DCIT, CENTRAL CIRCLE, AJMER vs. M/S SILVERTOSS COMMODITIES PVT. LTD., KOLKATA

PER BENCH :

These are eight appeals filed against the respective orders of the ld. CIT (Appeals)-2, Udaipur all dated 23.12.2021 arising from the assessments framed pursuant to the search and seizure action under section 132 of the I.T. Act, 1961 for the assessment years 2012-13 and 15-16. In all the cases assessments were framed under section 153A of the IT Act, 1961. The assessees have filed the cross objections arising out of the appeals filed by the Revenue. 2. For the purpose of recording the facts and grounds raised by the revenue as well as Cross Objections of the assessee, the appeal in ITA No. 86/JP/2022 for the assessment year 2012-13 is taken as lead case. The grounds raised in all these appeals are common, therefore, for the sake of convenience, all the appeals were

heard together and are being disposed off by this consolidated order. For the

assessment year 2012-13 the Revenue has raised the following grounds :-

ITA NO. 86/JP/2022 : 1. The ld. CIT (A) has erred in law and on facts in granting relief to the assessee. 2. (a) The ld. CIT (Appeals) has erred in law in holding that no additions can be made in the proceedings under section 153A of the Income-tax Act, 1961 in respect of the assessments which stood completed prior to the date of search, except based on some incriminating material unearthed during the search which was not already available to the Assessing Officer. The ld. CIT (A) while granting relief has based herself, among others, on the order dated 02.07.2018 of Hon’ble Supreme Court in Meeta Gutgutia vs. Pr. CIT (96 taxmann.com 468).

(b) Even though no incriminating material was unearthed during the search, yet while granting relief to the assessee, the ld. CIT (Appeals) has failed to take note of the position that Hon’ble Supreme Court of India has admitted SLP against this proposition in the following matters – i. Principal Commissioner of Income Tax V. Gahoi Foods (P) Ltd., 117 taxmann.com 118 (SC)/272 Taxman 521 (SC) dated 24.01.2020. ii. Principal Commissioner of Income-tax, Central-4 v. Dhananjay International Ltd., 114 taxmann.com 351 (SC)/270 Taxman 15 (SC) dated 16.09.2019.

on 18.10.2007 and is engaged in trading of all types of textile products. However,

during the year under consideration the assessee company was not doing any

trading activity due to unavoidable worst textile situation, resulting in losses due to

fixed expenses. Return of income for the assessment year under consideration was

filed on 28.09.2012 showing loss of Rs. 7,678/-, which was processed under section

143(1) at the returned income/loss. No scrutiny assessment was made, therefore,

the returned loss of Rs. 7,678/- assessed u/s 143(1) of the Act.

premises of Bangur Group of Bhilwara on 23.08.2017 and on that basis the case of

the assessee company was got transferred by the PCIT (Central) Jaipur from ITO

Ward 1(3) Kolkata to DCIT Central Circle, Ajmer vide order under section 127 dated

02.11.2018 of the PCIT-1, Kolkata for investigation being a case linked to Bangur

Group of Bhilwara.

company on 21.02.2019 requiring the assessee company to file return under section

153A within 10 days of receipt of the said notice. The assessee company objected

the initiation of proceedings under section 153A but filed the return of income ‘under

protest’ in compliance to the notice u/s 153A dated 22.02.2019 showing the loss of

Rs. 7,678/- as was originally returned.

assessee company, the assessee company has moved a Writ Petition bearing No.

7795/2019, before the Hon’ble Rajasthan High Court, Jaipur Bench, Jaipur,

challenging the search action u/s 132(1) carried out by the Department and

subsequent issuance of Notice u/s 153A of the IT Act. During the course of

admission of this Writ Petition, the Hon’ble Rajasthan High Court, Jaipur has given

the directions as under :

“ In the meanwhile, if any order is passed by the Assessing Officer, the same shall be subject to final outcome of the present Writ Petition :

Thus the AO proceeded to initiate proceedings under section 153A of the Act.

During the proceedings, on perusal of list of shareholders as per the details

provided by the A/R of M/s. Himani Devleopers Pvt. Ltd. and M/s. H.B. Retails

Pvt. Ltd. for A.Y. 2012-13 which the companies of Bangur Family, the AO

found that the assessee company cumulatively holds 49.28% shares of both

the companies and in all owns 8,00,000 shares. But it was not ascertainable

when the said ownership of the shares of this company was procured by the

assessee company as the assessee company has not provided the copies of

Transfer Deeds of share of both these companies in the name of the assessee

company. Thus the AO completed the assessment under section 153A of the

Act by holding at page 5 & 6 of his order as under :-

“ It is seen from the Balance Sheet of the assessee company in consonance with the balance sheet of M/s. Himani Developers Pvt. Ltd. and M/s. H.B. Retails Pvt. Ltd. for A.Y. 2012-13 that the assessee company is having 4,00,000 shares each in both the above companies for a cumulative consideration of Rs. 5,18,00,000/-. On the other hand, M/s. H.B. Retail Pvt. Ltd. had a Subscribed Share Capital with Reserve Fund as on 31.03.2012 of Rs. 31,30,04,800/- and M/s. Himani Developers Pvt. Ltd. had a Subscribed Share Capital with Reserve Fund as on 31.03.2012 of Rs. 68,23,40,280/-. In this way, their cumulative financial strength as on 31.03.2012 was Rs. 99,53,45,080/- and the assessee company held 49.28% shareholding cumulatively in both the companies. Accordingly, as per the percentage holding of 49.28%, , the share of financial strength of both the companies cumulative comes to Rs. 49,05,06,055/- (99,53,45,080x49.28%) and the assessee company has merely invested a sum of Rs. 5,18,00,000/- in order to get shareholding cumulatively of 49.28% in both the companies.

These transactions obviously attract the provisions of section 56(2)(viia) of the I.T. Act which is reproduced as under :-

“ Income from other sources.

56(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head “Income from other sources”, namely –

(viia) where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010 [but before the 1st day of April, 2017], any property, being shares of a company not being a company in which the public are substantially interested.”

Considering this, the assessee company enjoying 49.28% stake in both the companies M/s. H.B. Retails Pvt. Ltd. and M/s. Himani Developers Pvt. Ltd. by paying a meager sum of Rs. 5,18,00,000/- against their combined financial strength of Rs. 49,05,06,055/-, thereby, the differential amount is deemed as ” income from other sources” u/s 56(2)(viia) of the I.T. Act which amounts to Rs. 43,88,06,055/- (Rs. 49,05,06,055 – Rs. 5,18,00,000). Accordingly, an addition of Rs. 43,88,06,055/- is made to the total income of the assessee for A.Y. 2012-13.”

before the ld. CIT (A). The ld. CIT (A) discussed the matter at great length

and following the various decisions of the Hon’ble Supreme Court, Hon’ble

High Courts and the decisions of the Tribunal allowed the appeal of the

assessee.

prayed that the order of the ld. CIT (A) be quashed. The ld. D/R submitted that

the addition made to the total income of the assessee relate to the undisclosed

income unearthed during assessment proceedings. The addition is fully based on the

evidence in the possession of the AO. As per the provisions of section 132 read with

section 153A of the IT Act, the AO has to assess or reassess the income of last six

years and total income refers to the sum total of income in respect of which a person

is assessable. The total income will therefore cover not only the income emanating

from the declared source or any material omission before AO but from all sources

including undisclosed ones or based on unplaced material before the AO.

notice under section 153A of the IT Act, the assessee submitted its return of income

on 22.02.2019 declaring therein total income at Rs. NIL (after claiming current year

loss of Rs. 7,678/-) as was declared in the original e-return filed under section 139(1)

of the IT Act, 1961 for the assessment year 2012-13 on 28.09.2012. The AO

completed the assessment u/s 153A r.w.s. 153B/143(3) of the Act vide order dated

30.12.2019 at total income of Rs. 43,88,06,060/- buy making an addition of Rs.

43,88,06,060/- on account of deemed income as per provisions of sec. 56(2)(viia) of

the Act to the declared income of the appellant. The assessee objected to the

proposed addition on the ground that during the search no incriminating material

indicating any undisclosed income for the year under consideration was found,

which is also apparently clear from the assessment order itself. Further it was

contended since there is no incriminating material found during the course of search

and seizure action, therefore, the AO is not empowered to make any addition in the

total income of the assessee. It is a settled position of law that there cannot be a

review under the garb of reassessment proceeding under section 153A of the Act

and, therefore, the proposed reassessment proceedings are absolutely in abuse of

process of law, illegal and bad in law. The provisions of section 153A cannot be

applied in respect of assessment which has already been completed unless some

incriminating material/information comes into the possession/knowledge of the AO

during the course of search proceedings. Since the assessment for the assessment

year 2012-13 was not pending as on the date of search and there is no incriminating

material found or seized during the course of search, then the AO is bound to

reassess the total income as it was assessed on the original return of income.

