DCIT, CC-3(3), KOLKATA, KOLKATA vs. AMICUS REAL ESTATE PVT. LTD., KOLKATA

The instant appeal is directed at the instance of the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-21, (hereinafter the “ld. CIT(A)”) dt. 29/04/2023, passed u/s 250 of the Income Tax Act, 1961 (hereinafter ‘the Act’) for Assessment Year 2010-11.

The revenue has raised the following grounds of appeal:- “(i). That on the facts and in the circumstances of the case, the Ld. CIT(A) erred to hold that no addition can be made in respect of assessments which have become final if no incriminating material is found during the search or during the 153A proceedings. (ii). That on the facts and circumstances of the case, the Ld. CIT(A) while deleting addition of Rs. 1,92,00,000/- has erred to totally ignore that assessee failed to discharge its onus to establish identity, creditworthiness and genuineness of the transaction, in respect of unsecured loan received. (iii). That on the facts and circumstances of the case, the Ld. CIT(A) while deleting addition of Rs. 1,81,50,000/- has erred to totally ignore that assessee failed to discharge its onus to establish identity, creditworthiness and genuineness of the transaction, in respect of share capital received, iv. That the appellant craves the right to add, alter, amend or withdraw any ground or grounds of appeal before or at the time of hearing.

At the outset, the ld. Counsel for the submitted that the search in the case of assessee was carried out on 23/12/2014 as part of the Cygnus Group. The additions made for the year under appeal do not have any live nexus with the material found during the course of search. He further submitted that, since the assessment year 2010-11 falls under the category of completed and unabated Assessment Year and no incriminating material has been referred for making the impugned addition, the case of the assessee is squarely covered by the decision of the Hon’ble Supreme Court in the case of Pr. C.I.T. V/s. Abhisar Buildwell (P) Ltd. (2023) 454 ITR 212 (S.C.) and that the ld. CIT(A) has rightly granted relief to the assessee by deleting the impugned addition.

On the other hand, the ld. D/R vehemently argued supporting the order of the ld. Assessing Officer stating that certain incriminating material has been referred in the assessment order and the addition has been rightly made for unconfirmed loans and advances as well as bogus share capital as they are part of receiving accommodation entries through layering of funds from various accommodation entry providers and paper book companies. The ld. D/R took us through various graphics appearing in the assessment order from page 7 to 14, depicting the modus operandi of rotation and layering of funds.

