed with Development Commissioner of CSEZ dt. 03/06/2003 and their confirmation letter dt. 04/07/2003 (PB-2 page 679/680). The first year of the undertaking was AY 2004-05 wherein the assessee had claimed deduction u/s 80HHC. The claim for AY 2005-06 being the second year was allowed by the AO in an order u/s 143(3) dt. 29/03/2006 whereas in an order passed u/s 153A r.w.s 143(3) dt. 11/03/2013, the claim u/s 10B was disallowed. The claim for AY 2006-07 being the third year of working of the undertaking was allowed by an order u/s 143(3) dt. 31/12/2008 (PB -2 page 587). However the same has been disallowed by a change of opinion by order u/s 153A r.w.s 143(3) dt. 13/03/2013. After passing the original assessment order u/s 143(3) a proceeding u/s 154 (PB-2 page 589) and also proceeding u/s 148 was initiated and the same stands closed in the absence of any further development (PB-2 page 591). The issue of notice u/s 148 was against law and however in the absence of any order the assessee has no grievance to pursue.

The assessment came to be concluded u/s 153A r.w.s 143(3) on 13/03/2013 disallowing already allowed claim of Rs.55,72,42,004/- and determining the total income at Rs.95,24,45,804/-. In this case the AO has noted that the original assessment and subsequent proceedings were successfully completed u/s 143(3) dt. 31/12/2008 and as such there was no proceeding pending so as to abate. In the absence of abatement concluded proceeding cannot be revisited u/s 153A when there is no material which is new and incriminating in nature. The AO has erred in disallowing the claim u/s 10B amounting to Rs. 55,72,42,004/- for the reasons he has mentioned in the assessment order for the AY 2005-06 dt. 11/03/2013. In this regard, the assessee relies on the submissions given supra for AY 2005-06. For the allegation made in Para B pages 17 to 26 of the assessment order, the AO has relied on the statements of 3 persons being Mr.Manjunath, Srinivasulu and Bharat Ghorpade. After request by the assessee, the statements of these persons were provided vide letter dt. 03.01.2013 (PB-1 page 143) but were not provided an opportunity for cross examination inspite of request by the

40 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 assessee vide reply letter dt.26.02.2013 (PB-2 page 630/631). Unless the statement is subjected to cross examination especially when the assessee has made a request for the same, no reliance can be placed. The following case laws are relied upon in this regard :

1) Obulapuram Mining Company Pvt Ltd vs DCIT - ITA 653/Bang/2015 - ITAT Bangalore. 2) CIT vs SMC Share Brokers Ltd - 288 ITR 345 - Delhi HC. 3) PCIT vs Saumya Construction P Ltd - 387 ITR 529 - GUJ HC.

The AO also erred in holding that the crushing and screening plant purchased from M/s Ritwik Projects Pvt Ltd had been used in the 100% EOU and thus according to the AO it exceeded 20% threshold prescribed for used machinery in sec 10B(2)(iii). The AO has grossly erred in reaching that conclusion and has completely ignored the explanation given by the assessee in para 3 of the reply letter dated 26/02/2013 (PB-2 page 621/628). The assessee had explained that complete details must be furnished and asked for cross examination of whose statement the AO relied on. The AO has relied on the statements of Mr.B.V.Radhakrishna and S.R.Joshi (page 34 of the asst order for AY 2006-07) the copies of which were sought by the assessee (PB-1 page 268) and statements were provided by the department vide letter dt.03.01.2013 (PB-1 page 153/156). The assessee sought for cross examination of the persons vide reply letter dt.26.02.2013 (PB-2 page 621/628). The AO has not considered the request of the assessee and thus the addition is made based on uncorroborated statements of third parties and post search enquiries. Further that the said machinery was not put to use in India earlier has been ignored. The fact that the said machinery was not used in the EOU but in the domestic unit has been ignored and the AO has got himself factually mixed up and overlooked the fact that the said machinery was used by the assessee in the impugned year in the unit previously established the plant (prior to 2003) and not in a new industrial undertaking established in 2003 as per letter of undertaking signed by the assessee dt.03.06.2003. Assuming without admitting the AO’s contention that the new machinery is added only in the impugned previous year is correct, the legal position on the allowability of section 10B would not alter as the eligibility should be tested in the initial year and any addition in the subsequent years to the plant and machinery would not invalidate the claim as held Sami Labs Ltd vs ACIT – KAR HC – 334 ITR 157 – PB-1 page 120 and in CIT vs International Tractors - DELHI HC – CLPB page 206

41 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015

In respect of the other grounds pertaining to approval u/s 153D and levy of interest u/s 234A/B/C and 234D the assessee relies on the submissions given for AY 2005-06.”

11.2 Revenue’s submissions are as under :-

42 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 years commencing from the year in which the original DTA started manufacturing. viii. The assessee is indulging in purchase of processed iron ore and exporting the same without any value addition in the undertaking claiming to be an EOU. Such trading activity has been claimed as production and export from the so-called EOU and claim deduction under section 10B of the Act. The material found in the course of search demonstrated that the assessee has been purchasing only processed iron ore and directly exporting the same. The purchase invoices contains the details of the processed iron ore and the destination is the ports from where the iron ore is exported. ix. Mrs. Snehalatha Singi wife of the assessee was the ore raising and processing contractor in the mines belonging to M/s.Karthikeyas Manganese and Iron Ore Private Limited,Mrs.Ambika Ghorpade, M.Srinivasulu and H.G.Rangangoud. In all the above mines Mrs.Snehalatha Singi was the contractor excavating, extracting, crushing and processing the raw ore into fines and lumps. From the seized material it is found that Mrs.Snehalatha Singi was crushing and processing the iron ore in the respective mine heads through mobile crushing and screening plants at the respective mines. The mining returns of the above said mine owners show only dispatch of processed iron ore from the mine heads. The assessee has claimed deduction under section 10B on the export of such processed iron ore without carrying out any activity in the EOU and in fact without bringing the material into the EOU. x. Evidence found during search demonstrated that the assessee was systematically creating invoices to disguise the purchase of initial products as purchasers of raw iron ore. xi. The old machinery used by the assessee was exceeding the prescribed limit of 20%. Without prejudice to the above contention it is submitted that 20% of the old machinery is contemplated only

43 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 in the circumstances when the EOU is formed by the transfer to a new business of machinery and plant previously used for any purpose. The said exception is not applicable to the present case as the EOU is not formed by transfer to a new business of machinery or plant previously used for any purpose. 4. WRONG CLAIM OF DEDUCTION BEFORE THE EOU WAS ESTABLISHMENT The assessing officer has adopted the finding recorded by him for the Assessment Year 2005–06 in the case of the assessee. The submissions for Assessment Year 2005–06 is adopted on this aspect and for sake of convenience is reiterated below. i. In the application filed before the SEZ dated 3/4/2003 for conversion of existing DTA into 100% EOU for manufacture and export of iron ore, in the Pro-Forma the assessee has stated manufacturer exporter and age of machineries installed in the DTA as 10 to 12 years. ii. The letter of permission dated 6/5/2003 by SEZ under Exim Policy was subject to conditions stated in Annexure. One of the condition is that the production of EOU under the scheme has to be carried out in the custom bonded area. Only when the licenses are issued, the EOU is said to be set up and it can be demarcated from the DTA by way of bonding. Without necessary license, the assessee cannot claim as an EOU. Without EOU was being set up the assessee has exported iron ore and the export invoices did not depict that the exports were from 100% EOU. From the date of Letter of Permission(LOP) till 2006, the assessee has been communicating to the SEZ authorities that the project is still under implementation and the EOU has not commenced production. The license for private bonded warehouse was issued by the customs on 29/5/2006. Without setting up valid EOU, exports were made by printing “Shipment by 100% EOU” on the invoices. The various seized material found in the course of search establishes that the assessee has failed to implement the EOU

44 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 project as per the letter of permission and the exports continued in the DTA status only. iii. The letter by the assessee (Bharat mines and minerals) dated 30/4/2006 (page 9 of assessment order) seeking for extension of time from a SEZ would clearly indicates the nonexistence of the 100% EOU. The letter of the SEZ dated 5/5/2006 (page 11 of assessment order) would further justify the nonexistence of 100% EOU. The letter dated 17/4/2006 written by assessee to SEZ authorities (page 13 of assessment order) expressing readiness of commencing the production by end of June 2006 would further justify the above stand of the revenue. The letter dated 2/7/2006 (page 15 of the assessment order) to SEZ by the assessee communicating inspection by Central excise and customs authorities and commencement of commercial production on 30/5/2006 is self explanatory regarding the commencement of commercial production in the 100% EOU. iv. In the quarterly and annual reports submitted by the assessee to SEZ for the first quarter financial year 2006–07, the date of commencement of production is clearly mentioned as 30/5/2006. v. The customs authorities by letter dated 19/8/2010 has confirmed designation of private bonded warehouse from 29/5/2006 and the first shipment from 100% EOU on 11/7/2006 (page 18 of assessment order). vi. The Development Commissioner CSEZ has confirmed by letter dated 7/9/2010 (page 21 of assessment order) that exports prior to 30/5/2006 is not treated as exports from EOU. vii. EOU manufacturers required to file application for removal of goods in prescribed Form-ARE-1 before the jurisdictional Central Excise authorities providing full description of the goods being exported from the unit and invoice would bear the description that “THE SHIPMENT IS UNDER EOU”. The above requirement has been fulfilled only after 29/5/2006 and prior to this date no

45 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 ARE-1 forms were submitted. This is evident from seized material marked as A2/BMM/3. The above aspect also has been confirmed by accountant of Bharat Mines and Minerals whose statement were recorded under section 132(4) of the Act. No specific request for cross examination was made by the assessee. viii. The quarterly and annual performance report submitted to SEZ the assessee declared that the unit has commenced production from the EOU only since 30/5/2006. From the about is clear that EOU was not established till 30/5/2006 and not entitled for deduction under section 10 B of the Act.

The assessing officer has adopted the finding recorded by him for the Assessment Year 2005–06 in the case of the assessee. The submissions for Assessment Year 2005–06 is adopted on this aspect and for sake of convenience is reiterated below.

c. In the application filed for conversion of existing DTA into EOU, the assessee has declared that it is manufacturer- exporter and the age and remaining life of the machineries already installed as 10 to 12 years. It is clearly stated that the application is for conversion of existing DTA into 100% EOU d. The assessee and later the firm Bharat Mines and Minerals are not entitled for exemption under section 10B as the DTA was established more than 10 years ago as evidenced as under: – vii. The assessee is in business for more than 20 years. viii. The assessee is using the same machinery for crushing and screening plants for more than 15 years as evidenced by the accounts.

46 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 ix. It is not disputed that the assessee is exporting the products and is carrying on the business at least from 1994. x. The unit which is converted to EOU was established at least on 1/4/1994 as per format of registration-cum- membership certificate issued by Export Promotion Council dated 21/6/2005. xi. In the application for membership to Export Promotion Council the assessee has declared that the date of establishment as 1/4/1994 for manufacture of iron ore and the same is evident from extract at (page 27 of assessment order). xii. The assessee’s claiming deduction under section 80HHC from 1996–97 till 2004–05 and may be even prior to this period, would demonstrate the existence of unit 10 years much prior to the current year and period of 10 years has expired. 6. On the above aspects the Assessing Officer has summarised as under: – i. DTA was established at Ranjitpura more than 15 years back and the assessee was processing the iron ore in that plant and exporting the same through MMTC and are directly. ii. The existing DTA at Ranjitpura was converted into EOU and the nature of business continue to remain the same and has continued utilising the old plant and machinery. iii. The assessee is consistently claiming deduction under section 80HHC as manufacturer – exporter from Assessment Year 1996–97 till 2004–05 as per the records and even maybe prior to that period. After the expiry of tax benefit under that section, the DTA was converted into EOU. Though conversion is not prohibited, the benefit would be applicable for a period of 10 consecutive years from the date of manufacture and that has expired much prior to the current Assessment Year.