Though the AO is legally bound to assess or reassess the total income of six years

immediately preceding to the year of search, however, the assessments which are

pending on the date of search gets abated and the assessments which were not

pending on the date of search had attained the finality and, therefore, the addition

over and above the assessed income cannot be made de hors the incriminating

material found at the time of search while completing the assessment under section

153A of the Act. If there is no incriminating material then the original assessment

made can be reiterated and no further addition is called for otherwise addition can

only be made on the basis of undisclosed income derived from material/documents

seized as a result of search. The completed assessment can be interfered or

disturbed by the AO while making the assessment under section 153A only on the

basis of some incriminating material unearthed during the course of search and

requisition of income disclosing undisclosed income not already disclosed or made

known in the course of original assessment. Therefore, in the absence of any

incriminating material found or seized during the course of search and seizure

proceedings, the additions made by the AO during the course of reassessment under

section 153A of the Act are without jurisdiction and liable to be deleted. In support

of his contention the ld. A/R has relied upon the decision of Hon’ble Delhi High Court

in case of Kabul Chawla, 380 ITR 573 (Delhi) and submitted that Hon’ble High Court

has held that in case of completed assessment not abated by virtue of search under

section 132 of the Act in the absence of any incriminating material, the same can be

reiterated and, therefore, no addition could have been made to the income already

assessed. The ld. A/R has also relied upon the following decisions :-

Thus the ld. A/R has submitted that the Hon’ble Jurisdictional High Court has held

that the requirement of assessment or reassessment under section 153A has to be

read in the context of section 132 or 132A of the IT Act, in as much as in case

nothing incriminating is found on account of such search or requisition, then the

question of reassessment of concluded assessment does not arise, which would

require mere reiteration and it is only in the context of abated assessment under

second proviso which is required to be assessed. The underlined purpose of making

assessment of total income under section 153A of the Act is, therefore, to assess

income which was not disclosed or would not have been disclosed. The assessment

or reassessment proceedings which have already been completed and assessment

orders have been passed determining the assessee’s total income and, such orders

are subsisting at the time when search or requisition is made, there is no question of

any abated assessment since no proceedings were pending and, therefore, the

addition to the income that has already been assessed will be made on the basis of

incriminating material. In the absence of any incriminating material, the completed

assessment can be reiterated and the abated assessment or reassessment can be

made. Thus the ld. A/R has submitted that the AO has made the addition in the

assessment under section 153A whereby the completed assessment has been

disturbed without even referring to any incriminating material found or seized during

the course of search and seizure under section 132 of the Act. The only basis of

addition is the statement of third party recorded in the search of the third party that

has no connection with the search proceedings of the assessee and, therefore, in the

absence of any incriminating material found or seized during the search of the

assessee, no addition can be made in the assessment framed under section 153A of

the Act.

record. Undisputedly, the assessment for the assessment year 2012-13 was not

pending on the date of search on 23.08.2017. The assessment was completed under

section 143(3) of the I.T. Act. Thus the assessment for the assessment year 2012-

13 was not got abated by virtue of search under section 132 on 23.08.2017 and the

AO would reassess the total income of the assessee as per the provisions of section

153A in respect of the assessment year 2012-13. The proceedings under section

153A in respect of the assessment year would be in the nature of reassessment and

not in the nature of assessment. It is a settled proposition of law that the

assessment or reassessment under section 153A in respect of the assessment years

which have already been completed and assessment orders have been passed

determining the assessee’s total income, the addition to the income that has already

been assessed can be made only on the basis of incriminating material. In the

absence of any incriminating material the completed assessment can only be

reiterated. The provisions of section 132 read with section 153A of the Act stipulate

two types of situations – one where the assessment of any assessment year falling

within six assessment years is pending on the date of initiation of search under

section 132 or making of requisition under section 132A of the Act. Therefore, the

assessment under section 153A in respect of those assessment years which stand

abated due to the reason of pending on the date of initiation of search or requisition

shall be the original/first assessment. In the second category where the assessment

or reassessment has already been completed on the date of initiation of search or

making of requisition as the case may be, the assessment under section 153A would

be in the nature of reassessment. The Hon’ble Delhi High Court in the case of CIT

vs. Kabul Chawla while analyzing the provisions of section 153A read with section

132 of the Act has observed in para 37 and 38 as under :-

“37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:

i. Once a search takes place under Section 132 of the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". iv. Although Section 153 A 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 AO 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 seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section

153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. Conclusion 38. The present appeals concern AYs, 2002-03, 2005-06 and 2006-07.On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed.”

Thus the Hon’ble High Court has held that in the absence of any incriminating

material, the completed assessment can be reiterated and the abated assessment or

reassessment can be made. The Hon’ble High Court has also referred the term used

in section 153A as “assess” which is relatable to abated proceedings and the word

“reassess” related to completed assessment proceedings. Therefore, the completed

assessments can be interfered with by the AO while making the assessment under

section 153A only on the basis of some incriminating material unearthed during the

course of search or requisition of document or undisclosed income or property

discovered in the course of search which were not produced or not already disclosed

or made known in the course of original assessment. The Hon’ble Delhi High Court

has reiterated its view in case of Principal CIT vs. Kurele Paper Mills (supra) in para 1

to 3 as under :-

“1. The Revenue has filed the appeal against an order dated 14.11.2014 passed by the Income Tax Appellate Tribunal (ITAT) in 3761/Del/2011 pertaining to the Assessment Year 2002-03. The question was whether the learned CIT (Appeals) had erred in law and on the facts in deleting the addition of Rs. 89 lacs made by the Assessing Officer under Section 68 of the Income Tax Act, 1961 ('ACT') on bogus share capital. But, the issue was whether there was any incriminating material whatsoever found during the search to justify initiation of proceedings under Section 153A of the Act. 2. The Court finds that the order of the CIT(Appeals) reveals that there is a factual finding that "no incriminating evidence related to share capital issued was found during the course of search as is manifest from the order of the AO." Consequently, it was held that the AO was not justified in invoking Section 68 of the Act for the purposes of making additions on account of share capital. 3. As far as the above facts are concerned, there is nothing shown to the court to persuade and hold that the above factual determination is perverse. Consequently, after considering all the facts and circumstances of the case, the Court is of the opinion that no substantial question of law arises in the impugned order of the ITAT which requires examination.”

The SLP filed by the revenue against the said decision of Hon’ble Delhi High Court was dismissed by the Hon’ble Supreme Court vide order dated 7th December, 2015.

In a subsequent decision, the Hon’ble Delhi High Court in the case of Principal CIT

vs. Meeta Gutgutia has again analyzed this issue in para 55 to 71 as under :-

“55. On the legal aspect of invocation of Section 153A in relation to AYs 2000- 01 to 2003-04, the central plank of the Revenue's submission is the decision of this Court in Smt. Dayawanti Gupta (supra). Before beginning to examine the said decision, it is necessary to revisit the legal landscape in light of the elaborate arguments advanced by the Revenue. 56. Section 153A of the Act is titled "Assessment in case of search or requisition". It is connected to Section 132 which deals with 'search and seizure'. Both these provisions, therefore, have to be read together. Section 153A is indeed an extremely potent power which enables the Revenue to re-

open at least six years of assessments earlier to the year of search. It is not to be exercised lightly. It is only if during the course of search under Section 132 incriminating material justifying the re-opening of the assessments for six previous years is found that the invocation of Section 153A qua each of the AYs would be justified. 57. The question whether unearthing of incriminating material relating to any one of the AYs could justify the re-opening of the assessment for all the earlier AYs was considered both in Anil Kumar Bhatia (supra) and Chetan Das Lachman Das (supra). Incidentally, both these decisions were discussed threadbare in the decision of this Court in Kabul Chawla(supra). As far as Anil Kumar Bhatia (supra) was concerned, the Court in paragraph 24 of that decision noted that "we are not concerned with a case where no incriminating material was found during the search conducted under Section 132 of the Act. We therefore express no opinion as to whether Section 153A can be invoked even under such situation". That question was, therefore, left open. As far as Chetan Das Lachman Das (supra) is concerned, in para 11 of the decision it was observed: "11. Section 153A (1) (b) provides for the assessment or reassessment of the total income of the six assessment years immediately preceding the assessment year relevant to the previous year in which the search took place. To repeat, there is no condition in this Section 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. This, however, does not mean that the assessment under Section 153A 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 seized material." 58. In Kabul Chawla (supra), the Court discussed the decision in Filatex India Ltd. (supra) as well as the above two decisions and observed as under: "31. What distinguishes the decisions both in CIT v. Chetan Das Lachman Das (supra), and Filatex India Ltd. v. CIT-IV (supra) in their application to the present case is that in both the said cases there was some material unearthed during the search, whereas in the present case there admittedly was none. Secondly, it is plain from a careful reading of the said two . decisions that they do not hold that additions can be validly made to income forming the subject matter of completed assessments prior to the search even if no incriminating material whatsoever was unearthed during the search. 32. Recently by its order dated 6th July 2015 in ITA No. 369 of 2015 (Pr. Commissioner of Income Tax v. Kurele Paper Mills P. Ltd.), this Court declined to frame a question of law in a case where, in the

absence of any incriminating material being found during the search under Section 132 of the Act, the Revenue sought to justify initiation of proceedings under Section 153A of the Act and make an addition under Section 68 of the Act on bogus share capital gain. The order of the CIT (A), affirmed by the ITAT, deleting the addition, was not interfered with."

(a) the assessments or reassessments, which stand abated in terms of II proviso to Section 153A of the Act, the AO acts under his original jurisdiction, for which, assessments have to be made;

(b) regarding other cases, the addition to the income that has already been assessed, the assessment will be made on the basis of incriminating material; and

(c) in absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made."

provision" which was in the context of search and/or requisition. The Court also explained the purport of the words "assess" and "reassess", which have been found at more than one place in Section 153A of the Act as under: "26. The plea raised on behalf of the assessee that as the first proviso provides for assessment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context of the entire section. The words 'assess' or 'reassess'-have been used at more than one place in the Section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word assess has been used in the context of an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents."' 60. In Kabul Chawla (supra), the Court also took note of the decision of the Bombay High Court in CIT v. Continental Warehousing Corpn (Nhava Sheva) Ltd. [2015] 58 taxmann.com 78/232 Taxman 270/374 ITR 645 (Bom.) which accepted the plea that if no incriminating material was found during the course of search in respect of an issue, then no additions in respect of any issue can be made to the assessment under Section 153A and 153C of the Act. The legal position was thereafter summarized in Kabul Chawla (supra) as under: "37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:

i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.

ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.

iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the. aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax".

iv. Although Section 153 A 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 AO 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 seized material."

v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings.

vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.

vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original

assessment."

of assessment or reassessment falling within the six assessment years prior to the search or requisition stands abated and the total income of the assessee is required to be determined under section 153A of the Act. Similarly, sub-section (2) provides for revival of any assessment or reassessment which stood abated, if any proceeding or any order of assessment or reassessment made under section 153A of the Act is annulled in appeal or any other proceeding. 16. Section 153A bears the heading "Assessment in case of search or requisition". It is "well settled as held by the Supreme Court in a catena of decisions that the heading or the Section can be regarded as a key to the interpretation of the operative portion of the section and if there is no ambiguity in the language or if it is plain and clear, then the heading used in the section strengthens that meaning. From the heading of section 153. the intention of the Legislature is clear, viz., to provide for assessment in case of search and requisition. When the very purpose of the provision is to make assessment In case of search or requisition, it goes without saying that the assessment has to have relation to the search or requisition, in other words, the assessment should connected With something round during the search or requisition viz., incriminating material which reveals undisclosed income. Thus, while in view of the mandate of sub-section (1) of section 153A of the Act, in every case where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish returns of income for the six years preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made, any addition' or disallowance can be made only on the basis of material collected during the search or requisition, in case no incriminating material is found, as held by the Rajasthan High Court in the case of Jai Steel (India) v. Asst. CIT(supra), the earlier assessment would have to be reiterated, in case where pending assessments have abated, the Assessing Officer can pass assessment orders for each of the six years determining the total income of the assessee which would include income declared in the returns, if any, furnished by the assessee as well as undisclosed income, if any, unearthed during the search or requisition. In case where a pending reassessment under section 147 of the Act has abated, needless to state that the scope and ambit of the assessment would include any order which the Assessing Officer could have passed under section 147 of the Act as well as under section 153A of the Act. ** ** **

assessment years. In the opinion of this court, the said contention does not merit acceptance, inasmuch as. the assessment in respect of each of the six assessment years is a separate and distinct assessment. Under section 153A of the Act, assessment has to be made in relation to the search or requisition, namely, in relation to material disclosed during the search or requisition. If in relation to any assessment year, no incriminating material is found, no addition or disallowance can be made in relation to that assessment year in exercise of powers under section 153A of the Act and the earlier assessment shall have to be reiterated. In this regard, this court is in complete agreement with the view adopted by the Rajasthan High Court in the case of Jai Steel (India) v. Asst. CIT (supra). Besides, as rightly pointed out by the learned counsel for the respondent, the controversy involved in the present case stands concluded by the decision of this court In the case of CIT v. Jayaben Ratilal Sorathia (supra) wherein it has been held that while it cannot be disputed that considering section 153A of the Act, the Assessing Officer can reopen and/or assess the return with respect to six preceding years ; however, there must be some incriminating material available with the Assessing Officer with respect to the sale transactions in the particular assessment year.' 62. Subsequently, in Devangi alias Rupa (supra), another Bench of the Gujarat High Court reiterated the above legal position following its earlier decision in Saumya Construction (P.) Ltd. (supra) and of this Court in Kabul Chawla(supra). As far as Karnataka High Court is concerned, it has in IBC Knowledge Park (P.) Ltd. (supra) followed the decision of this Court in Kabul Chawla (supra) and held that there had to be incriminating material qua each of the AYs in which additions were sought to be made pursuant to search and seizure operation. The Calcutta High Court in Salasar Stock Broking Ltd. (supra), too, followed the decision of this Court in Kabul Chawla (supra). In Gurinder Singh Bawa(supra), the Bombay High Court held that: "6. . . . . . once an assessment has attained finality for a particular year, i.e., it is not pending then the same cannot be subject to tax in proceedings under section 153A of the Act. This of course would not apply if incriminating materials are gathered in the course of search or during proceedings under section 153A of the Act which are contrary to and/or not disclosed during the regular assessment proceedings." 63. Even this Court has in Mahesh Kumar Gupta (supra) and Ram Avtar Verma (supra) followed the decision in Kabul Chawla (supra). The decision of this Court in Kurele Paper Mills (P.) Ltd. (supra) which was referred to in Kabul Chawla (supra) has been affirmed by the Supreme Court by the dismissal of the Revenue's SLP on 7th December, 2015. The decision in Dayawanti Gupta

In Smt. Dayawanti Gupta (supra), on the basis of material recovered during search, the additions which were made for all the years whereas additions in the present case were made by the AO only for AY 2004-05 and not any of the other years. Even the additions made for AYs 2004-05 were subsequently deleted by the CIT (A), which order was affirmed by the ITAT. Even the Revenue has challenged only two of such deletions in ITA No. 306/2017. 68. In para 23 of the decision in Smt. Dayawanti Gupta (supra), it was observed as under: "23. This court is of opinion that the ITAT's findings do not reveal any fundamental error, calling for correction. The inferences drawn in respect of undeclared income were premised on the materials found as well as the statements recorded by the assessees. These additions therefore were not baseless. Given that the assessing authorities in such cases have to draw inferences, because of the nature of the materials - since they could be scanty (as one habitually concealing income or indulging in clandestine operations can hardly be expected to maintain meticulous books or records for long and in all probability be anxious to do away with such evidence at the shortest possibility) the element of guess work is to have some reasonable nexus with the statements recorded and documents seized. In tills case, the differences of opinion between the CIT (A) on the one hand and the AO and ITAT on the other cannot be the sole basis for disagreeing with what is essentially a factual surmise that is logical and plausible. These findings do not call for interference. The second question of law is answered again in favour of the revenue and against the assessee." 69. What weighed with the Court in the above decision was the "habitual concealing of income and indulging in clandestine operations" and that a person indulging in such activities "can hardly be accepted to maintain meticulous books or records for long." These factors are absent in the present case. There was no justification at all for the AO to proceed on surmises and estimates without there being any incriminating material qua the AY for which he sought to make additions of franchisee commission. 70. The above distinguishing factors in Smt. Dayawanti Gupta (supra), therefore, do not detract from the settled legal position in Kabul Chawla (supra) which has been followed not only by this Court in its subsequent decisions but also by several other High Courts. 71. For all of the aforementioned reasons, the Court is of the view that the ITAT was justified in holding that the invocation of Section 153A by the Revenue for the AYs 2000-01 to 2003-04 was without any legal basis as there was no incriminating material qua each of those AYs.”

The Hon’ble Delhi High Court has concurred with the view as taken in case of Kabul

Chawla (supra) as well as the decision of Hon’ble Jurisdictional High Court in the case

of M/s. Jai Steel India Ltd. vs. ACIT (supra). Even on the issue of addition made by

the AO in the proceedings under section 153A in respect of the assessment year

which was already completed on the date of search, the Hon’ble High Court has held

that in the absence of any material which was subsequently unearthed during the

search and was not already available to the AO, the additions made by the AO on

account of security deposits were rightly deleted by the ld. CIT (A). The relevant

observations of the Hon’ble High Court in case of Principal CIT vs. Meeta Gutgutia

(supra) are in para 53 as under :-

“53. At this stage, it is also to be noticed that an elaborate argument was made by Mr. Manchanda on the aspect of the security deposits accepted by the Assessee. These were of two kinds - one was of refundable security deposits and the other for non-refundable security deposits. As far as the refundable security deposits were concerned, the AO himself in his remand report accepted them as having been disclosed. This has been noticed by the CIT (A) in para 7.2.1 of his order for AY 2004-05. As regards non-refundable security deposit, the CIT (A) accepted the AO's findings that treating the sum as 'goodwill written off on deferred basis' was not correct, hence the addition of Rs. 5,09,343 was held to be justified and correct. It was duly accounted for under 'liabilities' and transferred to income in a phased manner. This was not done by manipulating the account books of the Assessee as alleged by the Revenue. This would have been evident had the return been picked up for scrutiny under Section 143(3) of the Act. This, therefore, was not material which was subsequently unearthed during

the search which was not already available to the AO. Consequently, the additions sought to be made by the AO on account of security deposits were rightly deleted by the CIT (A).”

Thus the essential corollary of these decisions is that no addition can be made in the

proceedings under section 153A in respect of the assessments which were completed

prior to the date of search except based on some incriminating material unearthed

during the search which was not already available to the AO. It is pertinent to note

that the SLP filed by the revenue against the decision of Hon’ble Delhi High Court in case of Principal CIT vs. Meeta Gutgutia was dismissed vide order dated 2nd July,

2018. There are series of decisions on this issue including the decision of Hon’ble

Jurisdictional High Court in case of M/s. Jai Steel India vs. ACIT (supra) wherein the

Hon’ble High Court has held in para 23 to 30 as under :-

“23. The reliance placed by the counsel for the appellant on the case of Anil Kumar Bhatia (supra) also does not help the case of the assessee. The relevant extract of the said judgment reads as under:— "19. Under the provisions of Section 153A, as we have already noticed, the Assessing Officer is bound to issue notice to the assessee to furnish returns for each assessment year falling within the six assessment years immediately preceding the assessment year relevant to the previous year in which the search or requisition was made. Another significant feature of this Section is that the Assessing Officer is empowered to assess or reassess the "total income" of the aforesaid years. This is a significant departure from the earlier block assessment scheme in which the block assessment roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments. Under Section 153A, however, the Assessing Officer has been given the power to assess or reassess the 'total income' of the six assessment years in question in separate assessment orders. This means that there can be only one assessment order in respect of each of the six

assessment years, in which both the disclosed and the undisclosed income would be brought to tax. 20. A question may arise as to how this is sought to be achieved where an assessment order had already been passed in respect of all or any of those six assessment years, either under Section 143(1)(a) or Section 143(3) of the Act. If such an order is already in existence, having obviously been passed prior to the initiation of the search/requisition, the Assessing Officer is empowered to reopen those proceedings and reassess the total income, taking note to the undisclosed income, if any, unearthed during the search. For this purpose, the fetters imposed upon the Assessing Officer by the strict procedure to assume jurisdiction to reopen the assessment under Sections 147 and 148, have been removed by the non obstante clause with which sub-section (1) of Section 153A opens. The time-limit within which the notice under Section 148 can be issued, as provided in Section 149 has also been made inapplicable by the non obstante clause. Section 151 which requires sanction to be obtained by the Assessing Officer by issue of notice to reopen the assessment under Section 148 has also been excluded in a case covered by Section 153A. The time-limit prescribed for completion of an assessment or reassessment by Section 153 has also been done away with in a case covered by Section 153A. With all the stops having been pulled out, the Assessing Officer under Section 153A has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by Section 153A, by even making reassessments without any fetters, if need be. 21. Now there can be cases where at the time when the search is initiated or requisition is made, the assessment or reassessment proceedings relating to any assessment year falling within the period of the six assessment years mentioned above, may be pending. In such a case, the second proviso to sub-section (1) of Section 153A says that such proceedings "shall abate". The reason is not far to seek. Under Section 153A, there is no room for multiple assessment orders in respect of any of the six assessment years under consideration. That is because the Assessing Officer has to determine not merely the undisclosed income of the assessee, but also the 'total income' of the assessee in whose case a search or requisition has been initiated. Obviously there cannot be several orders for the same assessment year determining the total income of the assessee. In order to ensure this state of affairs namely, that in respect of

the six assessment years preceding the assessment year relevant to the year in which the search took place there is only one determination of the total income, it has been provided in the second proviso of sub-Section (1) of Section 153A that any proceedings for assessment or reassessment of the assessee which are pending on the date of initiation of the search or making requisition "shall abate". Once those proceedings abate, the decks are cleared, for the Assessing Officer to pass assessment orders for each of those six years determining the total income of the assessee which would include both the income declared in the returns, if any, furnished by the assessee as well as the undisclosed income, if any, unearthed during the search or requisition. The position thus emerging is that the search is initiated or requisition is made, they will abate making way for the Assessing Officer to determine the total income of the assessee in which the undisclosed income would also be included, but in case where the assessment or reassessment proceedings have already been completed and assessment orders have been passed determining the assessee's total income and such orders subsisting at the time when the search or the requisition is made, there is no question of any abatement since no proceedings are pending. In this latter situation, the Assessing Officer will reopen the assessments or reassessments already made (without having the need to follow the strict provisions or complying with the strict conditions of Sections 147, 148 and 151) and determine the total income of the assessee. Such determination in the orders passed under Section 153A would be similar to the orders passed in any reassessment, where the total income determined in the original assessment order and the income that escaped assessment are clubbed together and assessed as the total income. In such a case, to reiterate, there is no question of any abatement of the earlier proceedings for the simple reason that no proceedings for assessment or reassessment were pending since they had already culminated in assessment or reassessment orders when the search was initiated or the requisition was made." (Emphasis supplied) 24. The said judgment also in no uncertain terms holds that the reassessment of the total income of the completed assessments have to be made taking note of the undisclosed income, if any, unearthed during the search and the income that escaped assessments are required to be clubbed together with the total income determined in the original assessment and assessed as the total income. The observations made in the judgment contrasting the provisions of

determination of undisclosed income under Chapter XIVB with determination of total income under Sections 153A to 153C of the Act have to be read in the context of second proviso only, which deals with the pending assessment/reassessment proceedings. The further observations made in the context of de novo assessment proceedings also have to be read in context that irrespective of the fact whether any incriminating material is found during the course of search, the notice and consequential assessment under Section 153A have to be undertaken. 25. The argument of the learned counsel that the AO is also free to disturb income, expenditure or deduction de hors the incriminating material, while making assessment under Section 153A of the Act is also not borne out from the scheme of the said provision which as noticed above is essentially in context of search and/or requisition. The provisions of Sections 153A to 153C cannot be interpreted to be a further innings for the AO and/or assessee beyond provisions of Sections 139 (return of income), 139(5) (revised return of income), 147 (income escaping assessment) and 263 (revision of orders) of the Act. 26. The plea raised on behalf of the assessee that as the first proviso provides for assessment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context of the entire section. The words 'assess' or 'reassess' have been used at more than one place in the Section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word 'assess' has been used in the context of an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents. 27. The Allahabad High Court in Smt. Shaila Agarwal's (supra) has held as under:— "19. The second proviso to Section 153A of the Act, refers to abatement of the pending assessment or re-assessment proceedings. The word 'pending' does not operate any such interpretation, that wherever the appeal against such assessment or reassessment is pending, the same along with assessment or reassessment proceedings is liable to be abated. The principles of interpretation of taxing statutes do not permit the Court to interpret the Second Proviso to Section 153A in a

manner that where the assessment or reassessment proceedings are complete, and the matter is pending in appeal in the Tribunal, the entire proceedings will abate. 20. There is another aspect to the matter, namely that the abatement of any proceedings has serious causes and effect in as much as the abatement of the proceedings, takes away all the consequences that arise thereafter. In the present case after deducting bogus gifts in the regular assessment proceedings, the proceedings for penalty were drawn under Section 271(1)(c) of the Act. The material found in the search may be a ground for notice and assessment under Section 153A of the Act but that would not efface or terminate all the consequence, which has arisen out of the regular assessment or reassessment resulting into the demand or proceedings of penalty." (Emphasis supplied) The said judgment which essentially deals with second proviso to Section 153A of the Act also supports the conclusion, which we have reached hereinbefore. 28. It has been observed by the Hon'ble Supreme Court in K.P. Varghese v. ITO [1981] 131 ITR 597/7 Taxman 13 that "it is well recognized rule of construction that a statutory provision must be so construed, if possible that absurdity and mischief may be avoided." 29. The argument of the counsel for the appellant if taken to its logical end would mean that even in cases where the appeal arising out of the completed assessment has been decided by the CIT(A), ITAT and the High Court, on a notice issued under Section 153A of the Act, the AO would have power to undo what has been concluded up to the High Court. Any interpretation which leads to such conclusion has to be repelled and/or avoided as held by the Hon'ble Supreme Court in the case of K.P. Varghese (supra). 30. Consequently, it is held that it is not open for the assessee to seek deduction or claim expenditure which has not been claimed in the original assessment, which assessment already stands completed, only because a assessment under Section 153A of the Act in pursuance of search or requisition is required to be made.”

The addition made by the AO is neither based on any single loose paper

found/seized nor any statement recorded during the course of search conducted in

the case of the appellant which could be treated incriminating as is evident from the

assessment order and the remand report of the AO. The ld. CIT (A) thus following

the legal proposition on this issue, accepted the contention of the assessee and

allowed the appeal of the assessee. The relevant part of the finding of the ld. CIT

(A) in para (iii) to (xxiii) at pages 16 to 25 are as under :-

” (iii) I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the AO in the assessment order for the above A.Y. As on the date of search, the time limit for service of notice u/s 143(2) was not available for AY 2012-13 and therefore the assessment proceeding for AY 2012-13 was not pending on the date of search. Thus there is no dispute that Search was carried out in the case of the appellant on 23.08.2017 and that no assessment for the AY 2012-13 was pending when notice under section u/s 153A of the Act for the above AY was issued on 21.02.2019 and served upon the appellant. Even the time period for issuing notice under section 143(2) for the aforesaid assessment year had already elapsed as on the date of search. In view of the above, it is evident that the assessment for the impugned assessment year was not pending on the date of search on 23.08.2017 and did not get abated by virtue of search u/s 132 on the date of search and therefore, cannot be considered as merged into the assessment u/s 153A.

(iv) In search assessment, any undisclosed income, which can ultimately be added, is only to the extent of any unrecorded assets/material found or any incriminating document found as representing undisclosed income earned. Further, the facts of the present case remains that there is no incriminating evidence related to addition made by the AO found during the course of search as is manifest from the order of the AO as well as remand report of the A.O. In fact in the remand report submitted by the AO as mentioned Supra, the AO has submitted as per point 3 of his report that-

“The addition was made on account of the undisclosed income is self- explanatory and as per the findings available in the assessment order. The deemed income could have only been unearthed, just because of the Search

operation and the subsequent assessment proceedings initiated in this case by the department, otherwise said undisclosed income would have escaped from taxation".

Thus it is observed that neither in the assessment order nor in the remand report, the AO has been able to pinpoint any incriminating evidence found during the course of search on the basis of which the aforesaid addition on account of deemed income was made.

(v) Further on perusal of the assessment order, it is observed that the A.O. has referred to the list of Shareholders provided by the AR of M/s Himani Developers Pvt. Ltd. and M/s H.B. Retails Pvt. Ltd, the companies of Bangur family, for the AY 2012-13. On perusal of the aforesaid list, the A.O. observed that the appellant company holds 49.28% shares of both the companies and in all owns 8,00,000 shares but it was not ascertainable when the said ownership of the shares of this company was procured by the appellant company and that the appellant has not been able to provide for the transfer deeds of shares of the aforesaid companies. The A.O. in the assessment order held that-

But it appears that the assessee company do not want to share this information with the department, so that a rightful conclusion can be drawn in this regard. In this situation, the undersigned is compelled to treat the said transfers of share in the assessment year under consideration for the reason A.Y. 2012-13 is the oldest assessment year open u/s 153A before the undersigned."

