DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE- 1(1), BENGALURU, BENGALURU vs MS. JOHN DISTILLERIES PVT LTD, BENGALURU

Income Tax Appellate Tribunal, “C” BENCH: BANGALORE

Before: SHRI CHANDRA POOJARI & SHRI KESHAV DUBEY

For Respondent: Ms. Neera Malhotra, D.R

Hearing: 19.06.2024Pronounced: 24.07.2024

BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI KESHAV DUBEY, JUDICIAL MEMBER

ITA Nos.982 to 987/Bang/2023 Assessment Years: 2011-12 to 2016-17

M/s. John Distilleries Pvt. Ltd. C/o Gowthama & Company, Chartered Accountants No.23/57, 41st Cross, DCIT East End C Main Road 9th Block Vs. Central Circle-1(1) Jayanagar Bangalore Bangalore 560 069

PAN NO : AAACJ4322P APPELLANT RESPONDENT

ITA Nos.961, 962 & 1012/Bang/2023 Assessment Years: 2015-16, 2016-17 & 2014-15 respectively

M/s. John Distilleries Pvt. Ltd No.401-410, C Wing DCIT Mittal Tower, M.G. Road Central Circle-1(1) Vs. Bangalore 560 001 Bangalore Karnataka

PAN No.AAACJ4322P APPELLANT RESPONDENT

ITA Nos.838 to 843/Bang/2023 Assessment Years: 2011-12 to 2016-17 M/s. Paul Resorts & Hotels Pvt. Ltd. C/o Gowthama & Company, Chartered Accountants DCIT No.23/57, 41st Cross, Vs. Central Circle-1(1) East End C Main Road 9th Block Bangalore Jayanagar Bangalore 560 069

PAN NO : AACCB3797N APPELLANT RESPONDENT ITA Nos.844/Bang/2023 Assessment Year: 2017-18 M/s. Paul Plathotathil John C/o Gowthama & Company, Chartered Accountants No.23/57, 41st Cross, DCIT East End C Main Road 9th Block Vs. Central Circle-1(1) Jayanagar Bangalore Bangalore 560 069

PAN NO : ADCPJ0742K APPELLANT RESPONDENT

ITA Nos.845 to 847/Bang/2023 Assessment Years: 2014-15 to 2016-17 M/s. John Developers C/o Gowthama & Company, Chartered Accountants No.23/57, 41st Cross, DCIT East End C Main Road 9th Block Vs. Central Circle-1(1) Jayanagar Bangalore Bangalore 560 069

PAN NO : AAJFJ2606A APPELLANT RESPONDENT

Appellant by : Sri T.M. Shivakumar, Sr. A.R. Respondent by : Ms. Neera Malhotra, D.R.

Date of Hearing : 19.06.2024 Date of Pronouncement : 24.07.2024

O R D E R PER BENCH:

All the appeals by assessee and revenue are directed against different orders of CIT(A) for the respective assessment years noted above. Since the issues in all these appeals is common except for figures, these are clubbed together, heard together and disposed of by this common order for the sake of convenience.

ITA Nos.982 to 987/Bang/2023 in the case of M/. John Distilleries Pvt. Ltd. for the AYs 2011-12 to 2016-17: 2. First, we will take up ITA Nos.982 to 987/Bang/2023 for the assessment years 2011-12 to 2016-17. 2.1 These appeals are directed against common order of CIT(A) for the assessment years 2011-12 to 2017-18 dated 31.12.2018. Since the issues in these appeals are common, these are clubbed together, heard together and disposed of by this common order for the sake of convenience. 3. The assessee filed common additional ground in ITA Nos.984, 986/Bang/2023 for assessment years 2013-14 & 2015-16 under Rule 11 of the I.T. Act along with petition as follows: “Ground no. 9A: Without prejudice to the above, there was no transaction with the said contractors during the Previous Year 2012- 13 and hence no addition was called for in this AY and thus the addition made by the AO is liable to be deleted.”

Similar additional ground in assessment year 2015-16. 3.1 With regard to above additional ground, the contention of the assessee counsel is that in this two assessment years 2013-14 & 2015-16, there was no transaction with the said contractors which

We have heard the both the parties on admission of additional grounds. In our opinion, all the facts are already on record and there is no necessity of investigation of any fresh facts for the purpose of adjudication of above ground. Accordingly, by placing reliance on the judgement of Hon’ble Supreme Court in the case of NTPC Vs. CIT 229 ITR 383 (SC) we inclined to admit the additional ground for the purpose of adjudication as there was no investigation of any fresh facts otherwise on record and the action of the assessee is bona fide. 6. The assessee filed application under Rule 29 r.w.s. Rule 18(4) of the ITAT Rules, 1962 in ITA Nos.982 to 987/Bang/2023 wherein assessee filed following additional evidences for consideration in all these appeals: (i) ITA Nos - 982/BANG/2023 A.Y 2011-12 Application under Rule 29 of Income Tax Appellate Tribunal Rules, 1962 INDEX Sl.No Particulars Page No. 1 Application u/r 29 of ITAT Rules,1962 1-6 2 Annexure-A/1: Letter dated.24.07.2017 7-7 3 Annexure-A/2: Letter dated 25.10.2018 8-10 4 Annexure-A/3: Letter dated 17.12.2018 11-11 5 Revised Computation of Income 12-17

(ii) ITA Nos - 983/BANG/2023 A.Y 2012-13 Application under Rule 29 of Income Tax Appellate Tribunal Rules, 1962 INDEX Sl.No Particulars Page No. 1 Application u/r 29 of ITAT Rules,1962 1-6 2 Annexure-A/1: Letter dated.24.07.2017 7-7 3 Annexure-A/2: Letter dated 25.10.2018 8-10 4 Annexure-A/3: Letter dated 17.12.2018 11-11 5 Revised Computation of Income 12-18 6 Copy of bills and vouchers for expenditure under the head 19-212 ‘Promotion-Sales schemes and discounts expenses’. 7 Copy of bills and vouchers for expenditure under the head 213-2741 ‘Carriage outward expenses’.

(iii) ITA Nos - 984/BANG/2023 A.Y 2013-14 Application under Rule 29 of Income Tax Appellate Tribunal Rules, 1962 INDEX Sl.No Particulars Page No. 1 Application u/r 29 of ITAT Rules,1962 1-6 2 Annexure-A/1: Letter dated.24.07.2017 7-7 3 Annexure-A/2: Letter dated 25.10.2018 8-10 4 Annexure-A/3: Letter dated 17.12.2018 11-11 5 Revised Computation of Income 12-19 6 Copy of bills and vouchers for expenditure under the head 20-312 ‘Promotion-Sales schemes and discounts expenses’. 7 Copy of bills and vouchers for expenditure under the head 313-1383 ‘Carriage outward expenses’.

(v) ITA Nos - 986/BANG/2023 A.Y 2015-16 Application under Rule 29 of Income Tax Appellate Tribunal Rules, 1962 INDEX Sl.No Particulars Page No. 1 Application u/r 29 of ITAT Rules,1962 1-6 2 Annexure-A/1: Letter dated.24.07.2017 7-7 3 Annexure-A/2: Letter dated 25.10.2018 8-10 4 Annexure-A/3: Letter dated 17.12.2018 11-11 5 Revised Computation of Income 12-18 6 Copy of bills and vouchers for expenditure under the head 19-737 ‘Promotion-Sales schemes and discounts expenses’. 7 Copy of bills and vouchers for expenditure under the head 738-2238 ‘Carriage outward expenses’.

(vi) ITA Nos - 987/BANG/2023 A.Y 2016-17 Application under Rule 29 of Income Tax Appellate Tribunal Rules, 1962 INDEX Sl.No Particulars Page No. 1 Application u/r 29 of ITAT Rules,1962 1-6 2 Annexure-A/1: Letter dated.24.07.2017 7-7 3 Annexure-A/2: Letter dated 25.10.2018 8-10 4 Annexure-A/3: Letter dated 17.12.2018 11-11 5 Revised Computation of Income 12-18 6 Copy of bills and vouchers for expenditure under the head 19-402

The ld. A.R. submitted that the present applications are filed under Rule 29 r/w Rule 18(4) of the Income Tax Appellate Tribunal Rules, 1962 seeking admission of additional evidences in the above matter.

7.1 He submitted that a search and seizure action u/s 132 of the Act was initiated in the case of the Appellant along survey u/s 133A of the Act at its associated concerns on 3rd November 2016. The search team did not find any concealed income that they probably thought the assessee company might be having. In spite of that the search team obtained from the Assessee a declaration of undisclosed income of huge amount of Rs.129 crore u/s 132(4) of the Act spread over seven years (AY 11-12 to 17-18) in the hands of different entities of the Group on the basis of few documents, contents of which had remained to be properly verified and substantiated. It was a lump sum declaration for the entire group which was divided in the hands of different entities and did not have the head-wise break up. The same was done without valid basis and without affording enough time to properly verify from the concerned persons and records which were voluminous. The persons who were queried by the Team were forced to give admissions when they were under tremendous stress and pressure.

7.2 Later on during the post search proceedings, the Management was made to give entity wise head-wise break of the income declared during search by declaring the same under two

7.3 He submitted that the CMD had agreed to make the above - mentioned surrender on the basis of the clear understanding and assurance given to him that Company would be given the opportunity to produce the bills/ vouchers before the AO at the time of the assessment and that if he gets satisfied with the same, no disallowance would be confirmed. Accordingly, when the ITRs were filed, the company duly mentioned in the covering letter of the physical ITRs that the additional income was being included in the ITR under protest. Thereafter during the assessment proceedings, it followed it up with a request – both oral as well as written to consider the books of accounts, bills and vouchers etc maintained in respect of all the expenditure incurred and to exclude the additional income included in the ITRs. In this regard reference is firstly invited Appellant’s reply dated 25.10.2018 wherein company had duly provided all the relevant documents including the entire

7.4 He submitted that before the Ld CIT(A) the appellant took among others, the relevant grounds requesting him to delete the additional income. It was submitted that the company has maintained all the books of accounts, bills / vouchers for the subject expenditures and was ready to submit them even before the Ld. CIT(A) for examination. This plea was rejected and not considered by the Ld. CIT(A). In fact he has made a baseless allegation that the appellant had not made any efforts till the conclusion of assessment to submit the supporting documents for sales promotion and carriage outward expenses and that it had raised the issue for the first time before him by completely ignoring the protest letter of 24.07.2017, replies to notice u/s 142(1) dated 20.10.2028 and 24.07.2017. Ld. CIT(A) has also stated that no retraction statement, no revised computation and no revised return was filed by the appellant without appreciating this fact the assessee has been pleading to examine the books of accounts and all the bills and vouchers and accordingly give credit.

7.6 He submitted that pertinently, the income that can be assessed to tax under section 153A of the Act is only that income which is based on the incriminating material found during the search u/s 132 of the Act as held by the Apex Court in CIT v. Abhisar Buildwell (P) Ltd., 2023 SCC OnLine SC 481. However the income that has been assessed by the AO is not based on incriminating material but is based merely on the declaration obtained under pressure without the corresponding incriminating material. As stated earlier, the declaration by way agreeing to disallowance of the expenditure was made with an understanding and assurance that the same would be allowed and deleted when

7.7 He submitted that there is tax authorities have no authority to bring to tax income included in the ITR which is otherwise not taxable. It is submitted that CBDT as well as the Courts have time and again held that AO should not take advantage of the actions of the taxpayers and bring to tax that income which is otherwise not-taxable. According to Article 265 of the Constitution of India "No tax can be levied or collected except by authority of law”.

7.8 In this background, the ld. A.R. for the assessee submitted that the present application u/r 29 of ITAT Rules, 1962 read with Rule 18(4) of the Rules seeking admission of the following additional evidences:

a. Revised COI (Computation of Income) as pointed out by CIT(A) in his order b. Bills and vouchers supporting the expenditures under the head Promotion -sales schemes and discount expenses – sample settlements made during the year as a sample lot. c. Bills and vouchers supporting the expenditures under the head Carriage outward expenses – Sample Journal vouchers with supporting invoices etc for the Previous Year 2010-11 as a sample lot.

7.9 He prayed that the above documents may kindly be admitted in the interest of justice and fair play. If permitted the Appellant would also submit the balance documents for the entire year for verification. The company follows the system wherein the bills and vouchers of a particular month relating to all kinds of expenditure are bound together in to bound books at the end of the year and stored in godowns. Bills and vouchers etc of a particular head of expenditure cannot be separately taken out without breaking the bound books with a risk of the left margins getting torn. Hence the Appellant has, on sample basis, broken open few volumes of such book for each year for the period as above and producing the same for admission as additional evidence with a prayer to allow production of balance documents of the year on being convinced of the bona fide submission of the Appellant in the interest of justice.

7.10 He submitted that the non-submission of the present additional evidences before the AO or CIT(A) were not willful nor intentional. In this regard the appellant respectfully relies upon the ratio of the decision of the Hon’ble High Court of Delhi in the case CIT v. Text Hundred India Pvt. Ltd., (2013) 351 ITR 57 wherein at Para-13 of the Judgment, it was held that Rule 29 enables the Tribunal to admit any additional evidence which would be necessary to do substantial justice in the matter. Their Lordships further observed that the various procedures, including that relating to filing of additional evidence, is a handmade of justice and justice should not be allowed to be choked only because of

7.11 Without prejudice to the above, the Appellant submits that ITAT is the last fact finding authority under the Act and hence empowered to look into the question of fact also, even if not raised earlier in order to determine the correct tax liability of the Assessee. In this regard the Appellant respectfully relies upon the ratio of the decision of the Hon’ble Apex Court in Commissioner Of Income-Tax, Madras vs Mahalakshmi Textile Mills 1968 AIR 101 wherein it has been held that ‘all questions whether of law or of fact, which relate to the assessment of the assessee may be raised before the Tribunal’.

7.12 In light of the above the ld. A.R. respectfully prayed that for admission of the following additional documents / evidences under Rule 29 r/w Rule 18(4) of the ITAT Rules, 1962:

a. Revised computation of income (COI) excluding the additional income included in ITR under protest. b. Bills and vouchers supporting the expenditures under the head Promotion -sales schemes and discount expenses – Sample settlements made during the year as a sample lot. c. Bills and vouchers supporting the expenditures under the head Carriage outward expenses –Journal vouchers with supporting invoices etc for the Previous Year 2010- 11 as a sample lot. d. He also prayed that the Appellant may kindly be allowed to submit all the bills and vouchers for entire previous

The ld. D.R. submitted that these additional evidences shall not be admitted and placing of these additional evidences is after thought. 9. We have heard both the parties and perused the materials available on record. Admittedly, the assessee vide letter dated 24.07.2017 (filed on 31.7.2017) written to the DCIT Central Circle- 1(1), Bangalore submitted that the additional income has been offered and tax has been paid under protest and in case if they are in a position to explain the bona fides of expenses, the benefit should be given to them. For clarity, we reproduce the said letter as follows:

10.1 On 3rd November 2016, a search and seizure action u/s. 132 of the Act was conducted in the group of John Distilleries and the Assessee company being the flagship company of the Group, the search operation was carried out even in the Office premises of the

10.2 The details of undisclosed income as per the return of income filed by the assessee in response to notice u/s 153A, för the AYs 2011-12 to 2016-17 are as under:

10.3 Pursuant to the issue of notice u/s 153A, the Income assessed in the orders passed by the AO u/s 153A r.w.s. 143(3) r.w.s. 153D, dated 31.12.2018 for the AYs 2011-12 to 2016-17

10.4 The additions made by the AO in the assessment order for the relevant AYs on various issues on which the Assessee has filed appeals, are as under:

Against this assessee is in appeal before us. 10.5 The assessee has filed a ground-wise chart in these assessment years and the ld. A.R. has limited his arguments to the grounds mentioned in the chart only. 11. First common ground for our consideration in ITA Nos.982 & 983/Bang/2023 is that the assessment framed in these assessment years is bad in law as these assessments are not pending on the date of search on 3.11.2016 and unabated assessment cannot be

Consequently, AO would have authority/jurisdiction to assess the entire income, similar to jurisdiction in regular assessment u/s 143(3). 4. Return of income filed by the Return of income of the assessee assessee. Intimation passed or not shall be treated as having being u/s 143(1) and time limit for issue accepted and attained finality. AO of notice u/s 143(2) has expired. loses jurisdiction to verify the return of income

Since, no assessment would be pending there would be no abatement of any proceedings.