47 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 iv. The assessee has formed EOU by purchasing the used machinery and such used machinery is in excess of 20% of the total machinery installed in the unit. 20% of the old machinery is contemplated only in the circumstances when the EOU is formed by the transfer to a new business of machinery and plant previously used for any purpose. The said exception is not applicable to the present case as the EOU is not formed by transfer to a new business of machinery or plant previously used for any purpose. v. Though conversion of DTA into EOU is permissible under section 10B and the same is applied for section 10A, it would be applicable for the unexpired period of 10 consecutive assessment years from the year in which undertaking begins to manufacture or produce any article or thing and exports such articles or things. In view of the admission made by the assessee regarding the existence of DTA as on 1/4/1994, period of 10 Conservative years has expired and the same is not extendable to the current Assessment Year. 7. PURCHASE AND EXPORT OF PROCESSED IRON ORE – NO MANUFACTURE INVOLVED IN THE EOU i. The raw material (ROM) is extracted from the mines and is put to crushing and screening plants where the ROM is crusted into the finish of the products i.e fines and lumps(calibrated ore or C ore). The finished products are fines and lumps. ii. From the seized material it was found that the assessee purchased processed iron ore from various suppliers and directly exported the same without any value addition in the EOU. The sale bills wherein consignee is mentioned as BMM (Bharat mines and minerals) at genuine, Krishnapatnam Port or other destination. The ore has been put to crushing and screening plants at the mines where the processing of iron ore is taking place at the respective mines and the finished product is moved from the Mine head’s for exports without processing in the EOU unit. This trading activity is claimed deduction under section 10B of the Act further the assessee indulged in preparing invoices to show the procurement of raw material and processing them in EOU.

48 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 iii. Seized material referred to in page 7 and 8 of the assessment order containing sale invoices for purchase of iron ore fines would demonstrate the above aspect of purchase of processed iron ore. The purchases made by the assessee are against Form-H which is treated as deemed export of goods. The issue of FORM-H by the assessee to the suppliers of iron ore makes it clear that the goods have been purchased for the sake of exports. Most of the purchases have been delivered by the suppliers at the berths at various ports like Goa, Chennai etc which are loading points for exports. The details of such purchases of processor iron ore as found in the seized material is tabulated at page 9 to 13 of the assessment order. iv. Similar transactions with various persons has been in detail tabulated with respect to the purchase of processed ore and supply directly to the port or for rail transport. Attention of this Hon’ble tribunal is invited to Rs 13 to 17 of the assessment order for the sake of brevity. v. Various seized material has been referred to from page 17 to 20 of the assessment order in support of the contention of the revenue that the iron ore was processed in the mines itself and the same has been purchased and exported by the assessee without even entering the same to the EOU unit. The trading of iron ore is not eligible for section 10B deduction. Further the assessee has not demonstrated the movement of raw ore from mines to EOU and movement of processed iron ore(fines and lumps) to the designated place for export and the respective permits from the respective authorities under various statutes which are mandatory. vi. The accountant of the assessee has admitted that crushing and screening plants are operational at all the mines and the processed ore is being directly exported without further value addition by the EOU of the assessee. Even the mine owner has stated that the assessee has installed the crushing and screening plants at the Mine head and is processing the iron ore in the Mine head itself and the finished product was being transported out of the mines. Mr Bharat S Ghorpade agent of KMIORE and Mrs Ambika Ghorpade has admitted crushing and screening of iron ore by mine owners at the mine heads and the same is being purchased by the assessee for the purpose of export. (Reference to statement of Sri Manjunath, Sri

49 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 Srinivasulu and Mr.Bharat S Ghorpade at page 22 to 24 of the assessment order). vii. The seized material in the form of transportation bills found in the course of search would clearly demonstrate processing of iron ore by installing screening plants at the Mine head and transporting the same directly to the designated place of export without carrying out any activity in the EOU. (Reference invited to page 25 and 26 of the assessment order) viii. Insofar as the contention of the revenue that invoices for purchase of processed door were manipulated to reflect as invoice for purchase of ROM. Sample copy is placed at page 28 and 29 to evidence the above manipulation. ix. On confrontation of the evidence regarding trading exports of iron ore, the assessee has admitted wrongful claim of deduction under section 10B of the Act. Even in the course of statement on oath on 3/11/2010 on confrontation, the wrong claim has been admitted. 8. REPLY TO ASSESSEE SUBMISSIONS ix. The contention of the assessee that the Assessing Officer has relied on the statements of various persons of the assessee and the same is not been provided for cross examination. The assessee has merely made a request for copies of the statements and the same has been provided Request for cross examination is imaginary and an afterthought before this Hon’ble Tribunal. Insofar as the finding arrived at by the Assessing Officer with respect to used machines, the same is on the basis of the documentary evidence copies of which were provided to the assessee. x. The assessee has contended that eligibility of the assessee for claim of deduction under section 10B of the Act has been considered in the proceedings under section 143(3) of the Act and hence the present order would amount to change of opinion. The above contention is not correct. No doubt the assessment has been completed under section 143(3) of the Act. As is clear from the order of assessment placed at page 6 in paper book–1, what was considered is regarding the method of computation and not the eligibility. From the law laid down by the Hon’ble court in the case of IBC knowledge Park para-54, without the aid of

50 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 the new material found in the course of search the earlier finding which has reached finality cannot be disturbed. Without admitting, even if it is assumed that the above referred judgement is applicable in favour of the assessee, in view of the fact that examination of eligibility for claim under section 10B of the Act was never being an issue examined by the AO in the course of regular assessment, there is no restriction for examining the same in the proceedings under section 153A of the Act, especially with the aid of the material found in the course of search. xi. The contention of the assessee that Assessment Year 2004–05 being the first year of establishment of EOU, eligibility conditions cannot be examined in the subsequent year is incorrect. As stated earlier, the eligibility was never examined by the AO. Though valid material was found in the course of search, the assessment for the Assessment Year 2004–05 has not been reopened maybe for the reasons of applicable limitations. Only because the remedial action cannot be taken, it cannot be presumed that the mistake committed or the wrong claim made by the assessee would continue to be allowed for the subsequent period also. xii. The further contention of the assessee that approval granted under section 153D of the Act is without application of mind and in mechanical manner is incorrect. The approval has been granted strictly in conformity with the provisions of the Act.

xiii. Insofar as the contention of the assessee with respect to levy of interest under section 234A and 234B and 234D of the Act are concerned, the same being mandatory, the levy is justified and is strictly as per the provisions of the Act. For the reason stated above, the revenue seeks leave of this Hon’ble Tribunal to rely on the findings recorded by the Appellate Commissioner also. Wherefore it is respectfully prayed that the appeal filed by the assessee may be rejected in the interest of justice and equity.”

51 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 12. Ground No.7 - Validity of Search.

12.1 On the issue of validity of the search, the assessee placed

reliance on the decision of the Hon'ble Karnataka High Court in the case

of C. Ramaiah Reddy (339 ITR 210) (Kar) and the decision of the Hon'ble

Apex Court in the case of Ess Dee Aluminium Ltd. Vs. DDIT wherein the

Hon'ble Court has held as under :-

“ The petitioners have approached this Court only on the ground that under section 246A of the Income Tax Act, 1961, the Commissioner of Income Tax (Appeals) has no jurisdiction to examine the validity of the search operations carried out under Section 132 of the said Act. Learned Senior Counsel appearing for the petitioners has further submitted that the foundation of the assessment made hereunder in the search operations carried out against the petitioners. We are of the considered opinion that if the assessment order which is based on the search operations is under challenge, the validity of the search proceedings can also be gone into by the Commissioner of Income Tax (Appeals).”

12.2 However, in the light of the amendment in Finance Act, 2017 to

Sec. 132 of the Act by which the Tribunal is precluded from examining

this issue, we decline to get into the issue of validity of search action.

The ITAT is a creation of statute and has to apply the law as laid down in

the Act. In this view of the matter, this issue is decided against the

assessee and the grounds raised in this regard are dismissed.

52 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 13. Ground Nos.1 to 6, 8 & 9.

13.1 In these grounds (supra), the assessee contends that the proceedings taken up under Section 153A of the Act and the consequent proceedings and order of assessment under Section 153A r.w.s. ;143(3) of the Act for Assessment Year 2006-07 is bad in law and ought to be cancelled, as in this year there is no abatement of assessment and further no incriminating material has been seized and utilized for making the impugned order of assessment.

13.2.1 We have heard the rival contentions, perused and carefully considered the material on record. In this year, the original assessment was admittedly completed under Section 143(3) of the Act on 31.12.2008. We have perused the impugned order of assessment passed under Section 153A r.w.s. 143(3) of the Act for Assessment Year 2006-07 and find that the only addition / disallowance in the denial of the assessee's claim for deduction under Section 10B of the Act; which is not based on incriminating material seized in the case on hand. It is seen that the seized material referred to in the assessment order pertains to seizures effected elsewhere and if they pertained to this assessee, these proceedings under Section 153C of the Act was called for; which has not been taken up by the Assessing Officer. We observe that the ld. Standing Counsel for Revenue has also put forth that the arguments submitted for Assessment Year 2005-06 are applicable for Assessment Year 2006-07 at para 4 of his written submissions. In this factual / legal matrix of the case, as discussed above, we are of the view that our

53 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 findings rendered in the assessee's appeal for Assessment Year 2005-06 (i.e. in ITA No.699/Bang/2015) is applicable and would hold good for Assessment Year 2006-07 also.

13.2.2 Therefore respectfully following the decision of the Hon'ble Karnataka High Court in the case of IBC Knowledge Park Pvt. Ltd. (supra), we hold that for Assessment Year 2006-07 no assessment had abated and therefore the assessment made under Section 153A r.w.s. 143(3) of the Act dt.13.3.2013 could have been made only on incriminating documents / material found and seized in the course of search in the case of the assessee's premises. That clearly not being the factual matrix of the case on hand, the order of assessment for Assessment Year 2006- 07 passed under Section 143(3) r.w.s. 153A of the Act vide order dt.13.3.2013 is hereby cancelled. Consequently, the assessee's appeal is allowed in terms of Ground Nos.1 to 6, 8 and 9.

25, inter alia, on addition / disallowances made by the Assessing Officer

in the order of assessment for Assessment Year 2006-07. Since we have

already held that the notice issued under Section 153A of the Act to be

infirm and the proceedings and subsequent impugned order of

assessment passed under Section 153A r.w.s. 143(3) of the Act not valid

and cancelled, therefore these grounds raised are only academic in

nature and do not require adjudication.

54 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 15. In the result, the assessee's appeal for Assessment Year 2006-07 is allowed as indicated above.

ITA No.701/Bang/2015 for A.Y. 2007-08

16.1 The assessee filed the return of income for Assessment Year 2007-08 on 31.10.2007 declaring total income of Rs.23,33,19,590. The assessment was completed under Section 143(3) of the Act vide order dt.18.12.2009 accepting the returned income. Pursuant to the search under Section 132 of the Act in the assessee's case on 19.7.2010, notice under Section 153A of the Act was issued and in response thereto, the assessee filed a return of income on 31.1.2012 declaring total income of Rs.23,45,14,000. The assessment was completed under Section 153A r.w.s. 143(3) of the Act vide order dt.14.3.2013, wherein the assessee's income was determined at Rs.149,51,30,180, in view of the disallowance under Section 10B of the Act amounting to Rs.126,06,16,175. The assessee's appeal was dismissed by CIT (Appeals) – 11, Bangalore vide order dt.27.2.2015.

55 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 2. That the total income computed and total tax computed is hereby disputed. 3. The proceedings of search and all other subsequent proceedings are bad in law, without jurisdiction and invalid. 4. The notice u/s 153A and subsequent proceedings are without jurisdiction and bad in law. 5. The order u/s 153A r.w.s. 143(3) is bad in law, time barred and infructuous. 6. That the AO erred in not providing sufficient and adequate opportunity to the appellant as required under law, thereby violating the principles of natural justice, hence the order requires to be cancelled. 7. The CIT-Appeals erred in dismissing the ground on validity of search. 8. The AO erred in initiating proceedings u/s 153A and thereafter passing an order in the absence of any abatement as is envisaged in the law. 9. The CIT-Appeals erred in refusing to rely on the decision of the Special Bench in All Cargo Global Logistics Limited on the issue of abatement of assessment. 10. The authorities below erred in disallowing the claim u/s 10B amounting to Rs. 126,06,16,175/- which was allowed in the original order. 11. The authorities below erred in refusing to rely on the binding decision of the jurisdictional High Court in Sami Labs Ltd in 334 ITR 157. 12. The authorities below erred in changing his opinion on the issue of allowance u/s 10B in the absence of any new information which was not already considered in the original order. 13. The AO erred in calculating the disallowance u/s 10B as an alternative to Ground No.10 above amounting to Rs.13,60,45,263/-. 14. The authorities below erred in holding that certain purchases of iron ore amounting to Rs.38,36,67,431/- did not qualify for deduction u/s 10B.