Thus, it is observed that the AO has made the addition on account of transfer of shares in the year under consideration by holding that the assessee company could not produce the copies of transfer deeds of shares of M/s Himani Developer Pvt. Ltd. and M/s H.B. Retails Pvt. Ltd. and also on the basis that the AY 2012-13 is the oldest assessment year open u/s 153A before him and therefore the addition was made in the case of the appellant company during the AY 2012-13. Thus it is observed that the addition has not been made by the AO on the basis of any concrete evidence in this regard that the said shares were transferred during the year. On the contrary, it is observed that this fact is not ascertainable from records as to when the said ownership of the shares were transferred to the appellant

•

company. Before me, the appellant has produced a copy of the Balance Sheet of the appellant company, on perusal of which it is observed that there is no new investment in any shares during the year under consideration. In fact as per the Balance Sheet, the investment in these shares relates to previous years.

Apart from the above, the appellant has contended that the AO issued a show cause notice on 29.12.2019 raising a new issue regarding providing of the copies of transfer deeds and calling for reply from the appellant by 30.12.2019. It is observed that the Ld. AR of the appellant responded to the aforesaid notice and submitted that all the documentary evidences required by the investigation wing were produced before the concerned authorities and that the aforesaid deed relates to period prior to AY 2012-13 and that they were available on MCA site. It was further contended that though the appellant requested for 3-4 days' time to produce the same, however, the AO passed the assessment order on 30.12.2019 and that too with approval from Addl. CIT u/s 153D of the Act.

In view of the above facts, I am of the opinion that the AO has no evidence to justify the addition in the year under consideration and the addition has been made by him on suspicion, conjectures and surmises. It is crystal clear that the additions were made by the AO without there being any incriminating material available on record and without giving proper opportunity to the appellant to file the requisite details sought though they were available on MCA site as well as the fact remains that these documents were produced before the concerned authorities of the investigation wing. Further the copy of the Audited accounts alongwith books of accounts were produced before the A.O. during the course of assessment proceedings, as discernible from the records.

(vi) Further the A.O. as per point 3 of his remand report has referred to the statements of Sh. Jayesh Bangur, Sh. Durgesh Bangur and Sh. Nilesh Bangur, the Directors in M/s Kanchan India Ltd., the Flagship concern of Bangur Group and other companies of the group. In these statements, the AO has contended that the aforesaid persons/directors gave vague reply and complete details and record of transactions were not provided. The A.O. in the remand report has stated that-

"In view of the above and the fact that proper details/ evidences were not filed during search and post search proceedings as well as during the course of assessment proceedings, the A.O. made the addition u/s 56(2)(viia). The genesis of

addition is statement of directors of the company and/or of controlling person wherein no details/ clarification was given about investment in other companies."

(vii) The contention of the appellant is that all the documentary evidences required by the investigation wing were produced before the concerned authorities and that they are readily available on the MCA website. On perusal of the statement of the Directors as mentioned supra, it is observed that they have nowhere admitted any undisclosed me in lieu of transfer of shares of M/s Himani Developers Pvt. Ltd. and. M/s H. B. is Pvt. Ltd in the name of the appellant company which has been taxed by the A.O. as deemed income from other sources u/s 56(2)(viia) of the Act, Can the contrary, perusal of the remand report of A.O. and the rejoinder comments of the appellant, it is observed that neither there is any reference of any incriminating material by the A.0 for making the aforesaid addition nor the statement of the directors which can be referred as incriminating to substantiate the aforesaid addition.

(viii) Further on perusal of the assessment order, it is observed that the addition is based on perusal of the financials disclosed by the above companies which itself is part of their income tax returns and therefore cannot be considered to constitute any incriminating evidence to justify the aforesaid addition.

(ix) The A.O. has placed rc Boasts con the decision of Hon’ble Delhi High Court in the case of Dayawanti Gupta Vs. CIT (TS-5978-High Court-2016(Delhi)) wherein it has been held that statement recorded u/sI32(4) during search proceedings, in the absence of any other material, would itself constitute incriminating material. However, it is observed that subsequent to the decision in the case of Dayawanti Gupta, the Hon'ble Delhi High Court in the case of Meeta Gutgutia, 395 ITR 296 (Delhi) had an occasion to deal with the above decision of Dayawanti Gupta. The Hon'ble Delhi High Court after considering the entire gamut of the facts of the case held that the decision of the Court in the case of Dayawanti Gupta (Supra) proceeded on the peculiar facts of the and the said decision in no way dilutes the dictum laid down in the case of Kabul Chawla. The said position has been reiterated by the Hon'ble Delhi High Court recently in the case of Pr.CIT Vs. Best Infrastructure (India) Pvt. Ltd (TS-5668-High Court-2017(Delhi)- 0]. The Hon’ble Delhi HC in the case of PCIT Vs. Best Infrastructure (India) Ltd. has held that statement under section 132(4) in itself 'doesn't constitute incriminating material. Further, Hon'ble Delhi HC in Shri Mulchand Malu has held that statement

under section 132(4) alone cannot be considered as incriminating material unless any corroborating incriminating material is found during the course of search from the premises of the assessee.

(x) Thus the train issues for adjudication in this case are No addition can he made in an assessment u/s 153A if it is not based on incriminating documents/material found during search. The assessment order does not refer to seized/document/material (found during search), this is an unabated assessment year, date of search being 23.08.2017.

(ii) Addition cannot be made merely on the basis of statement made by a person without any corroborative evidence.

(iii) A statement that is not relatable to any incriminating documents or material found during search and seizure operation cannot be used for making assessment u/s 153A or u/s 153C,

(xi) Regarding the first issue, I find that the additions made in the assessment order not based on arty incriminating material or documents found during search. In fact, the assessment carder does not refer to any seized material or any incriminating material found during the course of cavil. This position of law (that addition u/s. 153A/153C can be made only on the basis of incriminating material etc. found during search), has been laid down by the Hon'ble Jurisdictional High Court and other High Courts in a plethora of cases.

(xii) The issue of assessment or reassessment u/s 153A in respect of the assessment year which has already been completed and the issue of addition to the income that has already been assessed can be made only on the basis of incriminating material, has been examined in detail by the various High Courts including the jurisdictional High Court in case of Jai Steel (India) Ltd. Vs. ACIT (88 DTR 1). The relevant part of the ion of the Rajasthan High Court in Jai Steel (India) Ltd. Jodhpur vs. AGIT (Supra) reproduced herein as under:-

"22. In the firm opinion of this Court from a plain reading of the provision. along with the, purpose and purport of the said provision, which. is intricately linked with search mid requisition under Sections 132 and 132A of the Act, it is apparent that: (a) the assessments or reassessments, which stand abated in terms of II proviso to Section .153A of the Act, the AO acts under his original jurisdiction, for which, assessments have to he made;

(b) regarding other cases, the addition to the income that has already been assessed, the assessment will be made on the basis of incriminating material; and

(c) in absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made.'

(xiii) Similar view is expressed by Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla 380 (Delhi HC). The Hon'ble high Court, while analyzing the provisions of section 153A read with section 132 of the Act has observed in pares 37 and 38 as under:-

“ On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under :

i. Once a search takes place under Section 132 of the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.

ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.

iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax".

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 AO 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 seized material."

v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings.

vi Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.

vii Completed assessments can be interfered with by the AO while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment."

Thus the Hon'ble High Court has held that in the absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made.

(xiv) In Kabul Chawla (supra), the Court also took note of the decision of the Bombay High Court in CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd. 120151 58 taxmann.com 78/232 Taxman 270/374 ITR 645 (Dom.) which accepted plea that, if no incriminating material was found during the course of search in respect of an issue, then no additions in respect of any issue can he made to the assessment u/s 153A and 153C of the Act It was held that "once an assessment has attained finality for a particular year, i.e., it is not pending then the same cannot be subject in proceedings under section 153A of the Act. This of course would not apply if incriminating materials are gathered in the course of search or during proceedings under section 153A of the Act which are contrary to and/or not disclosed during the regular assessment proceedings."

(xv) Recently Hon'ble Supreme Court vide order dated 02-07-2018 in Meeta Gutgutia Vs. Pr CIT (96 Taxmann 468) have held that Invocation of section 153A to to-open concluded assessments of assessment years earlier to year of search was not justified in absence of incriminating material found during search qua each such earlier assessment year. The head note of the judgment is as under:-

Section 153A of the Income-tax Act, 1961 - Search and set (General principles) - Assessment years 2001-02 to 2003-04 and 2004-05 - High Court in impugned order held that invocation of section 153A to re-open concluded assessments of assessment years earlier to year of search was not justified in absence of incriminating material found during search qua each such earlier assessment year - Whether SLP against said decision was to be dismissed - Held, yes /Para 2/ [In favour of assessee]

(XVI) Further, similar view is also taken in the following judgments, including by Hon’ble ITAT Jaipur, in many cases:

(a) Prateek Kothari vs. ACIT (312/Jaipur/2015.

(b) Vijay Kumar D Agarwal v/s DCIT IT(SS)A Nos. 153, 154, 155 & 156/Ahd/2012. (c) Ratan Kumar Sharma vs. DCIT ITA 797 & 798/Jaipur/2014. (d) Vikram Gupta vs/ DCIT ITA 174/Jaipur/2017 etc/ (e) Jadau Jewellers & Manufacturer PL vs. ACIT (686/Jaipur/2014)

(xvii) Thus the essential corollary of these decisions and also the decision relied upon by the appellant is that no addition can be made in the proceedings under section 153A in respect of the assessments which were completed prior to the date of search except based on some incriminating material unearthed during the search which was not already available to the AO.