Accordingly, the scope of assessment u/s 153A would be restricted to incriminating material found during the course of search.

Notice u/s 143(2) issued and Pending regular assessment assessment pending u/s 143(3) proceedings would abate and would converge/merge in proceedings u/s 153A.

Accordingly the scope of assessment under section 153A would cover the pending return

AO loses jurisdiction to review the completed assessment. Accordingly, the scope of assessment u/s 153A would be restricted to incriminating material found during the course of search. 7. Proceedings u/s 147 pending Pending assessment/reassessment where: proceedings u/s 147 would abate (a) Assessment originally completed and would converge/merge in u/s 143(3) proceedings u/s 153A. OR (b) No assessment earlier completed Accordingly, the powers of the AO, u/s 143(3) in both the cases, shall extent to: (a) Assess income that would validly be assessed in the pending proceedings u/s 147, and

13.2 As seen from the above table, if the regular assessment proceedings have been completed and are not pending as on the date of search, there would be no abatement of proceedings without any seized material. Hence, concluded assessment cannot be reopened without any seized/incriminating material. Being so, in the absence of any seized material, assessment cannot be reopened. 14. Contrary to this, ld. D.R. submitted that during the course of search it was noticed that M/S John Distilleries Private Limited was suppressing the profits by booking various bogus expenses in the books of account. In distillery sector, there is only a minimal requirement of promotion expenses. However, in some of the cases the expenses are randomly incurred and payments are made to

14.1 She submitted that the assessee company has offered a sum of Rs.2,23,19,384/- in its return of income as admitted during the search. From above it is clear case of concealment of income by the assessee and hence penalty proceedings u/s 271(1)(c) of the Act is initiated separately. 14.2 Regarding bogus carriage outward expenses the ld. D.R. submitted that during the course of the search, it was noticed that JDPL was inflating the carriage outwards to certain extent as the same modus followed under the head of sales promotion expenses. During the course of the search the same has been confronted to Sri Krishnan, Director of JDPL on 3.11.2016 and she drew our attention to the relevant portion of the statement which is reproduced below:

14.3 The same facts were confronted to the Chairman of M/s. JDPL, Sri Paul P. John on 27.2.2017 and on 6.3.2017 and he admitted that M/s. JDPL had not maintained the proper bills and vouchers for carriage outwards. Statement was recorded from Sri Paul P John on 6.3.2017 and she drew our attention to the relevant portion of statement which is reproduced below:

14.4 She submitted that the assessee company has offered a sum of Rs.1,39,45,150/- in its return of income as admitted during the search. From above it is clear case of concealment of income by the assessee and hence penalty proceedings u/s 271(1)(c) of the Act is initiated separately. 14.5 With regard to Undisclosed income from transport business the ld. D.R. submitted that during the course of search, a document A/JDPL/12 was found and seized. It contained entries relating to income earned by the assessee while returning from the various

14.6 She submitted that the same facts have been confronted to Sri. Mohan Duraiswamy, Transport manager, Karnataka operations, M/S. JDPL. He admitted that cash receipts from the return journey of trucks are not fully accounted for. She drew our attention to the relevant portion of his statement recorded on 03.11.2016 U/s 132(4) of the Act, which is reproduced below:

14.7 She submitted that same facts have been confronted to Sri. Paul P John on 06.03.2017. However, he disputed that transport income from the transport business is accounted in the books of accounts, the relevant portion of his statement recorded on 6.3.2017 u/s 131 of the Act and she drew our attention to the same which is reproduced below:

14.8 She submitted that during the course of the search the same facts have been confronted to Sri Srinivasan, CFO of M/s. JDPL on

14.9 She submitted that like Sri. Srinivasan, CFO of M/S. JDPL Sri. Krishnan, Director of JDPL has been admitted that, income earned from return trip transport income was not properly accounted in the books of accounts. She drew our attention to the relevant portion of Sri Krishnan's statement which is reproduced below:

14.10 She submitted that the director of the company Sri. Paul P John did not accept that income earned out of return trips of trucks was not accounted. However, the facts are different from the statement recorded from Sri. Mohan Duraiswamy, Sri. Mathew, Sri. Srinivasan, Sri. N Krishnan of M/S. JDPL. Considering the above facts, it is understood that Rs. 8 lakhs per month was being earned from these unaccounted transport services.

14.11 She submitted that it could be seen from the profit and loss account enclosed to the return of income filed by the assessee that the assessee was offering certain incomes under the head other income. The assessee was given a show cause letter on 11.12.2018 to bring to tax a sum of Rs.96,00,000/- and was asked to furnish the breakup of the other income. The assessee produced the breakup of the other income along with ledger copy. It could be seen from the documents produced that the assessee had admitted a sum of Rs. 53,08,832/- as income from the return trip. The

Assessment u/s 143(3) completed. Since regular assessment proceedings have been completed & are not pending, there would be no abatement of proceedings.

ITA No.838 to 843/Bang/2023 M/s. Paul Resorts & Hotels Pvt. Ltd., Bangalore ITA No.844/Bang/2023 M/s. Paul Plathotathil John ITA Nos.845 to 847/Bang/2023 M/s. John Developers, Bangalore , ITA Nos.961, 962, 982 to 987 & 1012/Bang/2023 M/s. John Distilleries Pvt. Ltd., Bangalore Page 32 of 147 AO loses jurisdiction to review the completed assessment. Accordingly, the scope of assessment u/s 153A would be restricted to incriminating material found during the course of search. 14.13 The ld. AO is directed to examine this issue in the light of above observation and decide accordingly. This ground of appeal in ITA Nos.982 & 983/Bang/2023 is partly allowed for statistical purposes. 15. Next ground in all these assessee’s appeals is with regard to assuming jurisdiction u/s 132(1) of the Act is bad in law as there was no valid satisfaction recorded for conducting search action. In our opinion, this ground cannot be entertained at this stage in view of the insertion of explanation to section 132(1) with retrospective effect from 1.4.1962 by Finance Act, 2017. The said explanation prefers the appellate authorities to go into the reasons recorded by the concerned Income Tax authority for directing the search against the assessee. This view is fortified by Hon’ble Karnataka High Court in the case of Pratibha Jewellery House Vs. CIT 88 taxmann.com 94 (Karn.), wherein held as follows: “That even the law has been amended by insertion of the aforesaid Explanation by Parliament in Section 132 of the Act by the Finance Act, 2017 with retrospective effect from 1.4.1962. That Explanation also prohibits the Appellate Authorities to go into the reasons recorded by the concerned Income Tax Authority for directing Search against the assessee or tax payer. (iii) That this Amendment came after both, ITAT passed the order in the present case on 21.11.2014 as also the learned CIT(A) passed the impugned order on 11.2.2015. Nonetheless, retrospective effect of the said Amendment, will have its effect on the present case as well so long that the said Amendment holds the field. Therefore, the Appellate Authorities of the Department Date of Order 07-11-2017 W.P.Nos.24646-24651/2015 Prathiba Jewellery House Vs. The Commissioner of Income-Tax (Appeals) & Ors., cannot be expected to go into the said question. It is only for the Constitutional Courts to examine the vires and validity of such Amendment and for that, a separate writ petition is already said to be pending. However, no such challenge to the Amendment has been made in the present case.

15.1 Being so, this ground in ITA Nos.982 to 987/Bang/2023 in assessment years 2011-12 to 2016-17 is dismissed. Next common ground in all these six appeals in ITA Nos.982 16. to 987/Bang/2023 is that the order of lower authorities is bad in law in view of the violation of principles of natural justice and the order of the lower authorities prevails. 17. Before us, ld. A.R. is not able to substantiate how the opportunity of hearing has not been given to the assessee. Hence, this ground of appeal in ITA Nos.982 to 987/Bang/2023 in assessment years 2011-12 to 2016-17 is dismissed. 18. Ground Nos.5 to 8 & 10 and 11 in all appeals in ITA Nos.982 to 987/Bang/2023 and additional ground No.9A in ITA No.984 & 986/Bang/2023 in assessment years 2013-14 & 2015-16 are with regard to ignoring the retraction statement and persisting with the income offered under protest in the income tax return in respect of following: (a) Illegal confirmation of additional income offered in return u/s 153A of the Act under protest: (i) Inflated sales and promotion expenses, (ii) Bogus carriage expenses,

CIT v. Harjeev Aggarwal, 2016 (2016) 290 CTR 263l (2016) 229 DLT 33, ITA 8 of 2004 (HC, Delhi) 2. CIT vs. Kuber Khadyan Pvt. Ltd., 2021 ITA No.4223/4225/4226/Del/2018 (ITAT, New Delhi) C. No addition without incriminating material: For this proposition, he relied on the following judgements:-

CIT vs. Abhisar Buildwell (P) Ltd. (2024) 2 Supreme Court cses 433, 149 taxmann.com 399 (SC), Civil appeal No.6580 of 2021 D. Tribunal has discretion to admit additional evidence in the interest of justice: For this proposition, he relied on the following judgements:- 1. Goetze (India) Ltd. vs. Commissioner of Income-tax (2006) 284 ITR 323 2. Goetz India CIT vs. Text Hundred India Pvt. Ltd. (2013) 351 ITR 57 3. Fibres & Fabrics International (P) Ltd. vs. ACIT, Circle-11(3), Bangalore (2013) 33 taxmann.com 90 (Bangalore Trib) 4. HL Malhotra & Co. (P) Ltd. vs. DCIT, Circle12(1), New Delhi(2021) 125 taxmann.com 70 (Delhi) E. Extrapolation not permitted in S&S assessment 1. CIT v. B. Nagendra Baliga, (2014) 363 ITR 410 2. A. Shivashankar v. DCIT ITA Nos.617 to 620/Chny/2017 Dated 31.05.2022 (ITAT, Chennai) 3. Sri Devraj Urs Education Trust for Backward Classes v. ACIT, Bangalore ITA No.500 to 506/Bang/2020 (TAT, Bangalore)

(ii) Judgement of Hon’ble High Court of Kerala in the case of CIT, Kozhikode Vs. O. Abdul Razak reported in (2013) 350 ITR 71 (Kerala) where held as follows:

(iii) Judgement of Hon’ble High Court of Jharkhand in the case of Mahabir Prasad Rungta Vs. CIT, Ranchi reported in (2014) 266 CTR 175 (Kharkhan) (9.1.2014) wherein held as under: “Where assessee has not adduced any rebuttal evidence to show that entries made in diary/loose sheets recovered during search are not income in hands of assessee, addition is to be upheld.”

(iv) Judgement of Hon’ble Supreme Court of India in the case of Roshanlal Sanchiti Vs. PCIT reported in (2023) 150 taxmann.com 228 (SC), wherein held that “retraction of statement recorded u/s 132(4) of the Act has to be made within reasonable time or immediately after statement of assessee is recorded and hence where retraction of statement recorded u/s 132(4) and later confirmed in statement recorded u/s 131 had been made by assessee after almost 8 months same was to be disregarded.” (v) Judgement of Hon’ble Delhi High Court in the case of CIT Vs. Chetan Das Lachman Das wherein held as follows: “13. Coming to the order of the Tribunal, we are of the view that the reasons given by it to distinguish the judgment of the Supreme Court cited (supra) are not sound. Firstly, there was seized material in the present case to show that the assessee has been indulging in off-record transactions. The observation of the Tribunal that no evidence was found to show that the actual turnover of the assessee was more than the declared turnover is hair splitting. The Tribunal lost sight of the fact that all was not well with the books of account maintained by the assessee and it has been keeping away its income from the books. That should have been sufficient for the Tribunal to examine the estimate made by the Assessing Officer, having regard to the principles laid down in the judgment of the Supreme Court (supra). The Tribunal also failed to note the difference between Section 158BB appearing in the Chapter-XIVB and the assessment made by virtue of the provisions of Section 153A of the Act. Secondly, the Tribunal expects the purchasers from the assessee to come forward and declare that they have paid more than what was appearing in the sale bills issued to them and has commented upon the lack of any inquiry

ITA No.838 to 843/Bang/2023 M/s. Paul Resorts & Hotels Pvt. Ltd., Bangalore ITA No.844/Bang/2023 M/s. Paul Plathotathil John ITA Nos.845 to 847/Bang/2023 M/s. John Developers, Bangalore , ITA Nos.961, 962, 982 to 987 & 1012/Bang/2023 M/s. John Distilleries Pvt. Ltd., Bangalore Page 38 of 147 from the purchasers on this line. Suffice to say that this throws an impossible burden on the Assessing Officer, having regard to the observations of the Supreme Court that the assessee cannot be permitted to take advantage of his own illegal acts, that it was his duty to place all facts truthfully before the assessing authority, that if he fails to do his duty She cannot be allowed to say that assessing authority failed to establish suppression of income, that the facts are within his personal knowledge and therefore it was the burden of the assessee to prove that there was no suppression. Thirdly, the Tribunal has stated that there was no corroborative material to substantiate the contents of the loose papers found during the search. We are not impressed by this reason at all. The papers are not denied or disputed by the assessee. The CIT (Appeals) has found that the partners of the assessee firm had admitted to the practice of suppressing the profits. The papers themselves show two different rates, one higher and the other lower and on comparison with the sale bills it has been found that the sale bills show the lower rate and these findings have not been denied by the assessee. The Tribunal, therefore, erred in looking for some other corroboration to substantiate the contents of the loose papers, overlooking that the loose papers needed no further corroboration and the sale bills compared with the seized papers themselves corroborated the suppression of income. Fourthly, the Tribunal has relied on the observations of the CIT (Appeals) that no serious consideration can be given to the loose papers and has held that this shows that there is "nothing more in Revenue s kitty apart from those said loose papers pertaining to November, 2005 (financial year 2005-06) to support suppression of sales receipts on the part of the assessee firm". The Tribunal, with respect, has misread the observations of the CIT (Appeals) and has relied on a single observation without reading the order of the CIT (Appeals) as a whole. Moreover, in such cases, it is expected of the Tribunal to also independently examine the decision of the CIT (Appeals) which is impugned before it. In such cases it would be more appropriate to find out or ascertain whether there is any positive material which is in support of the assessee’s case or anything upon which the assessee can rely in order to discharge the burden placed upon him in the light of the judgment of the Supreme Court in H M Esufali H. M. Abdulali (supra). Mere negative findings should not be made use of to throw out the case of the department. Lastly, the reliance placed by the Tribunal on the judgment of this Court in CIT v. Anand Kumar Deepak Kumar, (2007) 294 ITR 497 does not seem appropriate. There it was held that there was no presumption that unaccounted sales in the pre-search period would continue in the post search period also. This judgment has no application to the present case because the search took place on 13.12.2005 which falls in the year relevant to the assessment year 2006-07. The assessments under Section 153A of the Act have been completed up to and including the assessment year 2006-07. Even if there can be no presumption that after 13.12.2005 there could have been unaccounted sale of Hing or compound Hing, it is hardly

(vi) Further, she relied on the judgement of Madras High Court in the case of CIT Vs. T. Rangroopchand Chordia (241 Taxmann 221) wherein held that loose sheets recovered from the premises of the assessee constitute document within the meaning of explanation under sub-section 4 of section 132 of the Act. We have heard the rival submissions and perused the 20. materials available on record. The lower authorities made the addition by observing as under: As seen from the above, during the course of search action, statement was recorded from Shri Paul P. John on 27.2.2017 and 6.3.2017and he has admitted that assessee has not maintained proper bills and vouchers for the promotion of sales schemes and discount expenses and on 6.3.17 as answer to question No.40, he submitted that total expenditure incurred from assessment years 2010-11 to 2016-17 is as follows:

20.1 Out of this, he agreed that the following expenditure for these assessment years to be disallowed:

20.2 Further, vide statement recorded from Shri Krishna, Contractor of the assessee company on 3.11.2016 admitted in question no.6 that assessee is engaged in inflating carriage outward expenditure under head sales promotion expenses in these assessment years. This has been confirmed by Paul P. John in his statement recorded on 27.2.2017 and 6.3.2017 as answer to question no.41

20.4 This fact has been confronted to Mohan Duraiswamy, Transport Manager, Karnataka vide statement recorded u/s 132(4) of the Act on 3.11.2016 and stated as follows:

20.5 This was confronted to Shri Paul P. John, Chairman of the assessee company on 6.3.2017 who has stated as follows:

20.6 Further, Shri Srinivasan, SFO was confirmed in his statement on 3.11.2016 as follows:

20.7 Further, Srinivasan, SFO stated as follows

20.8 However, it is noted by the ld. AO that the Chairman of the company Shri Paul P. John has not accepted income earned out of trips of trucks was not accounted, which is in variance of the statement of the employees of the assessee company. Without agreeing with the contention of the assessee, the ld. AO made addition in these assessment years. Now the contention of the assessee’s counsel is that the income offered by assessee in the return of income filed u/s 153A as well as addition made by ld. AO in these assessment years to be relooked into in the light of additional evidence filed by the assessee. For clarity we reproduce herein the details of return filed u/s 153A and addition made by ld. AO on different count as follows:

The additions made by the AO in the assessment order for the relevant AYs on various issues on which the Assessee has filed appeals, are as under:

20.9 In our opinion, the assessment procedure in the case where search is conducted u/s 132 of the Act has been amended w.e.f. 1.6.2023. and in such search cases assessment shall be completed as per the provision of section 153A of the Act. The section 153A reads as under: “153A. Assessment in case of search or requisition – (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall— (a) Issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139.