56 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 15. The authorities below erred in holding that the machinery purchased was used and also in arriving at the quantum as in excess of 20%. 16. The authorities below erred in holding that the use of the machinery purchased from M/s Ritwik Projects Pvt. Ltd. disentitles the assessee from the claim for deduction u/s 10B. 17. The authorities below erred in relying on material and statements without furnishing the same to the assessee before passing the assessment order. 18. The authorities below erred in relying on statements without providing opportunity to cross examine. 19. The authorities below erred in relying on material seized from others in framing the order u/s 153A r.w.s 143(3) without following the procedure as is envisaged u/s 153C. 20. The appellant denies the liabilities for interest under sections 234A, 234B & 234C. Further prays that the interest if any should be levied only on returned income. 21. No opportunity has been given before levy of interest under sections 234A, 234B & 234C of the I T Act. 22. Without prejudice to the appellant’s right of seeking waiver before appropriate authority, the appellant begs for consequential relief in the levy of interest under sections 234A, 234B & 234C of the Act. 23. For the above and other grounds and reasons which may be submitted during the course of hearing of this appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered.”

18.1 The assessee's submissions are as under :-

57 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 “ For the impugned assessment year, assessee received a notice u/s 153A dt. 21/09/2010 from the DCIT, central circle 1(2) and was served on the assessee on 28/09/2010 directing the assessee to file his return of income for AY 2007-08 (PB-2 page 802). In response, the assessee filed a return of income on 31/01/2012 declaring an income of Rs.23,45,14,010/- with the following caption at the top of the return.“Without prejudice and subject to our letters” (PB-2 page 803). For the AY 2007-08 the assessee filed the regular return of income declaring total income of Rs.23,33,19,590/- on 31/10/2007. Thereafter a notice u/s 143(2) dt. 08/08/2008 was issued. The assessee was directed to file various details. Notices under sections 143(2) & 142(1) were issued on various dates and several hearings were held wherein the assessee submitted elaborate details. Before passing order u/s 143(3) the department conducted a survey u/s 133A and physical inspection of the premises of the new undertaking on 23/02/2006 and statements were also recorded. In the original return the assessee had made a claim for deduction u/s 10B in respect of the undertaking known as M/s Bharat Mines & Minerals which was established in pursuance of the legal agreement executed with Development Commissioner of CSEZ dt. 03/06/2003 and their confirmation letter dt. 04/07/2003. The first year of the undertaking was AY 2004-05 wherein the assessee had claimed deduction u/s 80HHC. The claim for AY 2005-06 being the second year was allowed by the AO in an order u/s 143(3) dt. 29/03/2006 whereas in an order passed u/s 153A r.w.s 143(3) dt. 11/03/2013, the claim u/s 10B was disallowed. The claim for AY 2006-07 being the third year of working of the undertaking was allowed by an order u/s 143(3) dt. 31/12/2008. However the same has been disallowed by a change of opinion by order u/s 153A r.w.s 143(3) dt. 13/03/2013. The claim for AY 2007- 08 being the fourth year of working of the undertaking was allowed by an order u/s 143(3) dt. 18/12/2009 (PB-2 page 785). The assessment came to be concluded u/s 153A r.w.s 143(3) on 14/03/2013 disallowing already allowed claim of Rs.126,06,16,175/- and determining the total income at Rs.149,51,30,180/-. While making the disallowance the AO has relied on the assessment order for AY 2005-06 and AY 2006-07. In this regard, the assessee relies on the submissions given supra for AY 2005-06 & AY 2006- 07. The AO discussion on the alternative argument found in para A.3 in page 9 and para 7 from page 6 to page 33 of the asst. order for AY 2006-07 becomes otiose and not relevant since no disallowance has been made. Further the

58 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 discussion by the AO does not reckon the fact that the assessee had already taken note of various issues and considered purchases which in his view were not subjected to manufacture at the assessee’s manufacturing plant for which 10B has been claimed. However no addition has been made on this ground as the entire 10B claim was disallowed. In this regard it may kindly be noted that the purchase invoices listed for the impugned year in paragraph 7 pages 6 to 33 of the asst. order for AY 2006-07 lists various instances of the alleged inaccuracy. In this regard it is submitted that the discussion by the AO does not bring out anything clinching to show that the claim by the assessee is incorrect. The purchase invoice are not incriminating in nature as the same has been maintained during the course of regular assessment. Further the seized material was neither seized from the assessee nor belongs to the assessee and the material has been relied on without following the requisite legal procedure envisaged u/s 153C. Further the AO in page 17 of the asst. order for AY 2006- 07 has also alleged that the iron ore purchased from Karthikeya Manganese and Iron Ore Mines Private Limited (KMIORE) New Mines at Devagiri, Smt.Ambika Ghorpade Mines (Old Mines) at Devagiri, M/s. H G Rangan Goud Mines at Swamihalli & M/s.M. Srinivasulu Mines, Donimalli (presently in the name of M/s.Sree Gavi Siddeshwara Minerals) was already processed and exported directly and there was no processing undertaken in the assessee’s plant. Such allegations are unfounded and not based on any material which is legally sustainable. The AO has gone on elaborate surmise and suspicion and accordingly has concluded the issue which is clearly untenable in law. Further in page 27 of the asst. order for AY 2006-07, again allegations have been made that the assessee has indulged in fabricating the documents which is completely incorrect and untenable. Without prejudice, the assessee vide its letter dt.09.09.2010 (PB page 787) has already reworked and reduced its claim to the extent of purchases of Rs.38,36,67,431/- and reworked the claim u/s 10B while filing the return in pursuance of section 153A. Hence the discussion by the AO has not reckoned this aspect and consequently no action is required. Consequently the discussion by the AO in pages 6 to 33 of asst. order for AY 2006-07 which is relied on in the impugned assessment becomes academic in nature especially since no addition has been made on this count. In addition to the above, the assessee relies on the submissions given for AY 2005-06 and AY 2006-07 supra.

59 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 On the issue of approval granted u/s 153D the assessee relies on the submission given in ITA 699/B/15 for AY 2005-06. The grounds on interest u/s 234/A/B/C are consequential in nature.”

18.2 Revenue’s written submissions are as under :-

“Assessment Year 2007–08, (ITA 701/B/2015) 1. Assessee is engaged in the business of mining. Search under section 132 of the Act was conducted on 19/7/2010. Notice under section 153A of the Act was issued on 21/9/2010, served on 28/9/2010. 2. Mining lease was granted in favour of M/s.Bharat Mines and Minerals and was extended from time to time. M/s. Bharat Mines and Minerals was a partnership firm during the Assessment Year 1996–97. On the death of his father, the assessee conducted the business as proprietary till 31/3/2007. Later from 1/4/2007 the business was conducted as firm with M/s.BMM Ispat Ltd joining as partner. Thus from the date of establishment, the business undertaking of M/s. Bharat Mines and Minerals was carried on either as a proprietary concern or as a partnership firm till date in respect of mining lease. 3. Deduction under section 10B of the Act c. The assessee claimed deduction under section 10B of the Act on profits derived from the export of iron ore. As per the provisions of section 10B deduction is allowable only in the profits derived from the export of goods manufactured/produced and exported from 100% export oriented unit. The deduction is available only for 10 consecutive years beginning from the year in which the undertaking begins to manufacture. d. The claim of the assessee has been rejected on the following ground: – xii. The unit from which iron ore has been processing/produced has not been conferred with EOU status for the period up to 30/5/2006. xiii. The business was in existence prior to 1/4/1994 and accordingly period of 10 years has expired. The conversion of undertaking setup in Domestic Tariff Area (DTA) is eligible for deduction under section

60 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 10B of the Act on getting approval as 100% EOU only for the unexpired period of 10 consecutive years commencing from the year in which the original DTA started manufacturing. xiv. The assessee is indulging in purchase of processed iron ore and exporting the same without any value addition in the undertaking claiming to be an EOU. Such trading activity has been claimed as production and export from the so-called EOU and claim deduction under section 10B of the Act. The material found in the course of search demonstrated that the assessee has been purchasing only processed iron ore and directly exporting the same. The purchase invoices contains the details of the processed iron ore and the destination is the ports from where the iron ore is exported. xv. Mrs. Snehalatha Singi wife of the assessee was the ore raising and processing contractor in the mines belonging to M/s.Karthikeyas Manganese and Iron Ore Private Limited,Mrs.Ambika Ghorpade, M.Srinivasulu and H.G.Rangangoud. In all the above mines Mrs.Snehalatha Singi was the contractor excavating, extracting, crushing and processing the raw ore into fines and lumps. From the seized material it is found that Mrs.Snehalatha Singi was crushing and processing the iron ore in the respective mine heads through mobile crushing and screening plants at the respective mines. The mining returns of the above said mine owners show only dispatch of processed iron ore from the mine heads. The assessee has claimed deduction under section 10B on the export of such processed iron ore without carrying out any activity in the EOU and in fact without bringing the material into the EOU. xvi. Evidence found during search demonstrated that the assessee was systematically creating invoices to disguise the purchase of initial products as purchasers of raw iron ore. xvii. The old machinery used by the assessee was exceeding the prescribed limit of 20%. Without

61 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 prejudice to the above contention it is submitted that 20% of the old machinery is contemplated only in the circumstances when the EOU is formed by the transfer to a new business of machinery and plant previously used for any purpose. The said exception is not applicable to the present case as the EOU is not formed by transfer to a new business of machinery or plant previously used for any purpose. 4. WRONG CLAIM OF DEDUCTION BEFORE THE EOU WAS ESTABLISHMENT The assessing officer has adopted the finding recorded by him for the Assessment Year 2005–06 in the case of the assessee. The submissions for Assessment Year 2005–06 is adopted on this aspect and for sake of convenience is reiterated below. ix. In the application filed before the SEZ dated 3/4/2003 for conversion of existing DTA into 100% EOU for manufacture and export of iron ore, in the Pro-Forma the assessee has stated manufacturer exporter and age of machineries installed in the DTA as 10 to 12 years. x. The letter of permission dated 6/5/2003 by SEZ under Exim Policy was subject to conditions stated in Annexure. One of the condition is that the production of EOU under the scheme has to be carried out in the custom bonded area. Only when the licenses are issued, the EOU is said to be set up and it can be demarcated from the DTA by way of bonding. Without necessary license, the assessee cannot claim as an EOU. Without EOU was being set up the assessee has exported iron ore and the export invoices did not depict that the exports were from 100% EOU. From the date of Letter of Permission(LOP) till 2006, the assessee has been communicating to the SEZ authorities that the project is still under implementation and the EOU has not commenced production. The license for private bonded warehouse was issued by the customs on 29/5/2006. Without setting up valid EOU, exports were made by printing “Shipment by 100% EOU” on the invoices. The various seized material found in the course of search establishes

62 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 that the assessee has failed to implement the EOU project as per the letter of permission and the exports continued in the DTA status only. xi. The letter by the assessee (Bharat mines and minerals) dated 30/4/2006 (page 9 of assessment order) seeking for extension of time from a SEZ would clearly indicates the nonexistence of the 100% EOU. The letter of the SEZ dated 5/5/2006 (page 11 of assessment order) would further justify the nonexistence of 100% EOU. The letter dated 17/4/2006 written by assessee to SEZ authorities (page 13 of assessment order) expressing readiness of commencing the production by end of June 2006 would further justify the above stand of the revenue. The letter dated 2/7/2006 (page 15 of the assessment order) to SEZ by the assessee communicating inspection by Central excise and customs authorities and commencement of commercial production on 30/5/2006 is self explanatory regarding the commencement of commercial production in the 100% EOU. xii. In the quarterly and annual reports submitted by the assessee to SEZ for the first quarter financial year 2006–07, the date of commencement of production is clearly mentioned as 30/5/2006. xiii. The customs authorities by letter dated 19/8/2010 has confirmed designation of private bonded warehouse from 29/5/2006 and the first shipment from 100% EOU on 11/7/2006 (page 18 of assessment order). xiv. The Development Commissioner CSEZ has confirmed by letter dated 7/9/2010 (page 21 of assessment order) that exports prior to 30/5/2006 is not treated as exports from EOU. xv. EOU manufacturers required to file application for removal of goods in prescribed Form-ARE-1 before the jurisdictional Central Excise authorities providing full description of the goods being exported from the unit and invoice would bear the description that “THE SHIPMENT IS UNDER EOU”. The above requirement has been fulfilled

63 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 only after 29/5/2006 and prior to this date no ARE-1 forms were submitted. This is evident from seized material marked as A2/BMM/3. The above aspect also has been confirmed by accountant of Bharat Mines and Minerals whose statement were recorded under section 132(4) of the Act. No specific request for cross examination was made by the assessee. xvi. The quarterly and annual performance report submitted to SEZ the assessee declared that the unit has commenced production from the EOU only since 30/5/2006. From the about is clear that EOU was not established till 30/5/2006 and not entitled for deduction under section 10 B of the Act.

64 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 xv. It is not disputed that the assessee is exporting the products and is carrying on the business at least from 1994. xvi. The unit which is converted to EOU was established at least on 1/4/1994 as per format of registration-cum- membership certificate issued by Export Promotion Council dated 21/6/2005. xvii. In the application for membership to Export Promotion Council the assessee has declared that the date of establishment as 1/4/1994 for manufacture of iron ore and the same is evident from extract at (page 27 of assessment order). xviii. The assessee’s claiming deduction under section 80HHC from 1996–97 till 2004–05 and may be even prior to this period, would demonstrate the existence of unit 10 years much prior to the current year and period of 10 years has expired. 6. On the above aspects the Assessing Officer has summarised as under: – vi. DTA was established at Ranjitpura more than 15 years back and the assessee was processing the iron ore in that plant and exporting the same through MMTC and are directly. vii. The existing DTA at Ranjitpura was converted into EOU and the nature of business continue to remain the same and has continued utilising the old plant and machinery. viii. The assessee is consistently claiming deduction under section 80HHC as manufacturer – exporter from Assessment Year 1996–97 till 2004–05 as per the records and even maybe prior to that period. After the expiry of tax benefit under that section, the DTA was converted into EOU. Though conversion is not prohibited, the benefit would be applicable for a period of 10 consecutive years from the date of manufacture and that has expired much prior to the current Assessment Year.

65 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 ix. The assessee has formed EOU by purchasing the used machinery and such used machinery is in excess of 20% of the total machinery installed in the unit. 20% of the old machinery is contemplated only in the circumstances when the EOU is formed by the transfer to a new business of machinery and plant previously used for any purpose. The said exception is not applicable to the present case as the EOU is not formed by transfer to a new business of machinery or plant previously used for any purpose. x. Though conversion of DTA into EOU is permissible under section 10B and the same is applied for section 10A, it would be applicable for the unexpired period of 10 consecutive assessment years from the year in which undertaking begins to manufacture or produce any article or thing and exports such articles or things. In view of the admission made by the assessee regarding the existence of DTA as on 1/4/1994, period of 10 Conservative years has expired and the same is not extendable to the current Assessment Year. 7. PURCHASE AND EXPORT OF PROCESSED IRON ORE – NO MANUFACTURE INVOLVED IN THE EOU The assessing officer has adopted the finding recorded by him for the Assessment Year 2006–07 in the case of the assessee. The submissions for Assessment Year 2006–07 is adopted on this aspect and for sake of convenience is reiterated below. x. The raw material (ROM) is extracted from the mines and is put to crushing and screening plants where the ROM is crusted into the finish of the products i.e fines and lumps(calibrated ore or C ore). The finished products are fines and lumps. xi. From the seized material it was found that the assessee purchased processed iron ore from various suppliers and directly exported the same without any value addition in the EOU. The sale bills wherein consignee is mentioned as BMM (Bharat mines and minerals) at genuine, Krishnapatnam Port or other destination. The ore has been put to crushing and screening plants at the mines where the processing of iron ore is taking place at the respective mines and the finished product is moved from

66 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 the Mine head’s for exports without processing in the EOU unit. This trading activity is claimed deduction under section 10B of the Act further the assessee indulged in preparing invoices to show the procurement of raw material and processing them in EOU. xii. Seized material referred to in page 7 and 8 of the assessment order containing sale invoices for purchase of iron ore fines would demonstrate the above aspect of purchase of processed iron ore. The purchases made by the assessee are against Form-H which is treated as deemed export of goods. The issue of FORM-H by the assessee to the suppliers of iron ore makes it clear that the goods have been purchased for the sake of exports. Most of the purchases have been delivered by the suppliers at the berths at various ports like Goa, Chennai etc which are loading points for exports. The details of such purchases of processor iron ore as found in the seized material is tabulated at page 9 to 13 of the assessment order. xiii. Similar transactions with various persons has been in detail tabulated with respect to the purchase of processed ore and supply directly to the port or for rail transport. Attention of this Hon’ble tribunal is invited to Rs 13 to 17 of the assessment order for the sake of brevity. xiv. Various seized material has been referred to from page 17 to 20 of the assessment order in support of the contention of the revenue that the iron ore was processed in the mines itself and the same has been purchased and exported by the assessee without even entering the same to the EOU unit. The trading of iron ore is not eligible for section 10B deduction. Further the assessee has not demonstrated the movement of raw ore from mines to EOU and movement of processed iron ore(fines and lumps) to the designated place for export and the respective permits from the respective authorities under various statutes which are mandatory. xv. The accountant of the assessee has admitted that crushing and screening plants are operational at all the mines and the processed ore is being directly exported without further value addition by the EOU of the assessee. Even the mine owner has stated that the assessee has installed the crushing and screening plants at the Minehead and is processing the iron ore in the Minehead

67 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 itself and the finished product was being transported out of the mines. Mr Bharat S Ghorpade agent of KMIORE and Mrs Ambika Ghorpade has admitted crushing and screening of iron ore by mine owners at the mine heads and the same is being purchased by the assessee for the purpose of export. (Reference to statement of Sri Manjunath, Sri Srinivasulu and Mr.Bharat S Ghorpade at page 22 to 24 of the assessment order). xvi. The seized material in the form of transportation bills found in the course of search would clearly demonstrate processing of iron ore by installing screening plants at the Minehead and transporting the same directly to the designated place of export without carrying out any activity in the EOU. (Reference invited to page 25 and 26 of the assessment order) xvii. Insofar as the contention of the revenue that invoices for purchase of processed door were manipulated to reflect as invoice for purchase of ROM. Sample copy is placed at page 28 and 29 to evidence the above manipulation. xviii. On confrontation of the evidence regarding trading exports of iron ore, the assessee has admitted wrongful claim of deduction under section 10B of the Act. Even in the course of statement on oath on 3/11/2010 on confrontation, the wrong claim has been admitted. 8. CORRECTNESS OF SECTION 153A PROCEEDINGS v. Search under section 132 of the Act was conducted in the premises of the assessee on 19/7/2010. Incriminating material were found and seized. Further search investigation also brought fresh information. The export invoices seized during course of search clearly indicated export from non-100% EOU. Seized documents further revealed that no EOU was established it till 29/5/2006 these information and documents were not in possession of the Assessing Officer at the time of completion of original assessments. The aspect of nonexistence of EOU for the period is also clear from the statements of the key employees of the assessee. vi. On plain reading of section 153A of the Act, section does not contemplate either incriminating material found in the course of search or undisclosed income being unearthed in the course of search. As per the law laid down by the Supreme Court in the case of Calcutta Knitwear (2014) 362 ITR 673 (SC), section has to be read in plain and

68 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 reading new words into the section is not permissible. If the contention of the assessee is to be accepted regarding incriminating material, the same would amount to rewriting of the section 153A of the Act. vii. The above position has also been clearly held by the jurisdictional High Court in the case of Canara Housing (2015) 274 CTR 122 and further being held by the High Court in the case of IBC knowledge Park (2016) 385 ITR 346. The same principle has been reiterated by Delhi High Court in the case of Anilkumar Bhatia (2013) 352 ITR 493. The same principle has been reiterated by various high courts. Further the material on record referred to in the order of assessment for the Assessment Year 2006–07 demonstrate that no manufacturing activity is carried on by the appellant and finished products were purchased and exported without any value addition by the appellant. The invoices found in the course of search demonstrated that what was purchased by the assessee for the purpose of processing the same in the EOU were the fines. When the said aspects were confronted to the assessee, the same has been accepted 9. REPLY TO ASSESSEE SUBMISSIONS xiv. The contention of the assessee that the Assessing Officer has relied on the statements of various persons of the assessee and the same is not been provided for cross examination. The assessee has merely made a request for copies of the statements and the same has been provided Request for cross examination is imaginary and an afterthought before this Hon’ble Tribunal. Insofar as the finding arrived at by the Assessing Officer with respect to used machines, the same is on the basis of the documentary evidence copies of which were provided to the assessee. xv. The assessee has contended that eligibility of the assessee for claim of deduction under section 10B of the Act has been considered in the proceedings under section 143(3) of the Act and hence the present order would amount to change of opinion. The above contention is not correct. No doubt the assessment has been completed under section 143(3) of the Act. As is clear from the order of assessment placed at page 6 in paper book–1, what was considered is regarding the method of computation and not the

69 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 eligibility. From the law laid down by the Hon’ble court in the case of IBC knowledge Park para-54, without the aid of the new material found in the course of search the earlier finding which has reached finality cannot be disturbed. Without admitting, even if it is assumed that the above referred judgement is applicable in favour of the assessee, in view of the fact that examination of eligibility for claim under section 10B of the Act was never being an issue examined by the AO in the course of regular assessment, there is no restriction for examining the same in the proceedings under section 153A of the Act, especially with the aid of the material found in the course of search. xvi. The contention of the assessee that Assessment Year 2004–05 being the first year of establishment of EOU, eligibility conditions cannot be examined in the subsequent year is incorrect. As stated earlier, the eligibility was never examined by the AO. Though valid material was found in the course of search, the assessment for the Assessment Year 2004–05 has not been reopened maybe for the reasons of applicable limitations. Only because the remedial action cannot be taken, it cannot be presumed that the mistake committed or the wrong claim made by the assessee would continue to be allowed for the subsequent period also. xvii. The further contention of the assessee that approval granted under section 153D of the Act is without application of mind and in mechanical manner is incorrect. The approval has been granted strictly in conformity with the provisions of the Act.

xviii. Insofar as the contention of the assessee with respect to levy of interest under section 234A and 234B and 234D of the Act are concerned, the same being mandatory, the levy is justified and is strictly as per the provisions of the Act. For the reason stated above, the revenue seeks leave of this Hon’ble Tribunal to rely on the findings recorded by the Appellate Commissioner also. On other aspects where reliance has been placed by the Assessing Officer and his finding in the order of assessment for the Assessment

70 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 Year 2005–06 and 2006–07, the written submissions for the above referred assessment years is relied on. Wherefore it is respectfully prayed that the appeal filed by the assessee may be rejected in the interest of justice and equity.” 19. Ground No.7 - Validity of Search.

19.1 On the issue of validity of the search, the assessee placed

reliance on the decision of the Hon'ble Karnataka High Court in the case

of C. Ramaiah Reddy (339 ITR 210) (Kar) and the decision of the Hon'ble

Apex Court in the case of Ess Dee Aluminium Ltd. Vs. DDIT wherein the

Hon'ble Court has held as under :-

“ The petitioners have approached this Court only on the ground that under section 246A of the Income Tax Act, 1961, the Commissioner of Income Tax (Appeals) has no jurisdiction to examine the validity of the search operations carried out under Section 132 of the said Act. Learned Senior Counsel appearing for the petitioners has further submitted that the foundation of the assessment made hereunder in the search operations carried out against the petitioners. We are of the considered opinion that if the assessment order which is based on the search operations is under challenge, the validity of the search proceedings can also be gone into by the Commissioner of Income Tax (Appeals).”

19.2 However, in the light of the amendment in Finance Act, 2017 to

Sec. 132 of the Act by which the Tribunal is precluded from examining

this issue, we decline to get into the issue of validity of search action.

The ITAT is a creation of statute and has to apply the law as laid down in

71 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 the Act. In this view of the matter, this issue is decided against the

assessee and the grounds raised in this regard are dismissed.

20.1 In these grounds (supra), the assessee contends that the proceedings taken up under Section 153A of the Act and the consequent proceedings and order of assessment under Section 153A r.w.s. ;143(3) of the Act for Assessment Year 2007-08 is bad in law and ought to be cancelled, as in this year there is no abatement of assessment and further no incriminating material has been seized and utilized for making the impugned order of assessment.

