NIYAZ SEA FOODS,MANGALORE vs. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, MANGALORE

PER CHANDRA POOJARI, ACCOUNTANT MEMBER:

1. The learned CIT(A) on the facts and in the circumstances of the case is not justified in law in making additions under section 41 (1) of the act a sum of Rs. 1,94,18,130 by overlooking the explanation and submission made by the appellant during the course of assessment.

2. The learned CIT(A) has failed to understand the fact that additions on account of cession or remission of liability cannot be made under section 41 (1) unless it is established that liability has been ceased.

3. The learned CIT(A) ought to have appreciated that the assessing officer has made an addition under section 153C without having found any incriminating material, hence assessment is bad in law.

& 1019/Bang/2024 Niyaz Sea Foods, Mangaluru Page 2 of 34 4. The learned CIT(A) has grossly ignored that the voluntarily declared.income of Rs.7.50 crores has additional income which subsumed the said alleged additions made under section 41(1) amounting to Rs.1,94,18,130/-. 5. For these and other grounds that may be urged at the time of hearing of the appeal, the appellant prays that the appeal may be allowed.

& 1019/Bang/2024 Niyaz Sea Foods, Mangaluru Page 3 of 34 3. The ld. A.R. submitted that this is the assessment framed u/s 143(3) r.w.s. 153C of the Act. According to her, section 153C of the Act pertain to the non-searched entity and in respect of whom any material, books of accounts or documents would found seized and were found to belong to or pertain to a person other than the searched person. In terms of this provision, the ld. AO empowered to undertake and initiate assessment in respect of non-searched entity for these assessment years as well as for the “relevant assessment year” in which search took place. Thus, consequently, the ld. AO could frame the assessment for these assessment years u/s 153C of the Act and the searched assessment year only u/s 143(3) of the Act. Thus, she submitted that the assessment year 2017-18 is covered u/s 153C of the Act. This assessment should be solely based on the incriminating material found during the course of search action in case of searched person, which belong to the present assessee being the third person. She submitted that in the present case, the addition made by ld. AO by invoking the provisions of section 41(1) of the Act is not based on any seized material found during the course of search action. On the other hand, the ld. AO examined the books of accounts of the assessee and observed that an amount of Rs.1,94,18,130/- was seized to exist and it is a cessation of liability made an addition on this count, which was to be deleted. Even on merits, she submitted that provisions of section 141(1) of the Act cannot be applied as there was cessation of liability and this liability was shown in the assessee’s balance sheet as on 31.3.2017, which was duly audited by the CA. Further, she submitted that ld. AO not doubted the purchases in respect of these creditors and he has doubted only the one side of the entry made in the books of accounts of the assessee without rejecting the same. Further, ld. A.R. submitted that there was no write off of these debts in the books of accounts of the assessee and further she submitted that the ld. AO collected the evidence beyond the back of the assessee & 1019/Bang/2024 Niyaz Sea Foods, Mangaluru Page 4 of 34 and the same has been relied to make an addition by invoking the provisions of section 141(1) of the Act without giving opportunity examination of those parties. She relied on the judgement of Hon’ble Supreme Court in the case of CIT Vs. Sinhgad Education Society (397 ITR 344) 3.1 Further, the ld. A.R. submitted that during the course of search in the case of U.K Bava statement recorded u/s 132(4) of the Act on 8.2.2018 where he has offered an amount of Rs.7.5 crores as additional income of the present assessee by answering question no.25. 3.2 According to her, the income has been offered u/s 132(4) of the Act has been considered as additional income. While framing assessment order, the ld. AO once again cannot make further addition, which amounts to double addition.

5.1 During the search action the statement of assessee was recorded u/s 132(4) of the Act on 8.2.2018. The present assessee has offered Rs.7.5 crores as additional income in the assessment year under consideration. Further, while framing the assessment on examination of the books of accounts, the ld. AO observed that there are 21 creditors in whose name balance shown as outstanding at Rs.1,94,18,130/-. The ld. AO issued a show cause notice to the assessee on 27.11.2019 asking the assessee as to why the said amount shown as payable in respect of 21 persons who claimed to have not done any business with the assessee firm should not be added to his income u/s 41(1) of the Act. The assessee replied vide letter dated 6.12.2019 as follows:

