WARM FORGINGS P.LTD,NEW DELHI vs. DCIT, CIRCLE-27(1), NEW DELHI

4. The CIT(A) erred in law and on facts in confirming the addition without confronting the evidence and statements gathered / taken at its back by the revenue and thus violating the principles of natural justice. Therefore the assessment order should be cancelled.

5. The CIT(A) erred in law and on facts by making an addition of Rs. 3,02,000/- u/s 69C, alleging unexplained expenditure on taking the accommodation entries @ 2% as commission of the total share application money received merely on surmises and conjectures. Thus, the addition so made should be deleted as there is no evidence for the same.

I.T.A.No.1148/Del/2019

6. The appellant craves the leave to add, substitute, modify, delete or amend all or any ground of appeal

either before or at the time of hearing.”

2. The assessee also raised the following additional grounds: -

“7. The impugned assessment order is bad in law and on facts (i) because it does not mention the following important facts: (a) date of search conducted on the persons searched where the impugned relied material was found, (b) the actual premises and the person searched as per the relevant search warrants / panchnama, (c) name of the persons who actually deposed against the appellant about the impugned additions as accommodation entries, (d) contents of the statements of the said deponents, (e) the actual material found in the alleged search which was adverse to the appellant. (ii) because it is a case where the impugned assessment order is based on some incriminating material / information found during the course of search (iii) because during the relevant period a separate procedure to make an assessment / reassessment of income based on some seized material found in the premises of a third person existed in the statue u/s 153C r.w.s. 153A of the Act. (iv) in absence of the actual facts, it cannot be determined whether the impugned reassessment was to be framed u/s 148 of the Act or by taking recourse to the section 153C of the Act as the said two sections operate under different circumstances

I.T.A.No.1148/Del/2019 though based on some information found in the search. It is prayed that since the above facts need to be brought on record which go to the root of the legality of the impugned assessment order, the above additional ground be admitted and adjudicated.” 3. The Ld. Counsel for the assessee, at the outset, submits that the additional grounds have been filed by the assessee in framing the reassessment order u/s 143(3) r.w.s. 147 of the Act instead of making assessment u/s 153C of the Act as the reassessment was made based on the materials found in the course of search conducted on third party. Ld. Counsel submits that as the additional ground raised is a legal ground and involves no investigation into facts except those already on record the same be admitted for adjudication on merits. Reliance was placed on the decision of the Hon’ble Supreme Court in the case of National Thermal Power Company Ltd. Vs. CIT 229 ITR 383.

I.T.A.No.1148/Del/2019 Thermal Power Company Vs. CIT (supra), we admit the additional grounds.

Reliance was placed on the decision of the Mumbai Bench in the case of Mr. Nilesh Bharani Vs. DCIT (ITA No.612/2020) dated

I.T.A.No.1148/Del/2019 28.02.2023 and the decision of Delhi Bench in the case of M/s MAH Impex Pvt. Ltd. Vs. ITO (ITA No.279/Del/2019) dated 31.10.2023.

Subsequently, notice u/s 148 of the Act was issued for reopening the assessment based on the search conducted on 14.09.2010 by the Investigation Unit of the Income Tax Department on Jain Bros. namely Mr. S.K. Jain and Mr. V.K. Jain, wherein the Department found certain incriminating materials and recorded statements of Jain Bros. Based on the statements recorded and incriminating material found in the course of search conducted on 14.09.2010 in the case of Jain Bros. the assessment of the assessee was completed u/s 143(3) r.w.s. 147/148 of the Act making an addition of Rs.1,54,02,000/- u/s 68/69A/69C of the Act. In the additional and legal grounds the assessee challenges the assessment made u/s 143(3) r.w.s. 147 of the Act on the ground that since the assessment was made based on the incriminating materials found in the course of search conducted on a third party the assessment should have 6

I.T.A.No.1148/Del/2019 been made u/s 153C of the Act and not u/s 143(3) r.w.s. 147 of the Act.

8. We observe that identical issue came up for consideration before the coordinate bench of the Tribunal in the case of M/s MAH Impex Pvt. Ltd. Vs. ITO in dated 31.10.2023, wherein the coordinate bench considered identical issue where an assessment was made u/s 143(3) r.w.s. 147 of the Act based on incriminating material found in a search conducted on S.K. Jain Group and the Tribunal sustained the order of the Ld.CIT(Appeals) in quashing the reassessment order passed u/s 143(3) r.w.s. 147 of the Act and upholding the view of the Ld.CIT(A) that once reassessment proceedings are initiated on the basis of incriminating material found in the search of third party then the provisions of section 153C of the Act are applicable which exclude the application of provisions of section 147 and 148 of the Act. While holding so the Tribunal observed as under: -

“6. It is pertinent to mention that at the time of arguments, ld. AR made an endorsement in the appeal memo not pressing ground no. 4 and argued the matter on the basis that the reopening was invalid and in any case the assessment should have been u/s 153C instead of Section 147 and 148 of the Act. 7. Ld. DR however submitted that Ld. CIT(A) has fallen in error in considering the Income Tax return of the I.T.A.No.1148/Del/2019 creditor to conclude about genuineness. It was submitted that there is no error in the assessment u/s 147.