We have heard rival contentions, perused the material placed before us and gone through the decision referred and relied by the ld. Counsel for the assessee. The assessee is into the business of property development. For Assessment Year 2010-11, regular return of income u/s 139(1) of the Act was furnished on 21/10/2011 and the same was processed u/s 143(1) of the Act. No notice u/s 143(2) of the Act was Assessment Year: 2010-11 Amicus Real Estate Pvt. Ltd. issued and as on the date of search u/s 132 of the Act on 23/12/2014, assessment for Assessment Year 2010-11, was not pending and thus falls in the category of completed/unabated Assessment Year. Now, for the year under appeal, the ld. Assessing Officer has made additions under two heads, firstly unexplained advances and deposits at Rs.1,92,00,000/- and unexplained share capital at Rs.1,81,50,000/-. Now, since the assessee has been subjected to search and the year before us is completed and unabated year, it has been consistently held by the Hon’ble Courts that for making additions for such completed years, reference to incriminating material found during the course of search is sine qua non and ld. Assessing Officer should establish live nexus with such incriminating material. It has been contended before us by the ld. D/R that there were certain incriminating material. We, note that the ld. CIT(A) has dealt each of such alleged incriminating material in detail in its findings and after referring to plethora of judicial precedents and the tests laid down therein, has examined the facts and observed as under:- “Applying the above tests to the present case, it is noticed that in his assessment order, the AO on Page 1 has referred to the seized/impounded material marked as CG/2 Page no.1 & Page No.2 which as per the notings of AO shows that "One Jeetuji” received cash under the head of Long Term Capital Gain. The AO has himself recorded subsequently that in the course of post search investigation, it was found that the assessee booked bogus LTCG in the A.Y: 2012-13. It is, therefore, evident that the said material does not pertain to F.Y: 2009-10 i.e A.Y: 2010-11. Let us first examine the basis of the information related to the addition of Rs 1,92,00,000/- made by the AO. The AO on Page 2, paragraph marked 5, has stated that he found the entry of Rs 1,92,00,000/- within schedule 7 of the audited balance sheet that was part of the regular books of the appellant. He has stated that this figure was 'nil' in the immediately preceding year. The appellant has provided a copy of this audited balance sheet, signed and dated 30th August 2010. An examination of the said balance sheet reveals that Schedule 7 indeed shows Rs 1,92,00,000/-under the head Tor Advances Deposits and other liabilities'. These amounts were therefore admittedly part Assessment Year: 2010-11 Amicus Real Estate Pvt. Ltd. of the books of the appellant at the time of filing of his original return of income much before the date of search In this connection, the AO has tried to draw a connection between the seized/impounded material found during the search and this addition. He has referred to Page 45 of CG-2 in this connection, on pages 2 and 3 of his order. In Paragraph 1 on page 3, he refers to the fact that this seized/impounded document showed that two loans were taken by the appellant, Rs.40 lakhs from M/s Omkam Global and Rs. 50 lakhs from Peeyush Kumar Agarwal and the said amount was paid to M/s Navalco Commodities Pvt. Ltd. The same paragraph, however, notes that the information regarding these two unsecured loans had already been disclosed in the regular books and that the two loans were found within the list of loan/advance creditors. The AO has recognised these two loans as being part of the total list of loans /advances cumulatively amounting to Rs 1,92,00,000/- for the impugned year. From the above, it is evident that as far as the two loans of Rs 40 lakh and Rs 50 lakh are concerned, even though they were mentioned in the seized documents CG-2, they cannot be treated as incriminating material found during the search since they have admittedly been declared within the regular books of the appellant. As regards the rest of the amount of loans and advances, there is no mention that these loans and advances were discovered as a result of the search. Therefore, since this entire addition is made without any reference to any incriminating material found during as discussed above, no such addition could have been made. Therefore this addition is deleted as not having emanated from any incriminating material found during search. Coming to the other addition of Rs 1,81,50,000/-, I find that the AO has admitted paragraph 6 on page 3 of his order that as per books of the appellant, he had raised ne said amounts as share capital/premium in that year. This fact has been reiterated by the appellant in his reply to the showcause issued by the AO, in this regard, as reproduced on page 4 of the assessment order and the AO has also accepted this. The present controversy has, however, arisen when the AO has made a reference to an entry on Page 45 of the seized document CG-2. The AO has referred to an entry in the name of one 'Banka Ji' to whom Rs. 4 crores was paid. The AO has recorded that this 'Banka ji' was identified, post search as one Subhas Kumar Banka, who in his statement u/s 131 has admitted to having sold a company, M/S Satyam Investment and Finance Ltd to Krishna Kumar Singhania, the main person of the present appellant. Having made the above reference, there is no further discussion of the said information or the said entry or the sale of M/S Satyam Investment and Finance Ltd, in the rest of the order Le the AO has not established any direct nexus with the said information to prove that the said money was used for raising bogus share capital. There is no discussion as to how the said Assessment Year: 2010-11 Amicus Real Estate Pvt. Ltd. information lends support to his belief that the share capital raised was bogus. The AO has rather gone on to discuss how the appellant himself has given the money from his books of accounts or disclosed bank accounts and then the same money has come back to the appellant by way of share capital. Since no direct nexus has been established by the AO to the entry in the name of 'Banka Ji1 to form the belief that the share capital raised was bogus and furthermore the same has not been proved to be part of the undisclosed funds of the appellant, such information cannot be held to be incriminating. The AO has discussed that he supplied two sets of documents to the appellant, one of 17 pages and the other of 39 pages. The first such document related to the various fund/cash trails associated with the movement of funds that the AO has asserted, led to the introduction of bogus Share capital by the appellant - running into 17 pages. The second document running into 39 pages constitutes copies of statements of the alleged entry operators. This is mentioned in the show-cause, in this regard, reproduced by the AO in his order. The AO, on page 6 of his order, in paragraph 6.4.1 has brought out the origin of the 17 page document, which he has stated therein were cash trails drawn up during the post-search operations. They can therefore not be treated as incriminating material obtained during the search. The statements also, it is admitted on page 3 itself, were taken not during the search, but in the post search period. They also therefore cannot be treated as incriminating material obtained during the search. Besides these facts, the AO has not drawn any form of a link between the seized document CG-2, as mentioned by the AO himself, and these post search documents. He has not brought on record how or if Satyam Investment and Finance Ltd was at ail involved in the introduction of the impugned share capital/premium. There is therefore no link established with the seized material that would enable it to be viewed as incriminating material based upon which this impugned addition could have been made. In view of the aforesaid discussions, I find that the AO has not been able to place on record anything that was elicited from this document CG-2 that had not already been present before the AO, before the search took place. The entire share capital raised by the appellant, and the unsecured loans taken by the appellant, were all present before the AO at the time of the filing of the original return. There is no other mention of any other incriminating document that might have been used as a basis for making the impugned additions. Upon examination of the material before me, including the impugned assessment order, I cannot find anything that the AO has adduced in the assessment order that can be considered material that was not already present before him before the search took place, much less find anything incriminating.