(xviii) Regarding the whether the statement recorded under section 132(4) of the Act in itself constitute incriminating material, the decision of the Honble Delhi High Court in the case of CIT Vs. Harjeev Aggrawal 290 CTR 263 (Delhi) is referred wherein was held that "The appellant has pointed out (based upon elaboration of law Delhi High Court) that the statements recorded u/s 132(4) do not themselves constitute incriminating material".

(xix) I have examined the aforesaid position of law. I find that the: additions made by the AO are solely made on the basis of statement of the Directors in Kanchan India Ltd. as also admitted by the A.O. in his remand report. I find that the statement made by the aforesaid Directors have no nexus with any seized material. Further the fact remains that the Directors have no where admitted any undisclosed income on account, of share premium in their statements recorded and the fact also remains that the addition u/s 56(2)(viia) is not based upon any seized/incriminating material at all. Whereas on the contrary on perusal of the balance sheet of the appellant company, it is observed that there is no new investment in any shares during the year under consideration and that these shares relate to previous years and therefore no addition, if any, is called for in the year under consideration. The Hon’ble Delhi High Court in the case of CIT vs. Hargeev Aggarwal 290 CTR 263 (Delhi) have held at para 21 as follows:-

'The undisclosed income of an Assessee has to lie computed on the basis of evidence and material found during search. The statement recorded u/s 132(4) of the Act may also be used for making the assessment, but only to the extent it is relatable to the incriminating evidence/ material unearthed or found during search. In other word, there must be a nexus between the

statement recorded and the evidence/material found during search in order for an assessment to be based on the statement recorded."

(xx) This position. was reiterated by Hon'ble High Court in the case of Pr. CIT Vs. Best Infrastructure (India) Pvt. Ltd., 397 ITR 182 (Delhi), order dated 01.08 2017. the Hon’ble Delhi High Court held in this order at para 38 as follows:

'38. Fifthly, statements recorded under section 132 (4) of the Act of the Act do not by themselves constitute incriminating material as has been explained by this Court in Commissioner of Income Tax v. Harjeev Aggarwal (supra). Lastly, as already pointed out hereinbefore, the facts in the present case &re different from the facts in Smt. Dayawanti Gupta v. CET (supra) where the admission by the Assessees themselves on critical aspects, of failure to maintain accounts and admission that the seized documents reflected transactions of unaccounted sales and purchases, is non-existent in the present case. In the said case, there was a factual finding to the effect that the Assessees were habitual offenders, indulging in clandestine operations whereas there is nothing in the present case, whatsoever, to suggest that any statement made by Mr. Anu Aggarwal or Mr. Harjeet Singh contained any such admission.”

(xxi) The relevant paragraph of the decision of the Hon’ble Delhi High Court in the case of Harjeev Agrawal (supra) also reproduced as under :-

“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 statement6s recorded during search and seizure operations. However, the statements recorded would certainly constitute information and if such information is relatable to the evidence or material found during search, the same could certainly be used in evidence in any proceedings under the Act as expressly mandated by virtue of the explanation to Section 132(4) of the Act. However, such statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the AO to make a block assessment merely because any admission was made by the Assessee during search operation.”

(xxii) In CIT v. Sri Ramdas Motor Transport Ltd.: (1999) 2A8 ITR 177 (AP), a Division Bench of Andhra Pradesh High Court, reading the provision of Section 132(4) of the Act in the context of discovering undisclosed income, explained that in cases where no unaccounted documents or incriminating material is found, the powers under Section 132(4) of the Act cannot be invoked. The relevant passage from the aforesaid judgment is quoted below:

“A plain, reading of sub-section (4) shows that the authorised officer during the course of raid is empowered to examine, any person if he is found to the in possession, or control of any undisclosed books of account, documents, money or other valuable articles or things, elicit information from such person with regard to such account books or money which are in his possession and can record a statement to that effect. Under this provision,

P a g e

such statements can he used in evidence in any subsequent proceeding initiated against such person under the Act. Thus, the question of examining any person by the authorised officer arises only when he found such person to be in possession of any -undisclosed money or books of account. But, in this case, it is admitted by the Revenue that on the dates of search, the Department was not able to find any unaccounted money, unaccounted bullion nor any other valuable articles or things, nor any unaccounted documents nor any such incriminating material either from the premises of the company or from the residential houses of the managing director and other directors. In such a case, when the managing director or any other persons were found to be not in possession of any incriminating material, the question of examining them by the authorised officer during the course of search and recording arty statement from, them by invoking the powers under section 132(4) of the Act, does not arise. Therefore, the statement of the managing director of the assessee, recorded patently under section 132(4) of the Act, does not have any evidentiary value. This provision embedded in sub- section (4) is obviously based on the well established rule of evidence _that mere confessional statement without there being any documentary proof shall not be used in evidence against the person who made such statement. The finding of the Tribunal was based on the above well settled principles.”

(xxiii) The present appeals concern AY 2012-13. On the date of the search, the said assessment already stood completed for the above year, as discussed supra and the additions made by the AO u/s 1538/143(3) r.w.s. 153A u/s 56(2)(viia) are without any reference to the seized material. Since no proceedings under the Income Tax Act were pending for AY 2012-13 as on the date of search, accordingly scope of examination of issues in the assessment U/s 153A was required to be restricted to the incriminating material, if any, found as a result of search. Further the statement of the Directors were recorded wherein no admission of undisclosed income on account of transfer of shares was made by them.

In view of the above discussion, it is observed that the addition is neither based on any single loose paper found/seized nor on any statement recorded during the course of search conducted in the case of the appellant which could he treated incriminating as is evident from the assessment order and the remand report of the A.O. Therefore in view of the aforesaid discussion and respectfully following the binding decision of the Hon’ble Jurisdictional High Court, decision of various other High Courts and the decision of Hon’ble Supreme Court as discussed supra, it is observed that the aforesaid addition made by the A() u/s 15313/ 143(3) r.w.s. 153A for the AY 2012-13 is legally not tenable mid hence is not liable to be sustained. Accordingly, the addition so made by the A.O. is directed to be deleted and the Ground of Appeal No. 4 is treated as allowed.”

Therefore, in the assessment order there is no mention or finding that the

additions have been made by the AO on the basis of any incriminating

material found during the course of search and seizure in the case of the

assessee. The ld. D/R has also relied upon the judgments which are also

considered by us but the same are not applicable to the facts and

circumstances of the present case. The ld. D/R has specifically argued that

even if no incriminating material was unearthed during the search, yet while

granting the relief to the assessee, the ld. CIT (A) has failed to take note of

the fact that the SLP filed by the Department in the case of PCIT vs. Gahoi

Foods Pvt. Ltd. 117 Taxmann.com 118 (SC) and in case of PCIT vs. Dhananjay

international Ltd. (2020) 114 Taxmann.com 351 (SC) are pending before the

Hon’ble Supreme Court whereas the SLP filed by the Department has already

been admitted. In this regard, we are of the view that no final orders have

been passed so far by the Hon’ble Supreme Court in the judgments cited by

the ld. D/R. Therefore, the principle of “ ratio descendi “ are not applicable

with regard to the aforementioned cases. Therefore, we are of the view that

in the absence of any order by Hon’ble Supreme Court, the decision of Hon’ble

Jurisdictional High Court in the case of Jai Steel Ltd. vs. ACIT, 88 DTR 1

(Raj.), PCIT vs. Smt. Daksha Jain, DB IT No. 125/2017 are binding on us.

Further, we are also fortified with the decision in the case of CIT vs.

Continental Warehousing Corporation (2015) 64 taxmann.com 34 (SC), PCIT

vs. Devi Dass Garg (2020) 114 taxmann.com. 552 (SC). The ld. D/R has also

relied upon the decision in the case of CIT Central vs. Rajkumar Arora (2014)

52 Taxmann.com. 172 (All.) wherein it was held that AO has power to

reassess the return of the assessee only from the undisclosed income found

during the course of search and where no undisclosed income is found then

the AO cannot made any reassessment. Thus this judgment cited by ld. D/R is

also of no help. The D/R has also relied upon the decision of Hon’ble Kerala

High Court in the case of E.N. Gopalkumar vs. CIT (Central) (2016) 75

taxmann.com 215 (Ker.). In this regard we are of the view that when the

Hon’ble Jurisdictional High Court decision is available in favour of the

assessee, then in that eventuality the decision of Hon’ble Kerala High Court is

not applicable in the case of the assessee. The ld. D/R also relied upon the

decision in the case of Sunny Jacob Jewellers and Wedding Centre vs. DCIT

(2014) 48 taxmann.com 347 (Ker.). The facts of this case are not relevant to

the facts of the present case as the assessee has not challenged the issue of

notice for six previous years under section 153A of the Act. Thus the said

judgment is inapplicable under the facts of the present case. Another

judgment cited by ld. D/R is in the case of Harshvardhan Johari vs. DCIT

(2020) 118 taxmann.com 449 (Jaipur-Trib) wherein it was held that the notice

under section 143(2) of the Act was not issued though the time was available

at the time of search for issue of notice under section 143(2) of the Act.

However, as per the facts of the present case, the assessment for A.Y. 2012-

13 was not an abated assessment and in absence of any incriminating

material, no addition can be made. The case titling ACIT vs. Rajesh Jhaveri

Stock Brokers Pvt. Ltd. (2007) 161 taxmann.com 316 (SC) was also referred

by ld. D/R wherein it was held that even after processing under section

143(1), notice under section 143(2) can be issued and also notice under

section 147 of the IT Act can also be issued. However, the facts in the present

case are altogether different as the assessee has not objected to the issue of

notice either under section 143(2) or section 147 of the IT Act. As such, the

decision cited by the ld. D/R is not applicable.

