M/S JAIN AMAR CLOTHING PVT. LTD.,LUDHIANA vs. DCIT, CC-III, LUDHIANA

आयकर अपीलीय अिधकरण,च"डीगढ़ "यायपीठ “ए” , च"डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH HEARING THROUGH: PHYSICAL MODE "ी आकाश दीप जैन, उपा"य" एवं "ी िव"म "सह यादव, लेखा सद"य BEFORE: SHRI. AAKASH DEEP JAIN, VP & SHRI. VIKRAM SINGH YADAV, AM आयकर अपील सं./ िनधा"रण वष" / Assessment Year : 2012-13 M/s Jain Amar Clothing Pvt. Ltd. The DCIT बनाम 992/1, Pipal Building , Chawal Bazar CC-III, Ludhiana Ludhiana-141008 "थायी लेखा सं./PAN NO: AABCJ8065G अपीलाथ"/Appellant ""यथ"/Respondent िनधा"रती क" ओर से/Assessee by : Shri Sudhir Sehgal, Advocate राज"व क" ओर से/ Revenue by : Shri Rohit Sharma, CIT DR सुनवाई क" तारीख/Date of Hearing : 20/02/2024 उदघोषणा क" तारीख/Date of Pronouncement : 16/05/2024 आदेश/Order PER VIKRAM SINGH YADAV, A.M. :

This is an appeal filed by the Assessee against the order of the Ld. CIT(A)-3, Ludhiana dt. 24/05/2023 pertaining to Assessment Year 2012-13. 2. In the present appeal, the assessee has raised the following grounds of appeal:

“1. That the Ld. C1T(A) has erred in confirming the action of the Assessing Officer in confirming the addition of Rs. 28,26,46,250/- vide order, dated 29.12.2017 of the Assessing Officer as per assessment framed u/s 153A read with section 143(3) of the Income Tax Act, 1961.

5. That the Ld. CIT(A) has wrongly interpreted the word 'incriminating', which is devoid of any valid reasoning as per page 23 & 24 of the order of Ld. CIT(A).

6. Notwithstanding the above said ground of appeal, the Ld. CIT(A) has failed to appreciate that in the earlier years i.e. in Asstt. Year 2010-11 to 2012-13, the two companies namely M/s. Ajnabi Vanijya Pvt. Ltd., M/s Evergreen Goods Pvt. Ltd. had advanced certain amount as unsecured loans to M/s 'Aayush Apparels Pvt. Ltd.', which had, in turn advanced the amount as 'unsecured loans' to the assessee company on interest and the said amount was repaid back in Asstt. Year 2012-13 by M/s Jain Amar Clothing Pvt. Ltd. to Aayush Apparels Pvt. Ltd. and which in turn, had returned back the amount to 'Ajnabi Vanijya Pvt. Ltd.', 'M/s Evergreen Goods Pvt. Ltd.' and the same amount was invested by the above two companies, directly to the assessee company as 'share capital' in Asstt. Year 2012-13 and, as such, the identity, credit worthiness and genuineness of transaction stood proved of the funds contributed by them in 'share capital' and hence, the addition in respect of the same amount, which has already been accepted was uncalled for.

7. That the Ld. CIT(A) has also erred in making the addition of share capital as contributed by M.s Megacity Sales Pvt. Ltd. since the said company had advanced the amount as unsecured loan in Asstt. Year 2011-12 & 2012-13 to the assessee company and the same amount was returned back in Asstt. Year 2012-13 to M/s Megacity Sales Pvt. Ltd. and said amount was invested by the company in the year under consideration as share capital in the assessee company and, thus, the identity, creditworthiness and genuineness of transaction stood proved and, thus, addition as made u/s 68 is uncalled for.

8. That no addition u/s 68 is called for as per the provisions of section 68 as it stood during the year under consideration as the change was brought in section from the Asstt. Year 2013-14 and hence the CIT(A) has erred in making the addition u/s 68. 9. That the Ld. CIT(A)has failed to appreciate that even the proceedings u/s 263 were initiated by the Ld. PCIT in the case of assessee company in respect of the unsecured loans as received from M/s Aayush Apparels Pvt. Ltd. in Asstt. Year 2010-11 and which proceedings were dropped by the PCIT vide order, dated 17.03.2015 and hence once the source of the same amount stood accepted by the department, there was jurisdiction in making the addition. 10. That the Ld. CIT(A) has erred in relying upon the statements of certain persons namely Shri Naval Jain, ex-director of Megacity Sales Pvt. Ltd. and Sh. Shiv Kumar Khemka, ex director of M/s Evergreen Goods Pvt. Ltd. and Sh. Manoj Kumar ex-director of M/s Ajnabi Vanijya Pvt. Ltd., without giving the opportunity of cross examination of such persons, for which, the specific request was made during the course of assessment proceedings and which had not been granted and, thus, the reliance on such statements at the back of assessee without giving cross examination is devoid of any valid reasoning as per the Judgment of Apex Court in the case of Andaman Timber Industries, reported in [2015] 127 DTR 241. 11. That the Ld. CIT(A) has also erred in not taking into consideration the documentary evidences, which have been accepted during the course of assessment proceedings of M/s Aayush Apparels Pvt. Ltd.’ as per assessments completed in that case u/s 153A/143(3) for Asstt. Years 2010-11 to 2016-17. 12. That the Judgments as cited by the Ld. CIT(A) are not comparable with the facts and circumstances of the case of the assessee.

13. That the appellant craves leave to add or amend the grounds of appeal

before the appeal is finally heard or disposed off.”

3. Briefly the facts of the case are that search and seizure operation under section 132(1) of the Act was carried out at the residential and business premises of the assessee company, M/s Jain Amar Clothing Pvt. Ltd. on 26/02/2016. Thereafter, notice under section 153A(1) dt. 28/09/2016 was issued to the assessee company and in response, the assessee company filed its return of income on 04/01/2017 declaring total income of Rs. 8,85,15,010/-. Thereafter, notice under section 143(2) and 142(1) alongwith detailed questionnaire were issued to the assessee. It was stated by the AO that during the course of search proceedings as well as assessment proceedings, it has been noticed that the assessee has received share premium of Rs. 28.26 Cr. on 30/03/2012 from three Kolkata based companies namely M/s Ever Green Goods Pvt. Ltd. from whom an amount of Rs. 11.20 Crores has been received, M/s Megacity Sales Pvt. Ltd. from whom an amount of Rs. 9.30 Crores has been received and M/s Ajnabi Vanijya Pvt. Ltd. from whom an amount of Rs. 7.80 Crores has been received by way of share premium.

3.1 Thereafter, during the course of assessment proceedings, a show cause dt. 08/12/2017 was issued to the assessee company. In the show-cause notice, the AO referred to the statement of the directors of the assessee company, Shri Sunil Kumar Jain and Shri Vaibhav Jain recorded under section 132(4) during the course of search, information gathered by the Income Tax Investigation Wing, Kolkata way back in the month of March 2015 and as part of that, statement of various persons recorded under Section 131, post search physical inquiry conducted during 05/12/2016 to 08/12/2016 at Kolkata and the financial statements of the investor companies as well as the share holder pattern of the investor companies and stated that the amount of capital introduced by these investor companies is basically assessee’s company own unaccounted money which has been routed through these investor companies in the form of bogus share premium and also the fact that the credit worthiness of these investor companies is doubtfull and the assessee company was accordingly show caused as to why an amount of Rs. 28.26 Cr. should not be brought to tax in terms of provisions of Section 68 of the Act.

3.2 In response to the show-cause, the assessee filed its submission and documentation which were considered but not found acceptable to the AO.

3.3 As per the AO, in terms of Section 68 of the Act, the assessee has to prima facie prove the identity of the subscriber, the genuineness of the transaction and the credit worthiness or the financial strength of the investor company. And in the instant case during the course of search proceedings as well as in the assessment proceedings, the issue of share capital has been thoroughly examined and the assessee could not substantiate the genuineness, credit worthiness and identity of the investor companies.

3.4 Further, referring to the determination of share premium, the AO invoking the provision of Income Tax Rules 11UA(2)(a) has held that even the Fair Market Value of the share of the assessee company so determined does not justify the huge premium which has been received by the assessee company and it was accordingly held that the assessee has not offered satisfactory explanation about the nature and source of the share premium amounting to Rs. 28.26 crores and the same was brought to tax under Section 68 of the Act. As against the returned income of Rs. 8,85,15,010/-, the assessed income was determined at Rs. 37,11,61,260/- by bringing to tax the whole of the share premium amounting to Rs. 28,26,46,250/-.

4. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) who has since sustained the addition and against the said findings and the directions of the Ld. CIT(A), the assessee is in appeal before us.

6. Before we advert to the rival contentions raised by both the parties, we deem it appropriate to refer to the grounds of appeal taken by the assessee before the Ld. CIT(A), the submissions so made during the appellate proceedings, the findings of the AO in the remand report and the findings of the Ld. CIT(A) in the impugned order which are under challenge before us.

7. In its appeal before the Ld. CIT(A), the assessee in its ground of appeal no. 2 has challenged the addition made by the AO stating that no incriminating material concerning the addition in respect of share premium was found during the course of search and further no assessment for the impugned assessment year was pending as on the date of search and it is thus a case of completed/unabated assessment.

7.1 In this regard, it was submitted by the assessee during the appellate proceedings that in this case, assessment was originally completed under section 143(3) by the DCIT, Circle-III, Ludhiana on 23/12/2014 and it is therefore a case of completed assessment which was not abated as on the date of search i.e. 26/02/2016. It was further submitted that the completed assessment 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. It was submitted that in the instant case, the AO has not dealt with the said issue nor has he disclosed any documents which was found during the course of search and treated as incriminating documents and even in the assessment order, there is no mention of any incriminating documents found during the course of search and therefore the assumption of jurisdiction by the AO under section 153A deserves to be set aside and reliance was placed on various legal authorities on the subject.

7.2 The submissions so filed by the assessee were shared by the ld CIT(A) with the AO and his report and the comments were called for during the appellate proceedings. In his report, the AO has stated that the grounds of appeal so taken by the assessee cannot be accepted as the fact of the case are different from the case laws relied upon by the assessee including the case of CIT vs. Kabul Chawla 234 Taxman 300 (Del) and M/s Oasis Distilleries Ltd. Vs. DCIT Central Circle-2, Ludhiana (in dt. 11/05/2018) as in the case of the assessee company, the issue of introduction of bogus share capital and premium was unearthed during the investigation by Kolkata DDIT Investigation Unit-2(1) and it was found that Shri Naval Jalan, Ex-Director of M/s Megacity Sales Private Limited was involved in providing accommodation entries of share capital and premium in lieu of commission.

7.3 It was stated by the AO in the remand report that this was a major issue which was investigated during the search and post search inquiry. The statement of the Director, Shri Sunil Kumar Jain was recorded under Section 132 on 26/02/2016 where he admitted having received the share capital and premium but failed to give details of the investor company although his family member had become the directors in the investor company. It was further stated by the AO that Shri Sunil Kumar Jain also failed to produce the books of account during the search to substantiate the genuineness of the share capital and premium received from these companies. Similarly, the other Director, Shri Vaibhav Jain could not explain the genuineness of the investment in his statement recorded under section 132. It was stated by the AO that it is beyond the human reasoning and probabilities that even the common directors who know about all the affairs of the investor company and the recipient company fail to give basic proofs about the genuineness of the transaction they had undertaken even after giving sufficient opportunities and therefore the onus of proof remained un-discharged on the part of the assessee company. It was stated by the AO that the Director denied to provide any concrete facts about these transactions and said denial in the statement recorded on oath under section 132 constitute a direct incriminating statement which has actionable information found during the course of search and it has also become incriminating in nature as it indicate the non genuine nature of the introduction of share capital and premium.

7.4 It was stated by the AO that under the Act, there is no presumption in law that the income be assessed by direct evidence only and the material available on record, surrounding circumstances, human conduct during the search and post search, preponderance of probabilities and nature of incriminating information/ evidence found and available on record needs to be considered. Referring to the decision of Hon’ble Kerala High Court in case of CIT Vs. St. Francies Clay Decar Tiles, 70 Taxmann.com 234 wherein it was held that neither under section 132 or under section 153A, phraseology “incriminating” has been used by Parliament, it was held by the AO that any material found in search or statement recorded in search is a valuable piece of evidence. Further, referring to the decision of Hon’ble Delhi High Court in case of Kabul Chawla(supra), the AO stated that the department has not accepted the said decision though the SLP filed against the said decision has been withdrawn on account of low tax effect. Further, referring to the decision of Hon’ble Supreme Court in case of PCIT vs. Meeta Gutgutia [2018] 257 taxmann 441 (SC) dt. 02/07/2018, it was stated by the AO that merely dismissal of SLP at the admission stage does not lay down the law as emphasized under Article 141 of the Constitution. It was further stated by the AO that there is no decision of Hon’ble Punjab & Haryana High Court which has held that no addition could be made in absence of any incriminating material or information not found during the course of search.

7.5 The assessee company, in its rejoinder to the remand report, submitted that the search took place on 26.02.2016 and the share capital and premium was received during the financial year relevant to AY 2012-13 i.e. four years before to date of search and said share capital and premium stood already disclosed in the audited balance sheet and forms part & parcel of the return of income filed for AY 2012-13. It was submitted that when such investment had already been disclosed and is the part of the record with the Assessing Officer and recorded in the books of accounts and, thus, it cannot be said to be any incriminating evidence. Further, the fact that Sh. Sunil Kumar Jain, Director could not give the details of the investor companies during search conducted on 26.02.2016, cannot lead to the fact that such investment of the share capital by the companies is bogus. It was submitted that the Ld. AO has forgotten perhaps that a human being cannot remember the transaction which happened four years before and this fact already stood communicated to the Ld. AO in the returns of income filed for AY 2010-11, 2011-12 & 2012-13 and thus, this observation of the Ld. AO was without any basis.

7.6 It was further submitted that no incriminating material had been found during the course of search and the disclosed income/investment cannot be treated as incriminating and it is a settled law that no addition could be made in the assessment framed u/s 153A without their being any incriminating material found during the course of search operation. There is no evidence or document which is found or noticed to suggest any receipt outside the books of accounts. The said investment is part of the audited books of accounts and all such investment had already been explained through the normal banking transactions during the course of original assessment proceedings and, as such, the contention of the Assessing Officer about the human probabilities are not the correct observation. Further, merely the fact that the Directors could not in their statement at the time of search explain the sources of the parties, which entries are already part of the books of accounts, the same cannot be said to be incriminating evidence. 7.7 It was further submitted that the all the three parties had advanced unsecured loan to M/s. Aayush Apparels Pvt. Ltd. and the said concern had advanced the money to the assessee company in the Assessment Year 2010-11, 2011-12 & 2012-13. The said amount was returned back to M/s. Aayush Apparels Pvt. Ltd. and the latter, in turn returned back the amount to the respective three parties and then during the assessment year under consideration, the same amount came back in the shape of investment in the share capital/premium in the assessee company and, thus, since the same amount of capital was invested by the three parties and, as such, there is no fresh introduction of capital, the whole basis of doubt & suspicion is out of context. It was submitted that for AY 2010- 11, unsecured loan provided by M/s. Aayush Apparels Pvt. Ltd. was subject matter of notice u/s 263 issued by the Ld. PCIT for the AY 2010-11 which were subsequently dropped. Thus, in such circumstances, the assumption that there is an incriminating material detected as a result of search on the assessee company is entirely misconceived, misplaced and wholly untenable. 7.8 It was further submitted that there are number of judgments wherein it has been held that the statement recorded during the course of search or during the course of assessment proceedings itself per se is not the evidence found during the course of search as the same cannot be treated as incriminating in absence of any corroborative evidence.

7.9 The submissions so filed by the assessee company were considered but not found acceptable to the Ld. CIT(A). As per the Ld. CIT(A), a perusal of assessment order and remand report of the AO clearly brings on record that introduction of bogus share capital & premium was unearthed consequent to the search action and the above fact was supported by the report sent by the DDIT Investigation Unit-2(1), Kolkata. In the report of the Investigation Wing Kolkata, it was revealed that M/s. Evergreen Goods Pvt. Ltd., M/s. Mega City Sales Pvt. Ltd. and M/s. Ajnabi Vanijya Pvt. Ltd. had provided accommodation entries of share capital/premium to the assessee company. It was further revealed that Sh. Naval Jain, ex-Director of M/s. Mega City Sales Pvt. Ltd. was involved in providing accommodation entries. It was further seen that family members of the Director of the assessee company Sh. Sunil Kumar Jain had become directors/shareholders in the investor companies as well.

7.10 The ld CIT(A) further referred to the meaning of incriminating material as per an Article published in tax journal, Taxman reported at [2020] 122 taxmann.com 203 and held that it is very clear that the entries of Share premium in the books of accounts of the assessee concern have been used to understate the income and were only a device based on misrepresented facts, hence they fall very well within the definition of 'incriminating material'. 7.11 The ld CIT(A) further referred to the decision of the Hon'ble Supreme Court in the case of PCIT-3 vs. Abhisar Buildweil Pvt. Ltd. (in Civil Appeal No. 6580 of 2021 dated 24.04.2023) wherein in para 14(iii), it has held as under on the issue of incriminating material :- "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"

7.12 The ld CIT(A) held that from reading of the above judgment of the Hon’ble Supreme Court, it is clear that in case, any incriminating material is found during the course of search, the AO can assess the total income of the assessee on the basis of incriminating material as well as any other material in knowledge or possession of the AO including the total income declared in the returns. Hence, the contention of the assessee that no incriminating material was found is without basis and is liable to be dismissed.

8. We therefore find that the matter relating to unabated assessment and framing of assessment in absence of incriminating material found during the course of search were agitated by the assessee by way of specific ground of appeal and various contentions were raised before the ld CIT(A) which has however not found favour with the ld CIT(A). Against the said findings and the direction of the Ld. CIT(A), the assessee is in appeal before us.

9. During the course of hearing, the Ld. AR submitted that Ld. CIT(A) has failed to appreciate that it is a case of unabated assessment where the assessment u/s 143(3) has already been completed prior to the date of search, and during the course of search at the premises of the assessee, no incriminating material/evidence has been found in respect of receipt of share premium which have been duly reflected in the financial statements and thus duly disclosed as part of the original return of income.

9.1 It was submitted that the complete details as filed by the assessee during the original assessment proceedings and thus duly disclosed are as follows: i) The copy of complete Balance Sheet set was duly filed with the AO during the original assessment proceedings wherein addition to share capital and share premium is duly reflected. (PB-II Pg-467,469, 470) ii) Copy of reply dated 22.12.2014 to the queries as raised during the original assessment proceedings, reproduced in the submissions as filed with the CIT(A) which is enclosed in the PB Pg-311-447, wherein on relevant Page-334, reply has been given specifically on the issue of share premium. Even on Pg-338, it has been duly stated that, there is no section under the Income Tax Act, 1961, wherein share premium can be taxed for the year under consideration. iii) Further it is also a matter of fact that, office note has been given by the AO in the Assessment record that entire assessment proceedings were monitored by the CIT-1, Ludhiana from time to time. (Relevant Page-339 of PB). iv) Similarly reply dated 27.10.2014 as filed with the AO during the original assessment proceedings, wherein specific information was asked by the AO in point no 12 and 13 regarding the Mega City Sales pvt Ltd and all other Unsecured Loans received during the year under consideration. (Relevant page-345 of PB) v) Also a reply enclosed in the PB at page-355, wherein complete details were filed with name, address, PAN and bank statements of the persons from whom share capital and share premium was received during the year under consideration. Further comparative share holding for 31.03.2011 and 31.03.2012 was also filed. (Relevant page-355 of PB) vi) The Assessment order dated 23.12.2014 was passed only after due application of mind by the AO. (Pg-16-20 of PB).

9.2 It was further submitted that the decision of Hon’ble Supreme Court in case of PCIT-III Vs. Abhisar Buildwell Pvt. Ltd. (Supra) has not been appreciated and considered properly by the Ld. CIT(A) and therefore in absence of any incriminating evidence found during the course of search on the assessee, there is no basis for addition of Rs. 28,26,46,250/- so confirmed by the ld CIT(A).

9.3 It was further submitted that the Ld. CIT(A) has confirmed the order of the AO by relying upon the statement u/s 131 of Shri Naval Jain, ex-director of M/s Mega City Sales Pvt Ltd Shri Manoj kumar, ex-director of M/s Ajnabi Vanijya Pvt Ltd and Shri Shiv Kumar Khemka, ex-director of M/s Evergreen Good Pvt Ltd which was recorded by the Investigation Wing, Kolkata on 23/03/2015, 30/01/2014 and 7/07/2014 respectively and not during the course of search of the assessee and thus the same could not be said to be the incriminating evidence as found during the course of search in case of the assessee.