With reference to the above, we would like to bring to your kind notice that we have been dealing raw fish trading business in wholesale in Bunder from past many years. We, proud to inform you that we are one among the big, reputed and trusted raw fish dealers in Mangaluru. We used to buy raw fishes (various varieties) from various boat owners on daily basis and same will be supplied to different Fish meal factories and other fish processing centers located in various states like Karnataka, Kerala, Gujarath etc. The creditors what we have shown in the books of accounts as on 31.03.2017 are genuine. But we have not able to prove the balances of all the creditors as the nature of business involved and the business is in unorganized sector. Many boat owners are hesitating to confirm the balance though they have supplied the fishes. Some of boat owners have & 1019/Bang/2024 Niyaz Sea Foods, Mangaluru Page 6 of 34 not been filing income tax returns as their income are in below taxable limit. As like earlier years, we have made purchases from the creditors named in the list during the year 2016-17 also. But we think they might have hesitated from the enquiries of Income Tax department and given statement that they have not done any business with Niyaz Sea Foods though they have supplied genuinely. If you add again Rs.1.94 crore, it will definitely affect adverse to our business as we are already facing financial problems due to recent business conditions (Fish catches have drastically came down during last 2 financial years). Considering all the facts and to buy peace and to avoid litigation with the Department we had voluntarily declared Rs. 7.5 crore as additional income on account of sundry creditors and other matters (Niyaz Seafoods and Niyaz Sea food exports) for the Ay 2017-18. We therefore request you to your honor consider the above facts; declaration of amount of Rs. 7.5 crore and nature of business involved, kindly drop the proposal of additions of Rs. 1.94 crore and do the needful sir.

5.2 The ld. AO not agreeing with the above reply made addition of Rs.1,94,18,130/-. First of all, there was no seized material found during the course of search action at the place of U.K. Bava in whose case there was search u/s 132 of the Act as it is to be noted that Hon’ble Supreme Court in the case of CIT Vs. Sinhgad Education Society (397 ITR 344), wherein their Lordship considered the judgement of Mumbai High Court in that case reported in 378 ITR 84 wherein observed as follows: “Held, dismissing the appeals, that the reasons assigned by the Assessing Officer in the satisfaction note were silent about the assessment year in which specific incriminating information or unaccounted or undisclosed hidden information was discovered or seized by the Revenue from the assessee. In the circumstances, the general satisfaction and as recorded in the note was not enough. There was absolutely nothing to indicate as to in which educational courses, the education was imparted and institution-wise, whether the admissions were granted to the technical courses merit-wise or on the basis of marks obtained in XII standard HSC exam. Whether any fee structure was approved and cash component was, therefore, collected over and above the sanctioned fees were matters which ought to have been gone into and there could not be a general or vague satisfaction. The Tribunal was justified in setting aside the assessments.”

5.3 As per provision u/s 153C of the Act, incriminating material which was seized had to define to the assessment years in question and it is the undisputed fact that the documents, which are seized did not establish any co-relation, document-wise with these assessment years. Since this requirement u/s 153C of the Act is essential for assessment under the provisions of section 153C of the Act, it becomes the jurisdictional fact. We find this reasoning to be logical and valid, having regard to provisions of section 153C of the Act. The crux of the above finding of the Hon’ble Supreme Court that assessment framed u/s 153C of the Act shall be based on the incriminating material found during the course of search action u/s 132 of the Act as relating to the third person mentioned in section 153C of the Act. In the present case, there was no seized material found to suggest the cessation of liability in respect of 21 parties mentioned by ld. AO in para 5.1 of his order. No material is there to suggest there was cessation of liability in respect of these creditors totalling of Rs.1,94,18,130/-. It is not possible to sustain the addition made by ld. AO while framing order u/s 143(3) r.w.s. 153C of the Act for the assessment year 2017-18 as this was not extended search A.Y. to make addition without any seized material. On this count, the addition to be deleted. Even otherwise, for making addition by invoking provisions of section 41(1) of the Act with regard to cessation of liability debt should be ceased to exist on the date of balance sheet i.e. on 31.3.2017. This issue was considered by Hon’ble Supreme Court in the case of CIT Vs. Mahindra & Mahindra Ltd. (404 ITR 1) (SC) wherein held that “to invoke the provisions of section 41(1) of the Act, it is a sine-qua-non that there should be an allowance or deduction claimed by the assessee in any assessment year in respect of loss, expenditure or trading liability incurred by assessee. This is, subsequently, during any previous year, if the creditor remits or waives any such liability then the assessee is liable to pay tax u/s 41(1) of the Act. The objection behind this is simple.

& 1019/Bang/2024 Niyaz Sea Foods, Mangaluru Page 8 of 34 It is made to ensure that assessee does not get away with the double benefit once by way of deduction and another by not being taxed on the benefit received by him in the later year. With reference to deduction allowed, earlier in case of remission of said liability section 41(1) of the Act particularly deals with the remission of trading liability. 5.4 In the present case, there was no material found during the course of search action to hold that the said liability ceased to exist and it has been shown in the books of accounts and there was no write off of said debts by the assessee or by the creditors, in such circumstances, it is not possible to hold that there was cessation of liability in the assessment year under consideration. On this count also, addition cannot be made. More so, when the ld. AO has not rejected the books of accounts of the assessee that it has not been maintained so as to deduce true profit and loss of the assessee. Considering the totality of the facts and circumstances of the case, we delete the addition made by ld. AO by invoking the provisions of section 41(1) of the Act in respect of impunged amount of Rs.1,94,18,130/-. Accordingly, all the grounds of appeal of assessee are allowed. 5.5 In the result, appeal in (AY 2018-19):

6. In this appeal, the assessee raised following grounds:

1. The learned CIT(A) on the facts and in the circumstances of the case is not justified in law in making additions amounting to Rs.36,58,288 as unaccounted purchases by overlooking the explanation and submission made by the appellant during the course of assessment.

