KARAN VYAPAAR PRIVATE LIMITED,KOLKATA vs. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, THANE, THANE

4. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of the Learned Assessing Officer in rejecting the books of accounts of the appellant u/s.145(3) of the Income Tax Act, 1961, without considering the facts and circumstances of the case.

to 3641 /Mum/2024 M/s Karan Vyapar Pvt Ltd 5. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in not considering the fact that the Learned Assessing Officer has rejected the books of accounts u/s.145(3) of the Income Tax Act, 1961, without issuing the show cause notice, which is in violation of the provisions of Act.

6. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of the Learned Assessing Officer in making an addition ofRs.30,64,980/-as alleged Undisclosed Business income of the appellant, without considering the facts and circumstances of the case.

8. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in not appreciating the fact that the Learned Assessing Officer has initiated the penalty proceeding U/s271B without appreciating the fact that the appellant has maintained proper books of account duly audited under Companies Act, 2013.

9. The appellant craves leave to add, amend, alter or delete the said ground of appeal

.” A.Y. 2013-14 “1. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in passing the ex-parte order without granting sufficient opportunity of being heard to the appellant.

2. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of the Learned Assessing Officer in passing the Assessment Order u/s.143(3) r.w.s. 153C of the Income Tax Act, 1961, which is bad in law and null and void as the same is passed in violation of the provisions of the Income Tax Act, 1961.

3. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of the Learned Assessing Officer in issuing notice U/s 153C of the Income Tax Act, which is beyond six years hence void ab- initio. to 3641 /Mum/2024 M/s Karan Vyapar Pvt Ltd 4. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in restricting the disallowance made by the Learned Assessing Officer to Rs.5,70,000/- u/s.40A(3) of the Income Tax Act, 1961, without considering the facts and circumstances of the case.

5. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of the Learned Assessing Officer in rejecting the books of accounts of the appellant u/s.145(3) of the Income Tax Act, 1961, without considering the facts and circumstances of the case.

6. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in not considering the fact that the Learned Assessing Officer has rejected the books of accounts u/s.145(3) of the Income Tax Act, 1961, without issuing the show cause notice, which is in violation of the provisions of Act.

7. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of the Learned Assessing Officer in making an addition of Rs 46,08,088/-as alleged Undisclosed Business income of the appellant, without considering the facts and circumstances of the case. 8 On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in confirming the action of the Learned Assessing Officer in making an addition without having any incriminating document for the relevant assessment year.

9. On the facts and circumstances of the case as well as in law, the Learned CIT(A) has erred in not appreciating the fact that the Learned Assessing Officer has initiated the penalty proceeding U/x271B without appreciating the fact that the appellant has maintained proper books of account duly audited under Companies Act, 2013. 10 The appellant craves leave to add, amend, alter or delete the said ground of appeal

.”

3. The brief facts of the case are that search and seizure operations under section 132 of the Act was conducted in Antariksh group on 14/02/2019. M/s Antariksh Park LLP is one of the entities of Antariksh group and also covered to 3641 /Mum/2024 M/s Karan Vyapar Pvt Ltd under section 132 of the Act. The assessee is one of the partners in M/s Antariksh Business Park LLP. The assessee was a Kolkata based company and 99.8% of the shareholding in the company is held by two other Kolkata based companies, viz. M/s Starmark Dealtrade Pvt Ltd and M/s Seamarine Management Consultant Pvt Ltd. As per the revenue, during the search operation, various incriminating documents were seized indicating the cash transactions for and on behalf of the assessee company and it is found that the assessee company was engaged in activities of providing accommodation entries. In the statement under section 131 of the Act recorded during post search investigation, the director of the company, Shri Manish Vaishnav admitted that he is only a signing authority and works are carried out on the instructions of shareholders of the assessee- company. Considering the transactions, the notices under section 153C were issued for all the impugned assessment years to the assessee company. Finally, the assessment was completed under section 143(3) read with section 153C of the Act. The addition was made on account of section 40A(3) amount to Rs.11,40,000/- and commission @3% was calculated for providing the accommodation entries which works out to Rs.46,08,088/-, total of which comes to Rs.57,48,088/- which was added back with the total income of the assessee. Being aggrieved on the assessment order, the assessee filed an appeal before the CIT(A). The assessee challenged both the legal and merit before the appellate authority. The appeal order was passed exparte. But considering the available documents a speaking order was passed by the Ld.CIT(A) by upholding the impugned assessment order. Being aggrieved, the assesseehas challenged the appeal order before us.

Ground -3.