9.4 It was further submitted that the findings of the Ld. CIT(A) about the meaning of the “incriminating material” by relying upon certain article reported in a tax journal is without any basis and substance as it has been held in various judgments of Hon’ble High Courts / Tribunal that the mere statement cannot be held to be incriminating material found during the search and further the assessee had never conceded during the course of search that such receipt of share premium was bogus. It was further submitted that all these statements have nothing to do with the search proceedings of the assessee as these were recorded during their respective investigation proceedings way back in the year 2015 and these statements were anyway recorded at the back of the assessee and no opportunity to cross examine was ever given to the assessee inspite of specific request being made in this regard.

9.5 It was further submitted that the statement recorded during the course of search has no evidentiary value and cannot be said to be incriminating evidence by itself as found during the course of search as held in various decisions and in this regard, reliance was placed on the decisions of Hon’ble Delhi High Court in case of Pr. CIT Vs. Best Infrastructure India Pvt. Ltd. 397 ITR 82 (Del), CIT Vs. Harjeev Aggarwal 290 CTR 263 (Del), Jaipur Benches of the Tribunal in case of DCIT Vs. A M Exports 69 ITR (Trib)16 (Jaipur Trib), and Delhi Benches in case of Brahmaputra Finlease P. Ltd. Vs. DCIT 51 CCH 796(Del Trib) and Rathi Steel Ltd. Vs. ACIT 56 CCH 102 (Del Trib).

9.6 Regarding the findings of the Ld. CIT(A), point wise rebuttal was submitted as under:

Findings of the CIT(A) Our contentions The CIT(A) in para 5.1 Pg-24 has stated that i)No incriminating material was found in the introduction of bogus share capital and share case of the Assessee at the time of search premium was unearthed consequent to proceedings. search action and the above fact was supported by the report sent by the DDIT ii) The complete details as filed by the Investigation, Kolkata Assessee during the original assessment proceedings (reference to point no 10. Above) iii) The Assessing officer in his order at page-2 has specifically mentioned that, during the course of search proceedings and assessment proceedings it was noticed that assessee has received share premium of Rs. 28.26cr on 30.03.2012. But, it is also a matter of fact that the AO has not referred to any material which is found during the course of search relating to share premium. So, it was only during the course of assessment proceedings, that the queries were raised regarding the share premium. So, in any case, the same cannot be termed as incriminating in nature. iv) The share capital and share premium as received by the Assessee Company is duly supported by documents. v) The share capital and share premium cannot be termed as bogus as the Assessee has filed all the documents relating to the same both with the Assessing Officer as well as CIT(A).

The CIT(A) further has referred to an Article of i) The CIT(A) as himself stated that the Taxman for deriving the meaning of meaning of "Incriminating Material" is not "Incriminating Material" and then tried to found in the Act. prove that that the share capital and share ii) But, in the case of the Assessee, there is no premium as received by the Assessee for the document found from the premises of the year under consideration are bogus and thus Assessee which can be termed as are incriminating in nature. incriminating in nature. Besides that we also duly rely upon various Judgments of the Hon'ble Courts as quoted above.

The CIT(A) referred to the Judgment of the i) The Judgment of the Apex Court as Apex Court in the case of PCIT vs Abhisar referred to by the CIT(A) rather supports the Buildwell (Supra) and has concluded that if case of the Assessee. incriminating material is found during the ii) As per our above arguments, it is proved search the AO can assess the total income of that there is no incriminating material found the Assessee. during the course of search and thus the AO cannot proceed and cannot re-assess the income for the year under consideration. iii) The Judgment of the Apex Court is even been followed by the department and CBDT has issued instructions vide F.No.279/Misc./M-54/2023-ITJ dated 23.08.2023 that the Judgment must be implemented.

9.7 It was submitted that the decision of the Hon’ble Supreme Court in case of PCIT Vs. Abhisar Buildwell (supra) infact supports the case of the assessee that where there is no incriminating material found during the course of search, the AO cannot proceed and reassess the income for the year in which the assessment also stood completed and not abated as on the date of search.