20.10 Now the question before us is whether the assessee is entitled to revise its position in departure with the original stand that is taken in the return filed u/s 139 of the Act prior to search or filed u/s 153A of the Act. In other words, whether assessee entitled to revise its claim and alter its original position in accordance with law or not. The Hon’ble Gujarat High Court in the case of CIT Vs. Mitesh Impex 225 Taxmann 168 wherein inter-alia held that “Income tax proceedings are not adversarial in nature and the object of the revenue would be to tax real income. The Hon’ble Supreme Court in the case of NTPC Ltd. Vs. CIT (229 ITR 383)

“Held, dismissing the appeals, that it was clear that the statements made by the assessee under section 132(4) of the Act were retracted not once but twice and that the Department had accepted the retraction. No cogent and valid reasons had been assigned by the Assessing Officer for reopening the assessment. There were no good or sufficient reasons for reopening of the assessment under section 148 of the Act against the assessee.”

20.13 Further, the ld. AO cannot solely rely on the statement recorded u/s 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.

18.

The primary grievance which arises in the present appeals pertains to whether the ITAT was right in deleting additions made under Section 68 of the Act by holding that no assessment could have been made on mere presumption of existence of incriminating material.

19.

Undisputedly, during the period of search, no incriminating material appears to have been found. However, the Revenue proceeded to issue notice under Section 143(2) of the Act on the pretext of the statements of the Directors of the respondent-assessee companies recorded under Section 132(4) of the Act and material seized from the search conducted on Jain group of companies. The assessment order was also passed under Section 143(3) read with Section 153C of the Act making additions under Section 68 of the Act.

20.

However, it is an undisputed fact that the statement recorded under Section 132(4) of the Act has better evidentiary value but it is also a settled position of law that addition cannot be sustained merely on the basis of the statement. There has to be some material corroborating the content of the statements.

[Emphasis supplied]

22.

Further, the position with respect to whether a statement recorded under Section 132(4) of the Act could be a standalone basis for making assessment was clarified by this Court in the case of CIT v. Harjeev Aggarwal2, wherein, it was held that merely because an admission has been made by the assessee during the search operation, the same could not be used to make additions in the absence of any evidence to corroborate the same. The relevant paragraph of the said decision is extracted herein below: - “20. In our view, a plain reading of section 158BB(1) of the Act does not contemplate computing of undisclosed income solely on the basis of a statement recorded during the search. The words "evidence found as a result of search" would not take within its sweep statements recorded during search and seizure operations. However, the statements recorded would certainly constitute information and if such information is relatable to the

23.

In our opinion, the Act does not contemplate computing of undisclosed income solely on the basis of statements made during a search. However, these statements do constitute information, and if they relate to the evidence or material found during the search, they can be used in proceedings under the Act, as specified under Section 132(4) of the Act. Nonetheless, such statements alone, without any other material discovered during the search which would corroborate said statements, do not grant the AO the authority to make an assessment.

24.

Coming to the findings of the ITAT with respect to incriminating material in the case of M/s Pavitra Realcon Pvt. Ltd and M/s Delicate Real Estate Pvt. Ltd, it is seen that the ITAT has explicitly held in paragraph no. 18 that no addition has been made on the basis of any incriminating material found during the course of search. Further, the ITAT relied on the decision of the Supreme Court in the case of CIT v. Sinhgad Technical Education Society1 and held as follows: - “18. Further, while writing the order it has come to our notice that the Hon’ble Apex Court in the case of Sinhgad Technical Education Society has held that section 153C can be invoked only when incriminating materials assessment year-wise are recorded in satisfaction note which is missing here. Therefore, the proceedings drawn u/s 143(3) as against 153C are invalid for want of any incriminating material found for the impugned assessment year.

19.

In view of the above, the additional grounds raised by the assessee in the case of M/s Pavitra Realcon Pvt. Ltd. And M/s Delicate Real Estate Pvt. Ltd. are accepted. Since the assessee succeeds on this legal ground, we refrain ourselves from

Also, the Supreme Court in the case of CIT v. Abhisar Buildwell 25. (P) Ltd.4, has clarified that in case no incriminating material is found during the search conducted under Section 132 of the Act, the AO will have no jurisdiction to make an assessment. The relevant paragraph is reproduced herein below: - “36.4. 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 132-A of the 1961 Act. However, the completed/unabated assessments can be re-opened by the AO in exercise of 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.” [Emphasis supplied]

This Court in the case of CIT v. Kabul Chawla5, has explicitly 26. noted that the information/material which has been relied upon for assessment has to relate with the assessee. The relevant portion of the said decision is extracted herein below: - (iv) Although section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the Assessing Officer which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made under this section only on the basis of the seized material."

[Emphasis supplied]

27.

Recently, this Court, in the case of Saksham Commodities Limited v. Income Tax Officer, Ward 22(1), Delhi & Anr6, while relying upon the

***** 56. We also bear in mind the pertinent observations made in RRJ Securities when the Court held that merely because an article or thing may have been recovered in the course of a search would not mean that concluded assessments have to “necessarily” be reopened under Section 153C and that those assessments are not liable to be revised unless the material obtained have a bearing on the determination of the total income. This aspect was again emphasised in para 38 of RRJ

[Emphasis supplied] 28. So far as the submission made by the learned counsel for the Revenue that the AO acted on a bona fide belief that the date of search has to be taken as the date of initiation of proceedings under Section 153C of the Act is concerned, it is apposite to refer to our decision in the case of CIT v. Ojjus Medicare (P) Ltd.8 This Court, in the said case, reiterated the already settled law that the date of initiation of assessment proceedings under Section 153C would be calculated from the date of handing over of the books of accounts, documents or assets seized to the jurisdictional AO of the non-searched person. The relevant paragraphs of the said decision are extracted herein below: - “K. SUMMARY OF CONCLUSIONS 119. We thus record our conclusions as follows:

A. Prior to the insertion of Sections 153A, 153B and 153C, an assessment in respect of search cases was regulated by Chapter XIVB of the Act, comprising of Sections 158B to 158BI and which embodied the concept of a block assessment. A block assessment in search cases undertaken in terms of the provisions placed in Chapter XIVB was ordained to be undertaken simultaneously and parallelly to a regular assessment. Contrary to the scheme underlying Chapter XIVB, Sections 153A, 153B and 153C contemplate a merger of regular assessments with those that may be triggered by a search. On a search being undertaken in terms of Section 153A, the jurisdictional AO is enabled to initiate an assessment or reassessment, as the case may be, in respect of the six AYs' immediately preceding the AY relevant to the year of search as also in respect of the “relevant assessment year”, an expression which stands defined by Explanation 1 to Section 153A. Of equal significance is the introduction of the concept of abatement of all pending assessments as a consequence of which curtains come down on regular assessments.

ITA No.838 to 843/Bang/2023 M/s. Paul Resorts & Hotels Pvt. Ltd., Bangalore ITA No.844/Bang/2023 M/s. Paul Plathotathil John ITA Nos.845 to 847/Bang/2023 M/s. John Developers, Bangalore , ITA Nos.961, 962, 982 to 987 & 1012/Bang/2023 M/s. John Distilleries Pvt. Ltd., Bangalore Page 53 of 147 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

[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

30.

Further, in the case of M/s Design Infracon Pvt. Ltd., the ITAT held that there is violation of principles of natural justice as neither the statement of owner of Jain group of companies was provided to the said company, nor the opportunity of cross-examination was given. The ITAT in paragraph no. 23 has held as under: -

“23.Now, coming to Design Infracon (P) Ltd., we find from the material available on record that there is brazen violation of principles of natural justice inasmuch as neither the statement of Mr. Jain recorded at the time of search nor his cross- examination was provided to the assessee by both the lower authorities despite specific and repeated requests made by the assessee in this regard. The Hon'ble Supreme Court in the case of M/s Andaman Timber Indusgies vs. CCE reported in 281 CTR 241 has held that not giving opportunity of cross- examination makes the entire proceedings invalid and nullity. The Co-ordinate Bench of the Tribunal in the case of Best City Infrastructure Ltd. (supra) has also held that not providing opportunity of cross-examination makes the addition invalid. It has come to our notice that the Hon'ble Delhi High Court recently has upheld the said decision as reported in 397 ITR 82.”

31.

On this aspect, it is beneficial to refer to the decision of the Supreme Court in the case of Andaman Timber Industries v. CCE9, wherein, it was held that not providing the opportunity of cross- examination to the assessee amounts to gross violation of the principles of natural justice and the same will render the order passed null and void. The relevant paragraph of the said decision is extracted herein below: -

“6. According to us, not allowing the assessee to cross- examine the witnesses 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

“2. Now, the law is well settled that tax authorities entrusted with the power to make assessment of tax discharge quasi- judicial functions and they are bound to observe principles of natural justice in reaching their conclusions. It is true, as pointed out by this Court in Dhakeswari Cotton Mills Ltd. v. CIT [AIR 1955 SC 154 : (1955) 1 SCR 941 : (1955) 27 ITR 126] that a taxing officer “is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a court of law”, but that does not absolve him from the obligation to comply with the fundamental rules of justice which have come to be known in the jurisprudence of administrative law as principles of natural justice. It is, however, necessary to remember that the rules of natural justice are not a constant: they are not absolute and rigid rules having universal

[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.

34.

Reliance can also be placed upon the decision in the case of CIT v. Micron Steels P. Ltd.11, whereby, it was held that the jurisdictional defects cannot be cured under Section 292B of the Act and they render the entire proceedings null and void.

36.

Accordingly, we find no reason to intermeddle with the order of the ITAT which has rightly set aside the assessment order and deleted the additions made therein.

37.

In view of the aforesaid and on the basis of the findings of fact arrived at before the authority, these appeals do not raise any substantial question of law and consequently, they stand dismissed. Pending applications, if any, are also disposed of.”

20.14 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 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

ITA No.838 to 843/Bang/2023 M/s. Paul Resorts & Hotels Pvt. Ltd., Bangalore ITA No.844/Bang/2023 M/s. Paul Plathotathil John ITA Nos.845 to 847/Bang/2023 M/s. John Developers, Bangalore , ITA Nos.961, 962, 982 to 987 & 1012/Bang/2023 M/s. John Distilleries Pvt. Ltd., Bangalore Page 60 of 147 20.15 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 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

• 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 ITA No.930 & 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.

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 by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the

The Hon’ble Supreme Court in the case of Mehta Parikh 20.19 & Co. v. CIT, 30 ITR 181 held as under:- “In the instant case a mere calculation of the nature indulged in by the ITO or the AAC was not enough, without any further scrutiny, to dislodge the position taken up by the assessee, supported as it was, by the entries in the cash book and the affidavits put in by the assessee before the AAC. The Tribunal also fell into the same error. It could not negative the possibility of the assessee being in possession of a substantial number of these high denomination currency notes. It, however, considered that it was impossible for the assessee to have had 61 such notes in the cash balance in their hands on 12-1-1946, and then it applied a rule of

ITA No.838 to 843/Bang/2023 M/s. Paul Resorts & Hotels Pvt. Ltd., Bangalore ITA No.844/Bang/2023 M/s. Paul Plathotathil John ITA Nos.845 to 847/Bang/2023 M/s. John Developers, Bangalore , ITA Nos.961, 962, 982 to 987 & 1012/Bang/2023 M/s. John Distilleries Pvt. Ltd., Bangalore Page 64 of 147 the thumb treating 31 out of such 61 notes as within the bounds of possibility, excluding 30 such notes as not covered by the explanation of the assessee. This was pure surmise and had no basis in the evidence, which was on the record of the proceedings. Facts proved or admitted may provide to support further conclusions to be deduced from them, which conclusions may themselves be conclusions of fact and such inferences from facts proved or admitted could be matters of law. The court would be entitled to intervene if it appears that the fact finding authority has acted without any evidence or upon a view of the facts, which could not reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question. The High Court treated this finding of the Tribunal as a mere finding of fact and recognised this position in effect but went wrong in applying the true principles of interference with such findings of fact to the present case. Really speaking the Tribunal had not indicated upon what material it held that Rs. 30,000 should be treated as secret profit or profits from undisclosed sources and the order passed by it was bad. The assessee had furnished a reasonable explanation for the possession of the high denomination notes of the face value of Rs. 61,000 and there was no justification for having accepted it in part and discarded it in relation to a sum of Rs. 30,000. The High Court ought to have held that there were no materials to justify the assessment of Rs. 30,000 from out of the sum of Rs. 61,000, for income-tax and excess profits tax and business profits tax purposes, representing the value of the high denomination notes which were encashed.” 20.20 The Hon’ble Calcutta High Court in the case of CIT v. Eastern Commercial Enterprises, 210 ITR 103 (Cal) held as follows:- “8. We have considered the contesting contentions of the parties. It is true that Shri Sukla has proved to be a shifty person as a witness. At the earlier stages, he claimed all his sales to be genuine but before the Assessing Officer in the case of the assessee, he disowned the sales specifically made to the assessee. This statement can at the worst show that Shri Sukla is not a trustworthy witness and little value can be attached to what he stated either in his affidavits or in his examination by the Assessing Officer. His conduct neutralises his value as a witness. A man indulging in double-speaking cannot be said by any

ITA No.838 to 843/Bang/2023 M/s. Paul Resorts & Hotels Pvt. Ltd., Bangalore ITA No.844/Bang/2023 M/s. Paul Plathotathil John ITA Nos.845 to 847/Bang/2023 M/s. John Developers, Bangalore , ITA Nos.961, 962, 982 to 987 & 1012/Bang/2023 M/s. John Distilleries Pvt. Ltd., Bangalore Page 65 of 147 means a truthful man at any stage and no court can decide on which occasion he was truthful. If Shri Sukla is neutralised as a witness what remains is the accounts, vouchers, challans, bank accounts, etc. But, we would observe here that which way lies the truth in Shri Sukla's depositions, could have been revealed only if he was subjected to a cross-examination by the assessee. As a matter of fact, the right to cross-examine a witness adverse to the assessee is an indispensable right and the opportunity of such cross-examination is one of the corner-stones of natural justice. Here Shri Sukla is the witness of the Department. Therefore, the Department cannot cut short the process of taking oral evidence by merely having the examination-in-chief. It is the necessary requirement of the process of taking evidence that the examination-in-chief is followed by cross-examination and re- examination, if necessary. 9. It is not just a question of form or a question of giving an adverse party its privilege but a necessity of the process of testing the truth of oral evidence of a witness. Without the truth being tested no oral evidence can be admissible evidence and could not form the basis of any inference against the adverse parties. We have also examined the records and we find that this Shri Sukla was examined by a number of officers. The Assistant Director of Investigation examined him on August 4, 1987, and in reply to question No. 2 in that deposition he confirmed that he was a dealer in lubricating oil since 1977. In reply to question No. 3, he confirmed having been assessed to income-tax. Again, in reply to question No. 4, he explained that he used to purchase lubricating oil from different garages as well as through various brokers. Such lubricating oil was processed by him in his factory for sale. All payments were received by him through account payee cheques. In reply to question No. 5, he stated that he had seven full-time employees whose names are mentioned by him. He also claimed to have maintained books of account like sales books, purchase books, cash books and sale bills. In reply to question No. 18, he, on his own, stated that his big customers were the Reliance Oil Mills and Eastern Commercial Enterprises, the assessee, in the present reference. As for his cash withdrawals, he explained that his business required ready cash for purchase of raw materials which explained his large drawings of cash from the bank. Learned counsel then cited a host of decisions to bring home the point that no evidence or document can be relied upon unless it is shown to the assessee. Kishanchand Chellaram v. CIT. Similarly, the requirement of cross-examination as the requirement of the rules of natural justice has been underlined by the Bombay High Court in Vasanji Ghela and Co. v. CST [1977] 40 STC 544. It is trite law that cross-examination is the sine qua non of

20.22 Reliance on this incomplete statement cannot be appreciated as held by the Hon’ble Supreme Court in the case of Kishinchand Chellaram v. CIT, 125 ITR 713 (SC) as follows:- “Held, reversing the decision of the High Court, (i) on the facts, that the two letters dated February 18, 1955 , and March 9, 1957 did not constitute any material evidence which the Tribunal could take into account for the purpose of arriving at the finding that the sum of

“8. We have heard the learned counsel for the parties and perused the record.