“CENTRALISATION: 03 The case of the assessee was centralized to Central Circle-2, Thane vide order u/s 127 of the I.T. Act, 1961 of the Pr. Commissioner of Income Tax-3 Kolkata having order no. order no. 78/2019-20 dated 10/10/2019.

04 Since the search u/s. 132A of the Act was carried out in the case of the assessee, section 153C of the Act is triggered, which is mandatory in nature. Thus, according to the provisions of section 153C of the Act, the notice u/s. 153C of the Act was issued on 02.11.2019, which was duly served upon the assessee for filing the return of income for AY 2013-14. In response to notice u/s 153C of the Act, assessee has filed its return of income for AY 2013-14 on 21.01.2020 declaring total income at Rs. 8,88,470/-. Thereafter, statutory notice u/s. 143(2) of the Act was issued on 12.10.2020, which was duly served upon the assessee. Subsequently, notice u/s. 142(1) of the Act along with questionnaire was issued on 05.02.2021 calling for details, which was duly served on to the assessee.” to 3641 /Mum/2024 M/s Karan Vyapar Pvt Ltd 5. The Ld.AR argued that the assessee was originally assessed at Kolkata. There was search operation on Antariksh group on 14/02/2019 which was concluded on 12/04/2019. The case of the assessee was centralized from Kolkata to Mumbai on 10/10/2019 and notice under section 153C was issued on 02/11/ 2019. As per provisions of section 153C, notice undersection 153C can be issued 6 years prior to the date of search and in case of person whose records were found during search operation at 3rd party, date of search will be treated as date on which the books of accounts of such person were handed over to the ld. AO of such person. Since the case was centralized in 10/10/2019 hence the date of hand over of the documents will be treated as on the date when the records were handed over, which is 10/10/2019. Therefore, six years start from AY 2014-15 and accordingly notice issued for AY 2013-14 is time barred.

The issue is squarely covered by the order of the CIT-14 vs Jasjit Singh (2023) 155 taxmann.com 155 (SC). The relevant paras 9 to 11 are reproduced as below: - “9. It is evident on a plain interpretation of Section 153C(1) that the Parliamentary intent to exact the proviso was to cater not merely to the question of abatement but also with regard to the date from which the six year period was to be reckoned, in respect of which the returns were to be filed by the third party (whose premises are not searched and in respect of whom the specific provision under Section 153-C was enacted. The revenue argued that the proviso [to Section 153C(1)] is confined in its application to the question of abatement.

11. For the foregoing reasons, the Court finds no merit in these appeals, they are accordingly dismissed, without order on costs.” I.T.A 3640/Mum/2024-A.Y. 2014-15 Ground-2.

7. The ld. AR further argued that disallowance u/s.40A(3) of the Act on ad hoc basis on the plea that assessee has withdrawn cash from banks and that cash must have been used for booking expenses without bringing any material on record. Ld. CIT(A) restricted such disallowance to the 50% of the addition U/s 40A(3) of the Act. The year wise details of such disallowanceis placed in record by the ld. AR which is reproduced as under: - Assessment Amount disallowed by Addition confirmed by year AO CIT(A) 2014-15 38,00,000 19,00,000 2015-16 29,50,000 14,75,000

2016-17 22,53,000 11,26,500 The ld. AR stated that the addition was made on the basis of presumptions and without any incriminating documents.

7.1. He further argued that the ld. AO also made addition of commission @ 3% of the total debit and credit entry in the bank account of the assessee on the plea that as per documents found during the course of search the transaction recorded therein appears to be accommodation in nature. The ld. AO has rejected books of the assessee and estimated commission income @ 3% of the total bank transactions without looking into the nature of transactions. None of the bank to 3641 /Mum/2024 M/s Karan Vyapar Pvt Ltd account of the assessee was undisclosed before the revenue. The year wise details addition of commission is placed in record which is reproduced below: -

Assessment year Amount disallowed 2014-15 30,64,980 2015-16 16,85,545 2016-17 15,52,290 2017-18 2,85,277 2018-19 16,76,866 The additions are also without any incriminating document and on general assumption that assessee is in the accommodation business. Further the documents relied upon by the assessing officer is related to AY 2013-14 and not for the other years. Therefore, a general presumption drawn on the basis of a particular year cannot be applied in subsequent years as held by the Hon’ble Supreme Court in case of CIT Vs. Sinhgad Technical Education Society, 397 ITR 344(SC).