9.8 It was further submitted that the decision of Hon’ble Supreme Court has since been followed by the Department and CBDT has also issued instruction dt. 23/08/2023 wherein it has been directed that the said judgment must be followed and implemented. Further reliance was placed on the decisions Pr. CIT Vs. S.S. Con build Pvt. Ltd. 455 ITR 506 (SC), Pr. CIT Vs. King Buildcon Pvt. Ltd. in Civil Appeal No. 4326/2023 dt. 10/07/2023 (SC), DCIT Vs. U K Paints Overseas Ltd. reported in [2023]150 taxmann.com 108 (SC) wherein the legal proposition so laid down in Abhisar Buildwell has been subsequently followed and reiterated by the Hon’ble Supreme Court. Further, our particular reference was drawn to decisions in case of Pr. CIT Vs. Shardaben Arvindbhai Patel [2023] 152 Taxmann.com 535 (Guj HC), Pr. CIT Vs. Ms. Kavita Agarwal [2022] 143 Taxmann.com 404 (Del HC) and Ashok Commercial Enterprises vs ACIT [2023] 459 ITR 100 (Bom) wherein the said principle has been followed by the Hon’ble Gujarat, Delhi and Bombay High Court. Further, our reference was drawn to the recent decision of this Bench in case of Ashish Jain vs DCIT (ITA No. 352/Chd/2023 and others dated 23/01/2024) wherein similar findings have been recorded.

10. In his submissions, the ld CIT/DR submitted that the issue of bogus share capital and share premium was initially unearthed during the investigation by Kolkata DDIT Investigation Unit-2(1) wherein it was found that these companies were involved in providing accommodation entries of share capital and premium. It was submitted that this was a major issue which was investigated during the search and post search inquiry in case of the assessee. It was submitted that the statement of the Director, Shri Sunil Kumar Jain was recorded under Section 132(4) on 26/02/2016 where he admitted having received the share capital and premium but failed to give details of the investor companies although his family members had become the directors in the investor companies. It was submitted that Shri Sunil Kumar Jain also failed to produce the books of account during the search to substantiate the genuineness of the share capital and premium received from these companies. Similarly, the other Director, Shri Vaibhav Jain could not explain the genuineness of the investment in his statement recorded under section 132(4). It was submitted that the Directors denial to provide any concrete facts about these transactions and said denial in the statement recorded on oath under section 132 constitute a direct incriminating statement which has actionable information found during the course of search and it has also become incriminating in nature as it indicate the non-genuine nature of the introduction of share capital and premium. It was submitted that a perusal of assessment order and remand report of the AO clearly brings on record that introduction of Bogus Share Capital & Premium in the assessee company consequent to the search action and the above fact was supported by the report sent by the DDIT Investigation Unit-2(1), Kolkata along with statements recorded of the ex-directors of the investor companies u/s 131 of the Act.

10.1 It was submitted that there is no dispute that the Hon’ble Supreme Court in case of Pr. CIT Vs. Abhisar Buildwell (P) Ltd. has held that where no incriminating material has been found during the course of search, no addition can be made in the hands of the assessee in case of unabated assessment as on the date of search. It was submitted that in the instant case even though it is a case of unabated assessment as on the date of search, the fact remains that statement of the directors of the assessee company have been recorded and where the same is read along with the report of the Investigation Wing and statements recorded u/s 131, the same are clearly incriminating in nature. Further he relied on the findings of the AO as well as the Ld. CIT(A). It was accordingly submitted that there is no basis in the contentions so advanced by the Ld. AR that no incriminating material has been found and seized during the course of search in the case of the assessee and the addition so made by the AO therefore has rightly been sustained by the ld CIT(A) and the same should be confirmed.

“12. We have heard the rival contentions and perused the material available on the record. In case of Pr. CIT Vs. Abhisar Buildwell (P) Ltd. (supra), the question for consideration before the Hon’ble Supreme Court was whether in respect of completed / unabated assessment, any addition can be made by the AO in absence of any incriminating material found during the course of search under section 132 or requisition under section 132A or not. The relevant discussions and the legal preposition so laid down by the Hon’ble Supreme Court are contained in para 5 to 14 of its judgment which read as under: “5. We have heard learned counsel for the respective parties at length. The question which is posed for consideration in the present set of appeals is, as to whether in respect of completed assessments/unabated assessments, whether the jurisdiction of AO to make assessment is confined to incriminating material found during the course of search under section 132 or requisition under section 132A or not, i.e., whether any addition can be made by the AO in absence of any incriminating material found during the course of search under section 132 or requisition under section 132 A of the Act, 1961 or not.