9.According to us, what clearly emerges upon perusal of the record and, in particular, the impugned judgment and order of the Tribunal, is as follows:

i.That, in the original return as filed by the assessee company, no claim for deduction under Section 80 IB (10) of the Act had been made. ii.That the assessee company, as observed in paragraph 3 of the impugned judgment and order of the Tribunal, had made a claim for deduction under Section 80 IB (10) of the Act at the stage, when, the assessment proceedings were on. At that point in time, details with regard to the project, qua which, claim was made, were filed along with requisite information, in the prescribed format, i.e., Form 10CCB.

10.Having regard to the aforesaid facts, what is required to be considered is : whether the conclusion reached by the Tribunal that the appellate authorities, (which included the CIT (A) and itself), had the necessary power to consider the claim for deduction, if, the assessee company was otherwise entitled to in law, given the fact that the relevant material was already available on record.

11.Mr.Ravikumar, in support of the appeal, contended to the contrary and in this behalf, placed great emphasis on the judgment of the Supreme Court in GOETZE's case. A perusal of the said judgment would show that the issue which arose for consideration before the Supreme Court, was, as to whether a claim for deduction could be made by way of a letter before the Assessing Officer, if, it did not form part of the original return. The Supreme Court ruled and, while doing so, to our minds, carefully noted that, though the Assessing Officer did not have the power to entertain the claim for deduction made after the return was filed, otherwise than by filing a revised return, it did not exclude the power of the Tribunal to consider the claim in exercise of its appellate power under Section 254 of the Act. This aspect of the matter is quite clearly brought to light in the operative paragraph of the judgment, i.e., paragraph 4.

11.1.For the sake of convenience, the said observations are extracted hereafter:

''4.The decision in question is that the power of the Tribunal under S.254 of the IT Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the AO to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Tribunal under s.254 of the IT Act, 1961. There shall be no order as to costs.'' (Emphasis is ours)

12.To be noted, the Supreme Court, while rendering its judgment in the case of Goetze, had noticed its own judgment in National Thermal Co. Ltd. vs. CIT, (1998) 229 ITR 383 (SC). In the said case, the Supreme Court was called upon to adjudicate as to whether a claim made by way of a letter before the Tribunal for the first time could have been entertained by the Tribunal. Briefly, the facts which obtained in the said case are as follows:

ITA No.838 to 843/Bang/2023 M/s. Paul Resorts & Hotels Pvt. Ltd., Bangalore ITA No.844/Bang/2023 M/s. Paul Plathotathil John ITA Nos.845 to 847/Bang/2023 M/s. John Developers, Bangalore , ITA Nos.961, 962, 982 to 987 & 1012/Bang/2023 M/s. John Distilleries Pvt. Ltd., Bangalore Page 69 of 147 12.1.The assessee, in that case, had available with it surplus funds, which it chose to deposit with banks on a short term basis. Qua the said short term deposits, the assessee earned interest during the relevant previous year amounting to Rs.22,84,994/-. The said interest was offered for levy tax by the assessee, based on which, assessment proceedings were completed. The assessee, however, challenged the assessment order before the CIT (A) qua grounds other than the inclusion of the interest earned on short term deposits in the total income. Consequently, this aspect of the matter was not considered by the CIT (A). The assessee, however, carried the matter in appeal to the Tribunal. The appeal, as originally filed with the Tribunal, did not object to the inclusion of interest in the sum of Rs.22,84,994/-. The assessee, however, as indicated above, for the first time, by way of a letter dated 16.07.1983, raised additional grounds, whereby, a challenge was laid to the inclusion of interest in the total income. The basis of the challenge was that, since, the sum of Rs.22,84,994/- had been deducted from the expenditure incurred during construction period, it could not have been included in the total income. 12.2.The Supreme Court, after examining the matter threadbare, made the following observations: ''Under Section 254 of the Income-tax Act, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have aright to file an appeal/cross- objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier. 12.3 In the case of Jute Corporation of India Ltd. v. CIT (1991) 187 ITR 688, this court, while dealing with the powers of the Appellate Assistant Commissioner observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any

ITA No.838 to 843/Bang/2023 M/s. Paul Resorts & Hotels Pvt. Ltd., Bangalore ITA No.844/Bang/2023 M/s. Paul Plathotathil John ITA Nos.845 to 847/Bang/2023 M/s. John Developers, Bangalore , ITA Nos.961, 962, 982 to 987 & 1012/Bang/2023 M/s. John Distilleries Pvt. Ltd., Bangalore Page 70 of 147 statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. This court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also. The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner of Income-tax (Appeals) takes too narrow a view of the powers of the Appellate Tribunal (vide, e.g., CIT v. Anand Prasad (1981) 128 ITR 388 (Delhi), CIT v. Karamchand Premchand P. Ltd. (1969) 74 ITR 254 (Guj) and CIT v. Cellulose Products of India Ltd. (1985) 151 ITR 499 (Guj) (FB). Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.'' (Emphasis is ours) 12.3.In the said judgment, the Supreme Court also noticed its own judgment in the case of Jute Corporation of India Ltd. v. CIT (1991) 181 ITR 688. This view has been adopted by two Division Benches of this Court in the matter of Ramco Cements Ltd. vs. DCIT (2015) 55 taxmann.com 79 (Madras) and, in the judgment rendered in: T.C. (A) No.878 of 2014 dated 18.11.2014, titled CIT vs. Malind Laboratories P. Ltd. As a matter of fact, the Delhi High Court has also, in two separate judgments, come to the same conclusion. These judgments are rendered in: CIT vs. Sam Global Securities Ltd., (2013) 38 taxmann.com 129 (Delhi) and CIT vs. Jai Parabolic Springs Ltd., (2008) 306 ITR 42 (Delhi).

12.4.Furthermore, a Division Bench of the Bombay High Court has also taken the same view in the judgment rendered in CIT vs. Pruthvi Brokers & Shareholders P. Ltd., (2012) 349 ITR 336 (Bom.). The issue, with which, the Bombay High Court was grappling, was, that a claim for deduction under Section 43B of the Act had not been made qua the relevant assessment year in the original return, but was made via a letter. The Division Bench of the Bombay High Court held even while assuming and, in that sense, accepting the argument of the Revenue, that though, an amendment to the original return could not be made by filing a letter - it would be open to the appellate authorities to consider the claim and adjudicate upon the same. In this behalf, the Bombay High Court made the following observations:

''14. A long line of authorities establish clearly that an assessee is entitled to raise additional grounds not merely in terms of legal submissions, but also additional claims to wit claims not made in the return filed by it. It is necessary for us to refer to some of these decisions only to deal with two submissions on behalf of the department. The first is with respect to an observation of the Supreme Court in Jute Corporation of India Limited v. Commissioner of Income Tax, 1991 Supp (2) SCC 744 = (1991) 187 ITR 688. The second submission is based on a judgment of the Supreme Court in Goetze (India) Limited v. Commissioner of Income Tax, (2006) 157 Taxman 1. (A). In Jute Corporation of India Limited v. CIT, for the assessment year 1974-75 the appellant did not claim any deduction of its liability towards purchase tax under the provisions of the Bengal Raw Jute Taxation Act, 1941, as it entertained a belief that it was not liable to pay purchase tax under that Act. Subsequently, the appellant was assessed to purchase tax and the order of assessment was received by it on 23rd November, 1973. The appellant challenged the same and obtained a stay order. The appellant also filed an appeal from the assessment order under the Income Tax Act. It was only during the hearing of the appeal that the assessee claimed an additional deduction in respect of its liability to purchase tax. The Appellate Assistant Commissioner (AAC) permitted it to raise the claim and allowed the deduction. The Tribunal held that the AAC had no jurisdiction to entertain the additional ground or to grant relief on a ground which had not been raised before the Income Tax Officer. The Tribunal also refused the appellant's application for making a reference to the High Court. The High Court upheld the decision of the Tribunal and refused to call for a statement of case. It is in these circumstances that the appellant filed the appeal before the Supreme Court.

15.The Supreme Court held as under (page 693) :-

''In CIT v. Kanpur Coal Syndicate, a three Judge bench of this Court discussed the scope of Section 31(3)(a) of the Income Tax Act, 1922 which is almost identical to Section 251(1)(a). The court held as under: (ITR p. 229) If an appeal lies, Section 31 of the Act describes the powers of the Appellate Assistant Commissioner in such an appeal. Under Section 31(3)(a) in disposing of such an appeal the Appellate Assistant

ITA No.838 to 843/Bang/2023 M/s. Paul Resorts & Hotels Pvt. Ltd., Bangalore ITA No.844/Bang/2023 M/s. Paul Plathotathil John ITA Nos.845 to 847/Bang/2023 M/s. John Developers, Bangalore , ITA Nos.961, 962, 982 to 987 & 1012/Bang/2023 M/s. John Distilleries Pvt. Ltd., Bangalore Page 72 of 147 Commissioner may, in the case of an order of assessment, confirm, reduce, enhance or annul the assessment; under clause (b) thereof he may set aside the assessment and direct the Income Tax Officer to make a fresh assessment. The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his power is co-terminus with that of the Income-tax Officer. He can do what the Income- tax Officer can do and also direct him to do what he has failed to do.(emphasis supplied) The above observations are squarely applicable to the interpretation of Section 251(1)(a) of the Act. The declaration of law is clear that the power of the Appellate Assistant Commissioner is coterminus with that of the Income Tax Officer, if that be so, there appears to be no reason as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the Income Tax Officer. No exception could be taken to this view as the Act does not place any restriction or limitation on the exercise of appellate power. Even otherwise an Appellate Authority while hearing appeal against the order of a subordinate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations if any prescribed by the statutory provisions. In the absence of any statutory provision the Appellate Authority is vested with all the plenary powers which the subordinate authority may have in the matter. There appears to be no good reason and none was placed before us to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income Tax Officer.[emphasis supplied]'' (B) It is clear, therefore, that an assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional claims before them. The appellate authorities have the discretion whether or not to permit such additional claims to be raised. It cannot, however, be said that they have no jurisdiction to consider the same. They have the jurisdiction to entertain the new claim. That they may choose not to exercise their jurisdiction in a given case is another matter. The exercise of discretion is entirely different from the existence of jurisdiction.

16.

At page 694, after referring to certain observations of the Supreme Court in Additional Commissioner of Income-tax v. Gurjargravures P. Ltd., (1978) 111 ITR 1, the Supreme Court observed at Page 694 as under :-

17.

The underlined observations in the above passage do not curtail the ambit of the jurisdiction of the appellate authorities stipulated earlier. They do not restrict the new/additional grounds that may be taken by the assessee before the appellate authorities to those that were not available when the return was filed or even when the assessment order was made. The sentence read as a whole entitles an assessee to raise new grounds/make additional claims :-

if the ground so raised could not have been raised at that particular stage when the return was filed or when the assessment order was made.... or if the ground became available on account of change of circumstances or law

18.The appellate authorities, therefore, have jurisdiction to deal not merely with additional grounds, which became available on account of change of circumstances or law, but with additional grounds which were available when the return was filed. The first part viz. if the ground so raised could not have been raised at that particular stage when the return was filed or when the assessment order was made... clearly relate to cases where the ground was available when the return was filed and the assessment order was made but could not have been raised at that stage. The words are could not have been raised and not

12.5. A reading of the aforesaid observations would clearly establish that the arguments advanced by Mr.Ravi that the assessee company could only raise an additional ground and not make a new claim or additional claim is not sustainable. As indicated by us hereinabove, this power of entertaining the claim vests with the appellate authorities based on the facts and circumstances of the case. The power of the appellate authorities to consider claims made based on material already on record is co-terminus with the power of the Assessing Officer. The failure to advert to the claim in the original return or the revised return cannot denude the appellate authorities of their power to consider the claim, if, the relevant material is available on record and is otherwise tenable in law. Any other view, in our opinion, will set at naught the plenary powers of appellate authorities.

13.The judgment of the Division Bench of this Court rendered in T.C. (A) No.344 of 2005, dated 16.06.2011, titled CIT vs. M/s.Shriram Investments, which is relied upon by the learned counsel for the Revenue, is clearly distinguishable, as in that case, the assessee had sought assessment of tax by disclosing a lower taxable income, albeit, by filing a second revised return. It is in that context that the Division Bench came to the conclusion that the second revised return, which was filed beyond the period of limitation, being non est in law, would not be considered for the purposes of ascertaining the taxable income.

14.In so far as the judgment of the Supreme Court in the matter of Stepwell is concerned, according to us, it has no applicability to the issue raised in the instant appeal. In that case, the Tribunal appears to have allowed the claim of the assessee for deduction under Section 35 B of the Act without examining the facts of the case. The assessee, evidently, had neither made a claim before the ITO nor the AAC nor, had he, furnished particulars of the expenditure incurred by it. It is in this context that the Supreme Court observed that the onus of proving facts and obtaining the benefit of a deduction lay on the assessee. It was further observed that since the assessee failed to prove its claim before the ITO or the AAC, the Tribunal could not have allowed the claim on assumption of facts.

15.

As indicated above, the ratio on the said judgment is entirely different and therefore, has no applicability to the facts of the instant case.

16.Similarly, the judgment of the Allahabad High Court in the matter of G.S. Rice Mills is distinguishable, inasmuch as the assessee had neither made a claim before

16.1.As would be evident from the narration of facts set out above, in the present case, the Tribunal has noted that relevant material was placed by the assessee company before the Assessing Officer during the course of the assessment proceedings. Therefore, in our view, the said judgment is also distinguishable.

17.

A similar situation arose in the case of ACIT vs. Gurjargravures P. Ltd. In this case as well, it was noticed that neither was any claim made before the ITO nor was any supporting material placed on record. It is in this background that no relief was granted. The Supreme Court, in this case, disagreed with the High Court, inasmuch as it sustained the direction of the Tribunal issued to the ITO to grant appropriate relief qua claim made under Section 84 of the Act.

18.In sum, what emerges from a perusal of the ratio of the judgments cited above, in particular, the judgments rendered by the Supreme Court in GOETZE's case and National Thermal Power Co. Ltd.'s case, and those, rendered by the Division Bench of this Court in Ramco Cements Ltd. and CIT vs Malind Laboratories P. Ltd., as also the judgments of the Delhi High Court in Sam Global Securities Ltd.'s case and Jai Parabolic Springs Ltd.'s case, that, even if, the claim made by the assessee company does not form part of the original return or even the revised return, it could still be considered, if, the relevant material was available on record, either by the appellate authorities, (which includes both the CIT (A) and the Tribunal) by themselves, or on remand, by the Assessing Officer. In the instant case, the Tribunal, on perusal of the record, found that the relevant material qua the claim made by the assessee company under Section 80 IB (10) of the Act was placed on record by the assessee company during the assessment proceedings and therefore, it deemed it fit to direct its reexamination by the Assessing Officer.

18.1.In our opinion, the view taken by the Tribunal is unexceptionable and therefore, does not merit any interference.

19.Consequently, the Tax Case Appeal is dismissed, leaving the parties to bear their own costs.”

20.24 In the case of DCIT Vs. CMS Securities Ltd. (2016) (47 ITR 378), the Tribunal held as under:

“3. We have gone through the orders of the lower authorities as well as order of the Tribunal for A.Y 2008-09. The solitary issue involved in the Revenue’s

It is further noted by us that in A.Y 2008-09 an identical claim was made by the assessee during the course of the assessment proceeding with respect to additional claim on account of bad debts. The AO in that year had had rejected the claim in an identical manner by relying upon the judgement of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. v. CIT (supra) as has been done in this year. The said claim was allowed by the ld. CIT(A) and Department carried the matter in appeal before the Tribunal.

The Tribunal in A.Y 2008-09 considered the entire gamut of facts and the position of law on this issue and decided the appeal in favour of the assessee by upholding the order of the ld. CIT(A) in allowing the revised claim made by the assessee during the course of the assessment proceedings. Relevant findings of the order of the Tribunal are reproduced hereunder for the sake of ready reference:

“3. Ld. CIT(A) has stated that the assessee has filed the statement of account of provision for doubtful debts which he has extracted in para 4 of the impugned order. Assessee stated before ld. CIT(A) that actual debts written off in the financial year relevant to the assessment year under consideration is Rs. 1,87,70,011/ and there is a mistake in the return of income. Ld. CIT(A) considered the submissions of the assessee and held that even if the claim is not made in the return of income and it is made before the first appellant authority, the claim can be entertained. The First Appellate Authority referred the decision of the Third

"I have carefully considered the questions, the orders of the IT authorities and the rival contentions. The precise difference between the two learned Members is regarding the question whether the CIT(A) ought to have first decided the question of entertainability of the assessee's higher claim of depreciation by a letter and not by a revised return, before deciding the merits of the claim. In Goetze (India) Ltd. v. CIT (2006) 204 CTR (SC) 182 : (2006) 284 ITR 323 (SC), the Supreme Court held that the assessee can make a claim for deduction, which has not been claimed in the return, only by filing a revised return within the time allowed. In the same decision, it was made clear that the power of the Tribunal to admit an additional ground under s. 254 is not affected by its decision. It was however clarified that the case was concerned with only the power of the assessing authority and not the appellate authority. Under s. 250(5), the CIT(A) has the power to allow the appellant to go into any ground of appeal not specified in the grounds of appeal if he satisfied that the omission of the ground from the form of appeal was not willful and unreasonable. Dealing with such a power, the Bombay High Court in CIT v. Prabhu Steel Industries (P) Ltd. (1988) 171 ITR 530 (Bom), held that where a claim for special deduction was made by the assessee not in his return but in the course of the assessment proceedings and the ITO failed to consider the same, it was open to the AAC to entertain the claim. In CIT v. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC), it was held by the Supreme Court that the powers of the CIT(A) sitting in appeal over an assessment were plenary and conterminous with those of the AO and that he can do what the ITO can do and also direct him to do what he has failed to do. In the light of the law laid down in this judgment by the Supreme Court, it was open to the CIT(A) to consider the assessee's claim on merits by virtue of his coextensive power over the assessment proceedings and also by virtue of s. 250(5). That apart, the judgment of the Supreme Court in Goetze (supra) is distinguishable on facts because in that case the claim was made for the first time in the letter filed by the assessee in the course of the assessment proceedings whereas in the present case the claim of depreciation on the trucks @ 20 per cent was already made in the return of income and it was merely enlarged to 40 per cent on the footing that the assessee was running the trucks on hire. It cannot be said to be an entirely new claim made for the first time in the letter filed by the assessee in the course of the assessment proceedings. The CIT(A) therefore committed no error in dealing with the assessee's appeal on merits. Moreover, the AO himself has examined the claim on merits though he earlier held that the claim was not entertainable and the letter was non est. A decision having been given by him on merits it was open to the CIT(A) to deal with the merits. I, therefore, agree with the learned AM that the CIT(A) was not precluded from dealing with the assessee's claim for higher depreciation on merits."

During the course of hearing ld.DR relied on the order of the AO and whereas ld.AR relied on the order of ld. CIT(A). He further submitted that the assessee actually written of amount of Rs.1,87,70,011/- as bad debts and the provisions made in the earlier year of the aggregate amount of Rs.82,91,575/- had been disallowed in the earlier year.

The above facts have not been disputed by ld. DR that the assessee has actually written off in the assessment year under consideration as bad debts of Rs.1,87,70,011/-. The Honble Apex Court in the case of T.R.F. Ltd. V/s CIT (2010) 323 ITR 397 (SC) has held that "w.e.f. 1-4-1989, it is enough if bad debt is written off as irrecoverable in accounts of assessee to satisfy the condition of Section 36(1)(vii) of the Income-tax Act, 1961". In view of the above amendment w.e.f. 1-4- 1989 the assessee is entitled to claim deduction as it would satisfy the purpose of the Act. In view of above, in the facts of case, we uphold the order of ld. CIT(A) and reject ground of appeal taken by the department. Hence, appeal of the department is dismissed."

We have gone through the aforesaid judgment of the Tribunal and other judgments relied upon by the Tribunal in its order. The claim on account of bad debts written off is now settled on the basis of judgment of the Hon'ble Supreme Court in the case of T.R.F Ltd. v. CIT, 323 ITR

397.

There is no dispute on facts that bad debts have been written off. Thus, as per law, the assessee is undisputedly eligible for the claim. The only hurdle created by the AO was that since the claim was not made in the return of income, therefore, the claim could not have been allowed to the assessee. We do not respectfully agree with the views of the AO. In our considered view, if the assessee is entitled for a deduction, as per law and facts, same should not have been denied to itr merely because the claim was not made in the return of income. That would, in our considered opinion, amount to collecting taxes without authority of law. It is further noted by us that it is well settled position of law that assessee can resile from its return of income during the course of assessment proceedings if he is able to show that the return filed was not in accordance with the law or if some income was wrongly offered to tax, which was as per law, not liable to tax, or if the assessee finds that there was omission to make a claim in the return of income. The only 7 M/s. CMS Securitas Ltd. precaution to be taken here would be that fresh claim of the assessee should be strictly within the four corners of law. If it is so, the claim made even for the first time during the assessment proceedings should not be rejected.

ITA No.838 to 843/Bang/2023 M/s. Paul Resorts & Hotels Pvt. Ltd., Bangalore ITA No.844/Bang/2023 M/s. Paul Plathotathil John ITA Nos.845 to 847/Bang/2023 M/s. John Developers, Bangalore , ITA Nos.961, 962, 982 to 987 & 1012/Bang/2023 M/s. John Distilleries Pvt. Ltd., Bangalore Page 79 of 147 7. In our view, there are no estoppels on legal issues under the income tax law. Even if, assessee agrees or consents for something contrary to law, the A.O. is obliged under the law, to discharge his duty of making fair assessment of income and to compute amount of tax payable as per law. As per Article 265 of the Constitution of India, "No tax can be collected except by authority of law". Hon‟ble Supreme Court in the case of Ramlal vs Rewa Coalfield Ltd (AIR 1962 SC 361), held that the state authorities should not raise technical pleas if the citizens have a lawful right, which is being denied to them merely on technical grounds. The state authorities cannot adopt the attitude which private litigants might adopt. Further, we place our reliance on the judgment of Hon‟ble Delhi High Court in the case of CIT vs Bharat General Reinsurance Co Ltd 81 ITR 303 (Del.) Relevant portion is reproduced below: "It was true that the assessee itself had included that dividend income in its return for the year in question, but there was no estoppel in the Income-tax Act and the assessee having itself challenged the validity of taxing the dividend during the year of assessment in question, it must be taken that it had resiled from the position which it had wrongly taken while filing the return. Quite apart from it, it was incumbent on the income-tax department to find out whether a particular income was assessable in the particular year or not. Merely because the assessee wrongly included the income in its return for a particular year, it could not confer jurisdiction on the department to tax that income in that year even though legally such income did not pertain to that year. Therefore the income from dividend was not assessable during the assessment year 1958-59, but it was assessable in the assessment year 1953-54. It could not, therefore, be taxed in the assessment year 1958-59." 8. Further reliance is placed by us on another judgment of Hon‟ble Gujarat High Court, in the case of, S.R. Koshti 276 ITR 165 (Guj) in which relief was granted to assessee with following observations: "The authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, misconception or on not being properly instructed, is over-assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected." 9. In the case of Snehlata 192 CTR 50, Hon’ble J&K High Court held that "when the substantive law confers a benefit on the assessee under a statute, it cannot be taken away by the adjudicatory authority on mere technicalities. It is settled proposition of law that no tax can be levied or recovered without authority of law. Article 265 of the Constitution of India and section 114 of the State (J&K) Constitution imposes an embargo on imposition and collection of tax if the same is without authority of law."

11.

As far as the judgment of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. v. CIT (supra) is concerned, it is respectfully stated that it has been observed in the said judgment by the Hon'ble Supreme Court that this embargo is not applicable on the appellate authorities. In this regard, the Hon'ble Delhi High Court in the case of CIT v. Jai Parabolic Springs Ltd., 306 ITR 42, explaining the judgment of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. v. CIT (supra), has held that the Tribunal has powers to allow fresh claim made by the assessee during the course of assessment proceedings. The relevant observations of Hon'ble High Court are reproduced below :-

"12. As clear from the abovesaid facts, there is no dispute that customer introduction charges did not (sic) represent revenue expenditure. The principal ground taken by the Revenue in this appeal is that if no claim for deduction of the amount was made in the return of income then deduction would not be allowed.

13.

Sec. 254 of the Act says that the Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.

14.

Reference may be made to National Thermal Power Co. Ltd. vs. CIT (1999) 157 CTR (SC) 249 (1998) 229 ITR 383 (SC), where the Supreme Court observed that:

"The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. We do not see any reason to restrict the power of the Tribunal under s. 254 only to decide the grounds which arise from the order of the CIT(A). Both the assessee as well as the Department have a right to file an appeal/cross-objection before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier."

15.

Reference may also be made to Gedore Tools (P) Ltd. vs. CIT (2000) 161 CTR (Del) 472 : (1999) 238 ITR 268 (Del), wherein the apex Court decision in National Thermal Power Co. Ltd. (supra) has been followed.

"An appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. in the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the AAC in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the ITO. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The AAC must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The AAC should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also."

17.

In Goetze (India) Ltd. vs. CIT (2006) 204 CTR (SC) 182 : (2006) 284 ITR 323 (SC), wherein deduction claimed by way of a letter before AO, was disallowed on the ground that there was no provision under the Act to make amendment in the return without filing a revised return. Appeal to the Supreme Court, as the decision was upheld by the Tribunal and the High Court, was dismissed making clear that the decision was limited to the power of assessing authority to entertain claim for deduction otherwise than by revised return, and did not impinge on the power of Tribunal.

18.

Further, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. Reliance can be placed on Madras Industrial Investment Corporation Ltd. vs. CIT (1997) 139 CTR (SC) 555 : (1997) 225 ITR 802 (SC).

19.

In view of the above discussion, it is very clear that there is no prohibition on the powers of the Tribunal to entertain an additional ground which according to the Tribunal arises in the matter and for the just decision of the case. Therefore, there is no infirmity in the order of the Tribunal."

12.

Further, similar view has been addressed by the Tribunal also in A.Y 2008-09 by relying upon another judgment of coordinate Bench in the case of JCIT v. Hero Honda Finlease Ltd., 115 TTJ 752 (Delhi) (TM). Thus, respectfully following these judgments, and in the given facts of the case, we find that the ld. CIT(A) has rightly

13.

As a result, the appeal of the revenue is dismissed.”

20.25 In the case of Srikanth G. Shah v. ITO (ITAT Mum) (2008) (300 ITR 324) (AT) it was held as under:

“18. We have given a careful consideration to the rival submissions made before us. We have also carefully gone through the relevant facts and the judicial pronouncements cited before us. In our view, the grounds raised by the assessee in appellate proceedings to the effect that the interest income disclosed by him in the returns of income filed in response to notices issued Under Section 148 must be excluded from his total income, has to be entertained and dealt with on merits. The Hon'ble Jurisdictional High Court's decision in the case of Nirmala L Mehta (supra) squarely applies to the facts of this case. In that case also the Hon'ble Bombay High Court observed that merely because the assessee offered the prize money won in the lottery of the Sikkim Government, that would not take away her right to contend that the prize money was not chargeable to tax under Income tax Act, 1961. In this case also, having conditionally offered the income for tax, the assessee raised the issue before the learned CIT(A) that such income is not legally includible in his total income. The learned CIT(A) rejected this plea on the ground that having already voluntarily disclosed the income, the assessee cannot raise such ground. This finding of the learned CIT(A) is not in consonance with the Hon'ble Bombay High Court decision referred above. Another basis on which the learned CIT(A) did not entertain the ground of appeal raised by the assessee is the provisions contained in proviso (b) of Section 240. The relevant section has already been reproduced above. A plain reading of the provision shows that Clause (b) of proviso applies only to a case where the assessment is annulled. In the present case, admittedly, the assessment is not annulled. The assessments have been partly confirmed by the learned CIT(A). Therefore, it cannot be said that in the present case, relevant assessments have been annulled. This is substantiated from the exposition of the word "annulment" as contained in the judgment of Hon'ble Bombay High Court in the case of M/s Ratanbai N.K. Dubhash referred to above. We, therefore, hold that the grounds of appeal raised by the assessee regarding taxability of interest income must be admitted and decided on merits.

19.

Coming to the merits, there is no dispute about the factual position. The moneys have been received by the assessee in his capacity as a solicitor by way of deposits and to be utilized for meeting obligations of the clients. These moneys were put in a separate bank account and the interest accruing on this bank account

From the facts of the case, the Rules of Hon'ble Bombay High Court and the judgments relied upon by the appellant, it is clear that interest accrued on bank account referred above, would not belong to the appellant as long as the appellant apportioned the interest accrued to the respective clients' account.

20.

Thus, while accepting the claim of the assessee on merits, the learned CIT(A) refused to allow any relief to the assessee on the ground that the income was voluntarily disclosed by him. It is true that when the assessee did not disclose the interest income in the original returns of income filed by him, he wrongly claimed deduction for TDS. As per the provisions of Section 199 of the Act, credit for TDS shall be allowed for assessment year for which the relevant income is brought to the charge of the tax. When the income itself, was not shown by the assessee, in the original return of income, the claim for TDS was patently wrong. However, that should not be reason for bringing to the charge of tax such income, which is not chargeable to tax at all in the hands of the assessee as per the provisions of law. The assessing officer is within his right to deny credit for the TDS but he cannot bring to the charge of tax the income, which is not assessable in the hands of the assessee.

21.

In view of the above discussion, we hold that the relevant interest income is not chargeable in the hands of the assessee and we direct the assessing officer to exclude such income from the assessee's total income for all the assessment years under appeal. The assessing officer is also directed to withdraw the credit in respect of TDS allowed to the assessee for all the assessment years.

22.

The last ground raised by the assessee pertains to partial disallowance sustained by the learned CIT(A) from out of disallowance made by the assessing officer in respect of motor car expenses, depreciation on motor car, telephone expenses and printing and stationery expenses. Briefly stated the facts are that the assessing officer disallowed 20% from out of above expenses for personal use of

23.

The learned Counsel for assessee did not seriously contend regarding the merits of the disallowance sustained by the learned CIT(A), but he forcefully contended that in an assessment made by the assessing officer Under Section 147 of the Act, he cannot make such disallowances in respect of matters which have reached finality in the original assessment and which arc not in the nature of any escapement of income within the meaning of Section 147. The learned Counsel for assessee pointed out that the original assessment was made Under Section 143(1) and thereafter no notice Under Section 143(2) was issued. Notices for the relevant assessment years were issued Under Section 148 for the limited purpose of bringing to the charge of tax the interest income. However, during the course of re assessment proceedings, the assessing officer made enquiries regarding various expenses and thereafter he made disallowances. It is argued that this is not permissible under law. The learned Counsel strongly relied on the decision of Hon'ble Punjab & Haryana High Court in the case of Vipan Khanna v. CIT 255 ITR 220 (P&H). The relevant part of the ratio of this case is reproduced from the head notes as under:

According to the law laid down by the Hon'ble Supreme Court in CIT v. Sun Engineering works p. ltd 198 ITR 297, when proceedings Under Section 147 of the Act are initiated, the proceedings are open only qua items oj under assessment. The finality of assessment proceedings on other issues remains undisturbed. It makes no difference whether the assessment proceedings have become final on account of framing of an assessment Under Section 143(3) oj the Act or on account of non-issue of a notice Under Section 143(2) of the Act within the stipulated period. The amendments made in Sections 143 to 147 of the Act with effect from April 1, 1989, do not in any manner negate this proposition of law as enunciated by the Hon'ble Supreme Court in the case of CIT v. Sun Engineering Works P. ltd. 198 ITR 297.

24.

The learned Counsel pointed out that the Hon'ble Punjab & Haryana High Court also considered decision of Hon'ble Supreme Court in the case of V. Jagan Mohan Rao v. CIT 75 ITR 373 (SC). The learned Counsel argued that once the proceedings Under Section 147 are validly initiated, the jurisdiction of the assessing officer is confined to only income, which has escaped assessment and the entire assessment cannot be made denovo after making enquiries. The learned DR relied on the provisions of Section 147.

Income escaping assessment. 147 If the [Assessing] Officer /has reason to believe/ that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to lax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 112 or Section 118 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. Explanation 1. Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2. For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely: (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understood the income or has claimed excessive loss, deduction, allowance or relief in the return; (c) where an assessment has been made, but (i) income chargeable to lax has been under assessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.]

26.

From the above, it may be seen that once re-assessment proceedings have been validly initiated Under Section 147, the assessing officer is authorized to assess or

27.

This issue arose before the Hon'ble Supreme Court in the case of V. Jaganmohan rao v. CIT (supra) and the ratio of this case may be reproduced from the head notes:

Once proceedings Under Section 34 are validly initiated the jurisdiction of the ITO is not restricted to the portion of the income that escapes assessment. Section 34 in terms says that once the ITO decides to re-open the assessment he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice Under Section 22(2) and may proceed to assess or re assess such income, profits or gains. Therefore, once ass4essment is reopened by issuing a notice under Sub- section (2) of Section 22, the previous under assessment is set aside and the whole assessment proceedings start afresh. Once valid proceedings are started Under Section 34(1)(b) the ITO not only had the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year.

28.

The Hon'ble Supreme Court was concerned with the interpretation of Section 34 of the Indian Income tax Act, 1922, which is now replaced by Section 147 of the Income Tax Act, 1961. It was observed by the Hon'ble Supreme Court that once valid proceedings arc started Under Section 34(1)(b), the ITO not only had jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year. The scope and ambit of the aforesaid Hon'ble

The principle laid down by this court in V. Jaganmohan Rao's case, therefore, is only to the extent that once an assessment is validly reopened by issuance of a notice under Section 22(2) of the 1922 Act (corresponding to Section 148 of the Act), the previous underassessment is set aside and the Income-tax Officer has the jurisdiction and duty to levy lax on the entire income that had escaped assessment during the previous year. What is set aside is, thus, only the previous underassessment and not the original assessment proceedings. An order made in relation to the escaped turnover does not affect the operative force of the original assessment, particularly if it has acquired finality, and the original order retains both its character and identity. It is only in case of "underassessment" based on Clauses (a) to (d) of Explanation 1 to Section 147, that the assessment of tax due has to be recomputed on the entire taxable income. The judgment in V. Jaganmohan Rao's case , therefore, cannot be read to imply as laying down that, in the reassessment proceedings validly initiated, the assessee can seek reopening of the whole assessment and claim credit in respect of items finally concluded in the original assessment. The assessee cannot claim re-computation of the income or redoing of an assessment and be allowed a claim, which he either failed to make or which was otherwise rejected at the time of original assessment, which has since acquired finality. Of course, in the reassessment proceedings, it is open to an assessee to show that the income alleged to have escaped assessment has in truth and in fact not escaped assessment but that the same had been shown under some inappropriate head in the original return, but to read the judgment in v. Jaganmohan Rao's case , as laying down that reassessment wipes out the original assessment and that reassessment is not only confined to "escaped assessment" or "underassessment" but to the entire assessment for the year and starts the assessment proceedings be novo giving the right to an assessee to re- agitate matters, which he had lost during the original assessment proceedings, which had acquired finality, is not only erroneous but also against the phraseology of Section 147 of the Act and the object of reassessment proceedings. Such an interpretation would be reading that judgment totally out of context in which the question arose for decision in that case. It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this court, divorced from the context of the question under consideration and treat it to be the complete "law" declared by this court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions, which were before this court. A decision of this court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the court must carefully try to ascertain the true principle laid down by the decision of this court and not to pick out words or sentences from the

Although Section 147 is a part of a taxing statute, it imposes no charge on the subject but deals merely with the machinery of assessment and in interpreting a provision of that kind, the rule is that construction should be preferred under Section 147 of the Act are for the benefit of the Revenue and not an assessee and are aimed at garnering the "escaped income" of an assessee, the same cannot be allowed to be converted as "revisional" or " review" proceedings at the instance of the assessee, thereby making the machinery unworkable. As a result of the aforesaid discussion, we find that, in proceedings under Section 147 of the Act, the Income tax Officer may bring to charge items of income, which had escaped assessment other than or in addition to that item or items, which have led to the issuance of the notice under Section 148 and where reassessment is made under Section 147 in respect of income, which has escaped tax, the Income- tax Officer's jurisdiction is confined to only such income, which has escaped tax or has been under assessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to re-agitate questions, which have been decided in the original assessment proceedings. It is only the underassessment, which is set aside and not the entire assessment when reassessment proceedings are initiated. The Income-tax Officer cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters, which are not the subject matter of proceedings under Section 147. An assessee cannot resist validly initiated reassessment proceedings under this section merely by showing that other income which had been assessed originally was at too high a figure except in cases under Section 152(2). The words "such income" in Section 147 clearly refer to the income, which is chargeable to tax but has "escaped assessment" and the Income-tax Officer's jurisdiction under the section is confined only to such income which has escaped assessment. It does not extend to reconsidering generally the concluded earlier assessment. Claims which have been disallowed in the original assessment proceedings cannot be permitted to be re- agitated on the assessment being reopened for bringing to tax certain income, which had escaped assessment because the controversy on reassessment is confined to matters, which are relevant only in respect of the income, which had not been brought to tax during the course of original assessment. A matter not agitated in the concluded original assessment proceedings also cannot be permitted to be agitated in the reassessment proceedings unless relatable to the item sought to be taxed as "escaped income". Indeed, in the reassessment proceedings for bringing to lax items, which had escaped assessment, it would be

29.

The legal position which emerges from the decisions of Hon'ble Punjab & Haryana High Court and Hon'ble Supreme Court referred to above may summarised as follows:

Once the re-assessment proceedings are validly initiated, it is a statutory duty of the assessing officer to bring to the charge of tax, the entire income, which has escaped assessment. His jurisdiction is not confined to the matters on the basis of which re-assessment proceedings were initiated. Section 147 is primarily for the benefit of the revenue and during the course of the reassessment proceedings, the assessee cannot claim any deduction or any benefit with regard to the matters which have already reached finality at the time of original assessment. The assessee cannot be permitted to convert the re-assessment proceedings as his appeal or revision in disguise and seek relief in respect of items earlier rejected or claim relief in respect items not claimed in the original assessment proceedings. The assessing officer can bring to the charge of tax any income which has escaped assessment and which comes to his notice during the course of re-assessment proceedings, but he cannot make roving and general enquiries as if the entire assessment was open before him.

30.

Let us now examine the facts of the assessee's case, in the light of the legal position enunciated above. The returns of income originally filed by the assessee were accepted Under Section 143(1). The assessee is an advocate and a solicitor and claimed expenditure in respect of use of motor car, telephone, printing & stationery. These expenses stood allowed as the returns were accepted Under Section 143(1). The relevant assessments were re-opened for the purpose of bringing to the charge of tax, the relevant interest income. During the course of re- assessment proceedings, the assessing officer noticed that the assessee had claimed the entire expenditure Under Section 37(1) and no part of the expenditure was disallowed by the assessee for personal use. He, therefore, asked the assessee to furnish the details. However, the assessee neither furnished any details nor any satisfactory explanation. In these circumstances, the assessing officer estimated the expenditure for personal use at around 20%. In these facts, it would be too far fetched to hold that the assessing officer made any roving, fishing or general enquiries so as to make the assessment denovo The assessing officer only observed that personal use cannot be ruled out and therefore he asked the assessee to furnish the details In our view, under Section 147 and in the light of the legal

31.

Coming to the merits of the disallowances, no material was produced before us to controvert the finding of the learned CIT(A) or to show that no part of the expenditure is in the nature of personal expenditure of the assessee The learned CIT(A) has sustained disallowance merely at 10% of the telephone expenses, motor car and depreciation on motor car In the facts of the case, this cannot be said to be un reasonable or excessive The disallowance of printing and stationery expenses have been deleted by the learned CIT(A) except for the assessment year 95 96 We fail to understand as to why such disallowance shoald be sustained for the assessment year 95 96 when for all the assessment years there is a consistency finding by the learned CIT(A) that this expenditure was entirely for professional purpose Therefore, for the assessment year 95-96, we modify the order of the learned CIT(A) to the extent that the disallowance from out of the printing and stationery expenses is directed to be deleted With regard to the disallowances from out of other expenses as mentioned above, orders of the learned CIT(A) are upheld.”

20.26 In the case of M/s. Maruti Enterprise, Amreli Vs. The ADIT (CPC), Bangalore (2023) ITA No.10/Rjt/2023 dated 20.3.2024, the Rajkot Bench of this Tribunal held as under: “8. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the basis of making the disallowance is that such deduction was not claimed in the tax audit report. To our understanding, the tax audit report is a significant piece of evidence/ document but based on that the genuine claim of the assessee cannot be denied especially in the circumstances when other details are available on records. As such the assessee has claimed deduction u/s 43B of the Act on payment basis and therefore in our considered view, the same should have been allowed by the authorities below. We note that the Hon’ble Gujarat High Court in the case of S.R. Koshti Vs. CIT reported in 276 ITR 165 has held as under:

18.

The position is, therefore, that, regardless of whether the revised return was filed or not, once an assessee is in a position to show that the assessee has been over-assessed under the provisions of the Act, regardless of whether the over-assessment is as a result of assessee's own mistake or otherwise, the CIT has the power to correct such an assessment under section 264(1) of the Act. If the CIT refuses to give relief to the assessee, in such circumstances, he would be acting de hors the powers under the Act

From the above, it is revealed that the income of the assessee should not be over assessed even if there is a mistake made by the assessee. As such the legitimate deduction for which the assessee is entitled should be allowed while determining the taxable income. In view of the above and after considering the facts in totality, we are of the view that the claim of the assessee cannot be denied as it was not reported in the tax audit report especially in the circumstances where other evidence is available on record suggesting the deduction in pursuance to the provisions of section 43B on payment basis is available. Accordingly, we set aside the finding of the learned CIT-A and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed.” 20.27 Sharp Tools (421 ITR 90), Hon’ble Madras High Court held as under: 8. Heard both sides and perused the materials placed before this Court. 9. The petitioner is an Assessee under the respondent-Department. For the assessment year 2013-2014, the petitioner filed their return on 30.09.2013. While filling up the columns therein, the petitioner, in Column No.14, under the head "Debits to Profit and Loss Account", "Compensation to Employees" and "Total Compensation to Employees", has entered the figure of Rs.1,38,59,509/, which according to the petitioner is incorrect figure and on the other hand, the actual figure towards the "Total Compensation to

(ii) Wages Rs. 75,14,652/-

(iii) Salary & Bonus Rs. 56,55,166/-

Total Rs.1,87,82,244/- Therefore, it is contended that the above mistake is pure and simple typographical error. 10. The above claim of the petitioner is not without any material support. On the other hand, it is not in dispute that the profit and loss account filed along with the return of income supports the above claim of the petitioner. Therefore, it is evident that only due to typographical error, lessor figure was entered, in column "Total Compensation to Employees" as Rs.1,38,59,509/-, instead of Rs.1,87,82,244/-. No doubt, such error can be rectified by filing a revised return as contemplated under Section 139(5) of the IT Act, any time before the end of the relevant assessment year or before completion of the assessment, whichever is earlier. Though the petitioner has not filed any revised return within such time, however, on receipt of an intimation under Section 143(3) of the IT Act, dated 04.05.2014, the petitioner had realized the mistake and filed a rectification return on 09.01.2016. It is true that rectification return was filed nearly after two years from the date of receipt of Section 143(1) intimation. The said rectification return was rejected by the Assessing Officer by proceedings dated 24.10.2017 on the reason that the same was not filed within the time and thus, it is not valid and cannot be sustained. Thereafter, the Assessee filed an application under Section 264 of the IT Act on 25.01.2018, admittedly, within one year from the date of the order rejecting the rectification return. The respondent before whom, the said revision was filed, passed the impugned order, wherein at Paragraph Nos.9, 10, & 11 he observed as follows:

"9. The Assessee in its P&L account had claimed expenditure under the grouping "Compensation to Employees" inclusive of labour charges of Rs.56,12,426/- wages of Rs.75,14,652/- and salary and bonus of Rs.56,55,166/-. However, as against the total of Rs.1,87,82,244/- the Assessee had entered an amount of Rs.1,38,59,509/-. The difference on account of the wrong entry being Rs.49,22,735/- the amount that was reckoned as the income of the Assessee for the assessment year in question.

11.

Perusal of the above findings of the respondent would show that he in fact, found that the error committed by the Assessee was inadvertent and that the expenditure shown under the head "Compensation to Employees" are genuine, since such expenditures are supported by the certified copy of the Profit and Loss Account uploaded along with the return of income. However, after finding so, the respondent, though advised the Assessee to file a suitable revised return, has also made an observation that the time stipulated for filing such revised return had already expired. Thus, in effect, the respondent though found that the mistake is inadvertent and that the claim is bona fide, has not granted any relief to the petitioner.

12.

Under the above stated facts and circumstances, it is to be seen as to whether the respondent is justified in passing the impugned order without granting any relief to the petitioner. Section 264 of the IT Act, deals with the procedure for filing revision and the power and scope of the respondent herein to consider such revision, which reads as follows: Section 264 : Revision of other orders a. In the case of any order other than an order to which section 263 applies passed by an authority subordinate to him, the 4[Principal Commissioner or Commissioner] may, either of his own motion or on an application by the assessee for revision, call for the record of any proceeding under this Act in which any such order has been passed and may make such inquiry or cause such inquiry to be made and, subject to the provisions of this Act, may pass such order thereon, not being an order prejudicial to the assessee, as he thinks fit.

b. The [Principal Commissioner or Commissioner] shall not of his own motion revise any order under this section if the order has been made more than one year previously.