Under these given facts and circumstances, where there is no live nexus of any incriminating material with the additions made by the ld. Assessing Officer for the year under appeal which clearly falls in the category of completed and unabated assessment year, the case is squarely covered in favour of the assessee by the decision of the Hon’ble Apex Court in the case of Abhisar Buildwell (P) Ltd. (supra), wherein under the identical circumstances, it was held as follows:- “5. We have heard learned counsel for the respective parties at length.

It is the case on behalf of the Revenue that once upon the search under section 132 or requisition under section 132A, the assessment has to be done under section 153A of the Act, 1961 and the AO thereafter has the jurisdiction to pass assessment orders and to assess the 'total income' taking into consideration other material, though no incriminating material is found during the search even in respect of completed/unabated assessments.

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 of 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 be connected with something found 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."

For the reasons stated hereinbelow, we are in complete agreement with the view taken by the Delhi High Court in the case of Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra), taking the view that no addition can be made in respect of completed assessment in absence of any incriminating material.

While considering the issue involved, one has to consider the object and purpose of insertion of Section 153A in the Act, 1961 and when there shall be a block assessment under section 153A of the Act, 1961. 9.1 That prior to insertion of Section 153A in the statute, the relevant provision for block assessment was under section 158BA of the Act, 1961. The erstwhile scheme of block assessment under section 158BA envisaged assessment of 'undisclosed income' for two reasons, firstly that there were two parallel assessments envisaged under the erstwhile regime, i.e., (i) block assessment under section 158BA to assess the 'undisclosed income' and (ii) regular assessment in accordance with the provisions of the Act to make assessment qua income other than undisclosed income. Secondly, that the 'undisclosed income' was chargeable to tax at a special rate of 60% under section 113 whereas income other than 'undisclosed income' was required to be assessed under regular assessment procedure and was taxable at normal rate. Therefore, section 153A came to be inserted and brought on the statute. Under Section 153A regime, the intention of the legislation was to do away with the scheme of two parallel assessments and tax the 'undisclosed' income too at the normal rate of tax as against any special rate. Thus, after introduction of Section 153A and in case of search, there shall be block assessment for six years. Search assessments/block assessments under section 153A are triggered by conducting of a valid search under section 132 of the Act, 1961. The very purpose of search, which is a prerequisite/trigger for invoking the provisions of sections 153A/153C is detection of undisclosed income by undertaking extraordinary power of search and seizure, i.e., the income which cannot be detected in ordinary course of regular assessment. Thus, the foundation for making search assessments under sections 153A/153C can be said to be the existence of incriminating material showing undisclosed income detected as a result of search.