I.T.A.No.1148/Del/2019 which has escaped the assessment due to concealment or furnishing inaccurate particulars. While here is a case where Ld. AO intends to make an addition u/s 68 of the Act, for any sum found credited in the books, by rebutting the explanation given by the assessee u/s 68 of the Act, on the basis of incriminating material found in the search of another person who has also been subject to assessment u/s 153A. We are of considered opinion that the assessment of the any assessee, whose explanation u/s 68 of the Act is being discredited on the basis of incriminating evidence found elsewhere alone, then the assessment of such other person should be u/s 153C as 'other person', and not u/s 147 of the Act.

12. It will be appropriate to reproduce para 11.2 of assessment order below and to conclude that the aforesaid observations of this bench make the assessment order void ab initio: "11.2 It is indeed surprising to note that the assessee has made unsuccessful efforts to prove, that these transactions were genuine. It is quite possible that the assessee could have succeeded in its scheme but for the search in the case of Jain Brothers where complete evidence of scheme of tax evasion used by the assessee were seized. The incriminating seized documents are self-speaking and give graphic picture of the modus operandi adopted by the parties involved. It is quite disturbing to note the ease with which the assessee has been conducting its affair by laundering its unaccounted money at into regular transactions. The law allows the Assessing Officer to lift the corporate veil to unmask the real from the I.T.A.No.1148/Del/2019 apparent and also to go behind the transaction to understand their true import. The law also allows the authorities to test the transactions on a touches tone of human probability to arrive at a conclusion which the rationale mind would arrive at. After going behind the transactions on paper and after lifting the corporate veil, as discussed in earlier paragraphs, it has been proved that the apparent was not real."

I.T.A.No.1148/Del/2019 was involved in providing accommodation entries to the persons who were named in the Report. The Assessee was also figures in the list as one of the beneficiaries of the accommodation entries provided by the Group. After examining the details and copies of seized documents, AO is of the view that assessee company has taken the accommodation entries amounting to Rs.25 lacs in FY 2008-09 from S.K. Jain Group of Companies and specifically from M/s Shalini Holding Ltd. in the garb of share application money on 30.08.2008. On the basis of this information found during the search, AO issued notice u/s. 148 of the Act dated 8.3.2016 after recording the reasons in writing and after obtaining sanction u/s. 151(1) of the Act from PCIT, Delhi-6, New Delhi which was served upon the assessee on 10.3.2016 by speed post. In response to the same, assessee filed a letter dated 06.4.2016 wherein it was submitted that the original return filed earlier may be treated as returned filed in response to the notice u/s. 148 of the Act. The Assessing Officer issued notice u/s. 143(2) of the Act and u/s. 142(1) of the Act alongwith questionnaire to the assessee. In response to the same, assessee appeared and filed required documentary evidences and answer the query raised by the AO, but the AO did not agree with the explanation given by the assessee and finally made the addition u/s. 68 of the Act of Rs. 25 lacs as discussed in para 15 of the assessment order and completed the assessment at Rs.28,23,720/- u/s 147/148 read with section 143(3) of the Act vide order dated 15.12.2016. Against the assessment order dated 15.12.2016, assessee appealed before the Ld. CIT(A), who vide his impugned order dated 30.11.2018 has dismissed the appeal of the assessee. Aggrieved with the impugned order dated 30.11.2018 of the Ld. CIT(A), assessee is in appeal before the Tribunal."

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11. On the afore-stated facts, the coordinate bench held as under: "5. At the time of hearing, Ld. Counsel for the assessee stated that assessee has raised as many as 13 grounds of appeal

which includes legal as well as on merits. But he draw my attention towards the ground no. 3 regarding jurisdiction of the AO ignoring the provisions of section 153C of the Act which ought to have been applied by the revenue instead of section 147 as the former provisions are non-obstantive provisions and exclude the operations of section 147 of the Act. He draw my attention towards a small paper book containing pages 1-62 in which he has attached various documentary evidences including various judgements on the issue in dispute and stated that the ground no.3 has already been adjudicated and decided in favour of the assessee by the various Benches of the ITAT including the ITAT, SMC, Delhi Bench decision dated 08.08.2017 passed in & 1501/Del/2017 (AY 2007-08) in the cases of Sushil Gaur vs. ITO, Ward 2(3), Ghaziabad and Shelly Agarwal. Vs. ITO, Ward 2(3), Ghaziabad. He especially draw my attention towards the facts of the case and the decisions mentioned in para no. 8 at page 7 to 9 of the aforesaid Tribunal's order dated 08.08.2017 and requested by following the same ratio, the appeal of the assessee may be allowed.