20.2.1 We have heard the rival contentions, perused and carefully considered the material on record. In this Assessment Year 2007-08, the record shows that the original order of assessment was admittedly completed under Section 143(3) of the Act vide order dt.18.12.2009. We have perused the impugned order of assessment passed under Section 153A r.w.s. 143(3) of the Act for Assessment Year 2007-08 and find that the only addition / disallowance is the denial of the assessee's claim for deduction under Section 10B of the Act; which is not based on incriminating material seized in the case on hand. We also observe, from the impugned order that reference has been made to A.Y. 2006-07, wherein it was seen that the seized material referred to was not seized in the premises of this assessee but seizure was effected elsewhere at other premises. It is also seen that the ld. Standing Counsel for Revenue has

72 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 also put forth that arguments for Assessment Years 2005-06 and 2006-07 are also applicable for this assessment year 2007-08. On an appraisal of the factual / legal matrix of the case, as discussed above, we are of the view that our findings rendered in the assessee's appeals for Assessment Years 2005-06 and 2006-07 (ITA Nos.699 & & 700/Bang/2015) are applicable and would hold good for Assessment Year 2007-08 also.

20.2.2 Therefore, respectfully following the decisions of the Hon'ble Karnataka High Court in the case of IBC Knowledge Park Pvt. Ltd. (supra), we hold that for Assessment Year 2007-08, no assessment had abated and therefore the assessment made under Section 153A r.w.s. 143 (3) of the Act dt.14.3.2013 could have been made based only on incremental material found and seized in the course of search of the assessee's premises. That clearly not being the factual matrix of the case on hand, the order of assessment for Assessment Year 2007-08 passed under Section 153A r.w.s. 143(3) of the Act dt.14.3.2013 is hereby cancelled. Consequently the assessee's appeal is allowed in terms of ground Nos.1 to 6, 8 & 9.

23, inter alia, on addition / disallowances made by the Assessing Officer

in the order of assessment for Assessment Year 2007-08. Since we have

already held that the notice issued under Section 153A of the Act to be

infirm and the proceedings and subsequent impugned order of

73 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 assessment passed under Section 153A r.w.s. 143(3) of the Act not valid

and cancelled, therefore these grounds raised are only academic in

nature and do not require adjudication.

partly allowed as indicated above.

ITA No.639/Bang/2015 - for A.Y. 2007-08.

24.1 The subject matter of revisionary proceedings is the order of assessment passed under Section 153A r.w.s. 143(3) of the Act dt.14.3.2013 for Assessment Year 2007-08. On going through the records of assessment, the ld. PCIT came to the view that in the said order of assessment, the Assessing Officer had wrongly allowed the assessee's claim for additional depreciation after denying its claim for deduction under Section 10B of the Act for the reason that the assessee was not involved in any manufacturing activity. In that view of the matter, the ld. PCIT was of the opinion that the impugned order of assessment for Assessment Year 2007-08 was erroneous and prejudicial to the interest of revenue. In this regard, the ld. PCIT issued a show

74 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 cause notice dt.22.12.2014 to the assessee proposing to review the order of assessment passed under Section 153A r.w.s. 143(3) of the Act for Assessment Year 2007-08. The ld. PCIT after considering the assessee's reply dt.3.2.2015; extracted at para 5 of the impugned order under Section 263 of the Act; proceeded to direct the Assessing Officer to reconsider the granting of additional depreciation at para 7 of his order which is as under :-

75 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 assessee has filed this appeal, wherein it has raised the following grounds :-

76 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 26.1 The Assessee's submissions are as under :-

“ The notice dt.22.12.2014 and order u/s 263 of the Act dt.23.03.2015 issued by the CIT(Central) is not as per law. The sole issue is proposed by the CIT(Central) to withdraw the additional depreciation allowed by the AO in the assessment order u/s 153A rws 143(3) of the Act dt.14.03.2013. The said depreciation was also allowed in the original proceedings u/s 143(3) of the Act dt.18.12.2009.

The CIT(Central) proposes to withdraw additional depreciation on the premise that the claim for deduction u/s 10B of the Act having been withdrawn on the reasoning that no manufacturing activity has taken place, automatically additional depreciation ought not to have been allowed by the AO. The assessee objected and brought to the notice of CIT(Central) that on the very same issue of deduction u/s 10B the assessee was in appeal before the CIT-Appeals and consequently the CIT(Central) ought not to have assumed jurisdiction. Since the issue was pending in appeal, the stand of the assessee is supported by the specific provision u/s 263 Explanation 1 (c). Any issue which is subject matter of appeal cannot be dealt u/s 263 of the Act. Thus the order suffers from patent lack of jurisdiction. On merits the result of the appeal for the AY 2007-08 in ITA 701/B/15 will have a bearing on the present issue.”

26.2 Revenue’s submissions are as under :-

“ The assessee claimed benefit under section 10B of the Act for the Assessment Year 2007–08. The claim of deduction under section 10B of the Act has been denied by the Assessing Officer. As a consequence the assessee was not entitled to additional depreciation. However the same has been allowed which was erroneous and prejudicial to the interest of the revenue. The Commissioner invoking section 263 of the Act directed the Assessing Officer to withdraw the additional depreciation by taking note of the pendency of the appeal before the Appellate Commissioner with respect to deduction under section 10B of the Act.

77 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 The contention of the assessee that in view of the pendency of the issue of deduction under section 10B in appeal before the Appellate Commissioner, Commissioner was not correct in invoking provisions of section 263 of the Act. It is submitted that the controversy in the appeal before the Appellate Commissioner was with respect to the eligibility of deduction under section 10B of the Act. Whereas subject matter of revision under section 263 of the Act is regarding the additional depreciation. Hence the reliance on Explanation-1(C) of the Act by the assessee is misplaced and the order under section 263 of the Act is justified.”

considered the material on record. It is Revenue’s case that the claim for

additional depreciation granted in the order of assessment under Section

153A r.w.s. 143(3) of the Act dt.14.3.2013 is to be withdrawn on the

ground that the assessee's deduction claim under Section 10B of the Act

was denied. In the impugned order, the ld. PCIT held that since the

granting of additional depreciation depended on the outcome of the

appeal in respect of deduction u/s. 10B of the Act, the Assessing Officer

could reconsider the same. However, since we have held that the

assessment under Section 153A r.w.s. 143(3) of the Act dt.14.3.2013 was

bad in law and cancelled the same; following the decision of the Hon'ble

Karnataka High Court in the case of IBC Knowledge Park Pvt. Ltd. (supra);

the directions of the ld. PCIT under Section 263 of the Act (supra) would

78 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 now not hold the ground and we, therefore, set aside the impugned

order under Section 263 of the Act dt.23.2.2015 for Assessment Year

2007-08.

allowed.

ITA Nos.1053 & 1054/Bang/2015 for A.Ys 2010-11 & 2011-12.

the CIT (Appeals) – 11, Bangalore dt.22.5.2015 for Assessment Years

2010-11 & 2011-12. Since common / connected issues are involved,

these appeals were heard together and are being disposed off by way of

this combined order for the sake of convenience.

30.1 A search and seizure operation under Section 132 of the Act was

conducted in the case of the assessee Sri Dinesh Kumar Singhi on

19.7.2010.

30.2 For Assessment Year 2010-11

79 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 Consequent to the search under Section 132, a notice under

Section 153A of the Act was issued to the assessee, in response to which

the assessee filed the return of income on 31.1.2012 declaring total

income of Rs.14,67,28,650. The assessment was completed under

Section 153A r.w.s. 143(3) of the Act vide order dt.27.3.2013, wherein

the assessee's income was determined at Rs.64,90,03,646; in view of (i)

addition of Rs.47.83 Crores as unexplained investment in share

application money under Section 69 of the Act and (ii) addition of

Rs.39.75 lakhs as unexplained investment in land. The assessee's appeal

was dismissed by the CIT (Appeals) – 11, Bangalore vide the impugned

order dt.22.5.2015

30.3 For Assessment Year 2011-12, the assessee filed his return of

income on 31.1.2012 declaring income of Rs.23,90,71,761. The

assessment was completed under Section 143(3) r.w.s. 153D of the Act

vide order dt.27.3.2013 wherein the assessee's income was determined

at Rs.61,22,76,610 in view of (i) addition of Rs.35.64 Crores as

unaccounted investment in share application money and (ii) addition of

Rs.1,68,05,845 as shortfall in unexplained receipts. The assessee's

80 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 appeal was dismissed by the CIT (Appeals) – 11, Bangalore vide the

impugned order dt.22.5.2015.

31.1 Aggrieved by the orders of the CIT (Appeals) -11, Bangalore dt.22.5.2015 for Assessment Years 2010-11 and 2011-12, the assessee has filed these appeals, raising the following grounds.

31.1 For Assessment Year 2010-11.

81 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 7. The CIT-Appeals erred in dismissing the ground on validity of search.

82 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 16. No opportunity has been given before levy of interest under sections 234A, 234B & 234C of the I T Act.

31.2 For Assessment Year 2011-12.

83 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 6. The CIT-Appeals erred in dismissing the ground on validity of search.

84 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 16. That the approval granted u/s 153D is not as per law.

both parties filed written submissions, which are extracted hereunder.

32.1.1 The Assessee's Submissions for A.Y. 2010-11.

“ For the impugned AY, the assessee received a notice u/s 153A dt. 21/09/2010 from the DCIT, central circle 1(2) and was served on the assessee on 28/09/2010 directing the assessee to file his return of income for AY 2010-11 (PB page 979). In response, the assessee filed a return of income on 31/01/2012 declaring an income of Rs.14,67,28,650/- with the following caption at the top of the return.“Without prejudice and subject to our letters” (PB page 980). The assessee received a notice u/s 143(2) and also notice u/s 142(1) wherein the Ld. AO sought for several details which was duly submitted by the assessee. To the utter shock, dismay & disbelief the assessment was concluded by making the following additions:

85 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 1. Unexplained investment in share application money – Rs. 49,83,00,000/- 2. Unexplained investment in land – Rs. 39,75,000/- The brief facts in respect of the above issue are hereunder: I.Unexplained investment in share application money – Rs.49,83,00,000/- The assessee along with his wife Smt. Snehalata Singhi are shareholders in M/s BPO Finance and Investments Pvt Ltd (BPO), M/s Panchamukhi Properties Pvt Ltd (PPPL), M/s BMM Ispat limited (BMMIL), M/s BMM Cements Limited (BMMCL), M/s Ranjitpura Infrastructure Pvt Ltd (RIPL) & M/s Singhi Holdings Pvt Ltd (SHPL). The assessee holds 60% of the shares in BPO & PPPL which were acquired during the financial year ending 31/03/2010. During the previous year relevant to the assessment year there has been cross investment resulting in cross holdings between the aforesaid companies more particularly the investment from BPO & PPPL in the other companies listed hereunder: Name of Entity BPO(Payer) PPPL(Payer) Total(Rs. in (Recipient) crores) M/s.BMM Cements 26 30.40 56.40 Limited (BMMCL) M/s.Ranjitpura 2.5 6.15 8.65 Infrastructure Pvt Ltd (RIPL) M/s.Singhi Holdings 8 10 18 Pvt Ltd (SHPL) Total (Rs. in crores) 36.50 46.55 83.05 The issue of the contribution of share application money mentioned supra is discussed by the AO in the assessment order from para 1at page 2 to page 28. In summary the allegation of the AO is that the said share application money contributed by BPO & PPPL are nothing but the unexplained investment by the assessee and his wife Smt.Snehalatha Singhi in the proportion of 60:40. On that reason the AO has made the above addition u/s 69 by holding that the said BPO & PPPL are shell companies engaged in the business of providing accommodation entries. The AO further held that the monies subscribed by BPO & PPPL are nothing but the own funds of the assessee and his wife

86 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 disguised and brought in the garb of share application money (para 7.4 page 26 of assessment order). The said allegation by the AO is not based on any evidence or document and is based on surmise, suspicion and unsustainable inference. There is no investment by the assessee or his wife in the form of share application money. The share application money found credited in the books of M/s BMM Ispat limited (BMMIL), M/s BMM Cements Limited (BMMCL), M/s Ranjitpura Infrastructure Pvt Ltd (RIPL) & M/s Singhi Holdings Pvt Ltd (SHPL) and the subscription of share application was by BPO & PPPL through regular proper banking channels and account payee cheques. The existence of BPO & PPPL cannot be in doubt as they have been in existence long before the assessee acquired the shares. It has bank accounts and is assessed to tax regularly. There is no finding by any authority that said BPO & PPPL are involved in providing accommodation entries or for that matter is a shell company. In the absence of any investment by the assessee it is inconceivable how sec. 69 can be applied and to that extent the AO is in clear error in law. Further the AO has quoted so called evidence consisting of statements of others extensively and most of them have not been put to the assessee to enable the assessee to cross examine and thus the said evidence cannot be relied and the assessment order is against the principles of natural justice. It’s a trait law that no statements should be relied on unless the same is made available to the assessee for rebuttal. In this regard the assessee relies on the decision in Suraj Mall Mohta & Co. vs A.V.Visvanatha Sastri & Anr - 26 ITR 1 – SC (CLPB page 143/153). The BPO & PPPL have huge sources of funds and its ability to investment cannot also be dismissed. Thus the identity, ability and existence of the person stands established. The above submission of the assessee has been rejected by the AO who made an addition of Rs.49,83,00,000/- in assessee’s hands which is equivalent to 60% of Rs.83.05cr and balance was assessed in assessee’s wife Snehalatha Singhi. Ld CIT-A dismissed the appeal upholding the action of the AO. In this regard it is submitted that the facts outlined by the AO makes it clear that neither the assessee nor his wife has invested any monies in any of the companies i.e., BMM Cements Limited, Ranjitpura Infrastructure Pvt Ltd, Singhi Holdings Pvt Ltd. No such asset is found in the balance sheet of the assessee nor the assessee is the owner of any investment in the form of shares/share application money in the aforesaid companies. There is no evidence of such cash being invested by the assessee. There is no trail cited by the AO for routing of any

