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Facts
A search action under section 132 was conducted on the assessee, leading to the seizure of incriminating documents. The Assessing Officer (AO) made additions based on this material, which was found from a third party. The assessee argued that these additions should have been initiated under section 153C, not section 153A, of the Income Tax Act.
Held
The Tribunal held that additions made based on documents seized from a third party must be processed under Section 153C of the Act. Since the assessment proceedings were initiated under Section 153A, the additions were considered invalid. The Tribunal also found that the valuer appointed for stock valuation was not appropriately qualified.
Key Issues
Whether additions based on material seized from a third party are valid when proceedings are initiated under Section 153A instead of Section 153C. The validity of stock valuation by an unqualified valuer.
Sections Cited
132, 153A, 153C, 143(3)
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Income Tax Appellate Tribunal, “DB” BENCH, PATNA
Before: SHRI DUVVURU RL REDDY, VP & SHRI RAJESH KUMAR, AM
These appeals of two different assessee’sappeal by the Revenue are against the order of the Commissioner of Income-tax (Appeals), patna-3 (hereinafter referred to as the “Ld. CIT(A)”] dated 31.05.2025& 30.03.2025 for the AY 2020-21 (Cross Appeals) & A.Y. 2017-18.
A.Y. 2020- At the time of hearing, ld. Counsel for the assessee pressed ground nos. 3 and 4, which is extracted as under:-
“3. For that the learned CIT-(A) has erred in the facts and circumstances of the case in restricting the addition to Rs 55,12,500/- by applying the Gross profit 15% by suspiciously treating the figures recorded in the seized material as turnover amounting to Rs 3,67,50,000/, which is wrong, illegal and unjustified.
4. For that the learned CIT(A) failed to appreciate that the addition made on the basis of the documents seized from somebody else ought to have been added in the assessment proceedings commenced under section 153C of the Act, which is wrong, illegal and unjustified in the facts and circumstances of the case.”
The facts in brief are that a search action u/s 132 of the Act was conducted on 04.03.2020, at the business and office premises of the assessee by investigation Wing, Patna. During the course of search and seizure operation several incriminating documents were found and seized. The assessee originally filed the return of income on 08.01.2021, declaring total income of ₹12,89,36,560/-. The notice u/s 143(2) was issued on 01.03.2021, which was not complied with by the assessee. During the course of search the excess stock was found and accordingly, the ld. AO on the basis of the material found
During the appellate proceedings, the ld. CIT (A) dismissed the appeal of the assessee on legal issue by rejecting the plea of the assessee to the effect that since the addition has been made on the basis of incriminating material seized from the third party, therefore, the proceedings should have been initiated u/s 153C of the Act and the assessment should have been framed accordingly whereas in the present case the proceeding has been initiated u/s 153A and consequently, the assessment framed u/s 143(3) /153A of the Act vide order dated 20.09.2021. The ld. CIT (A) dismissed the legal issue by observing and holding as under:-
“The submission of the appellant and the order of the AO has been carefully considered. The appellant has submitted that the said document LT-2 has not been found from his possession and any document found from an unrelated person cannot be used adversely in its case. If any action was to be initiated, the same should have been initiated u/s 153C since the document was seized from another person. This contention of the appellant is bereft of arrymenit. For search conducted on 19.03.2020, relevant assessment year is 2020-21, which had to be compulsory taken under scrutiny and this year is not fettered by requirement of incriminating material. Further, before initiating proceeding for this AY, the AO already had LT-02 in his possession. No separate action uls 1530 was warranted as per laws. Hence, this argument and related case wes submitted by the appellant are able to be rejected. The AD has held that amount mentioned in LT-02 as unexplained investment in purchases out of books. The appellant has vehemently objected to this finding. The appellarit has submitted that its premises as well as that of directors were covered in search. Not an iota of unrecorded purchases/investment was found from any premises. Moreover, whilم making assessment, the AO had accepted 5.1. The ld. AR submitted that once the material has been seized during the course of search on the third party, then the addition can only be made by the ld. AO on the basis of the said seized material by initiating the proceedings under section 153C of the Act for the preceding six assessment years in which the seized documents came 5.2. The ld. AR sub mitted that the case of the assessee finds support from the decision of Shyam Sunder Khandelwal vs ACIT, reported in[2024] 161 taxmann.com 255 (Rajasthan), duly approved by the Hon’ble Apex court in the case of ACIT vs Pramod Jain, reported in, [2025] 176 taxmann.com 762 (SC), wherein, it has been held by the Hon’ble court that once there is incriminating material seized or requisitioned belonging or relatable to person other than on whom search was conducted, section 153C is to be resorted toand provisions of sections 153A to 153D have prevalence over regular provisions for assessment or reassessment under sections 148 & 147/148. In defense of his argument, the ld. AR relied on the decision of the coordinate bench in case of DCIT vs Shivali Mahajan in vide order dated 19.03.2019.
The ld. DR on the other hand, relied heavily on the order of ld. AO and the ld. CIT (A) so far as the legal issue is concerned and submitted that it is not possible for the ld. AO to frame the assessment one u/s 153A and then u/s 153C of the Act separately. Though, the ld. DR candidly admitted that the addition of ₹3,67,50,000/- was made in respect of hawala transactions on the basis of seized material marked as LT-02, which was found during the course of search on third partyi.e. Shri Laxman Tikmani. Therefore, the ld. DR prayed that the legal issue prayed by the counsel of the assessee may kindly be dismissed.
“Thus, the addition made is fit to be deleted on this count alone. The submission of the appellant has been examined and I find no merit in the above submission due to the fact that during the course of assessment proceedings in case of Shri Laxman Tamani, he confirmed the transactions found recorded in seized documents marked LT-01 and LT-02 by Mis Patna Iron Private Limited. Further information under section 133(0) was also sought from Shri Laxman Tikmani regarding the transactions done by Mis Patna Iron Private Limited through him. In reply to the notice uls 133(6), Laxman Tikmani again confirmed the transactions through him by Mis Patna Iron Private Limited during the year. From the perusal of the assessment order, the nature of transactions is not very clear that whether it is on account of unaccounted sales or unaccounted purchases. However, the addition of Rs 3.67,50,000 has been made on account of out of the books purchases and is added u/s 69 as 7.2. We find from the first para of the assessment order that the jurisdiction of the assessee’s case was transferred to the ld. AO on 7.3. In view of the above the view taken by the Commissioner (Appeals) that addition on the basis of the documents seized from the premises of a third party cannot be made under section 153C of the Act since the current assessment year was search year and the assessment was completed under compulsory assessment and the information found from the possession of the third party was available with him is not the correct view and therefore the addition made on this account and that confirmed by the Commissioner (Appeals) cannot be sustained.The case of the assessee is squarely covered by the decision of the co-ordinate bench in case of DCIT Vs. Shivali Mahajan (supra), wherein similar issue has also been laid down in the case of Trilok Chand Choudhry Vs. ACIT in Dy. CIT vs. M/s S.R. Credits Pvt. Ltd. in dated 26.05.2020, PCIT vs. Anand Kumar Jain (HUF) (ITA 23/2021 dated 12.02.2021) HC Delhi. Accordingly, we set aside the order of ld. CIT (A) on this issue and direct the ld. AO to
The other grounds raised by the assessee are general in nature and needs no adjudication.
The appeal of the assessee is allowed
A.Y. 2020- The issue raised in ground no.1 and 2 is against the deletion of addition of ₹3,46,31,230/- by the ld. CIT (A) as made by the ld. AO in respect of unexplained investment on account of difference in stock valuation which was found during the course of statement recorded u/s 132(4) of the Income-tax Act, 1961 (the Act).
10.1. The facts in brief are that during the course of search,the quantity of stock found was 10478.441 metric tons, which was accepted by the assessee and the valuation of stock was done by the registered valuer by applying a flat rate of Rs. 45,000/- per metric tons. The valuation of the stock comes to ₹31,05,572/-, whereas the stocks as per books of account on the date of search were 9446.393 metric tons valued at ₹28,52,74,342/-. Thus, there was excess physical stocks of 1032.048 metric tons the value of which comes to ₹3,46,31,230/- (₹31,99,05,572/--28,52,74,342/-). Thus, the search team found excess stock of this extent and the said stock was added by the ld. AO as an unexplained investment in the assessment framed.