The decision in the case of S.R. Koshti vs. CIT (2005) 146 taxmann.com 335

(Gujarat) is concerned, in this case the Hon’ble High Court has decided the issue of

143(1) vis-à-vis assessment under IT Act and in this matter it was decided that even

after the processing under section 143(1)of the Act, the return of income can be

revised. However, in this regard, we are of the view that the revision of return after

processing of the return is for a limited period and when the time for issuance of a

notice under section 143(2) of the Act has elapsed then in that eventuality there

cannot be any revision of return and the assessment comes to an end. As per the

facts of the present case, the time for issue of notice under section 143(2) of the Act

has already been elapsed and as such this decision relied on by ld. D/R is also of no

help. Another judgment relied upon is in the case of Gopal S. Pandit vs. CIT (2018)

96 taxmann.com 233 (Karnataka) wherein the Hon’ble High Court has held that it is

not necessary to give an opportunity of hearing before granting approval under

section 153D of the I. T. Act, 1961. However, as per the facts of the present case,

no such objection has been raised before us. Thus this judgment is also of no help.

The AO has solely made the addition on the basis of Balance Sheet of M/s. Himani

Developers Pvt. Ltd. and M/s. H.B. Retails Pvt. Ltd. for A.Y. 2012-13, without any

reference to the seized material. Since no proceedings under the Income Tax Act

were pending for A.Y. 2012-13 as on the date of search accordingly scope of

examination of issues in the assessment u/s 153A was required to be restricted to

the incriminating material, if any, found as a result of search. Therefore, even if the

information/report of the Investigation Wing is considered as a relevant evidence,

the same cannot be regarded as incriminating material unearthed during the course

of search and seizure under section 132 of the IT Act in case of the assessee. The

requirement for making the addition under section 153A in the assessment years

where the assessment was not pending on the date of search and the proceedings

are in the nature of reassessment is essentially the incriminating material disclosing

undisclosed income which was not disclosed by the assessee. In the case in hand,

the AO himself has not claimed any incriminating material found during the search

and seizure in the case of the assessee. Accordingly, in the facts and circumstances

of the case and in view of the binding precedents on this issue in which the SLP filed

by the revenue was also dismissed by the Hon’ble Supreme Court, the additions

made by the AO while passing the assessment order under section 153A for the

assessment year 2012-13 are not sustainable and accordingly the same are liable to

be deleted. We order accordingly.

given an identical finding and the ld. CIT (A) has deleted the addition by considering

the same facts, therefore, our finding for the assessment year 2012-13 is applicable

on this issue for the assessment year 2015-16 also.

Cross Objections :

appeals as mentioned in the caption, and out of eight cross objections, it has been

bifurcated into 2 (two) sets i.e. 6 cross objections pertain to Assessment Year 2012-

13 and other 2 cross objections pertain to Assessment year 2015-16. As far as Cross

objections pertaining to appeal related to assessment year 2-12-13 are concerned,

the assessee has raised several grounds. The grounds raised in the Cross Objection

No. 5/JP/2022 are as under :-

Ground No. 1: That the ld. AO has grossly erred on facts and in law in initiating proceedings u/s 153A, without there being any valid search in the case of the appellant. Therefore, the proceedings initiated u/s 153A and consequent assessment order passed by the ld. AO are bad in law and deserve to be quashed.

Ground No. 2: That the ld. AO has grossly erred on facts and in law in completing the assessment under section 153A r.w.s. 143(3) on 30/12/2019 in gross violation of principle of natural justice without giving adequate opportunity of being heard. Therefore, the assessment made by him is bad in law and deserves to be quashed.

Ground No. 3: That the approval given by the Addl. CIT s 153D of the Act to the order passed u/s 153A r.w.s.153B/ 143(3) is without application of mind, purely in a mechanical manner, without appreciating the facts and without following the mandate of the section 153D, which makes the order passed u/s 153A r.w.s. 153B/ 143(3) non est, void ab initio and bad in law, the same deserves to be quashed.

Ground No. 4: (i). That the ld. AO has grossly erred on facts and in law in making addition of Rs.43,88,06,060/- under section 56(2)(viia) of the I.T. Act without any basis whatsoever and without an iota of evidence against the appellant. (ii). That the ld. AO has made the addition of Rs.43,88,06,060/- purely on the basis of his suspicion, doubt, assumption and presumption etc. which is not permissible in law.

(ii) That the ld. AO has made addition Rs.43,88,06,060/- ignoring all the documentary evidences furnished by the assessee. The said transaction on the basis of which said addition has been made falls in the AY 2 11-12 and does not relate to the assessment year under considera, on. We had submitted balance sheet for the AY 2012-13 during the assessment proceeding for which it is apparent that no further investment was ma e during the year under consideration and which is self-evident from t e balance sheet submitted you're your good honor and financials statement filed with ROC department. Therefore, in addition deserves to be deleted.

Ground No. 5: The ld. AO has erred on facts and in law in charging interest under section 234A and 234B of the Act on assessed income which should have been charged on the returned income. The appellant craves leave to add, amend or withdraw any of the ground of appeal is during the course of appellate proceedings. All the grounds of appeal are without prejudice to each other. The above revised grounds may kindly be admitted for the cause of substantial justice. In this regard reliance is placed on the decision of Hon'ble Supreme Court in the case of NTPC Ltd. v. CIT, (1998) 229 ITR 383 (S.C.) and the decisions of Hon'ble Rajasthan High Court in the case of Shilpa Associates v. ITO, (2003) 263 ITR 317 (Rajasthan) and ZakirHussain v. CIT, (2006) 202 CTR (Raj.) 40.

The main ground, on merits, relates to making of addition by the AO. In this

regard, the ld. A/R has relied upon his written submissions which are reproduced

below :-

“The ld. AO has made the addition in the A.Y. 2012-13 simply on the basis of his presumption only, without verifying the year of acquisition of shares and without giving proper opportunity of being heard to the appellant assessee. This fact is proved by the show cause notice issued by the ld. AO on 29.12.2019 requiring the assessee company to produce the copies of "Transfer Deeds" of shares of the companies in which assessee company hold almost 50% of shares, on the very next day i.e. 30.12.2019, considering the time limitation in the above case.

• In the evident of above said investment, company has already submitted all relevant papers and documents as Detail chart showing share transfer and acquisition details with number of shares, Distinctive numbers, Ledger Folio Details and Name of Transferor 86 Transferee, Copies of Share Certificates, duly endorsed in name of our company, Intimation letter of Shares Endorsement from M/s Himani Developers Private Limited and M/s H.B. Retails Private Limited, supported with our request letter & share transfer deed, Copies of Form 20B duly filed at ROC by M/s Himani Developers Private Limited and M/s H.B. Retails Private Limited, in the evident to acknowledge of the said share transfer - Refer page no. 62 to 126 and 142 to 219 of paper book. • After the above said investment transaction, our company has neither purchase any shares of M/s Himani Developers Private Limited and M/s H.B. Retails Private Limited nor sold any existed investment. In support of our content we enclosed Form MGT-7 with list of share holder for the year ended 31.03.2018, duly filed at ROC by M/s Himani Developers Private Limited and M/s H.B. Retails Private Limited- Refer page no. 127 to 141 and 220 to 235 of paper book

• Our company has incorporate on 10.03.2008 with authorized share capital of Rs. 1,00,000/- and thereafter it is increased up to 5,96,000/- till 31.03.2010 and from the FY 2009-10 to till date there is no change in authorized share capital as well as paid-up, in the evident of that Copy of Form No. 5 , Form 2 of allotment of share along with copy of master data from MCA records attached- Refer page no. 236 to 245 of paper book

"It is worthwhile to mention that in making an assessment u/s 143(3) the Assessing Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all.

The ld. AO without giving proper opportunity of being heard proceeded to make the addition of Rs. 43,92,04,190/- in the assessment year under consideration, simply for the sake of addition, without any basis. It is an established position of law that no addition can be made merely on the basis of doubt, suspicion or presumption of the AO.”

record it is noticed that the AO has made the addition which are challenged by the

assessee mainly on the ground that the said transactions on the basis of which the

additions have been made falls in assessment year 2010-11 and does not relate to the

assessment year under consideration and in this regard assessee has already placed on

record ample documentary evidences including Balance Sheet for A.Y. 2012-13 wherein it is

apparent that no further investment was made during the year under consideration and is

also self-evident from the Balance Sheet and financial statements filed with the ROC by the

assessee. Although the ld. D/R has referred to the provisions of section 56(2)(viia) which

was inserted vide Finance Act 2010 with effect from 01.06.2010, however, the transfer in

the case of the assessee was completed before 31.05.2010 and the AO had made additions

in the assessment year 2012-13 which according to us is contrary to the evidences

submitted before the Investigation Wing and is also part of the reply filed before the

revenue authorities. In this regard the ld. CIT (A) had also sought Remand Report which

was also submitted by the AO. Therefore, we are of the considered view that since the

transactions on the basis of which the additions have been made falls prior to the year

under consideration and none of the transactions relate to the year under consideration,

therefore, no additions are warranted.

assessee has taken many grounds in the cross objection but the main ground relates to

challenging the addition made for the A.Y. 2015-16 by attracting the provisions of section

56(2)(viia) of the Act. In this regard, the ld. A/R relied upon the written submissions which

are reproduced below :-

“The ld. AO has made the addition in the A.Y. 2015-2016 simply on the basis of his presumption only, without verifying the facts that assessee company is subsidiary company of a company not being a company in which the public are substantially interested, was free to determine its own price with the intending purchaser after due negotiations even below the Fair Market Value before 1st day of April 2017, at the time of taking shares of any Private

Company in the preview of section 56(2)(viia) of the I.T. Act and without giving proper opportunity of being heard to the appellant assessee.