On a plain reading of Section 153A of the Act, 1961, it is evident that once search or requisition is made, a mandate is cast upon the AO to issue notice under section 153 of the Act to the person, requiring him to furnish the return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and assess or reassess the same. Section 153A of the Act reads as under: "153A. Assessment in case of search or requisition - (1) Notwithstanding anything contained in Section 139, Section 147, Section 148, Section 149, Section 151 and Section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132- A after the 31st day of May, 2003, the Assessing Officer shall— (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may 12 Assessment Year: 2010-11 Amicus Real Estate Pvt. Ltd. be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made: Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132-A, as the case may be, shall abate. (2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or Section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner: Provided that such revival shall cease to have effect, if such order of annulment is set aside Explanation.—For the removal of doubts, it is hereby declared that,— (i) save as otherwise provided in this section, section 153-B and section 153-C, all other provisions of this Act shall apply to the assessment made under this section; (ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year."

As per the provisions of Section 153A, in case of a search under section 132 or requisition under section 132A, the AO gets the jurisdiction to assess or reassess the 'total income' in respect of each assessment year falling within six assessment years. However, it is required to be noted that as per the second proviso to Section 153A, the assessment or re-assessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. As per sub-section (2) of Section 153A, if any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub- section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner. Therefore, the intention of the legislation seems to be that in case of search only the pending assessment/reassessment proceedings shall abate and the AO would assume the jurisdiction to assess or reassess the 'total income' for the entire six years period/block assessment period. The intention does not seem to be to re-open the completed/unabated assessments, unless any incriminating material is found with respect to concerned assessment year falling within last six years preceding the search. Therefore, on true interpretation of Section 153A of the Act, 1961, in case of a search under section 132 or requisition under section 132A and during the search any incriminating material is found, even in case of unabated/completed assessment, the AO would have the jurisdiction to assess Assessment Year: 2010-11 Amicus Real Estate Pvt. Ltd. or reassess the 'total income' taking into consideration the incriminating material collected during the search and other material which would include income declared in the returns, if any, furnished by the assessee as well as the undisclosed income. However, in case during the search no incriminating material is found, in case of completed/unabated assessment, the only remedy available to the Revenue would be to initiate the reassessment proceedings under sections 147/48 of the Act, subject to fulfilment of the conditions mentioned in sections 147/148, as in such a situation, the Revenue cannot be left with no remedy. Therefore, even in case of block assessment under section 153A and in case of unabated/completed assessment and in case no incriminating material is found during the search, the power of the Revenue to have the reassessment under sections 147/148 of the Act has to be saved, otherwise the Revenue would be left without remedy.

If the submission on behalf of the Revenue that in case of search even where no incriminating material is found during the course of search, even in case of unabated/completed assessment, the AO can assess or reassess the income/total income taking into consideration the other material is accepted, in that case, there will be two assessment orders, which shall not be permissible under the law. At the cost of repetition, it is observed that the assessment under section 153A of the Act is linked with the search and requisition under sections 132 and 132A of the Act. The object of Section 153A is to bring under tax the undisclosed income which is found during the course of search or pursuant to search or requisition. Therefore, only in a case where the undisclosed income is found on the basis of incriminating material, the AO would assume the jurisdiction to assess or reassess the total income for the entire six years block assessment period even in case of completed/unabated assessment. As per the second proviso to Section 153A, only pending assessment/reassessment shall stand abated and the AO would assume the jurisdiction with respect to such abated assessments. It does not provide that all completed/unabated assessments shall abate. If the submission on behalf of the Revenue is accepted, in that case, second proviso to section 153A and sub-section (2) of Section 153A would be redundant and/or rewriting the said provisions, which is not permissible under the law.

For the reasons stated hereinabove, we are in complete agreement with the view taken by the Delhi High Court in the case of Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra) and the decisions of the other High Courts taking the view that no addition can be made in respect of the completed assessments in absence of any incriminating material.

In view of the above and for the reasons stated above, it is concluded as under: (i) that in case of search under section 132 or requisition under section 132A, the AO assumes the jurisdiction for block assessment under section 153A; (ii) all pending assessments/reassessments shall stand abated; (iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the 'total income' taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and (iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect