SHRI MANMOHAN SINGH ,JALANDHAR vs. DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-1, JALANDHAR

ORDER Per:Anikesh Banerjee, JM: The instant appeal of the assessee was filed against the order of the ld. Commissioner of Income Tax (Appeals)-5, Ludhiana,[in brevity the ‘CIT (A)’],order passed u/s 250 (6) of the Income Tax Act 1961, [in brevity ‘the Act’] for A.Y. 2018-19. The impugned order was emanated from the order of the ld. Dy.

2 Assessment Year: 2018-19 Commissioner of Income Tax, Central Circle-1, Jalandhar, [in brevity ‘the AO’] order passed u/s 153A of the Act.

1. That the order passed by the Hon’ble CIT(A) dated 02.06.2023 is against the law and facts of the case.

2. That having regard to the facts and circumstances of the case, Hon’ble CIT(A) has erred in law and on facts in confirming the action of Ld. AO in framing the impugned assessment order u/s 153A of the Act and without complying with the mandatory conditions u/s 153/153A/153D as envisaged under the Income Tax Act, 1961.

3. That in any case and without prejudice to the above grounds , additions made in the impugned order are beyond jurisdiction and illegal also for the reason that these could not have been made since no incriminating material has been found as a result of search warranting impugned addition.

4. That having regard to the facts and circumstances of the case, Hon’ble CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making an addition of Rs. 52,89,797/- u/s 2(22)(e) of the Act, without considering the facts of the case and without observing the principles of natural justice.

3 Assessment Year: 2018-19 5. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”

3. Brief fact of the case is that the search was conducted u/s 132 at the assessee’s premises. The incriminating material was seized by the revenue. The revenue found that the assessee has financial transaction with M/s Saffron Home Developers Private Ltd (in short SHDPL). During the assessment year the assessee is a shareholder of more than 38% of the company. The ld. AO added back amount of Rs.52,89,797/- for contravening section 2(22)(e) of the Act and the amount was added in the hands of the assessee. Aggrieved assessee filed an appeal before the ld. CIT(A) by challenging both the legal ground and on merits. The ld. CIT(A) upheld the order of the ld. AO. Being aggrieved, the assessee filed an appeal before us.

4 Assessment Year: 2018-19 4.1 He further produced that the transaction with the assessee the SHDPL is a business transaction during this impugned assessment year. So, entire transaction is related to business exigency. The ld. AR relied on the order of the ITAT, Amritsar Bench in the case of M/s G.G. Continental Trades Pvt. Ltd. vs DCIT-1, Bhatinda, date of pronouncement 11/07/2023 “13.3. A receipt which cannot be liable for tax, unless there are specific provisions to tax the same. Certain transaction is covered by deeming provision & have been brought in the statute under deeming provision. Same section 2(22)(e), deeming provision has been brought in the statute to cover up transaction. The benefit is not individual but solely on business exigency. The deeming provision is always under the control of express provision. It is pertinent to observe that the benefit of expressed provision is covered in deeming provision or not. Considering the factual matrix, the assessee did not get any direct benefit of the payment made by GAPL and the amount was returned back to party. We respectfully relied on the order of jurisdictional High Court in the case of Suraj Dev Dada (supra). Only it is the benefit of business exigency. Accordingly, in our humble understanding, the principles laid down by the ITAT-Amritsar Bench in the assessee’s own case, ITA

5 Assessment Year: 2018-19 No. 508/Asr/2017 (supra) is not applicable in the given facts and circumstances. In our considered view we set aside the order of the ld. CIT(A) and the grounds of the appeal of the assessee are allowed.”

In short, any fact/evidence which could suggest that the documents/transactions claimed or submitted in any earlier proceedings were not 7 Assessment Year: 2018-19 genuine, being only a device/make belief based on non-existent facts or suppressed/misrepresented facts, fulfilling the ingredients of undisclosed income, would constitute an 'incriminating material' sufficient to make assessment for the purposes of the Act. A mere statement U/s 132(4) is an evidence for making an assessment as held by Apex Court in B. Kishore Kumar v. Dy. CIT120151 62 taxmann.com 215/234 Taxman 771 and even a statement U/s 132(4) shall also constitute incriminating material to dislodge any earlier finding for the purpose of making an assessment U/s 153A. The aforesaid list is subjective and shall change, in the nature of each case."

From above discussion, it is very clear that the entries of loan in the books of assessee received from Saffron Home Developers Pvt. Ltd. which were recorded on the seized copy of account are in the nature of incriminating material which has been used to understate the income and was only a device based on misrepresented facts, hence the said copy of account falls very well within the definition of 'incriminating material'. The Hon'ble Supreme Court of India in the case of PCIT-3 vs. Abhisar Buildwell Pvt. Ltd. in Civil Appeal No. 6580 of 2021 vide order dated 24.04.2023 inpara 14(iii) 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 8 Assessment Year: 2018-19 incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns” From the above judgment, it is clear that in case 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 contentions of the appellant that no incriminating material was found on the basis of which the said assessment has been framed is without basis and is liable to be dismissed. Hence, these grounds of appeal are dismissed.”

6. We heard the rival submission and relied on the documents available in the record. The ld. AR agitated the two issues, one the legal and another the factual, considering the legal issue the assessee’s documents were found during the search by the revenue authorities. The transaction with the company was duly seized by the revenue. The ld. CIT(A) had well described the incriminating material in the appeal order and also relied on the order of the Hon’ble Apex Court in the case of PCIT-3 vs. Abhisar Buildwell Pvt. Ltd. (supra). Here, we are not intervening in the order of the ld. CIT(A). Accordingly, the order of the ld. CIT(A) in this issue is upheld.

7. In the result, the ground nos. 1, 2 and 3 of the assessee are dismissed.

9 Assessment Year: 2018-19 8. Related to factual ground the ITAT Amritsar Bench has adjudicated the issue in the case of M/s G.G. Continental Trades Pvt. Ltd.(supra).

Adverse remarks against assessee bv the ld. AO Counter comments of the assessee

A perusal of the said account statement clearly The ledger account between assessee and Saffron Home shows that there is movement of funds between Developers Pvt. Ltd. shows that the said account is a running the assessee and the private limited company. account and no benefit ever accrued to the assessee. Assessee From the said copy of account, no business had been working for the company and introduced funds as transactions in the nature of purchase/sales and when required by the company and this is evident from etc. are visible. In such scenario, the AR has the ledgers uploaded herewith. Sir no actual income ever not been able to establish as to how the said accrued to the assessee. Sir it is evident from the ledgers that transaction should be treated as commercial there had always been credit balance and assessee never transaction and not in the nature of loan or charged any interest from the company. advance. Sir, it is submitted that a current account is different from a loan account in the sense that it has the feature of mutuality in a loan account. It is further submitted that the transaction between the assessee and Saffron home developers are in the nature of current account transactions, therefore, case of assessee would not fall within the provision to Section 2(22)(e) of the I.T. Act, 1961.

10 Assessment Year: 2018-19 9.1 In our considered view, the transaction of the company with the assessee is not contravening section 2(22)(e) of the Act. We fully relied on the order of coordinate bench in the case of M/s G.G. Continental Trades Pvt. Ltd. (supra). So, the addition amount of Rs.52,89,797/- is quashed. 9.2 In the result, ground no. 4 of the appeal of the assessee is allowed.

Order pronounced in the open court on 26.07.2023