2. The learned CIT(A) has grossly ignored that the voluntarily declared income of Ü.50 crores has additional income which subsumed the said alleged additions amounting Rs.33,84,300/-

3. Without prejudice to the above, CIT(A) ought to have been taxed, only the profit element of Rs.33,84,300/- at gross profit ratio of Rs. 2-3 percent as prevailing in the fishing business.

& 1019/Bang/2024 Niyaz Sea Foods, Mangaluru Page 9 of 34 4. For these and other grounds that may be urged at the time of hearing of the appeal, the appellant prays that the appeal may be allowed.

& 1019/Bang/2024 Niyaz Sea Foods, Mangaluru Page 10 of 34 9. The ld. D.R. submitted that there was evidence in the form of seized material No.12/A/NSF/2017-18 pages 101 to 104 showing the purchase of Rs.33,84,300/-, which has not been accounted by the assessee. Hence, the addition has been made.

10.1 According to the ld. AO, it shows the purchase made by assessee from Ibrahim. However, this is unsubstantiated loose slips not supported by any corroborative material. It is incumbent upon the searched party/AO to bring on record corroborative material suggesting unaccounted assets/purchases.

10.2 At this point, we consider few precedents on this issue. In the case of Mahesh Reddy Vs. ACIT in Gyan Kumar Agrawal Vs. ACIT 60 DTR 241, Dhatrii Constructions Pvt. Ltd Vs. DCIT in ITO Vs. Kranti Impex Pvt. Ltd., Mumbai in ITA No.2229/Mum/2013 dated 28.12.2018, PCIT Vs. & 1019/Bang/2024 Niyaz Sea Foods, Mangaluru Page 11 of 34 Umesh Israni 108 Taxmann.com 437 (Bom), DCIT Central Circle Vs. Sri Krishna Yadav 12 taxmann.com 4 (Hyd), Gayatri Enterprises Vs. ITO 116 Taxmann.com 359 (Guj), ITO Vs. Bharat A. Mehta 60 taxmann.com 31 (Guj), CIT Vs. Vineet Gupta 46 taxmann.com 439 (Del), CIT Vs. K.V. Laxmi Savitri Devi Vs. ACIT 60 DTR 148. In all these judgements it was held that no addition can be made on the basis of loose papers which does not contain the name and date of payment. The department is precluded in drawing inference on the basis of suspicion, conjectures and surmises and no addition can be made on the basis of such document or loose slips. 10.3 In the case of K.V. Laxmi Savitri Devi Vs. ACIT 60 DTR 148 it was held by the ITAT Hyderabad Bench that "No addition can be made on the basis of a loose paper which does not contain the name and the date of payment. The department is precluded in drawing inferences on the basis of suspicion, conjecture and surmises and no addition can be made on the basis of such dump document or loose sheets. 10.4 On further appeal before the Hon'ble AP High Court, the court vide its order in ITTA No.563 of 2011 upheld the decision of the Tribunal. While upholding the decision of the Hon'ble ITAT, the court held as following: " We are of the view that the Tribunal has rightly held that the registered document dt.21-08-2006 under which the respondent purchased the above property showed that only Rs.65.00 lakhs was paid to the vendor by the respondent; that there was no evidence to how that the respondent had paid Rs.1.oo crore in cash also to the vendor; that no presumption of such payment of rs.1.00 crore in cash can be drawn on the basis of an entry found in a diary/loose sheet in the premises of C.Radha Krishna Kumar which is not in the respondent's handwriting and which did not contain the name of the respondent or any date of payment or the name of the person who made the payment. It rightly held that the Revenue failed to establish the nexus of the seized material to the respondent and had drawn inferences based on suspicion, conjectures and surmises which cannot take the place of proof. We also agree with the Tribunal that the assessing Officer did not conduct any independent enquiry relating to the value of the property purchased and the burden of proving the actual consideration in the purchase of the property is on the Revenue and it had failed to discharge the said burden."