10.2. In the appellate proceedings, the ld. CIT (A) allowed the appeal of the assessee by holding that the Valuer Sh. Surendra 10.3. After hearing the rival contentions and perusing the materials available on record, we find that the ld. CIT (A) noted that there was a fatal mistake in appointing valuer who was not qualified to value the stocks in view of the decision of Hon'ble Karnataka High Court in case of V. Selvaraj Vs. DCIT dated 19.08.2021, wherein it has been categorically held that the valuation report is liable to be rejected if the registered valuer does not possess the qualification to value a particular class of assets. The ld. CIT (A) noted that in the instant case the registered valuer Sh. Surendra Pratap Singh, is a registered valuer for valuing immovable properties as is cleared the registration certificate and his letterhead, which was on record. The ld. CIT (A) noted that his letterhead showed that he was empanelled by various Banks and Public Sector undertakings for valuation of immovable properties. The ld. CIT (A) also noted that qualification for valuers for different class of assets is prescribed in Rule 8A of Wealth Tax Rules and as per this rule, qualification of valuation of stock and business assets are as under:-
(7) A valuer of stocks, shares, debentures, securities, shares in partnership firms and of business assets, including goodwill but excluding those referred to in sub rules (2) to (6) and (8) to (11), shall have the following qualifications, namely; (i) he must be a member of the Institute of Chartered Accountants of India or the Institute of Cost and Works Accountants of India [or the Institute of Company Secretaries of India]; and (ii) (A) he must have been in practice as a chartered accountant or a cost and works accountant or a company secretary for a period of not less than ten years and his gross receipts from such practice should not be less than fifty thousand rupees in any three of the five preceding years, or
The issue raised in ground no.3 is against the order of ld. CIT (A) partly sustaining the addition made by the ld. AO at the rate of 15% of the total amount of hawala transactions done by the assessee of ₹3,67,50,000/- found on the basis of seized material LT-02, during search on the premises of the third party.
The appeal of the Revenue is dismissed.
A.Y.2017- The only issue raised by the assessee in this appeal is against the confirmation of addition of ₹6,36,585/- by the ld. CIT (A) as made by the ld. AO in respect of unaccounted purchases of jewellery on the basis of document SKM-01, found during the course of search at the premises of Shri Santosh Kumar Mandholia a third party . The assessee challenged the deletion by raising an additional ground which is as under:-
“For that the CIT-(A) has erred in confirming the action of the assessing officer in failing to appreciate that the addition on the basis of the material seized from the possession of the third party ought to have been made under section 153C of the Act and not under section 153A of the Act, which is wrong, illegal and unjustified in the facts and circumstances of the case” 13.1. After hearing the rival contentions and perusing the material on record, we find that the assessee has raised the above additional ground of appeal challenging the jurisdiction of the of the AO to make addition. In our opinion the issued raised in the additional ground is a purely a legal issue qua which all the facts are available in the appeal folder and no further verification of facts are required from any quarter whatsoever. In our considered view the assessee is at liberty to raise any legal issue before any appellate authority for the first time even when the same has not been raised before the lower authorities. The case of the assessee is squarely coverd by the decisions of the Apex court in the case of i) Jute Corporation of India Ltd. Vs CIT in 187 ITR 688 , ii) National 13.2. Since the issue raised in this additional is similar to one as decided by us in ground no.4 in wherein we have held that the addition based on the seized document found during the course of search on the third party can only be made if the proceedings are initiated u/s 153C of the Act. Since, in this case also the proceedings are initiated u/s 153A of the Act and the assessment was framed accordingly vide order dated 27.9.21 passed u/s 153A of the Act. Therefore, the same is invalid and cannot be sustained. Consequently, our finding in in . Hence, the appeal of assessee is allowed.
13.3. The appeal of the assessee is allowed.
In the result, the appeals of the assessee are allowed and appeal of the Revenue is dismissed.
Order pronounced in the open court on 26.02.2026.