6. On the contrary, Ld. DR relied upon the orders passed by the Ld. CIT(A) and stated that Ld. CIT(A) has passed a well reasoned order on the ground raised by the assessee. He has also filed the written submissions on legal as well as merits with supporting various decisions rendered by various Courts.

7. I have heard both the parties and perused the records and gone through the issue raised by the assessee in grounds of appeal along with orders

I.T.A.No.1148/Del/2019 passed by the revenue authorities especially the impugned order. No doubt that Ld. Counsel for the assessee has argued on the issue in ground no. 3 and stated that Ld. CIT(A) has erred in affirming the jurisdiction of the AO that the provisions of section 153C ought to have been applied by the revenue instead of 147, as the former provisions are non-obstantive provisions and exclude the operations of section 147 of the Act. On this issue, he relied upon the various orders passed by the ITAT, Delhi Benches including the ITAT, SMC, Delhi Bench decision dated 08.08.2017 passed in & 1501/Del/2017 (AY 2007-08) in the cases of Sushil Gaur vs. ITO, Ward 2(3), Ghaziabad and Shelly Agarwal. Vs. ITO, Ward 2(3), Ghaziabad, which was passed by the undersigned by respectfully following the various orders mentioned in para no. 8 of the order at page no. 7 to 9 of the order. For the sake of convenience, the relevant para no. 8 is reproduced as under:- "8. I have heard both the parties and perused the records, especially the impugned order as well as the Paper Book. On having gone through the decisions cited above especially the decision of Amritsar Bench in the case of ITO vs. Arun Kumar Kapoor (supra), I find that in that case as in the present case before me, reassessment was initiated on the basis of incriminating material found in search of third party and the validity of the same was challenged by the assessee before the Learned CIT(Appeals) and the Learned CIT(Appeals) vitiated the proceedings. The same was questioned by the Revenue before the ITAT and the ITAT after discussing the cases of the parties and the relevant provisions in details has come to the conclusion that in the above situation, provisions of sec. 153C were applicable which excludes the application of sections 147 and 148 of the Act. The ITAT held the 14

I.T.A.No.1148/Del/2019 notice issued under sec. 148 and proceedings under sec. 147 as illegal and void ab initio. It was held that Assessing Officer having not followed procedure under sec. 153C, reassessment order was rightly quashed by the Learned CIT(Appeals). I also draw my support from the ITAT, New Delhi decision in the case of Rajat Shubra Chatterji vs. ACIT, New Delhi dated 20.5.2016, wherein the reassessment was quashed on the similar facts and circumstances by following the ITAT, Amritsar decision in the case of ITO vs. Arun Kumar Kapoor (supra). In the present case before me, it is an admitted fact, as also evident from the reasons recorded and the assessment order that the initiation of reopening proceedings was made by the Assessing Officer on the basis of information available with the AO. I thus respectfully following the decision of Co-ordinate Bench of the ITAT, Amritsar in the case of ACIT vs. Arun Kapur - 140 TTJ 249 vs. (Amritsar) and the ITAT, Delhi decision in the case of Rajat Shubra Chatterji vs. ACIT, New Delhi ITA No. 2430/Del/2015 dated 20.5.2016 hold that provisions of sec. 153C of the Act were applicable in the present case for framing the assessment, if any, which excludes the application of sec. 147 of the ~ hence, notice issued under sec. 148 of the Act and assessment framed in furtherance thereto under sec. 147 read with section 143(3) of the Act are void ab initio. Hence, the reassessment in question is accordingly quashed. Since I have already quashed the reassessment, there is no need to adjudicate other grounds." 7.1 After going through the aforesaid finding of the ITAT, SMC, Delhi Bench decision dated 08.08.2017 passed in ITA No. 1500 & 1501/Del/2017 (AY 2007- 08) in the cases of 15