87 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 cash from the assessee to the above companies as is alleged by the AO. There is not even a shred of evidence to hold against the assessee. It is a fact that the shareholder who invested money in the aforesaid companies are BPO and PPPL. It has been held by the Supreme Court that in case of share application/share capital, it is the shareholders in whose hands such an investment if it is unexplained can be considered. In this regard, the assessee places reliance on the following case laws: 1) CIT v. Lovely Exports (P) Ltd (216 CTR (SC) 195) 2) CIT & Anr v. Arunananda Textiles (P) Ltd. (333 ITR 116) 3) CIT & Anr v. Mulberry Silk International Ltd (68 DTR 149) 4) Pr.CIT vs Laxman Industrial Resources Ltd - ITA 169/2017 - Delhi HC 5) CIT vs Gagandeep Infrastructure Pvt Ltd - ITA 1613/2014 - Bom HC. 6) CIT vs Orchid Industries Pvt Ltd - ITA 1433/2014 - Bom HC. 7) ITO vs Nishit Fincap (P) Ltd - 46 CCH 365 - Delhi ITAT. In the above context, the assessee and his wife are not the investors in the aforesaid companies, hence seeking explanation from the assessee or finding fault with the same is incorrect procedure and not warranted. Further ingredients of Sec 69 are not attracted as Sec 69 would apply only if it is found that the assessee has invested any sum of money which is unable to explain. In this case there is every evidence to show that it is BPO and PPPL who invested and not the assessee. The allegation that sum of Rs. 5 cr discussed in page 18 of assessment order in para 3.1 is also incorrect as no cash stands credited in any of the companies. i.e., BPO, PPPL, BMMCL, RIPL, SHPL and BMMIL. In view of this the addition requires to be deleted. 2 . Unexplained investment in land – Rs. 39,75,000/- The said amount has been added as the alleged investment and the resultant addition has been made based on the seized material A/RU/1 dt 19.7.10. The said material has been seized from Rajagopal Upadhyaya. No proceedings u/s 153C has been made to consider the aforesaid seized material in the hands of the assessee. In the absence of proceedings u/s 153C no addition can be made in the hands of the assessee as held in the following case laws: 1) Vijaybhai N. Chandrani vs. ACIT - 333 ITR 436 - Guj HC. 2) Hon’ble Bangalore ITAT in Senate vs. DCIT - 181 TTJ 562. 3) P.Srinivas Naik vs ACIT - 114 TTJ 856 - ITAT Bangalore. 4) PCIT vs Vinita Chaurasia - 394 ITR 758 - DEL HC.

88 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 5) CIT & Anr vs Arpit Land Pvt Ltd & Anr - 98 CCH 63 - Bom HC.

In view of the above, the addition made requires to be deleted in the interest of justice. On the issue of approval granted u/s 153D the assessee relies on the submission given in ITA 699/B/15 for AY 2005-06. The grounds on interest u/s 234/A/B/C are consequential in nature.

32.1.2 The Assessee's Submissions for A.Y. 2011-12.

“ For the impugned AY, the assessee filed a return of income on 31/01/2012 declaring an income of Rs.23,90,71,770/- with the following caption at the top of the return.“Without prejudice and subject to our letters” (CLPB page 1076). Subsequently the assessee received a notice u/s143(2) dt 21/05/2012 and also notices u/s 142(1) wherein the Ld. AO sought for several details which were duly submitted by the assessee.

The assessment was concluded u/s 143(3) r.w.s 153D dt 27/03/2013 determining the income at Rs.61,22,77,610/- resulting in an addition of Rs.37,32,05,845/-.

The details of the addition are hereunder: 1. Unexplained investment in share application money – Rs. 35,64,00,000/- 2. Unexplained receipts shortfall – Rs. 1,68,05,845/-

The brief facts in respect of the above issue are hereunder:

I.Unexplained investment in share application money – Rs.35,64,00,000/-

The assessee along with his wife Smt. SnehalataSinghi are shareholders in M/s BPO Finance and Investments Pvt Ltd (BPO), M/s Panchamukhi Properties Pvt Ltd (PPPL), M/s BMM Ispat limited (BMMIL), M/s BMM Cements Limited (BMMCL), M/s Ranjitpura Infrastructure Pvt Ltd (RIPL) & M/s Singhi Holdings Pvt Ltd (SHPL). The assessee holds 60% of the shares in BPO &

89 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 PPPL which were acquired during the financial year ending 31/03/2010. During the previous year relevant to the assessment year there has been cross investment resulting in cross holdings between the aforesaid companies more particularly the investment from BPO & PPPL in the other companies listed hereunder:

Name of Entity BPO(Payer) PPPL(Payer) Total(Rs. in (Recipient) crores)

M/s.BMM Ispat Ltd 27.40 29.00 56.40 (BMMIL)

M/s.Ranjitpura - 3.00 3.00 Infrastructure Pvt Ltd(RIPL)

Total(Rs. in crores) 27.40 32.00 59.40

The issue of the contribution of share application money mentioned supra is discussed in detail by the AO in the assessee’s own case for AY 2010-11 in the assessment order from para 1at page 2 to page 28. In summary the allegation of the AO is that the said share application money contributed by BPO & PPPL are nothing but the unexplained investment by the assessee and his wife Smt.Snehalata Singhi in the proportion of 60:40. On that reason the AO has made the above addition u/s 69 by holding that the said BPO & PPPL are shell companies engaged in the business of providing accommodation entries. The AO further held that the monies subscribed by BPO & PPPL are nothing but the own funds of the assessee and his wife disguised and brought in the garb of share application money.

The said allegation by the AO is not based on any evidence or document and is based on surmise, suspicion and unsustainable inference. There is no investment by the assessee or his wife in the form of share application money. The share application money found credited in the books of M/s BMM Ispat

90 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 limited (BMMIL), M/s BMM Cements Limited (BMMCL), M/s Ranjitpura Infrastructure Pvt Ltd (RIPL) & M/s Singhi Holdings Pvt Ltd (SHPL) and the subscription of share application was by BPO & PPPL through regular proper banking channels and account payee cheques. The existence of BPO & PPPL cannot be in doubt as they have been in existence long before the assessee acquired the shares. It has bank accounts and is assessed to tax regularly. There is no finding by any authority that said BPO & PPPL are involved in providing accommodation entries or for that matter is a shell company. In the absence of any investment by the assessee it is inconceivable how sec. 69 can be applied and to that extent the AO is in clear error in law. Further the AO has quoted so called evidence consisting of statements of others extensively and most of them have not been put to the assessee to enable the assessee to cross examine and thus the said evidence cannot be relied and the assessment order is against the principles of natural justice. It’s a trait law that no statements should be relied on unless the same is made available to the assessee for rebuttal. In this regard the assessee relies on the decision in Suraj Mall Mohta & Co. vs A.V.Visvanatha Sastri & Anr - 26 ITR 1 – SC (CLPB page 143/153). The BPO & PPPL have huge sources of funds and its ability to investment cannot also be dismissed. Thus the identity, ability and existence of the person stands established.

The above submission of the assessee has been rejected by the AO who made an addition of Rs.35,64,00,000/- in assessee’s hands which is equivalent to 60% of Rs.59.40cr and balance was assessed in assessee’s wife Snehalatha Singhi. Ld CIT-A dismissed the appeal upholding the action of the AO. In this regard it is submitted that the facts outlined by the AO makes it clear that neither the assessee nor his wife has invested any monies in any of the companies i.e., BMM Ispat Ltd and Ranjitpura Infrastructure Pvt Ltd. No such asset is found in the balance sheet of the assessee nor the assessee is the owner of any investment in the form of shares/share application money in the aforesaid companies. There is no evidence of such cash being invested by the assessee. There is no trail cited by the AO for routing of any cash from the assessee to the above companies as is alleged by the AO. There is not even a shred of evidence to hold against the assessee.

91 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 It is a fact that the shareholder who invested money in the aforesaid companies are BPO and PPPL. It has been held by the Supreme Court that in case of share application/share capital, it is the shareholders in whose hands such an investment if it is unexplained can be considered. In this regard, the assessee places reliance on the following case laws: 1) CIT v. Lovely Exports (P) Ltd (216 CTR (SC) 195) – CLPB page 509 2) CIT & Anr v. Arunananda Textiles (P) Ltd. (333 ITR 116) – CLPB page 511 3) CIT & Anr v. Mulberry Silk International Ltd (68 DTR 149) – CLPB page 514 4) Pr.CIT vs Laxman Industrial Resources Ltd - ITA 169/2017 - Delhi HC (CLPB page 471/469) 5) CIT vs Gagandeep Infrastructure Pvt Ltd - ITA 1613/2014 - Bom HC(CLPB page 479/484) 6) CIT vs Orchid Industries Pvt Ltd - ITA 1433/2014 - Bom HC(CLPB page 486/489) 7) ITO vs Nishit Fincap (P) Ltd - 46 CCH 365 - Delhi ITAT(CLPB page 491/492)

In the above context, the assessee and his wife are not the investors in the aforesaid companies, hence seeking explanation from the assessee or finding fault with the same is incorrect procedure and not warranted. Further ingredients of Sec 69 are not attracted as Sec 69 would apply only if it is found that the assessee has invested any sum of money which is unable to explain. In this case there is every evidence to show that it is BPO and PPPL who invested and not the assessee. The allegation that sum of Rs. 5 cr discussed in page 18 of assessment order in para 3.1 is also incorrect as no cash stands credited in any of the companies. i.e., BPO, PPPL, BMMCL, RIPL, SHPL and BMMIL. In view of this the addition requires to be deleted.

The AO has made an addition of Rs. 1,68,05,845/- towards the cash found of Rs.52,00,870/- and investment in land Rs. 1,86,04,875/-. The CIT-A confirmed

92 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 the same. The AO erred is not telescoping the income offered of Rs. 20.10cr towards the cash on hand and investment in land (PB-2 page 787 to 790). The assessee was found with cash of Rs. 52,00,870/- and also was found to have invested Rs. 1,86,04,875/- towards purchase of lands and other sundry investments. Certain other materials were found during the course of search. The assessee with an intention to buy peace and avoid protracted litigation made a conditional disclosure u/s 132(4) totaling to Rs. 20.10cr and paid the taxes on the same. The assessee has explained that the said admission of Rs. 20.10cr is to cover cash on hand, sundry investment in land etc to cover any other latches and lapses. Since the income declared is larger than the investment found, separate addition made by the AO for investment in land is not called for and amounts to double addition. The AO ought to have telescoped the available resource in the hands of the assessee towards the investments made and the assessee prays for the same. On the issue of approval granted u/s 153D the assessee relies on the submission given in ITA 699/B/15 for AY 2005-06. The grounds on interest u/s 234/A/B/C are consequential in nature.”