i. Once a search takes place under section 132 of the Act, notice under section 153A(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." 7.2 Thereafter in the case of Saumya Construction (supra), the Gujarat High Court, while referring the decision of the Delhi High Court in the case of Kabul Chawla (supra) and after considering the entire scheme of block assessment under section 153A of the Act, 1961, had held that in case of completed assessment/unabated assessment, in absence of any incriminating material, no additional can be made by the AO and the AO has no jurisdiction to re-open the completed assessment. In paragraphs 15 & 16, it is held as under: "15.On a plain reading of section 153A of the Act, it is evident that the trigger point for exercise of powers thereunder is a search under section 132 or a requisition under section 132A of the Act. Once a search or requisition is made, a mandate is cast upon the Assessing Officer to issue notice under section 153A 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. Since the assessment under section 153A of the Act is linked with search and requisition under sections 132 and 132A of the Act, it is evident that the object of the section is to bring to tax the undisclosed income which is found during the course of or pursuant to the search or requisition. However, instead of the earlier regime of block assessment whereby; it was only the undisclosed income of the block period that was assessed, section 153A of the Act seeks to assess the total income for the assessment year, which is clear from the first proviso thereto which provides that the Assessing Officer shall assess or reassess the total income in respect of each assessment year, falling within such six assessment years. The second proviso makes the intention of the Legislature clear as the same provides that assessment or reassessment, if any, relating to the six assessment years referred to in the sub-section pending on the date of initiation of search under section 132 or requisition under section 132A, as the case may be, shall abate. Sub- section (2) of section 153A of the Act provides that if any proceeding or any order of assessment or reassessment made under sub-section (1) is annulled in appeal or any other legal provision, then the assessment or reassessment relating to any assessment year which had abated under the second proviso would stand revived. The proviso thereto says, that such revival shall cease to have effect if such order of annulment is set aside. Thus, any proceeding 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 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."

11. 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 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 fulfillment 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.

12. 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.

13. 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.

14. 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 of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under section 132 or requisition under section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved. The question involved in the present set of appeals and review petition is answered accordingly in terms of the above and the appeals and review petition preferred by the Revenue are hereby dismissed. No costs.”

13. The Hon’ble Supreme Court in the aforesaid decision has held that the assessment under Section 153A of the Act is linked with the search and requisition under Sections 132 and 132A of the Act and thus, 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 unearthed during the course of search, the AO would assume the jurisdiction to assess or reassess the total income in case of completed/unabated assessment taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the return. In case, no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments and has upheld the decisions of Hon’ble Delhi High Court in case of CIT Vs. Kabul Chawla [2016] 380 ITR 573 and Hon’ble Gujarat High Court in case of Pr. CIT Vs. Saumya Construction (P.) Ltd. [2016] 387 ITR 529.

(a) In so far as pending assessments are concerned, the jurisdiction to make original assessment and assessment u/s 153A merge into one and only one assessment for each assessment year shall be made separately on the basis of the findings of the search and any other material existing or brought on the record of the AO, (b) in respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search.

14. Regarding the findings of the ld CIT(A) that the introduction of bogus share capital and share premium unearthed during the course of search was supported by the report of the Investigation Wing, Kolkata and the entries in the books of accounts of the assessee company have been used to understate the income and only a device based on misrepresented facts and thus fall within the definition of incriminating material. In other words, the support of the report of the Investigation wing has been sought to build the case for the Revenue that incriminating material has been found during the course of search. We are unable to subscribe to the said view taken by the ld CIT(A). As we have noted earlier, there is no iota of material on record which has been unearthed during the course of search at the assessee’s premises as far as transaction of receipt of the share premium is concerned. No doubt, the Directors of the assessee company have been asked about these share transactions during the course of search but merely the fact that the question have been asked and responded to by the directors and their statements have been recorded u/s 132(4) cannot be equated with the fact that some material and that too, incriminating material has been found during the course of search. As we have noted earlier, there is nothing in the statements which can be held to be incriminating and in any case, there is no corroborative material which has been unearthed during the course of search to support the theory of any incriminating material found during the course of search. Therefore, the finding of the ld CIT(A) that the introduction of bogus share capital and share premium has been unearthed during the course of search is not borne out of records and consequentially, the support of the report of the Investigation Wing cannot be drawn to augment and to support the claim that the incriminating material has been found and the Revenue cannot refer to any other document or material to establish such a claim.