I.T.A.No.1148/Del/2019 Sushil Gaur vs. ITO, Ward 2(3), Ghaziabad and Shelly Agarwal vs. ITO, Ward 2(3), Ghaziabad, I am of the considered view that ground no. 3 of this appeal has already been adjudicated and decided by the various Benches of the ITAT, which I have mentioned in the aforesaid paragraphs and I am of the view that this issue has already been adjudicated and decided in favour of the assessee by holding that on the basis of incriminating material found, once reassessment proceedings was initiated on the basis of incriminating material found in the search of 3rd party then the provisions of section 153C of the I.T. Act were applicable which exclude the application of section 147 and 148 of the I.T. Act and notice u/s. 148 of the Act and proceeding u/s. 147 are illegal and void ab initio. Therefore,, respectfully following the aforesaid order of the Tribunal dated 08.08.2017, the reassessment in question is accordingly quashed. Since I have already quashed the reassessment, there is no need to adjudicate the other grounds. Ld. DR has not brought to my notice any contrary decision on exactly similar facts and circumstances of the case mentioned in para no. 8 of the Tribunal order dated 08.08.2017, as reproduced above. Therefore, there is no help can be given to the revenue on the issues mentioned in the written submissions by the Ld. DR."

12. On finding parity in the facts of the case in hand with the facts of Naval Oil and Containers Pvt. Ltd [supra] respectfully following the decision of the coordinate bench, I direct the Assessing Officer to delete the impugned addition."

I.T.A.No.1148/Del/2019 in favour of the assessee and which makes consequential other grounds superfluous. The appeal of assessee is allowed and impugned assessment is set aside.” 9. We also observe that the Mumbai Bench of the Tribunal in the case of Neelesh Barani Vs. CIT in ITA No.612/Mum./2020 dated 28.02.2023 considered the issue of as to whether the assessment can be framed u/s 143(3) r.w.s. 147 of the Act based on the materials found in the course of search in the case of the assessee as well as on the search conducted on a third party. We observe that the Tribunal held as under: -

“91. We have already observed in our earlier paragraphs that the entire procedure to make an assessment or reassessment of income of the alleged escaped income either u/s 148 or section 153C of the Act practically is the same except the jurisdiction and root cause which are different. The legislature has specifically carved out scope of assessment / reassessment of income of a person not searched of such alleged escaped income based on some incriminating information found during a search on some other person searched by taking recourse to the section 153C of the Act. The AO has not / Mum / 2020 Mr. Nilesh Bharani been empowered to extend the scope of an assessment/ reassessment u/s 153A read with the section 153C of the Act beyond the alleged incriminating material found during the course of search in the case of some other person, because assessment / reassessment in such case is specifically restricted to the income based on the said incriminating information only. Whereas, in the proceedings initiated u/s 148 of the Act, the AO may extend the scope of the assessment / reassessment on other amounts also if any information about those is on his record over and above the alleged escaped income as per the reasons recorded. The purpose of restriction of assessment for amount of 17

I.T.A.No.1148/Del/2019 income by taking recourse to the provisions u/s 153C of the Act to alleged incriminating material and not on suspicion has been upheld by the Hon‟ble Supreme Court in the case of Sinhgad Technical Education Society (supra).

I.T.A.No.1148/Del/2019 (ii) However, in the assessment / reassessment orders passed within the scope of section 153A of the Act, the AO cannot consider any undisclosed income detected by way of an incriminating information pertaining / relating to the said assessee, during an income-tax search conducted in the premises of some other assessee(s), even conducted at the same time or in some connected matter. In such a case where AO gets any information or material about any assessee from the search of some other person, he can, make assessment of the undisclosed income/ amount emanating from such information or material for the assessment / re assessment vide separate assessment / reassessment orders to be passed u/s 153A by taking recourse to the provisions of the section 153C of the Act. Because the cause of action for the said incriminating information for different amounts had originated in different search(es) in the different premises of other assessees and for the same, the mandatory route legislated u/s 153C of the Act must be followed. (iii) Further, an assessee can also be assessed multiple times u/s 153C r.w.s 153A of the Act, despite having already been assessed u/s 153A of Act on the basis of an income-tax search in his premises, where the incriminating information has been received u/s 153C of the Act by the AOs of the searched person as well as of the person not searched, which information originates in different searches at different times on different persons as well.

I.T.A.No.1148/Del/2019 Accordingly, the assessee succeeds here on the above two legal issues / pleas raised by him resulting into cancellation of the assessment order in this appeal.

of the assessee on merits are not being adjudicated as they have become academic.”

10. Respectfully following the above said decisions, since in the present case the assessment was framed u/s 143(3) r.w.s. 147 of the Act based on the incriminating material found in the course of search in a third party. We hold that the assessment made u/s 143(3) r.w.s. 147 of the Act is void ab initio and thus, the reassessment order dated 28.03.2016 is hereby quashed.

11. As we have quashed the reassessment order on the legal ground the other grounds raised by the assessee challenging the reopening and also the grounds on merits are not being adjudicated as they have become only academic.

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Order pronounced in the open court on 03/04/2024