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

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“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

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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.

grounds and the relevant facts on record. The additional ground

raised by the assessee is legal ground going to the root of the matter

i.e. very jurisdiction of making assessment and, therefore, following

the decision of the Hon’ble Supreme Court in the case of National

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Thermal Power Company Vs. CIT (supra), we admit the additional

grounds.

the assessment was reopened u/s 147 of the Act and reassessment

was completed on 28.03.2016 u/s 143(3) r.w.s. 147/148 of the Act

and an addition of Rs.1,51,00,000/- has been made u/s 68 of the Act

in respect of share capital received by the assessee from various

parties/companies. Ld. Counsel submits that the addition was made

based on search conducted on 14.09.2010 by the Investigation Unit

of the Income Tax Department on Jain Brothers namely Mr. S.K. Jain

and Mr. V.K. Jain as is evident from para 2 of the reassessment

order dated 28.03.2016. The Ld. Counsel for the assessee submits

that since the addition was made based on incriminating

information/material detected during the course of search u/s 132

of the Act on a third party and information/material detected

during Income Tax search on a third party can only be considered for

assessment by taking recourse to the provisions of section 153C of

the Act and not u/s 147/148 of the Act in the case of the assessee.

Reliance was placed on the decision of the Mumbai Bench in the

case of Mr. Nilesh Bharani Vs. DCIT (ITA No.612/2020) dated

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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.

filed its return of income on 09.10.2010 declaring income of

Rs.1,21,60,004/-. The assessment was completed u/s 143(3) of the

Act on 15.03.2013 accepting the income returned by the assessee.

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

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been made u/s 153C of the Act and not u/s 143(3) r.w.s. 147 of the

Act.

before the coordinate bench of the Tribunal in the case of M/s MAH

Impex Pvt. Ltd. Vs. ITO in ITA No.279/Del/2019 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

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creditor to conclude about genuineness. It was submitted that there is no error in the assessment u/s 147. 8. Appreciating the submissions it comes up that Ld. AO has primarily examined the issue on the basis of Investigation Wing information to consider the disputed entries to be accommodation ones. He mentions the reopening was on the basis of seized document seized from Jain Brothers. The capital was considered introduce by way of accommodation entry. Ld. AO specifically mentions that Jain brothers received Rs. 66 lakhs from an intermediary Vijay Gupta in lieu of accommodation entry to the instant assessee. He has narrated the various receipts of intermediary Vijay Gupta as per the cash books of entry provider. It was concluded that this cash has been received by the intermediary during the same period when the accommodation entry has been given to the instant assessee. The whole exercise which ld. AO did was to understand the modus operandi of Jain Brothers and he heavily relied information received from the Investigation Wing, assessment record of the case, assessment record of Jain Brothers and then material on record having direct bearing on the present proceeding to disbelieve the evidences furnished by the assessee in the Form of PAN, Income Tax Return etc of the Investor Company. 8.1 It comes up from the order of ld. AO in para 10.3 that regarding the claim of assessee that assessment of investee companies has been completed u/s 153A on return income was also one of the explanations of assessee but the same was not considered by the Ld. AO observing that the same has no bearing on the merits of transactions. 9. The CIT(A) has dealt with the issue that reopening of the assessment u/s 148 on the basis of incriminating material found in the search of the third party is erroneous and provisions of Section 153C alone could be applied to the exclusion of Section 147 and 148 of the

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Act. In this context his observations have been recorded in para 7.3 as follow: "7.3 It has been further pleaded by appellant that there was search proceedings u/s 132(1) of the Act in the case of S. K. Jain Group, on the basis of which, the proceedings in the case of appellant have been initiated, therefore, AO should have initiated the proceedings u/s 153C of the Act, not u/s 147 of the Act. The plea taken by appellant is misplaced. During the search proceedings in the case of S. K. Jain Group, information in respect of large number of beneficiaries taking accommodation entries were found and after analyzing the same and making further enquiries with the beneficiaries and other persons, Investigation Wing prepared report in respect of each and every beneficiary and forwarded the information to the relevant assessing officers for further enquiry and assessment. It is not the case where incriminating document or information was found independently for each and every beneficiary, rather, after making an examination and further enquiry, in the case of these beneficiaries, Investigation Wing reached to the conclusion that these beneficiaries have taken accommodation entries in lieu of cash deposited by them from undisclosed sources. On the basis of such reports, the AO has initiated the reassessment proceedings u/s 147 of the Act in the case of the appellant which is valid and tenable in law. The several decisions, as mentioned above, of Jurisdictional High Court as 'Well as other Courts also substantiate this fact that the information received from Investigation Wing is a tangible material for initiating the reassessment proceedings in the case of any assessee. In view of this, the objection raised by AO is not acceptable and deserves to be rejected." 10. We are of the considered view that Ld. Tax Authorities have fallen in error as the reopening u/s 147/148 is on the basis of income chargeable to tax 9

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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. 11. In the case in hand a thorough examination of the reasons for reopening and the manner in which the ld. AO has relied the incriminating evidences and materials allegedly recovered in the hands of S.K.Jain and the intermediary that only go to show that Ld. AO has fallen in error in invoking powers of Section 147/148 in the absence of reasons of satisfaction being drawn u/s 153C by the Assessing Officer of the searched person. 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

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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." 13. Further, in ITA No. 2668/DEL/2019 [Assessment Year: 2010-11] City Life Projects Pvt. Ltd. Vs. The I.T.O SMC Bench at Delhi vide order dated 17/9/2021, has dealt with similar issue involving similar facts and alleged entries given by SK Jain Group and held as follows: "10. I have given thoughtful consideration to the orders of the authorities below and have carefully perused the decisions relied upon ld. counsel for the assessee. I find that the decision of the coordinate bench in the case of Naval Oil and Containers Pvt. Ltd [supra] squarely applies on the facts of the case in hand, in as much as, in that case also, information was received out of the search operation carried out in S.K. Jain group of cases which is evident from the facts extracted at Para 4 of the order and the same are as under: "4. The brief facts of the case are that assessee filed its return of income on 30.9.2009 declaring income of Rs.2,73,720/-. The AO processed the same u/s. 143(1) of the Income Tax Act, 1961 (hereinafter referred as the Act) on 21.2.2011. On the information received from the office of the Director of Income Tax (Investigation-II), Jhandewalan Extension, New Delhi dated 12.3.2013 mentioning therein that a search operation was carried out in the case of Surendra Kumar Jain group of cases wherein after scrutiny of the incriminating documents seized during the course of search and subsequently post search enquiry, it has been noticed that the said group

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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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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 ITA No. 1500 & 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

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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 ITA No. 2430/Del/2015 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

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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." 14. Thus Ld. CIT(A) has fallen in error is not examining the assessment order to see as to how the AO exclusively and extensively relied only the alleged incriminating material found in the case of S.K.Jain Group of Companies to make addition under 147/148. Consequently, we are inclined to decide the ground no.2 16

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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 ITA No. 612 / 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

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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). 92. Accordingly, we hold that any incriminating information of any undisclosed income of the person not searched which was found during the course of a search having taken place up to 31/03/2021 on some other assessee, can only be taken into consideration for an ITA No. 612 / Mum / 2020 Mr. Nilesh Bharani assessment / reassessment in the hands of the said person not searched through the domain of the section 153C of the Act. Thus, any assessment / reassessment proceedings- initiated u/s 148 of the Act in respect of the said incriminating information found during the course of a search up to 31/03/2021 on some other assessee is illegal and is ab initio as the same can be considered only by taking recourse to the provisions of the section 153C r.w.s. 153A of the Act. Thus, the assessment of the said amount of LTCG, which was claimed to be exempt u/s 10(38) of the Act by the assessee, made u/s 147 of the Act is beyond the scope of section 147, albeit it can be roped in only u/s 153C. 93. If on overall appreciation of the scheme of assessment / reassessment of income after the income- tax searches on the assessee searched and also for the persons not searched based on detection of some incriminating information during the said searches conducted upto 31/03/2021, the following legal course of action is open for the AOs, which can be summed up, in the following manner: (i) It is mandatory for the AO of the person searched to make an assessment / reassessment of income of the said assessee u/s 153A of the Act for the 6 assessment years prior to the date of search and also for the extended 4 relevant assessment years, subject to fulfillment of the prescribed conditions for the same, on the basis of an income-tax search conducted on him.

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(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. 94. Thus, here in this case as held above, the assessment order passed u/s 147 is beyond the jurisdiction as correct course for framing reassessment as per statute was u/s 153A and u/s 153C only. Ergo, on all the above legal grounds and issues raised by the assessee here are the jurisdictional issue and goes to the threshold of the validity of the assessment proceedings, which in our opinion has not been validly assumed. If the jurisdiction has not been correctly assumed, then the entire consequent assessment proceedings also become illegal. 19

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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. 95. In conclusion, we hold that the assessment order passed u/s 147 of the Act on 30/12/2018 is illegal and void ab initio and same is hereby quashed, having been passed on incorrect provision, ignoring the mandatory non-obstante sections 153A / 153C of the Act, as here in this case, jurisdiction to assess and pass the assessment order was under sections 153A / 153C. Since, the assessment order has been quashed; the grounds of 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.

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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above.

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

Sd/- Sd/- (DR. BRR KUMAR) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 03/04/2024 *Kavita Arora, Sr. P.S. Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order

Assistant Registrar, ITAT: Delhi Benches-Delhi