32.2 The written submissions put forth by the ld. Standing Counsel for

Revenue are as under :-

“ Assessment Year 2010–11, (ITA 1053/B/2015) 1. Assessee is engaged in the business of mining. Search under section 132 of the Act was conducted on 19/7/2010. Notice under section 153A of the Act was issued on 21/9/2010, served on 28/9/2010. 2. UNEXPLAINED INVESTMENT IN SHARES APPLICATION MONEY i. During search it was found that company by name M/s.BPO Finance and Investments Private Limited (BPO), Kolkatta has issued and subscribed shares of Rs 10 per share aggregating to Rs.1,99,98,700/–. Further it was found that during the year the assessee and is wife have

93 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 acquired 100% of the above issued and subscribed share capital. The shares were purchased from various parties by the assessee as listed in page 2 to 4 of the assessment order. The assessee in total has acquired 60% of the total shares issued and subscribed. In view of the acquisition of 100% of the issued and subscribed share capital of the above company, took over reserves and surplus of the above company at Rs.125,40,64,500/– as on 31/3/2010. ii. Similarly another company by name M/s.Panchamukhi Properties Private Limited (PPPL) Kolkatta issued and subscribed shares of Rs10 per share aggregating to Rs.2,22,91,950/–. The assessee purchased 60% of the shares and his wife purchased remaining 40% of the issued and subscribed shares. The details are tabulated in page 5 and 6 of the assessment order. In view of the acquisition of 100% of the issued and subscribed share capital of the above company, took over reserves and surplus of the above company at Rs .101,39,38,050/– as on 31/3/2010. iii. The close relatives of the assessee acquired 50 shares out of 22,29,195 shares. iv. The assessee and his wife by acquiring hundred percent of shares by paying a sum of Rs.1,99,98,700/– acquired control over an amount of Rs.125,40,64,500/– in respect of M/s.BPO Finance and Investments Private Limited. Similarly by paying a sum of Rs.2,22,91,450/– acquired control over an amount of Rs.101,39,38,050/–. v. In view of the disproportionate cost of purchase, enquiries were conducted regarding genuineness of the above transactions. During the course of search proceedings it was found that four companies owned and controlled by the assessee and his wife received share application money from M/s.BPO Finance and Investments Private Limited and M/s.Panchamukhi Properties Private Limited during the financial years 2009–10 and 2010–11 totalling to Rs 142.45 crores. vi. During the search proceedings the assessee was requested to give details of the companies which provided the share application money and the directors of the companies. The assessee failed to provide details of the companies and the directors. Summons issued to the assessee did not yield any result. Despite the assessee and his wife being 100% shareholders of the above two companies, the same was not

94 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 revealed at any point of investigation. The post-search investigation revealed 100% shares being owned by the assessee and his wife. vii. The enquiries conducted by the revenue regarding genuineness of the about two companies has resulted as under: – a) companies are not located in the address given b) Companies were not existing at the registered address for mission to ROC. c) No directors of the companies were available at the given address. d) No books of accounts found at the address. e) No director of the companies appeared during course of survey proceedings. f) From the balance sheets obtained from the ROC about two companies revealed that companies do not have any fixed assets, no business activities for number of years and are involved only in fund transfer. viii. On the basis of the above material the companies BPO and the PPPL were considered as shell entities with no independent business. The above companies were merely used as conduits to plug back unaccounted funds into the four group companies named above. The result of enquiries demonstrated BPO and PPPL are not genuine investors and is modus of bringing in share application money is only a smoke screen. ix. Though assessee did not cooperate in providing details of the directors of the above said to companies, the Department obtained the same from the ROC and it was found that Ms.Soma Dutta, Mr.Ranjeet Singh Kothari and Nemichand Jain are directors of the PPPL and Mr.Radhakant Tiwari and Ms.Soma Dutt are directors of BPO. The assessee and his wife were also directors in both the companies during the Assessment Year 2010–11. The enquiries revealed that some of the directors or employees of Mr.Sagarmal Nahata was arranging funds at Kolkatta. One of the director was found to be watchmen. The directors were not residing at the addresses provided. The signed blank cheques of the companies were found in the possession of Mr.Sagarmal Nahata. x. In view of the disproportionate investment of acquiring to companies worth Rs 226 crores by paying a sum of Rs 4.02 crores the circumstantial evidence was considered by the Assessing Officer. At the time of search a document containing notings regarding payments made to various

95 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 parties including Kolkatta a/c was seized from the residence of the assessee. The details reflected at page 18 of the assessment order. In total sum of Rs.5,02,00,000/– has been shifted from Karnataka to some accounts in Kolkatta and the assessee failed to offer an explanation about the nature and source of the entries. Ledger accounts of the share application money received from BPO and PPPL in the books of M/s.BMM Ispat were obtained and examined. xi. On examination of the seized material and the Ledger accounts of BPO and PPPL the Assessing Officer arrived at a conclusion that the assessee has shifted money to the about two companies at Kolkatta to facilitate the investment of the Rs 5 crores into M/s.BMM ISPAT Ltd through the above shell companies. Further examination of the bank account of BMM Ispat Ltd revealed that Rs.5 crores has been received by the assessee and that establishes clear link to the content’s recorded in the seized page. The cash of Rs.5 crores is sent to Kolkatta along with commission of Rs.2 lakhs during 8th to 12th April 2010 and the amounts received by way of cheque in the bank accounts of BMM Ispat Ltd on 13/4/2010. This clearly indicates that the assessee own cash has been routed back to family owned four companies through BPO and PPP L and other associate companies in the form of share application money. xii. The notices issued to BPO and PPPL and to the parties who have sold shares to the assessee and his wife were returned by postal authorities unserved. The above aspect would clearly demonstrate the dubious nature of the purchase of shares by the assessee and his wife. The assessee was issued show cause notice proposing to treat share application money paid into four companies belonging to the assessee’s group to be treated as money introduced by the assessee. The assessee merely submitted that the entire transaction is taken place through cheque and at arms length price. xiii. The Assessing Officer considering the entire transaction treated 60% of share application money in BPO and PPPL as unaccounted investment by the assessee under section 69 of the Act. xiv. The Assessing Officer was correct in looking at the real transaction with respect to the share application money by lifting the veil and creating nexus with the investment to the payments made by the assessee as found and reflected in the seized documents. The failure on the part of the assessee to

96 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 demonstrate the issues raised by the Assessing Officer in the course of post-search investigation or during the assessment proceedings would further justify the devise adopted by the assessee for investing his own unaccounted money into the subsidiaries. A. REPLY TO ASSESSEE CONTENTIONS i. The contention of the assessee that the existence of BPO and PPPL cannot be doubted in view of the long existence before the assessee acquired the shares and the bank accounts maintained by the said companies. The failure on the part of the assessee being holder of 60% of the shares and 40% of shares by his wife to identify the genuineness of the company and also the directors of the company would demonstrate the object of the said two companies owned by the assessee and his wife. The Hon’ble Supreme Court in the case of Vodafone has clearly held that the companies without any business being carried out, being used as a conduit for device for avoidance of tax to be treated as shell companies and direct nexus to be created. ii. In view of the seized material reflecting payments towards Kolkatta account and the same amounts being reflected in BMM Ispat private limited and the same amounts being reflected as investment by the BPO and PPPL in the group companies of the assessee would establish the nexus beyond doubt and the same has been rightly taxed as an investment of the assessee. iii. As admitted by the assessee at page 16 of the written submissions, share application money has been considered in the hands of the shareholders, the assessee and his wife being 100% shareholders as unexplained investment. 3. UNEXPLAINED INVESTMENT IN PURCHASE OF LANDS i. The seized material found in the course of search reflected payment of cash towards investment in land. In reply to the show cause notice, the assessee admitted payment of cash of Rs.39,75,000/–. However the assessee contended that the above amount has been offered for the Assessment Year 2011–12. ii. The Assessing Officer by taking note that above amount of Rs.39,75,000/– has been invested during the Assessment Year 2010–11, tax at the same under section 69 for the Assessment Year 2010–11.

97 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 iii. The Assessing Officer justified in considering the payment of cash of Rs.39,75,000/– as unexplained investment in the year of payment. B. REPLY TO ASSESSEE CONTENTIONS i. The contention of the assessee that seized documents relied on by the assessee was found in the case of Rajagopal Upadhayaya, the same cannot be considered in the assessment under section 153A of the Act unless proceedings under section 153C are initiated is incorrect. ii. Search was conducted in the case of the assessee and proceedings were initiated under section 153A of the Act in the case of the assessee. The purpose of proceedings under section 153A of the Act is for assess or reassess the total income for the period referred to in the section. Section 153C of the Act contemplates assess or reassessment of the total income in the case of the other person contemplated in the section. In view of the assessments already being reopened and pending under section 153A of the Act, the parallel proceedings under section 153C of the Act is not contemplated under the Act. iii. Without prejudice to the above contention, the jurisdictional High Court in the case of Canara Housing has held that proceedings under section 153A of the Act is not confined to the seized material and the Assessing Officer is empowered to assess or reassess the total income on the basis of the material found in the course of any other proceedings or the material in possession of the Assessing Officer or any other material found in the course of search. In view of the above law laid down by the jurisdictional High Court in the case of Canara Housing, though the material found in the possession of the Rajagopal Upadhayaya, the Assessing Officer was justified in considering the same in the proceedings under section 153A of the Act. Further the Act does not contemplate parallel proceedings under section 153A and 153C of the Act. The acceptance of the contention of the assessee would be contrary to the scheme of the chapter dealing with search assessments.”

98 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 32.2.2 It was submitted by Revenue that since the issues involved in the

appeal for Assessment Year 2011-12 are similar to the issues involved in

the assessee's case except for the amounts and the names of the

company in which the investments are made, it was requested that the

same submissions as put forth for Assessment Year 2010-11 be adopted

and considered.

ANALYSIS AND CONCLUSIONS FOR A.Y. 2010-11.

33.1 On the issue of validity of the search, the assessee placed

reliance on the decision of the Hon'ble Karnataka High Court in the case

of C. Ramaiah Reddy (339 ITR 210) (Kar) and the decision of the Hon'ble

Apex Court in the case of Ess Dee Aluminium Ltd. Vs. DDIT wherein the

Hon'ble Court has held as under :-

“ The petitioners have approached this Court only on the ground that under section 246A of the Income Tax Act, 1961, the Commissioner of Income Tax (Appeals) has no jurisdiction to examine the validity of the search operations carried out under Section 132 of the said Act. Learned Senior Counsel appearing for the petitioners has further submitted that the foundation of the assessment made hereunder in the search operations carried out against the petitioners. We are of the considered opinion that if the assessment order which is based

99 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 on the search operations is under challenge, the validity of the search proceedings can also be gone into by the Commissioner of Income Tax (Appeals).”

33.2 However, in the light of the amendment in Finance Act, 2017 to Sec. 132 of the Act by which the Tribunal is precluded from examining this issue, we decline to get into the issue of validity of search action. The ITAT is a creation of statute and has to apply the law as laid down in the Act. In this view of the matter, this issue is decided against the assessee and the grounds raised in this regard are dismissed. 34. Grounds 1 to 6, 8 & 9. 34.1 We have heard the rival contentions, perused and carefully considered the material on record. In these grounds (supra), the assessee contends that the proceedings taken up under Section 153A of the Act and subsequent proceedings and consequent assessment order for Assessment Year 2010-11 is bad in law and also since no incriminating seized material seized at the assessee's premises has been utilized for making additions in the impugned order of assessment. A perusal of the impugned order of assessment for Assessment Year 2010-11 passed under Section 153A r.w.s. 143(3) of the Act reveals that the following two additions made therein are not based on incriminating seized material seized from the premises of the assessee.

(i) Unexplained investment in share application money of Rs.49.83 Crores.

100 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 (ii) Unexplained investment in land amounting to Rs.39.75 Crores was based on material seized A/RU/1 seized in the case of Sri Rajgopal Upadhyay on 19.7.2010.

34.2 Revenue’s submissions as put forth (supra) do not controvert the contention of the assessee that no incriminating material seized in the assessee's premises was utilized by the Assessing Officer to make additions / disallowances in the impugned order of assessment under Section 153A r.w.s. 143(3) of the Act dt.27.3.2013 for Assessment Year 2010-11. According to the assessee the judicial precedents in this regard are that when additions / disallowances are to be made based on material seized in the premises of another person other than the assessee, as in the present case, then proceedings for assessment can be taken up only as per the provisions of Sec. 153C of the Act. In the case on hand the addition of Rs.39.75 Lakhs on account of unexplained investment in land was made based on material admittedly seized in the case of Sri Rajagopal Upadhyay on 19.7.2010. In the case on hand, no proceedings under Section 153C of the Act has been made to consider the aforesaid seized material in the hand of the assessee. According to the assessee, the following judicial pronouncements are relevant in the context of proceedings under Section 153C of the Act :-

101 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 (i) Senate Vs. DCIT (181 TTJ 562) (ITAT-Bangalore)

(ii) P. Srinivas Naik (114 TTJ 856) (ITAT-Bangalore)

(iii) CIT & Another Vs. Arpit Land Pvt. Ltd. & Another (98CCH 63) (Bombay HC)

(iv) IBC Knowledge Park Pvt. Ltd. (ITA No.403/209 Dt.28.4.2016) (Kar)

34.3 The above judicial pronouncements bring out the legal position

that if the incriminating material seized in the premises of a third person

and not in premises of the assessee, then the same cannot be used in

proceedings under Section 153A of the Act but rather are to be utilized in

proceedings under Section 153C of the Act. We observe that, in the case

on hand no proceedings under Section 153C of the Act has been made in

the hands of the assessee for these assessment years.

34.4 In this regard, the Hon'ble Karnataka High Court in the decision

rendered in IBC Knowledge Park Pvt. Ltd., ITA No.403/2009 dt.28.4.2016

has explained the entire scope and principles governing the provisions of

Sec. 153A and 153C of the Act. In their judgment, the Hon'ble Court has

considered several decisions on this issue including Lancy Constructions

(supra) cited by the assessee and Canara Housing Development Co.

102 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 (2015) 274 CTR 122 (Kar) cited by Revenue. In its decision, in the case of

IBC Knowledge Park Pvt. Ltd. (ITA No.403/2009 dt.28.4.2016) the Hon'ble

Karnataka High Court has held that notice under Section 153A of the Act

can be issued only if it is during a valid search when certain incriminating

materials are detected. At paras 45 to 49 of its decision, the Hon'ble

High Court has held as under :

103 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015

104 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015

105 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015

106 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015

107 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015

108 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015

109 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015

110 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015

34.5 Respectfully following the ratio of the decision of the Hon'ble Karnataka High Court in the case of IBC Knowledge Park Pvt. Ltd. (supra) and the other decisions cited (supra) on which we drew support, is clear that the facts of the case on hand establish that the addition of Rs.39.75 Lakhs made in respect of unexplained investment in land is based on material seized in the premises of a third person and cannot be based or held against the assessee in proceedings under Section 153A. The required proceedings under Section 153C of the Act that ought to have been taken up have not been initiated against the assessee in the assessment year under consideration. In this being the factual and legal matrix of the case on hand, we hold that the impugned order of assessment passed under Section 153A r.w.s 143(3) of the Act dt.27.3.2013 for Assessment Year 2010-11 to be unsustainable and bad in law and is therefore set aside and cancelled.

111 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 the same, the other grounds raised are only academic in nature and do not require adjudication.

ANALYSIS AND CONCLUSIONS – A. Y. 2011-12.

Unexplained investment inland Rs.1,86,04,875 Unexplained payment for purchase of iron ore Rs.1,40,00,000 Unaccounted receipts Rs.18,00,00,000 Unaccounted cash Rs.52,00,970 Total Rs.21,78,05,845 Less : Declaration made Rs.20,10,00,000 Shortfall Rs.1,68,05,845

38.1 These grounds (supra), apart from being raised in this appeal have not been urged either in proceedings before us in written

112 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 submission to establish the averments made therein. In these circumstances, we find no merit therein and dismiss these grounds as infructuous.

in share application money.

39.1 We have already adjudicated this issue in the case of Ranjithpura Infrastructure Pvt. Ltd. in ITA No.1105 & 1106/Bang/2015 and held that the investment made in share capital / share application money cannot be added in the hands of the assessee but is to be considered in the hands of shareholders. The relevant paragraphs of the said order at paras 3.4.1 to 3.4.4 re extracted hereunder :

“ 3.4.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncements cited. From the appraisal of the records before us, it emerges that the assessee received share application money of Rs.2.50 Crores from the company M/s BPO Finance & Investment Pvt. Ltd., Kolkata in Assessment Year 2010-11 and Rs.6.15 Crores in Assessment Year 2010-11 and Rs.3 Crores in Assessment Year 2011-12 from the company from M/s Panchmukhi Properties Pvt. Ltd., Kolkata, routed through normal banking channels. Investigations by the Departments authorities below reveal that Shri Dinesh Kumar Singhi and Snehalatha Singhi are owners and 100% share holders of the aforesaid two companies who introduced the share application money in the assessee company and it was in this context that the investments in the assessee company and its 4 group companies i.e M/s BMM Ltd., M/s BMM Cements Ltd., M/s Ranjitpura Infrastructure Pvt. Ltd., and M/s Singhi Holdings Pvt. Ltd., was brought to tax in the hands of Smt. Snehalatha Singhi and Shri Dinesh Kumar Singhi in the ratio of their share holding in the two aforesaid companies M/s BPO Finance & Investments Pvt. Ltd.,

113 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 and M/s Panchmukhi Properties Pvt. Ltd., on substantive basis u/s 69 of the Act. It is in this factual matrix of the case that the ld CIT(A) deleted the protective additions made u/s. 68 in the case on hand. 3.4.2 With regard to the issue of share application money while dismissing the SLP filed by the Revenue, the Hon’ble Apex Court in the case of CIT Vs. Lovely Exports Pvt. Ltd., (Supra) has observed that:- “Can the amount of share application money be regarded as undisclosed income u/s 68 of the IT Act, 1961? We find no merit in the Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to re-open their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment.” 3.4.3 The Hon’ble Karnataka High Court in the case of CIT & Another Vs. Arunananda Textiles Pvt. Ltd., (33 ITR 116) held as under at paras 5 and 6 of its order:- “5. The short question that arises for our consideration in this appeal is "If the company has received share amount from the intending shareholders, is it required for the respondent- assessee to identify and establish the creditworthiness of the depositors. The question raised in this appeal is squarely covered by several judgments of the Supreme Court and also the judgment of this court passed in CIT v. ASK Brothers Ltd. [2011] 333 ITR 111 (Karn) wherein this court following the judgments of the Supreme Court in the case of CIT v. Lovely Exports P. Ltd. reported in [2008] 216 CTR (SC) 195; [2009] 319 ITR (St.) 5 (SC) and also in the case of CIT v. Steller Investment Ltd. [2001] 251 ITR 263 (SC) has ruled that it is not for the assessee to place material before the Assessing Officer in regard to the creditworthiness of the shareholders. If the company has given the addresses of the shareholders and their identity is not in dispute, whether they were capable of investing, the Assessing Officer shall investigate. It is not for the assessee -company to establish but it is for the Department to enquire with the investors about their capacity to invest the amount in the shares.

114 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 Therefore, we are of the view that the substantial questions of law framed in this appeal are to be answered against the Revenue and in favour of the assessee. Accordingly this appeal is dismissed.”

4.3.4 Respectfully following the decision of the Hon’ble Apex Court in the case of Lovely Exports Pvt. Ltd., (Supra) which was followed by the jurisdictional High Court in the case of CIT Vs. Arunananda Textile Pvt. Ltd., (Supra), the addition made by the AO in respect of share application money on protective basis as unexplained cash credits u/s 68 of the Act and deleted by the ld CIT(A) in the impugned order at para 8.7 thereof cannot be treated as unexplained cash credits in the hands of the assessee. Consequently, the grounds (i) and (ii) raised by Revenue are dismissed.” 39.2 As the facts and issues are the same in the case on hand, the above decision in the case of Ranjithpura Infrastructure Pvt. Ltd. (supra) squarely applies to the addition in this case also. Following the decision in the case of Ranjithpura Infrastrucutre Pvt. Ltd. (supra), we direct the Assessing Officer to delete this addition. Consequently, Ground No.7 raised by the assessee is allowed.

and addition of Rs.1,68,05,845.

40.1 As seen from the order of assessment, details of which are extracted above (at para 37 of this order), the assessee had disclosed an amount of Rs.20.10 Crores under four heads. The Assessing Officer observed that the actual undisclosed income working under these four heads is Rs.21,78,05,845 and consequently, the Assessing Officer added an amount of Rs.1,68,05,845 to assessee's income as shortfall.

115 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 40.2.1 Before us, the assessee raised objections against the four heads, under which the assessee made disclosure during search action at Grounds raised 8 to 12 (supra). It is the contention of the assessee that the disclosure made by the assessee during search action was conditional and since the conditions have not been fulfilled, the additions made on the basis of the declaration made is not tenable.

40.2.2 At ground No.13 (supra), the assessee also urged that the Assessing Officer had erred in not giving telescoping of the additions and that the learned CIT (Appeals) had failed to address and adjudicate this issue which was raised at Ground No.13 before the learned CIT (Appeals). It is the assessee's contention that out of the four heads on which undisclosed income was disclosed, Rs.18 Crores were unaccounted receipts; whereas the other heads aggregating Rs.3,77,05,845 represent undisclosed expenditure and cash and therefore the assessee is entitled for being given benefit of telescoping the same.

40.3 Per contra, the ld. Standing Counsel for Revenue supported the orders of the authorities below on these issues.

40.4.1 We have heard the rival contentions, perused and carefully considered the material on record. The declaration / disclosure given by the assessee under oath during search action is a vital piece of corroborative evidence and it is based on the findings during search action. There is nothing in law like a conditional declaration. It was the responsibility of the assessee to counter / rebut the declaration made with evidence to the contrary. If the assessee has not brought on record

116 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 such any such evidence, then the declaration / admission constitutes conclusive evidence. Further, the material on record indicates that the assessee has accepted the declaration and shown the additional income of Rs.20.10 Crores in respect of unexplained investment in land; unexplained receipts and unaccounted cash. On all these three issues of unexplained investment in land, unaccounted receipts and cash seized is based on evidence seized at the assessee's premises in the course of search, which was accepted and admitted by the assessee as undisclosed. Before the learned CIT (Appeals) and also before us the assessee has not brought on record any evidence to controvert the findings by the Assessing Officer and admissions made by him in respect of these three issues. In this factual view of the matter, we find no merit in the claims made on these three issues by the assessee and accordingly reject the same.

40.4.2 Unaccounted payment for purchase of iron ore – Rs.1,40,00,000.

This issue has been elaborately discussed and adjudicated by us in the case of M/s. Kartikeyas Managanese and Iron Ore Pvt. Ltd. in ITA No.832 to 835/Bang/2015 while dealing with the question of whether seized material found in the premises of a third person can be used against the other person. Therein it has been held by us that unless the material belongs to the assessee, the same cannot be used or held regarding this addition are the same. The decision rendered in the case of Kartikeyas Manganese and Iron Ore P. Ltd., squarely applies to this addition also. We, therefore, hold that the addition of Rs.1,40,00,000

117 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 made towards unaccounted payments for purchase of iron ore is to be deleted. Therefore out of the shortfall of Rs.1,68,05,845 computed by the assessee since the aforesaid addition of Rs.1,40,00,000 does not survive, the addition of shortfall to the extent of Rs.28,05,845 is upheld.

40.5.1 At Ground No.13 (supra), the assessee also urged that the Assessing Officer had erred in not giving telescoping of the additions and further, that the learned CIT (Appeals) had failed to address and adjudicate this issue which was raised at Ground No.13 before the learned CIT (Appeals). It is the assessee's contention that out of the four heads on which undisclosed income was disclosed, Rs.18 Crores were unaccounted receipts wherein the other heads aggregating Rs.3,77,05,845 represent undisclosed expenditure and cash and therefore the assessee is entitled for being given benefit of telescoping the same.

40.5.2 On a perusal of the material on record and the submissions made before us, we find that the learned CIT (Appeals) had in fact not addressed and adjudicated this very ground raised before her at Ground No.13. In these circumstances, we are of the view that this ground on the assessee's claim for telescoping is to be remanded to the file of the learned CIT (Appeals) for examination and adjudication of this ground, only after affording the assessee adequate opportunity of being heard and to file details / submissions which shall be duly considered. We hold and direct accordingly. Consequently, Ground No.13 of the assessee's appeal for Assessment Year 2011-12 is allowed for statistical purposes.

118 ITA Nos.639, 699, 700, 701, 1053 & 1054/Bang/2015 41. In the result, the assessee's appeal for Assessment Year 2011-12 is partly allowed.

The assessee's appeals for Assessment Years 2005-06 to 2007-08 and 2010-11 are allowed and the assessee's appeals for Assessment Years 2007-08 and 2011-12 are partly allowed.

Order pronounced in the open court on the 10th day of April, 2018.

Sd/- Sd/- (SUNIL KUMAR YADAV) (JASON P BOAZ) Judicial Member Accountant Member Bangalore, Dt. 10.04.2018

*Reddy gp

Copy to : 1 Appellant 4 CIT(A) 2 Respondent 5 DR. ITAT, Bangalore 3 CIT 6 Guard File

Senior Private Secretary Income Tax Appellate Tribunal Bangalore.