• In the evident of above said investment, company has already submitted all relevant papers and documents as Detail chart showing share transfer and acquisition details with number of shares, Distinctive numbers, Ledger Folio Details and Name of Transferor & Transferee, Copies of Share Certificates, duly endorsed in name of our company, Intimation letter of Shares Endorsement from M/s Aangan Project Private Limited with details of no. of share, distinctive numbers, ledger folio, Copies of Form 20B with list of shareholder duly filed at ROC by M/s Aangan Project Private Limited, in the evident to acknowledge of the said share transfer - Refer page no. 59 to 77 of paper book.

• After the above said investment transaction, our company has neither purchase any shares of M/s Aangan Project Private Limited nor sold any existed investment. In support of our content we enclosed Form MGT-7 with list of share holder for the year ended 31.03.2018, duly filed at ROC by M/s Aangan Project Private Limited - Refer page no. of paper book from 78 to 92.

• Our company has incorporate on 23.07.2014 and having authorized capital up to 5,00,000/- and since date of

incorporation there is no change in authorized share capital. In the evident of that copy of master data from MCA records attached - Refer page no. 93 of paper book

It is also submitted that appellant is a subsidiary company of a limited company named M/s Polymac Thermoformers Limted, which is listed in BSE, deemed as company in which public are subsitial interested and the same was also verifiable from assessment order and in which it has been mentioned Rinaldi Trader Limited(Company Limited by Shares) was incorporated on 23.07.2014 and is a subsidiary company of a public listed company named M/s Polymac Thermo formers Ltd. The same fact reflected from the assessment order for the A.Y. 2015-16 passed by the ld. A.O. as well from the Appeal Order passed by the Ld Commissioner of Income Tax (Appeals)-2, Udaipur dated- 24.12.2021.

We would like to bring your kind attention on factual act position as under-

As per Companies Act,1956

Definition of Public Company-Section 2(71) of the Companies Act, 2013 "public company" means a company which— (a) is not a private company; (a) has a minimum paid-up share capital [omitted]2, as may be prescribed:

Provided that "A company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles";

Deemed Public

"A company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles";

As per provision of 'Deemed Public Company' if a private Limited Company is subsidiary of Public Company will be considered as Deemed Public Company.

Section 3(1)(iv)(c) of the Companies Act, 1956 which came into effect from December 13, 2000 provides that a 'public company means a

ompany which a private company and which is a subsidiary of a company which is not a private company'. A plain reading of this provision suggests that a private company which is a subsidiary of a public company would be deemed to be a public company under the Companies Act.

Date of becoming a deemed Limited Company

The private company becomes deemed limited immediately upon, became subsidiary of public Company.

There are several provisions under the Companies Act which are not applicable to private companies, but have been specifically

made applicable to a private company which is a subsidiary of a public company,

i) like Section 77 of the Companies Act which deals with prohibition against giving financial assistance by the company for purchasing its own shares or the shares of its holding company and ii) Section 295 of the Companies Act dealing with loans to directors. iii) Section 372A which deals with restrictions on making loans, giving guarantees or providing securities and inter- corporate investments in securities,

It has also been observed by the Company Law Board (`CLI3') in the case of Hillcrest Realty Sdn. Bhd. v. Hotel Queen Road Pvt. Ltd. and Others [(2006)71 SCL 41(CLB)J, that the basic characteristics of a private company in terms of Section 3(1)(iii) of the Companies Act do not get altered just because it is a subsidiary of a public company in view of the fiction of Section 3(1)(iv)(c) of the Companies Act that it is a public company.

The CLB further observed that it may be a public company in relation to other provisions of the Companies Act but not with reference to its basic characteristics. Therefore, all the provisions in the articles of association to maintain the basic characteristics of a private company in terms of Section 3(1)(iii) of the Companies Act will continue to govern the affairs of the company even though it is a subsidiary of a public company. Furthermore, CLB has observed that one of the basic characteristics of a private company in terms of Section

58 ITA Nos. 86, 87, 88, 89, 90, 91, 92 & 93/JP/2022 M/s. Silvertoss Commodities Pvt. Ltd. & Others.

3(1)(iii) of the Companies Act is restriction on the right to transfer and the same will apply even if a private company is a subsidiary of a public company.

As per Income Tax Act,1961

Company in which the Public are substantially interested (Section 2(18) :

Section 2(18) of the Income-tax Act, has defined "a company in which the public are substantially interested". It includes:

A public limited company: A company is deemed to be a public limited company if it is not a private company as defined by the Companies Act, 1956 and is fulfilling either of the following two conditions:

a. Its equity shares were listed on a recognised stock exchange, as on the last day of the relevant previous year; or b. Its equity shares carrying at least 50% of the voting power (in the case of an industrial company the limit is 40%) were beneficially held throughout the relevant previous year by Government, a statutory corporation, a company in which the public is substantially interested or a wholly owned subsidiary of such a company.

Applicability of section 56(2)(viia) of the income tax act, 1961, where a subsidiary company of a company not being

59 ITA Nos. 86, 87, 88, 89, 90, 91, 92 & 93/JP/2022 M/s. Silvertoss Commodities Pvt. Ltd. & Others.

a company in which the public are substantially interested receive shares of private company on inadequate consideration.

As per the provision of section 56(2)viia of income tax act 1961-

Where a firm or a company not being a company in which the public are substantially interested, receives in any previous year, from any person or persons, on or after 1st day of June, 2010 but before 1st day of April, 2017 any property, being shares of a company not being a company in which the public are substantially interested,

A subsidiary company of a company not being a company in which the public are substantially interested, was free to determine its own price with the intending purchaser after due negotiations even below the Fair Market Value before 1st day of April 2017, at the time of taking shares of any Private Company in the

60 ITA Nos. 86, 87, 88, 89, 90, 91, 92 & 93/JP/2022 M/s. Silvertoss Commodities Pvt. Ltd. & Others.

preview of section 56(2)(viia) of the I.T. Act. As there is no requirement under the act to get the share valued.

Thus in the tune of Section 56(2)(viia) of the I.T. Act. Astad is also automatically become the company in which the public are substantially interested, hence Astad is free to purchase shares of any pvt. Ltd. Company to determine its own price with the intending purchaser after due negotiations even below the Fair Market Value before 1st day of April 2017, at the time of taking shares of any Private Company in the preview of section 56(2)(viia) of the I.T. Act. As there is no requirement under the act to get the share valued.

Certificate of Incorporation consequent upon change of name on conversion to Public Limited Company, Copy of master data from MCA records, Copy of Form MGT-7 showing holding-subsidiary relationship for the year ended 31.03.2015, duly filed at ROC by M/s Polymac Thermoformers Limted - Refer page no. of paper book from 94 to 110

Further detail reply dated 18.04.2022 in respect to the provision of section 56(2)(viia) of the Income Tax Act,1961 with definition of deemed limited company as defined in Companies Act requested that the differential amount of purchase price and Fair Market Value can't be treated as an income of the said subsidiary company by the Income Tax Department as provision of section 56(2)(viia) of the

61 ITA Nos. 86, 87, 88, 89, 90, 91, 92 & 93/JP/2022 M/s. Silvertoss Commodities Pvt. Ltd. & Others.

I.T. Act, as this provision is not applicable to that subsidiary company, also has been submitted to your good honor.”

noticed that the additions in the present case made by the AO by applying provisions

of section 56(2)(viia) of the Act, whereas the AO has ignored the documentary

evidences furnished by the assessee wherein it has been categorically pleaded that

assessee is a subsidiary company of a company not being a company in which the

public are substantially interested and while considering the arguments raised by the

assessee, we are of the view that the assessee who is a subsidiary company of a

limited company, i.e. M/s. Polymac Thermoformers Ltd. which is listed in BSE,

deemed as company in which public are substantially interested and the same was

also verifiable from the assessment order, in which it has been mentioned that M/s.

Rinaldi Traders Ltd. ( a company limited by shares) was incorporated on 23.07.2014

and is a subsidiary company of public limited company namely M/s. Polymac

Thermoformers Ltd.. The same fact reflected from the assessment order for A.Y.

2015-16 passed by the AO as well as from appeal order passed by the ld. CIT (A)

dated 24.12.2021. Therefore, after considering the provisions of Companies Act,

Income Tax Act as mentioned in section 2(18) of the IT Act, we are of the view that

the assessee company is subsidiary company in which public are substantially

interested and as such the provisions of section 56(2)(viia) of the Act is not

applicable or attracted for making addition. Thus we are of the view that additions

62 ITA Nos. 86, 87, 88, 89, 90, 91, 92 & 93/JP/2022 M/s. Silvertoss Commodities Pvt. Ltd. & Others. made by the AO even otherwise are not sustainable on merits. Since we have decided the Cross Objections raised by the assessee on merits, therefore, there is no need to adjudicate other cross objections raised by the assessee as the same would only be of academic in nature. 19. In the final result, the appeals of the revenue stand dismissed and the cross objections of the assessee are partly allowed.

Order pronounced in the open court on 30/06/2022.

Sd/- Sd/- ¼lanhi xkslkbZ½ ¼ jkBkSM+ deys'k t;arHkkbZ ½ (RATHOD KAMLESH JAYANTBHAI) (SANDEEP GOSAIN) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 30/06/2022. Das/ आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- The DCIT, Central Circle, Ajmer. 2. izR;FkhZ@ The Respondent-M/s. Silvertoss Commodities Pvt. Ltd., Kolkata and others. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No. 86, 87, 88, 89, 90, 91, 92 & 93/JP/2022} vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत

63 ITA Nos. 86, 87, 88, 89, 90, 91, 92 & 93/JP/2022 M/s. Silvertoss Commodities Pvt. Ltd. & Others.