7.2. He also argued that the ld.AO also made addition on account of undisclosed interest and commission income from M/s Govind Mahima Real Mart Pvt. Ltd in AY 2016-17 of Rs. 41,01,040/- and Rs. 5,68,600/- in AY 2017-18. This addition is based on one document found from the residence of one Mr Brijesh Khandelwal, copy of which is placed on page 7-8 of APB. As per this page total interest earned by the assessee from the above party is Rs. 34,17,533/- which was duly recorded in the books of the assessee, copy of ledger account of the said party in the books of appellant is enclosed on APB page 10. In addition to this there is reference of to 3641 /Mum/2024 M/s Karan Vyapar Pvt Ltd some commission on such loan, which was earned by Mr. Brijesh Khandelwal as he has facilitated this loan transaction to the above party and he has offered the said commission in the application filed before Income Tax settlement commission, copy of relevant page is enclosed in APB page 11-12.

Accordingly, this addition is also not sustainable as assessee has already offered income in its regular books of account to the extent related to it and also claimed TDS on such income in the return of income filed for the respective year.

7.3. The ld. AR stated that the said additions in impugned assessment years are without considering any incriminating documents. So, the additions cannot be sustained. He respectfully relied on the order of the Hon’ble Supreme Court in case of Abhisar Buildwell P Ltd (454 ITR 212) (SC).The relevantparagraphs are reproduced as below: - “14. In view of the above and for the reasons stated above, it is concluded as under: (i) that in case of search under section 132 or requisition under section 132A, the AO assumes the jurisdiction for block assessment under section 153A; (ii) all pending assessments/reassessments shall stand abated; (iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the 'total income' taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and (iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under section 132 or requisition under section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of to 3641 /Mum/2024 M/s Karan Vyapar Pvt Ltd powers under sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved. The question involved in the present set of appeals and review petition is answered accordingly in terms of the above and the appeals and review petition preferred by the Revenue are hereby dismissed. No costs.”

“15. Vide Ground no. 2, the appellant has contended that no notice u/s 153C could have been issued as the assessment year under consideration is falling beyond the period of six assessment years. As mentioned earlier, no submission has been made by the appellant during the appellate proceedings. I have considered the said ground of the appellant and it is seen that the search in Antriksh group was conducted on 14/02/2019. Thus, AY 2019-20 is the search assessment year and the notice u/s 153C of the Act could have been issued for six assessment years preceding the search assessment year. Therefore, AY 2013-14 falls within a period of six assessment years and hence, the contention raised by the appellant is rejected. The ground no. 2 raised by the appellant is DISMISSED.”

9.1. Regarding, the second issue concerning the issuance of the satisfaction note, the revenue has failed to submit any such document, or a copy of the satisfaction note before this bench. The ld. DR repeatedly sought adjournments to produce the satisfaction note, and the Bench granted several opportunities for its submission. The matter was even treated as part-heard to allow for this purpose. Despite a final opportunity being provided, the ld. DR expressed an inability to furnish the satisfaction note.The revenue was also unable to present any evidence showing that the satisfaction note had been served on the assessee. In the absence of the satisfaction note, the issuance of the notice under Section 153C of the Act is void ab initio. We respectfully rely on the decision in Calcutta Knitwears (supra) to support this conclusion.

Accordingly, the assessment framed under Sections 153C/143(3) is bad in law.

9.2. In relation to the third issue, which concerns the consideration of incriminating material in the contested assessment, we find that no such incriminating documents were discovered for the purpose of completing the assessment under Section 153C of the Act. Although this issue was raised before the Ld. CIT(A)], the ld. CIT(A) did not address it and failed to provide any ruling on the matter. to 3641 /Mum/2024 M/s Karan Vyapar Pvt Ltd We observe that the additions made under Section 40A(3), the calculation of commission at 3%, and the interest on loan debtors were not based on any incriminating material. Under the provisions of Section 153C, any addition in the assessment must be supported by incriminating evidence. In this context, we respectfully rely on the decision of the Hon'ble Supreme Court in Abhisar Buildwell Pvt. Ltd (supra), wherein it was held that an assessment under Section 143(3) read with Section 153C, if not based on incriminating material, is invalid in law.The ld. DRhas not cited any contrary judgments to rebut the submissions made by the ld. AR. Furthermore, the ld. AO exceeded their jurisdiction by issuing a notice under Section 153C without preparing a proper satisfaction note, and the assessment was not grounded on incriminating materials.

Therefore, we reverse the impugned order. Accordingly, the assessment order passed under Sections 153C/143(3) is quashed, and the demand raised against the assessee is dismissed.

10. Accordingly, appeal of the assessee in Ground-3 of ITA 3641/Mum/2024 and Ground-2 of allowed. Since we have decided the appeals on the legal issue, adjudication on merit would only be an academic purpose; hence, not discussed.