ITA No.838 to 843/Bang/2023 M/s. Paul Resorts & Hotels Pvt. Ltd., Bangalore ITA No.844/Bang/2023 M/s. Paul Plathotathil John ITA Nos.845 to 847/Bang/2023 M/s. John Developers, Bangalore , ITA Nos.961, 962, 982 to 987 & 1012/Bang/2023 M/s. John Distilleries Pvt. Ltd., Bangalore Page 94 of 147 c. In the case of an application for revision under this section by the assessee, the application must be made within one year from the date on which the order in question was communicated to him or the date on which he otherwise came to know of it, whichever is earlier: Provided that the [Principal Commissioner or Commissioner] may, if he is satisfied that the assessee was prevented by sufficient cause from making the application within that period, admit an application made after the expiry of that period. d. The [Principal Commissioner or Commissioner] shall not revise any order under this section in the following cases - (a) where an appeal against the order lies to the Deputy Commissioner (Appeals) or to the 4[Principal Commissioner or Commissioner] (Appeals) or to the Appellate Tribunal but has not been made and the time within which such appeal may be made has not expired, or, in the case of an appeal to the 4[Principal Commissioner or Commissioner] (Appeals) or to the Appellate Tribunal, the assessee has not waived his right of appeal; or (b) where the order is pending on an appeal before the Deputy Commissioner (Appeals); or (c) where the order has been made the subject of an appeal to the 4[Principal Commissioner or Commissioner] (Appeals) or to the Appellate Tribunal. (5) Every application by an assessee for revision under this section shall be accompanied by 1[a fee of five hundred rupees]. [(6) On every application by an assessee for revision under this sub-section, made on or after the 1st day of October, 1998, an order shall be passed within one year from the end of the financial year in which such application is made by the assessee for revision. Explanation: In computing the period of limitation for the purposes of this sub-section, the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.] [(7) Notwithstanding anything contained in sub-section (6), an order in revision under subsection (6) may be passed at any time in consequence of or to give effect to any finding or direction contained in an order of the Appellate Tribunal, 3[National Tax Tribunal,] the High Court or the Supreme Court.] Explanation 1: An order by the 4[Principal Commissioner or Commissioner] declining to interfere shall, for the purposes of this section, be deemed not to be an order prejudicial to the assessee.

14.

The power and scope under Section 264 of the IT Act, have been considered by the Courts. In a decision rendered by the High Court of Kerala, reported in [2016] 75 taxmann.com 298 (Ker), Transformers & Electricals Kerala Ltd., Vs. Deputy CIT., observed at Paragraph No.8 as follows:

In fact the judgment in Goetze (India) Ltd. (supra) was with reference to the power of the Tribunal under Section 254 of the IT Act which can have no basis for the power to be exercised by the Commissioner under Section 264 of the IT Act. Very wide powers have been conferred on the Commissioner under Section 264 of the IT Act to conduct an enquiry to be made and to pass such orders, as he thinks fit. In the impugned order, the Commissioner proceeds on the basis that the petitioner had not filed a revised return for the year 2008-09. It is pointed out by the petitioner that the time for filing a revised return had already expired and once the said period has expired, revised return cannot be filed. The question is whether, in the absence of filing a revised return, a claim for deduction for the aforesaid amount is permissible for the assessment year 2008-09. As held by a Division Bench in Parekh Brothers (supra), there is no limit to exercise the jurisdiction under Section 264 of the IT Act. That was also a case in which the claim was not made by the assessee in the return or at the time of arguments when the assessment was made. In such an instance, the Division Bench held that, even assuming that the assessment order was correct, still it is open for the assessee to seek the revisional jurisdiction in respect of an item which was not made by way of a mistake. Therefore, the jurisdiction of the Commissioner to pass orders even if a revised return is not filed, is very much available.

Mr. Swaminathan would refer to the judgment of the Division Bench of the Andhra Pradesh High Court in M.S. Raju Vs. Deputy Commissioner of Income Tax (MANU/AP/0956/2007 : 298 ITR 373) which has expressed a view to the effect that the import of the word 'record' as set out in the Circular (supra) would be restricted to the power under section 263 only and not section 264. The distinction noted by the Division Bench in that case was that the power of revision under section 263 of the Act was intended to be exercised in cases where the interests of revenue were prejudiced and it was for this reason that the inquiry of the Commissioner of Income Tax was not limited only to material available before the assessing officer, but also material obtained subsequently. The power under section 264 of the Act is, in fact as wide a power, and one that is intended to prevent miscarriage of justice. Courts have consistently taken a view that the conferment of powers under section 264 of the Act is to enable the Commissioner to provide relief to an assessee, where the law permits the same. Reference may be made to the decisions of the Gujarat High Court in C.Parikh and Co. Vs. Commissioner of Income Tax (MANU/GJ/0013/1979 : 122 ITR 610); Ramdev Exports Vs. Commissioner of Income Tax (MANU/GJ/0313/2001 : 251 ITR 873); Kerala High Court in Parekh Brothers Vs. Commissioner of Income Tax and Calcutta High Court in Smt. Phool Lata Somani Vs. Commissioner of Income Tax (MANU/WB/0081/2005 : 276 ITR 216). In this view of the matter, we see no reason to take a different view on the interpretation of the word 'record' occurring in section 264 of the Act from that expressed by the Central Board of Direct Taxes in the Circular extracted above. The order under section 144A dated 31.12.2007 is thus part of the record and ought to have been take into consideration in deciding the petition under section 264 of the Act. The relief provided in terms of section 139(5) is specific to the correction of a wrong statement or an omission in the original return by way of a revised return. The power under section 264 of the Act extends to passing any order as the Principal Commissioner or Commissioner may think fit after making an inquiry and subject to the provisions of the Act, either suo-moto or on an application by the assessee. Though the remedies over lap, power under section 264 is significantly wider and the wisdom of choosing one over the other would really depend on the facts and legal position of each case.

17.

In [2016] 386 ITR 643 (Del.), Vijay Gupta Vs. CIT, the Division Bench of the Delhi High Court, after referring to the Circular No.14/1955 dated 11.04.1955 has observed at Paragraph Nos. 22, 35, 36 & 39 as follows: Circular No. 14(XL-35) : MANU/DTCR/0004/1955 of 1955, dated 11.4.1955, issued by the Central Board of Direct Taxes and relied upon by the Petitioner reads as under: "Officers of the department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a tax payer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the officers should take the initiative in guiding a tax payer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the department, for it would inspire confidence in him that he may be sure of getting a square deal from the department. Although, therefore, the responsibility for claiming refunds and reliefs rests with the assesses on whom it is imposed by law, officers should - (a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other; (b) freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs".

From the various judicial pronouncements, it is settled that the powers conferred under section 264 of the Act are very wide. The Commissioner is bound to apply his mind to the question whether the petitioner was taxable on that income. Since section 264 uses the expression "any order", it would imply that the section does not limit the power to correct errors committed by the subordinate authorities but could even be exercised where errors are committed by assesses. It would even cover situations where the assessee because of an error has not put forth a legitimate claim at the time of filing the return and

An assessee is liable to tax only upon such receipt as can be included in his total income and is assessable under the Income-tax Act. There is nothing in S.264, which places any restriction on the Commissioner's revisional power to give relief to the assessee in a case where the assessee detracts mistakes because of which he was over-assessed after the assessment was completed. Once it is found that there was a mistake in making an assessment, the Commissioner had power to correct it under s. 264(1). When the substantive law confers a benefit on the assessee under a statute, it cannot be taken away by the adjudicatory authority on mere technicalities. It is settled proposition of law that no tax can be levied or recovered without authority of law. Article 265 of the Constitution of India and section 114 of the State Constitution imposes an embargo on imposition and collection of tax if the same is without authority of law.

When the commissioner was called upon to examine the revision application under section 264 of the Act, all the relevant material was already available on the record of the assessing officer. The commissioner instead of merely examining whether the intimation was correct based on the material then available should have examined the material in the light of the Circular No. 14(XL-35) : MANU/DTCR/0004/1955 of 1955, dated 11.4.1955 and Article 265 of the Constitution of India. The commissioner has erred in not doing so and in failing to exercise the jurisdiction vested in him on mere technical grounds.

18.

Perusal of the above decisions would show that the powers conferred on the Commissioner under Section 264 of the IT Act, is not only wider in its scope and also intended for the purpose of preventing miscarriage of justice and for providing relief to an Assessee, which he is otherwise entitled to, but for the order under challenge in revision.

19.

No doubt Section 139(5) provides for filing a revised return within one year for correcting any mistake. It is true that the petitioner has not exercised such option within such time. However, the petitioner filed a rectification return after receipt of intimation under Section 143(1). It is true that there is a delay in filing such return. But the said rectification return was rejected on 24.10.2017 and immediately, within one year, the petitioner approached the Commissioner under Section 264 of the IT Act, and filed the revision. Since the Commissioner is empowered to entertain the revision under Section 264 of the IT Act, against any order other than the order to which Section 263 applies, the revision filed by the

20.

At this juncture, it is very relevant and useful to quote the observation of the Apex Court reported in [2013] 4 SCC 97, Laxmibai (Dead) through LRs and another Vs. Bhagwantbuva (Dead) through LRs and others, that when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred. The Apex Court has also gone to the extent of saying that the Courts may in the larger interests of administration of justice may excuse or overlook a mere irregularity or a trivial breach of law for doing real and substantial justice to the parties. The relevant observation made at Paragraph 49, is extracted hereunder: "When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred and the Courts may in the larger interests of administration of justice may excuse or overlook a mere irregularity or a trivial breach of law for doing real and substantial justice to the parties and pass orders which will serve the interest of justice best." 21. Likewise, the Apex Court in [2013] 4 SCC 186, Union of India and others Vs. Ex-Gnr Ajeet Singh, has observed at Paragraph Nos. 24 & 26 as follows: 24. The expression "failure of justice" would appear, sometimes, as an etymological chameleon. The Court has to examine whether there is really a failure of justice or whether it is only a camouflage. Justice is a virtue which transcends all barriers. Neither the rules of procedure,

24.

Therefore, it is apparent on the facts and circumstances of the present case, that a mere typographical error committed by the Assessee cannot cost them payment of excess tax as collected by the Revenue. Certainly, the denial for repayment of such excess collection would amount to great injustice to the Assessee.

25.

Even though the Statute prescribes a time limit for getting the relief before the Assessing Officer by way of filing a revised return, in my considered view, there is no embargo on the Commissioner to exercise his power and grant the relief under Section 264 of the IT Act. In other words, for granting the relief to an

20.28 In our opinion, as seen from the above judgements, even if such income is offered for taxation under protest/under wrong advice/or by mistake, the assessment and income should be assessed according to the Income-tax Act read with the court decisions and taxes should be collected or paid according to the rules of law and any taxes paid or by mistake under protest or wrong advice be refunded to the appellant and the revenue cannot be enriched at the cost of the assessee.

20.29 Further, third party statement cannot be relied upon without proper enquiry and providing proper cross-examination to the assessee. In CIT v. P.V. Kalyana Sundaram, 294 ITR 49 (SC), the Hon’ble Supreme Court observed that no reliance could be placed on loose sheets seized during the course of search and third party statements unless provided cross-examination.

In our opinion, this circular is binding on the department and it is to be followed in true spirit.

20.31 Thus, assessee submitted that even the admitted income admitted by the assessee in the return of income should be confined to the seized material found during the course of search action. If any additional income is offered by the assessee without incriminating material same to be inquired and the computation of income filed and disclosed in the return of income filed in response to notice u/s 153A of the Act to be corrected. He also drew our attention to the additional

ITA Nos.961, 962 & 1012/Bang/2023 (AYs 2015-16, 2016-17 & 2014-15) (M/s. John Distilleries Pvt. Ltd.) (Revenue’s appeals):

23.

The grounds raised by the revenue in all these appeals are common, which reads as follows:

i. Whether the CIT(A) was correct on law and facts in holding that no specific evidence existed for the AYs 2014-15, 2015-16 & 2016-17 in respect of the inflated purchases and inflated transportation expenses and consequently deleted the additions. ii. Whether the CIT(A) was correct on law and facts in not considering the sworn statements of Shri Mathew Joseph and other employees recorded u/s 132(4) of the IT Act, 1961 in which they had clearly outlined the modus operandi adopted by the assessee company for evasion of tax through inflated booking of purchases and inflated transportation expenses. iii. Whether the CIT(A) was correct on law and facts in not getting the claims made by the assessee vis-à-vis lack f documentary evidence either by himself or from the AO as per the mandate of section 250(4) of the I.T Act, 1961.

INDEX Sl.No Particulars Page No. 1 Application u/r 29 of ITAT Rules,1962 1-6 2 Annexure-A/1: Letter dated.30.10.2018 7-15 3 Annexure-A/2: Letter in dated 30.10.2018 in reply to 16-18 notice u/s 142(1) of the Act. 4 Annexure-A/3: Letter dated 17.12.2018 19-20 5 Revised Computation of Income 21-25 6 Copy of bills and vouchers for expenditure under the head 26-119 ‘Travelling Expenditure’. 7 Copy of bills and vouchers for expenditure under the head 120-512 ‘Repairs and maintenance’. 8 Copy of bills and vouchers for expenditure under the head 513-593 ‘Commission Expenses’.

ITA Nos - 840/BANG/2023 M/s. Paul Resorts and Hotels Pvt Ltd. vs DCIT, CC(1)(1), Bengaluru A.Y 2013-14 Application under Rule 29 of Income Tax Appellate Tribunal Rules, 1962 INDEX Sl.No Particulars Page No. 1 Application u/r 29 of ITAT Rules,1962 1-6

ITA Nos - 841/BANG/2023 M/s. Paul Resorts and Hotels Pvt Ltd. vs DCIT, CC(1)(1), Bengaluru A.Y 2014-15 Application under Rule 29 of Income Tax Appellate Tribunal Rules, 1962 INDEX Sl.No Particulars Page No. 1 Application u/r 29 of ITAT Rules,1962 1-6 2 Annexure-A/1: Letter dated.30.10.2018 7-15 3 Annexure-A/2: Letter in dated 30.10.2018 in reply to 16-18 notice u/s 142(1) of the Act. 4 Annexure-A/3: Letter dated 17.12.2018 19-20 5 Revised Computation of Income 21-26 6 Copy of bills and vouchers for expenditure under the head 27-70 ‘Travelling Expenditure’. 7 Copy of bills and vouchers for expenditure under the head 71-656 ‘Repairs and maintenance’. 8 Copy of bills and vouchers for expenditure under the head 657-1025 ‘Commission Expenses’.

ITA Nos - 842/BANG/2023 M/s. Paul Resorts and Hotels Pvt Ltd. vs DCIT,CC(1)(1), Bengaluru A.Y 2015-16 Application under Rule 29 of Income Tax Appellate Tribunal Rules, 1962

INDEX Sl.No Particulars Page No. 1 Applicattion u/r 29 of ITAT Rules,1962 1-6

ITA Nos - 843/BANG/2023 M/s. Paul Resorts and Hotels Pvt Ltd. vs DCIT,CC(1)(1), Bengaluru A.Y 2016-17 Application under Rule 29 of Income Tax Appellate Tribunal Rules, 1962 INDEX Sl.No Particulars Page No. 1 Applicattion u/r 29 of ITAT Rules,1962 1-6 2 Annexure-A/1: Letter dated.30.10.2018 7-15 3 Annexure-A/2: Letter in dated 30.10.2018 in reply to 16-18 notice u/s 142(1) of the Act. 4 Annexure-A/3: Letter dated 17.12.2018 19-20 5 Revised Computation of Income 21-27 6 Copy of bills and vouchers for expenditure under the head 28-104 ‘Travelling Expenditure’. 7 Copy of bills and vouchers for expenditure under the head 105-207 ‘Repairs and maintenance’. 8 Copy of bills and vouchers for expenditure under the head 208-693 ‘Commission Expenses’.

27.

With regard to admission of additional evidences, the contention of the ld. A.R. is that the present application is filed under Rule 29 r/w Rule 18(4) of the Income Tax Appellate Tribunal Rules, 1962 seeking admission of additional evidences in the above matter vide applications dated 6.5.2024.

28.

The ld. D.R. submitted that the assessee has not placed these additional evidences on earlier occasion, which shall not be admitted at this stage. She made similar arguments as in the case

29.

We have heard the rival submissions and perused the materials available on record. The assessee has taken the plea of ground Nos.2 to 6 pertaining to ld. AO coming to the conclusion that Travel expenses and repairs & maintenance are bogus in nature. Further, in ground Nos.7 & 8 in assessment year 2013-14 to 2016-17, the assessee has taken a ground that the ld. AO wrongly coming to the conclusion that commission paid is bogus in nature. The ld. CIT(A) while adjudicating this issue relied on the statement recorded u/s 132(4) and 131 of the Act and not examined whether this expenditure is properly supported by the bills, vouchers and receipts. Now the contention of the ld. A.R. is that all the expenditure were properly supported by the bills, vouchers and receipts and there cannot be any bogus expenditure in nature and admission of assessee in statement recorded u/s 132(4) of the Act or u/s 1321 of the Act cannot be basis for addition in the assessment year framed u/s 153C r.w.s. 153A & 143(3) of the Act. In our opinion, we find force in the argument of ld. A.R. These are the searched assessments framed u/s 153A/153C of the Act and which was based on the seized material in case of concluded assessments. Being so, in our opinion, it is appropriate to admit these additional evidences as discussed in the case of M/s. John Distilleries Pvt. Ltd. for the assessment years 2011-12 to 2016-17 in ITA Nos.982 to 987/Bang/2023. Ordered accordingly.

30.

The assessee has raised very lengthy grounds, however at the time of hearing, filed a concise ground in the form of chart making

34.1 Further, he submitted that there was no seized material for all these assessment years to reopen the concluded assessment as these assessments are already concluded and to reopen the concluded assessment, there should be an independent seized material found during the course of search action and since there was no incriminating material found in the course of search action, concluded assessment cannot be reopened. Thus, he submitted that framing assessment in all these assessment years is bad in law for the assessment years 2011-12 to 2015-16 without any seized material. 35. The ld. D.R. submitted that during the course of search, some vouchers/bills relating to the various expenses were found, specifically travelling and repairing & maintenance expenses. When these were cross checked with the assessee’s books of accounts, discrepancies were found and on being confronted with the same with Shri Shelly Thayil, C.O.O. of the assessee company has admitted that company is making some bogus expenses and the same has been utilized for making inadmissible business payments. Thus, she submitted that this is the reason for initiating the proceedings u/s 153C of the Act. She further submitted produced a copy of satisfaction note recorded u/s 153C of the Act in this

“17. 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. 18. 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, document-wise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under 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. 19. 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.

ITA No.838 to 843/Bang/2023 M/s. Paul Resorts & Hotels Pvt. Ltd., Bangalore ITA No.844/Bang/2023 M/s. Paul Plathotathil John ITA Nos.845 to 847/Bang/2023 M/s. John Developers, Bangalore , ITA Nos.961, 962, 982 to 987 & 1012/Bang/2023 M/s. John Distilleries Pvt. Ltd., Bangalore Page 123 of 147 20. Insofar as the judgment of the Gujarat High Court relied upon by the learned Solicitor General is concerned, we find that the High Court in that case has categorically held that it is an essential condition precedent that any money, bullion or jewellery or other valuable articles or thing or books of accounts or documents seized or requisitioned should belong to a person other than the person referred to in Section 153A of the Act. This proposition of law laid down by the High Court is correct, which is stated by the Bombay High Court in the impugned judgment as well. The judgment of the Gujarat High Court in the said case went in favour of the Revenue when it was found on facts that the documents seized, in fact, pertain to third party, i.e. the assessee, and, therefore, the said condition precedent for taking action under Section 153C of the Act had been satisfied. 21. Likewise, the Delhi High Court also decided the case on altogether different facts which will have no bearing once the matter is examined in the aforesaid hue on the facts of this case. The Bombay High Court has rightly distinguished the said judgment as not applicable giving the following reasons: "8. Reliance on the judgment of the Division Bench of the High Court of Delhi reported in case of SSP Aviation Ltd. v. Deputy Commissioner of Income Tax [2012] 346 ITR 177 is misplaced. There, search was carried out in the case of "P" group of companies. It was found that the assessee before the Hon'ble Delhi High Court had acquired certain development rights from "P" group of companies. Based thereon, the satisfaction was recorded by the Assessing Officer and he issued notice in terms of Section 153C. Thereupon the proceedings were initiated under section 153A and the assessee was directed to file returns for the six assessment years commencing from 2003-04 onwards. The assessees filed returns for those years but disclosed Nil taxable income. These returns were accepted by the Assessing Officer, however, in respect of the assessment year 2007-08 there was a significant difference in the pattern of assessment for this year also, the return was filed for Nil income but there were certain documents and which showed that there were transactions of sale of development rights and from which profits were generated and taxable for the assessment year 2007-08. Thus, the receipt of Rs.44 crores as deposit in the previous year relevant to the assessment year 2008-09 and later on became subject matter of the writ petition before the

ITA No.838 to 843/Bang/2023 M/s. Paul Resorts & Hotels Pvt. Ltd., Bangalore ITA No.844/Bang/2023 M/s. Paul Plathotathil John ITA Nos.845 to 847/Bang/2023 M/s. John Developers, Bangalore , ITA Nos.961, 962, 982 to 987 & 1012/Bang/2023 M/s. John Distilleries Pvt. Ltd., Bangalore Page 124 of 147 Delhi High Court. That was challenging the validity of notice under section 153C read with section 153A. In dealing with such situation and the peculiar facts that the Delhi High Court upheld the satisfaction and the Delhi High Court found that the machinery provided under section 153C read with section 153A equally facilitates inquiry regarding existence of undisclosed income in the hands of a person other than searched person. The provisions have been referred to in details in dealing with a challenge to the legality and validity of the seizure and action founded thereon. We do not find anything in this judgment which would enable us to hold that the tribunal's understanding of the said legal provision suffers from any error apparent on the face of the record. The Delhi High Court judgment, therefore, will not carry the case of the revenue any further." We, thus, do not find any merit in these appeals. 22. We now advert to the implication of the fact which has been emphasised in para 15. As pointed out in the said para, the assessment order passed by the AO covers eight Assessment Years. Assessment done in six Assessment Years is under Section 153C of the Act. Assessment order is set aside only in respect of four such Assessment Years that too on the technical ground, noted above. This objection pertaining to the four Assessment Years in question does not relate to the other two Assessment Years, namely, 2004-05 and 2005-06. Likewise, this decision has no bearing in respect of assessment done qua Assessment Year 1999-2000 as well as Assessment Year 200607. The necessary consequence would be that insofar as the conclusions of the AO in his assessment order regarding the activities of the trust not being genuine and not carried out in accordance with the trust deed or cancellation of registration, denial of benefits of Sections 11 and 12 etc. are concerned, the same would not be affected by this judgment. It is, thus, clarified that this Court has not dealt with the matter on merits insofar as incriminating material found against the assessee or Mr. Navale is concerned. Pithily put, this Court has not given any clean chit to the assessee insofar as the finding of the AO to the effect that the assessee had been indulging in profiteering and collecting capitation fee is concerned. Whatever other repercussions are there, based on these findings, they can follow. This Court was not informed and, therefore, unaware of any challenge to the assessment order in respect of other four Assessment Years and outcome thereof. Wherever any such proceedings are pending,

42.2 She submitted that it is evident from the above paragraphs of the order of the AO, that the assessee admitted:

a) to claiming bogus expenses in books of accounts, which were accommodation entries b) that the bills and vouchers for such expenses claimed, were not available and could not be produced. 42.3 She submitted that on account of the evidence unearthed during the search and based on admissions of key employees and

42.4 She submitted that it is evident from the above paragraphs in the order of the ld. AO that the assessee admitted: a) to claiming bogus commission expenses in books of accounts, which were in the nature of accommodation entries

42.7 She drew our attention to Q.No.6 and Q.No.11 of statement dated 7.11.2016 which is reproduced below:

42.8 She drew our attention to Q.No.74 of statement dated 6.3.2017, which is reproduced below:

42.9 She submitted that it is clear from the above statements that the Shri Paul P John confirmed the statements given by the Key employees of the Assessee i.e. Paul Resorts and Hotels Pvt Limited with regard to

ITA Nos.845 to 847/Bang/2023 (AYs 2014-15 to 2016-17) (M/s. John Developers) (Assessee’s appeals): 47. The assessee filed lengthy grounds in these cases of assessee also. However, the assessee filed concise ground-wise chart which has been considered for adjudication, herein below.

48.

Brief facts of the case; since the facts are common, we consider the facts in the assessment year 2014-15 for brevity. 48.1 The assessee is in the business of development of residential Sites near Bangalore. The Assessee is a Partnership Firm engaged in the business of development of land and sale thereof For the Asst. Year 2014- 15 originally the Assessee had filed return of income, declaring an income of Rs.43,24,914/-. There was a Survey in the month of Sept.,2016 in the case of the Assessee and at the time of Survey the Assessee had voluntarily agreed to add a sum of Rs.60,00,000/- as additional income offered and also Rs.20,56,553/- as inadmissible expenditure, with a result there was addition Rs.80,56,553/- for the assessment. The assessment was completed u/s. 143(3) vide Order dated 24.10.2016. Subsequently, on 3rd November 2016, a search and seizure action u/s. 132 of the Act was conducted in the case of M/s. John Distilleries Pvt. Ltd., and Assessee being a group concern, search was also carried out in the office premises of the Assessee. During the course of search proceedings, documents / materials pertaining to assessee were found and seized. Thereafter, a notice u/s 153C of the Act was issued to the assessee firm calling for the return of income. The assessee filed return of income in response to notice u/s 153C of the Act, wherein income declared was Rs.4,03,24,910/- This amount of Rs.4.03 crores includes the additions made u/s 143(3) of the Act which was based on Survey conducted in September, 2016.

49.

First common ground in these appeals is general in nature, which do not require any adjudication.

50.

Second ground in these appeals is with regard to addition made without any seized/incriminating material. As discussed in the case of

51.

Next common ground in these appeals is ground No.3 which is with regard to assessment which is already concluded and no assessment could be made without any seized material. The ld. A.R. submitted that in assessment years 2014-15 & 2015-16, the assessee has filed return u/s 139(1) of the Act on 26.11.2014 and 30.9.2015 for the assessment years 2014-15 & 2015-16. The assessment has been already concluded u/s 143(3) on 24.10.2016 and 20.11.2017. As such, these assessments are not pending as on date of search on 3.11.2016. In our opinion, only for the assessment year 2014-15, the assessment was completed before date of search that was 24.10.2016. Being so, in case of assessments is concluded and being unabated assessment which assessment cannot be made u/s 143(3) r.w.s. 153C of the Act without any seized material. Accordingly, this issue also remitted to the file of ld. AO to reconsider it as we have discussed in the case of M/s. John Distilleries PVt. Ltd. in ITA Nos.982 to 987/Bang/2023, as the assessment cannot be framed without any seized material for the assessment years if they are already concluded on the date of search on 3.11.2016. Ordered accordingly.

52.

In ground No.4 the assessee included the income in these assessment years i.e. 2014-15 to 2016-17 due to wrong belief and also accompanied with pressure and false assurance and he submitted that assessment in these assessment years to be made only on the basis of seized material and he drew our attention to the additional evidences filed before us and submitted that all the evidences are available with the assessee to demonstrate various expenditure claimed by assessee.

52.2. The assessee has taken this ground before the ld. CIT(A) also, however, he relied on the statement recorded u/s 132(4)/131 of the Act. In our opinion, the assessment to be framed in accordance with law after considering the available evidences as discussed in earlier para. Accordingly, we remit this issue to the file of ld. AO to frame fresh assessment only basing on the statement recorded u/s 132(4)/131(1A) of the Act unless it is supported by corroborative materials. Accordingly, even if the assessee admitted the ld. AO cannot tax the same. The right income has to be taxed in the hands of right person in right assessment year. Accordingly, as discussed in this order in the case of M/s. John Distilleries Pvt. Ltd. in ITA Nos.982 to 987/Bang/2023 all the issues in dispute are remitted to the file of ld. AO in these assessment years in this case of assessee also to frame assessment orders in accordance with law after considering the incriminating/seized material and not solely basing on statement recorded u/s 132(4)/131 of the Act. Ordered accordingly.

52.3 Without prejudice to the above 4 grounds, the assessee raised the 5th ground in these appeals that the assessee had declared amount during survey conducted on 23.9.2016 which should have been reduced from the total income. While filing the return u/s 153C of the Act, the firm has not considered the amount declared during survey separately and included it in the overall declaration made subsequently during the search.

52.4. After hearing both the parties, we direct the ld. AO to give appropriate deduction towards the income already declared in the survey conducted on 23.9.2016 in accordance with law. Ordered accordingly.

53.

Appeals filed by the assessee in ITA Nos.845 to 847/Bang/2023 are partly allowed for statistical purposes.

54.

The assessee in this appeal is aggrieved against the addition of Rs.4,10,889/- made towards undisclosed income on account of unaccounted cash transaction.

55.

Facts of the case are that during the course of search and seizure action carried out in the entities of the assessee, incriminating documents revealing unaccounted cash transactions were found. These facts have been discussed in para 6.1 to 6.3 of the Assessment order passed. The assessee was confronted with the information's received and his statement on oath was recorded on 06.03.2017. The assessee after going through the documents admitted the cash transactions and declared additional income of Rs. 4,10,14,889/- in the above referred statement recorded. The relevant para of the statement recorded is reproduced in the assessment order passed at para 6.1 & 6.2. The assessee has not filed any retraction statement, however as against additional income admitted of Rs. 4,10,14,889/- declared only an amount of Rs.3,58,71,002/- resulting in short declaration of income to the tune of Rs.51,43,887/- brought to tax in the assessment order passed. 55.1 During the course of appellate proceedings, it is claimed by the assessee that the income declared on account of cash transaction and additions made are already added in the case of M/S John Distilleries Pvt. Limited. These declaration and additions made are claimed as double taxation. Further, it is also claimed that the declaration made amounting to Rs. 4,10,14,889/- included share of profit from partnership firm of Rs.52,82,110/- and since the books were not finalized, the declarations were made on estimated income. The submissions made during the course of appellate proceedings are in line with the grounds of appeal raised in the appeal filed.

56.

We have heard the rival submission and perused the materials available on record. As discussed in earlier para in the case of M/s. John Distilleries Pvt. Ltd. in ITA Nos.982 to 987/Bang/2023, the issue in dispute in this ground is remitted to the file of ld. AO to frame assessment only on the basis of incriminating/seized material found during the course of search and not on the basis of statement recorded u/s 132(4)/131(1A) of the Act and even income admitted by the assessee in the course of search action cannot be brought to tax in view of the Circular of the department in F.No.286/98/2013(IT) (Investigation.II) dated 18.12.2014, as discussed in para 40.2 of this order.

56.1 Accordingly, this issue is also remitted to the file of ld. AO to frame assessment in accordance with law as discussed in this order in the case of M/s. John Distilleries Pvt. Ltd. in ITA Nos.982 to 987/Bang/2023 cited (supra).

57.

In the result, appeals of the assessee in ITA No.844/Bang/2023 is partly allowed for statistical purposes. Order pronounced in the open court on 24th July, 2024

Sd/- Sd/- (Keshav Dubey) (Chandra Poojari) Judicial Member Accountant Member

Bangalore, Dated 24th July, 2024. VG/SPS

Asst. Registrar, ITAT, Bangalore.

DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE- 1(1), BENGALURU, BENGALURU vs. MS. JOHN DISTILLERIES PVT LTD, BENGALURU