& 1019/Bang/2024 Niyaz Sea Foods, Mangaluru Page 12 of 34 10.5 No undisclosed Income can be computed by invoking the presumption U/s 132(4A) when the documents are seized from the premises of a third party. This was held in the case of [2005] 147 Taxman 59 (Visakhapatnam) (Mag.) In the ITAT VISAKHAPATNAM BENCH Smt. Bommana Swarna Rekha v. Assistant Commissioner of Income-tax. A presumption can be raised on the basis of possession of a document found during the course of search only against a searched person and, thus, no adverse inference could be drawn against the assessee on the basis of the possession of the diary with the third party. This was held in the case of SMC Share Brokers Ltd Vs DCIT [2008] 22 SOT 7 by Hon'ble ITAT Delhi. 10.6 Where Assessing Officer made addition to assessee's income on basis of a document seized in course of search, in view of fact that document seized was both undated and unsigned and even taken at face value did not lead to further enquiry on behalf of Assessing Officer, impugned order of Tribunal deleting addition was to be confirmed. Where Assessing Officer in course of block assessment proceedings made addition in respect of unexplained investment relating to purchase of property, in absence of any incriminating evidence with respect to payment over and above reported amount, addition so made deserved to be deleted. 10.7 In the case of HIGH COURT OF DELHI Commissioner of Income-tax-XIV v. Vivek Aggarwal [2015] 56 taxmann.com 7 (Delhi) the Assessing Officer has resorted to make the addition on mere loose paper without corroborative evidence. The document which does not describe and express any meaning cannot be relied upon by the Assessing Officer. 10.8 It was held by Hon'ble Delhi High court in the case of CIT Vs Sant Lal vide [2020] 118 Taxmann.com 432 that "13. In view of the aforesaid facts and the concurrent findings given by the CIT (A) and ITAT, it is evident that the Revenue has not been able to produce any cogent material which could fasten the liability on the respondent. The CIT(A) has also & 1019/Bang/2024 Niyaz Sea Foods, Mangaluru Page 13 of 34 examined the assessment record and has observed that the AO did not make any further inquiry/investigation on the information passed on by the DCIT, Central Circle-19, New Delhi. No attempt or effort was made to gather or corroborate evidence in this relation.

• The trigger for the above change was a series of decisions under Section 153C, as it stood prior to the amendment, which categorically held that unless the documents or material seized 'belonged' to the Assessee, the assumption of jurisdiction under Section 153C of the Act qua such Assessee would be impermissible. The legal position in this regard was explained in Pepsi Foods (P.) Ltd. v. Asstt. CIT [2014] 367 ITR 112 (Del)where in para 6 it was held as under: '6. On a plain reading of Section 153C, it is evident that the Assessing Officer of the searched person must be "satisfied" that inter alia any document seized or requisitioned "belongs to" a person other than the searched person. It is only then that the Assessing Officer of the searched person can handover such document to the Assessing Officer having jurisdiction over such other person (other than the searched person). Furthermore, it is only after such handing over that the Assessing Officer of such other person can issue a notice to that person and assess or reassess his income in accordance with the provisions of Section 153A. Therefore, before a notice under Section 153C can be issued two steps have to be taken. The first step is that the Assessing Officer of the person who is searched must arrive at a clear satisfaction that a document seized from him does not belong to him but to some other person. The second step is -after such satisfaction is arrived at - that the document is handed over to the Assessing Officer of the person to whom the said document "belongs". In the present cases it has been urged on behalf of the petitioner that the first step itself has not been fulfilled. For this purpose it would be necessary to examine the provisions of presumptions as indicated above. Section132 (4A) (i) clearly stipulates that when inter alia any document is found in the possession or control of any person in the course of a search it may be presumed that such document belongs to such person. It is similarly provided in Section 292C (1) (i). In other words, whenever a document is found from a person who is being searched the normal presumption is that the said document belongs to that person. It is for the Assessing Officer to rebut that presumption and come to a conclusion or "satisfaction" that the document in fact belongs to somebody else. There must be some cogent material available with the Assessing Officer before he/she arrives at the satisfaction that the seized document does not belong to the searched person but to somebody else. Surmise and conjecture cannot take the place of "satisfaction'.

& 1019/Bang/2024 Niyaz Sea Foods, Mangaluru Page 15 of 34 • In the present case the search took place on 5th January 2009. Notice to the Assessee was issued under Section 153 C on 19th November 2010. This was long prior to 1st June, 2015 and, therefore, Section 153C of the Act as it stood at the relevant time applied. In other words, the change brought about prospectively with effect from 1st June, 2015 by the amended Section 153C (1) of the Act did not apply to the search in the instant case. Therefore, the onus was on the Revenue to show that the incriminating material/documents recovered at the time of search 'belongs' to the Assessee. In other words, it is not enough for the Revenue to show that the documents either 'pertain' to the Assessee or contains information that 'relates to' the Assessee. • In the present case, the Revenue is seeking to rely on three documents to justify the assumption of jurisdiction under Section 153 C of the Act against the Assessee. Two of them, viz., the licence issued to the Assessee by the DTCP and the letter issued by the DTCP permitting it to transfer such licence, have no relevance for the purposes of determining escapement of income of the Assessee for the AYs in question. Consequently, even if those two documents can be said to 'belong' to the Assessee they are not documents on the basis of which jurisdiction can be assumed by the AO under Section 153C of the Act. • As far as the third document, being Annexure A to the statement of Mr. D. N. Taneja, is concerned that was not a document that 'belonged' to the Assessee. Admittedly, this was a statement made by Mr. Taneja during the course of the search and survey proceedings. While it contained information that 'related' to the Assessee, by no stretch of imagination could it be said to a document that 'belonged' to the Assessee. Therefore, the jurisdictional requirement of Section 153C of the Act, as it stood at the relevant time, was not met in the present case. • For the aforementioned reasons, this Court concludes that the ITAT committed no legal error in holding that the AO had wrongly assumed jurisdiction under Section 153C qua the Assessee. The ITAT, rightly, therefore, set aside the order of the CIT (A), which had held the contrary.”

10.11 Moreover, in the decision of the Hon'ble Supreme Court in the case of CIT Vs. Singhad Technical Education Society reported in [2017] (378 ITR 84) (SC) it was categorically held that the incriminating material should belong to the & 1019/Bang/2024 Niyaz Sea Foods, Mangaluru Page 16 of 34 assessee and for the assessment year under consideration in the following manner: “15. At the outset, it needs to be highlighted that the assessment order passed by the AO on August 7, 2008 covered eight Assessment Years i.e. Assessment Year 1999-2000 to Assessment Year 2006-07. As noted above, insofar as Assessment Year 1999-2000 is concerned, same was covered under Section 147 of the Act which means in respect of that year, there were re-assessment proceedings. Insofar as Assessment Year 2006-07 is concerned, it was fresh assessment under Section 143(3) of the Act. Thus, insofar as assessment under Section 153C read with Section 143(3) of the Act is concerned, it was in respect of Assessment Years 2000- 01 to 2005-06. Out of that, present appeals relate to four Assessment Years, namely, 2000-01 to 2003-04 covered by notice under Section 153C of the Act. There is a specific purpose in taking note of this aspect which would be stated by us in the concluding paragraphs of the judgment.

• In these appeals, qua the aforesaid four Assessment Years, the assessment is quashed by the ITAT (which order is upheld by the High Court) on the sole ground that notice under Section 153C of the Act was legally unsustainable. The events recorded above further disclose that the issue pertaining to validity of notice under Section 153C of the Act was raised for the first time before the Tribunal and the Tribunal permitted the assessee to raise this additional ground and while dealing with the same on merits, accepted the contention of the assessee. • First objection of the learned Solicitor General was that it was improper on the part of the ITAT to allow this ground to be raised, when the assessee had not objected to the jurisdiction under Section 153C of the Act before the AO. Therefore, in the first instance, it needs to be determined as to whether ITAT was right in permitting the assessee to raise this ground for the first time before it, as an additional ground. • The ITAT permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, documentwise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under & 1019/Bang/2024 Niyaz Sea Foods, Mangaluru Page 17 of 34 that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred. • We, thus, find that the ITAT rightly permitted this additional ground to be raised and correctly dealt with the same ground on merits as well. Order of the High Court affirming this view of the Tribunal is, therefore, without any blemish. Before us, it was argued by the respondent that notice in respect of the Assessment Years 2000-01 and 2001-02 was time barred. However, in view of our aforementioned findings, it is not necessary to enter into this controversy.” 10.12 At this point, we rely on the order of the Tribunal in the case of ACIT Vs. Manchukonda Shyam in ITA 87/Viz/2020 dt.23.09.2020 wherein the Tribunal at paras 6 and 6.1 has held as under : “6. We have heard both the parties, gone through the orders of the authorities below. Shri Lanka Anil Kumar is an employee of M/s Navaratna Estates Ltd. A search u/s 132 was conducted in the residence of Shri Lanka Anil Kumar and certain sums were found in whatsapp messages in digits. When asked to explain, Shri Anil Kumar stated that the amounts were written in thousands represent lakhs and the total sum of Rs.1,05,00,000/-was taken as loan from the assessee in cash for his business purposes. When confronted with the assessee, he explained that the amounts mentioned in thousands are correct and the total amount would be in the range of Rs.5,000/- and Rs.10,000/- given to Shri Anil Kumar to meet the petty cash or miscellaneous expenses from M/s Navaratna Estates during registration of properties. A search u/s 132 was conducted in the case of Shri Lanka Anil Kumar as well as the assessee and the survey u/s 133A was conducted in the case of M/s Navaratna Estates. No evidence was found by the department either in the premises of the assessee or in the premises of M/s Navaratna Estates, having given loan to Sri Anil Kumar to the extent of Rs.1,05,00,000/-. In the search proceedings in the residence of Shri Anil Kumar also, no evidence with regard to unaccounted investment or & 1019/Bang/2024 Niyaz Sea Foods, Mangaluru Page 18 of 34 expenditure representing the loan supposed to be taken from the assessee was found. Merely on the basis of the statement given by Shri Lanka Anil Kumar, which was subsequently retracted, the AO made the addition on the presumption that the assessee had advanced the sums to Shri Lanka Anil Kumar without bringing any evidence on record. The AO has neither given opportunity to the assessee to cross examine the third party nor disproved the explanation given by the assessee. As found from the order of the AO Sri Lanka Anil Kumar is an employee of M/s Navaratna Estates and drawing the salary of Rs.25000/- per month. He explained that the sums mentioned in the whatsapp messages were related to the amounts given to Sri Lanka Anil Kumar in the range of Rs.5,000/- to Rs.10,000/- to meet the petty cash and miscellaneous expenses. No evidence was found with regard to the investment made by Shri Anil Kumar in his own business out of the loans stated to have given by the assessee. In the above facts and circumstances there is no reason to disbelieve the statement given by the assessee that the payments were given for meeting petty cash or miscellaneous expenses. The Ld.CIT(A) following the decisions of Hon’ble Jurisdictional High Court as well as this Tribunal held that on the basis of notings and loose sheets found from third parties and the statement of third parties, the additions cannot be made without having corroborative / independent evidences. For the sake of clarity and convenience, we extract relevant part of the order of Ld.CIT(A) in para No.6.2 of page No.13 which reads as under : “6.2. I have considered the assessment order and submissions of the appellant. It is seen that the addition made by the AO is solely based on the social media (whatsapp) messages exchanged between the appellant and Mr. Anil Kumar, an employee of M/s Navaratna Estates. A statement u/s.132 recorded from Mr. L, Anil Kumar during the course of Search during which Mr. L. Anil Kumar was questioned and he explained the nature and 'details of messages exchanged by him with the appellant. The messages contain details of transactions in digits. Those were explained to be in lakhs of rupees and the transaction was loans advanced by the appellant to Mr.L. Anil Kumar whereas the appellant explained the same to be in thousands of rupees which were given for miscellaneous expenses. Mr.L. Anil Kumar also took similar stand in his assessment proceedings and said that the statement given during Search was under duress. The AO has not brought on record any evidences as to utility of such amount nor any other corroborative evidence to support the findings. Such evidences(Messages) without any supporting/corroborative along with admission of third person cannot be, basis for AO to come to conclusion and make addition in the assessment order. The low or the issue is laid down by the jurisdictional High Court, and followed by ITAT consistently in the following cases.

• K. V. Lakshmi Savitri Devi Vs ACT 148 ITJ 517 (Hyd). & 1019/Bang/2024 Niyaz Sea Foods, Mangaluru Page 19 of 34 • K. V. Lakshmi Savjtri Devi Vs ACIT ITTA 563 of 2017 (AP)(HC) • iii) Jawahar Bhai Atmaram Hathiwala Vs ITO 128 ITJ 36 (Ahd) • iv) DCIT Vs B. Vijaya Kumar & 931 of 2009 (Hyd). • v) CIT Vs R. Nalini Devi ITTA 232 of 2013 (A. P) • CIT Vs P. V Kalyana Sundaran (2007) 294 ITR 49 • i. Venkata Rama Sai Developers Vs DCIT ITA 453/Vizag/2012. P. Venkateshwar Rao Vs DCIT ITA • 25/825/Vizag/2012. The ratio laid down is that solely on the basis evidences such as notings in loose sheets found with third parties and the statement of third parties, additions cannot be made without corroborative evidences and independent enquiries. Applying the above ratio to the facts of the case, it is held that the addition made is not warranted, the same is deleted.” 6.1. No evidence was found by the department to establish that assessee has given loans to Shri Lanka Anil Kumar during the course of search and no evidence was found regarding utilization of purported advances by Shri Lanka Anil Kumar. Shri Anil Kumar also subsequently retracted from the statement and clarified that he has not received any cash loans from the assessee. Addition was made merely on the basis of whatsapp messages and the statement recorded from section 132(4) from Shri Lanka Anil Kumar which was subsequently retracted. Therefore we are of the view that the addition made by the AO is unsustainable and the Ld.CIT(A) rightly deleted the addition. Accordingly, we do not see any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. The appeal of the revenue on this ground is dismissed.”

10.13 Further, Hon’ble Supreme Court in the case of Common Cause (A registered Society) Vs. Union of India in Writ Petition (Civil) No.505 of 2015 dated 2.7.2018 [2017] 394 ITR 220 (SC) wherein considered and observed that the entries in the loose papers/sheets are not “books of accounts” and has no evidentiary value u/s 34 of the Indian Evidence Act. The Hon’ble Supreme Court dismissing the writ petition filed by Common Cause, a registered society, refused to give nod to investigate against the Sahara and Birla Groups in the alleged payoff scandal. The factual setting of the case are that, a search was conducted by the CBI in the premises of Birla Groups, as & 1019/Bang/2024 Niyaz Sea Foods, Mangaluru Page 20 of 34 a result of which, certain incriminating materials and an amount of Rs.25 crores were recovered. CBI referred the matter to Income Tax Department. In another search, the IT department recovered certain incriminating materials and unaccounted money of Rs.135 crores from Sahara Group of Companies. Allegedly the department recovered certain print out of excel sheets showing that Rs.115 crores were paid to several public figures. The settlement commission granted immunity to the Sahara Group of Companies on ground that the scrutiny of entries on loose papers, computer prints, hard disk, pen drives, etc. have revealed that the transactions noted on documents were not genuine and have no evidentiary value and that details in these loose papers, computer print outs, hard disks and pen drives, etc. do not comply with the requirement of the Indian Evidence Act and are not admissible evidence. The Income Tax Settlement Commission has also observed that department has not been able to make out a clear case of taxing such income in the hands of the applicant firm on the basis of these documents. The petitioner, Common Cause, impugned the orders before the Hon’ble Supreme Court. Dismissed the petition Supreme Court clarified that the evidence that had surfaced was not credible and cogent. The Attorney General contended that documents which have been filed by the Birla as well as Sahara Group are not in the form of Account books maintained in the regular course of business. They are random sheets and loose papers and their correctness and authenticity even for the purpose of income mentioned therein have been found to be unreliable having no evidentiary value, by the concerned authorities of Income Tax. Analysing the veracity of the evidences procured from the companies, the Supreme Court, relied upon the ratio laid in V.C. Shukla case and observed that the entries in loose sheets of papers are not in the form of “Books of Accounts” and has held that such entries in loose papers/sheets are irrelevant and not admissible u/s 34 of Indian Evidence Act, and that only & 1019/Bang/2024 Niyaz Sea Foods, Mangaluru Page 21 of 34 where the entries are in the Books of Accounts regularly kept depending on the nature of the occupation, that those are admissible. 10.14 Further, we rely on the order of this Tribunal in the case of M/s. John Distilleries in to 987/Bang/2023 dated 24.7.2024 wherein held as under: Further, the ld. AO cannot solely rely on the statement recorded u/s “20.13 132(4) of the Act without appropriate corroborative materials as recently held by Hon’ble Delhi High Court in the case of PCIT Vs. Pavitra Realcon Pvt. Ltd. reported in ITA No.579/2018 dated 29.5.2024, wherein held as under: “17. We have heard the learned counsels appearing on behalf of the parties and perused the record.

In the case of Kailashben Manharlal Chokshi v. CIT1, the Gujarat 21. High Court held that the additions could not be made only on the basis of admissions made by the assessee, in the absence of any corroborative material. The relevant paragraph no. 26 of the said decision has been reproduced hereinbelow: - 26. In view of what has been stated hereinabove we are of the view that this explanation seems to be more convincing, has not been considered by the authorities below and additions were made and/or confirmed merely on the basis of statement recorded under section 132(4) of the Act. Despite the fact that the said statement was later on retracted no evidence has been led by the Revenue authority. We are, therefore, of the view that merely on the basis of admission the assessee could not have been subjected to such & 1019/Bang/2024 Niyaz Sea Foods, Mangaluru Page 22 of 34 additions unless and until, some corroborative evidence is found in support of such admission. We are also of the view that from the statement recorded at such odd hours cannot be considered to be a voluntary state ment, if it is subsequently retracted and necessary evidence is led contrary to such admission. Hence, there is no reason not to disbelieve the retrac tion made by the Assessing Officer and explanation duly supported by the evidence. We are, therefore, of the view that the Tribunal was not justified in making addition of Rs. 6 lakhs on the basis of statement recorded by the Assessing Officer under section 132(4) of the Act. The Tribunal has com mitted an error in ignoring the retraction made by the assessee. [Emphasis supplied]

[Emphasis supplied]

B. Both Sections 153A and 153C embody non-obstante clauses and are in express terms ordained to override Sections 139, 147 to 149, 151 and 153 of the Act. By virtue of the 2017 Amending Act, significant amendments came to be introduced in Section 153A. These included, inter alia, the search assessment block being enlarged to ten AYs' consequent to the addition of the stipulation of “relevant assessment year” and which was defined to mean those years which would fall beyond the six year block period but not later than ten AYs'. The block period for search assessment thus came to be enlarged to stretch up to ten AYs'. The 2017 Amending Act also put in place certain prerequisite conditions which would have to inevitably be shown to be satisfied before the search assessment could stretch to the “relevant assessment year”. The preconditions include the prescription of income having escaped assessment and represented in the form of an asset amounting to or “likely to amount to” INR 50 lakhs or more in the “relevant assessment year” or in aggregate in the “relevant assessment years”. C. Section 153C, on the other hand, pertains to the non-searched entity and in respect of whom any material, books of accounts or documents may have been seized and were found to belong to or pertain to a person other than the searched person. As in the case of Section 153A, Section 153C was also to apply to all searches that may have been undertaken between the period 01 June 2003 to 31 March 2021. In terms of that provision, the AO stands similarly empowered to undertake and initiate an assessment in respect of a non-searched entity for the six AYs' as well as for “the relevant assessment year”. The AYs', which would consequently be thrown open for assessment or reassessment under Section 153C follows lines pari materia with Section 153A. D. The First Proviso to Section 153C introduces a legal fiction on the basis of which the commencement date for computation of the six year or the ten year block is deemed to be the date of receipt of books of accounts by the jurisdictional AO. The identification of the starting block for the purposes of computation of the six and the ten year period is governed by the First Proviso to Section 153C, which significantly shifts the reference point spoken of in Section 153A(1), while defining the point from which the period of the “relevant assessment year” is to be calculated, to the date of receipt of the books of accounts, documents or assets seized by the jurisdictional AO of the non-searched person. The shift of the relevant date in the & 1019/Bang/2024 Niyaz Sea Foods, Mangaluru Page 27 of 34 case of a non-searched person being regulated by the First Proviso of Section 153C(1) is an issue which is no longer res integra and stands authoritatively settled by virtue of the decisions of this Court in SSP Aviation and RRJ Securities as well as the decision of the Supreme Court in Jasjit Singh. The aforesaid legal position also stood reiterated by the Supreme Court in Vikram Sujitkumar Bhatia. The submission of the respondents, therefore, that the block periods would have to be reckoned with reference to the date of search can neither be countenanced nor accepted. E. The reckoning of the six AYs' would require one to firstly identify the FY in which the search was undertaken and which would lead to the ascertainment of the AY relevant to the previous year of search. The block of six AYs' would consequently be those which immediately precede the AY relevant to the year of search. In the case of a search assessment undertaken in terms of Section 153C, the solitary distinction would be that the previous year of search would stand substituted by the date or the year in which the books of accounts or documents and assets seized are handed over to the jurisdictional AO as opposed to the year of search which constitutes the basis for an assessment under Section 153A. F. While the identification and computation of the six AYs' hinges upon the phrase “immediately preceding the assessment year relevant to the previous year” of search, the ten year period would have to be reckoned from the 31st day of March of the AY relevant to the year of search. This, since undisputedly, Explanation 1 of Section 153A requires us to reckon it “from the end of the assessment year”. This distinction would have to necessarily be acknowledged in light of the statute having consciously adopted the phraseology “immediately preceding” when it be in relation to the six year period and employing the expression “from the end of the assessment year” while speaking of the ten year block.” [Emphasis supplied] 29. It is thus seen that in order to determine block of six AYs, one must first identify the FY in which the search occurred, leading to the identification of the AY relevant to the previous year of the search. The block of six AYs will then be those immediately preceding the AY relevant to the search year. For a search assessment under Section 153C of the Act, the only difference is that the previous year of the search is replaced by the date or year in which the seized books of accounts, documents, and assets are handed over to the jurisdictional AO, rather than the year of the search, which is the basis for an assessment under Section 153A of the Act. Therefore, the relevant AY in the present case would come under the block of six AYs immediately preceding the & 1019/Bang/2024 Niyaz Sea Foods, Mangaluru Page 28 of 34 AY in which the satisfaction note was recorded by the AO of the respondent- assessee companies.

& 1019/Bang/2024 Niyaz Sea Foods, Mangaluru Page 30 of 34 [Emphasis supplied] 33. Further, the argument of learned counsel for the Revenue that this mistake is curable under Section 292B of the Act lacks merit as the plain language of the said Section makes it abundantly clear that this provision condones the invalidity which may arise merely by mistake, defect or omission in notice. The said Section reads as under: - 292-B. Return of income, etc., not to be invalid on certain grounds.—No return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.

• K. V. Lakshmi Savitri Devi Vs ACT 148 ITJ 517 (Hyd). • K. V. Lakshmi Savjtri Devi Vs ACIT ITTA 563 of 2017 (AP)(HC) • Jawahar Bhai Atmaram Hathiwala Vs ITO 128 ITJ 36 (Ahd) • DCIT Vs B. Vijaya Kumar & 931 of 2009 (Hyd). • CIT Vs R. Nalini Devi ITTA 232 of 2013 (A. P) • CIT Vs P. V Kalyana Sundaran (2007) 294 ITR 49 • Venkata Rama Sai Developers Vs DCIT ITA 453/Vizag/2012. • P. Venkateshwar Rao Vs DCIT ITA 25/825/Vizag/2012. The ratio laid down is that solely on the basis evidences such as notings in loose sheets found with third parties and the statement of third parties, additions cannot be made without corroborative evidences and independent enquiries. Applying the above ratio to the facts of the case, it is held that the addition made is not warranted, the same is deleted.” 6.1. No evidence was found by the department to establish that assessee has given loans to Shri Lanka Anil Kumar during the course of search and no evidence was found regarding utilization of purported advances by Shri Lanka Anil Kumar. Shri Anil Kumar also subsequently retracted from the statement and clarified that he has not received any cash loans from the assessee. Addition was made merely on the basis of whatsapp messages and the statement recorded from section 132(4) from Shri Lanka Anil Kumar which was subsequently retracted. Therefore we are of the view that the addition made by the AO is unsustainable and the Ld.CIT(A) rightly deleted the addition. Accordingly, we do not see any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. The appeal of the revenue on this ground is dismissed.”

20.16 In the light of the above decisions, statements recorded u/s 132(4) of the I.T. Act, 1961 solely cannot constitute as incriminating material so as to make these additions. 20.17 The Hon’ble Supreme Court in Andaman Timber Industries v. Commissioner of Central Excise, 281 CTR 241 (SC) held as follows:- “Not allowing the assessee to cross-examine the witness by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross- examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed & 1019/Bang/2024 Niyaz Sea Foods, Mangaluru Page 34 of 34 by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. (para 6) Appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price-list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price-list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. (para 7) If the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show-Cause Notice. (para 8)” 10.15 In view of the above discussion, we delete the impugned addition.