TMI Blog2022 (9) TMI 1364X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial found during the search is settled based on that technical ground deleted the addition. The requirement that the incriminating material to have the co-relation to the particular addition sought to be made is a logic that will hold good as it is held in number of cases decided by this coordinate bench and the jurisdictional High Court. Consequently, in our considered view we do not find any error having been committed by the ld. CIT(A) in accepting the plea of the Assessee that there is no incriminating document which was seized in the course of search relating to the addition sought to be made on account of the CCM reflected in the return of income filed by the assessee. Therefore, the jurisdictional requirement of Section 153 A of the Act was not satisfied. Even on merits assessee submitted various decisions that without any finding merely on the third party information no addition can be made. We find, identical issue come up in the case of PCIT Central -3 Vs. Jaypee Financial Services Ltd. [ 2021 (2) TMI 1186 - DELHI HIGH COURT] - we are of the considered opinion that there is no perversity in the order of the CIT(A) deleting the addition. Accordingly, the same is up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iminating other document found recording the payment of the additional interest paid by the assessee and thus the addition made on account unexplained expenditure is required to be deleted. Appeal of assessee allowed. - ITA No. 25/JPR/2020, C.O. No. 17/JPR/2020 (Arising out of ITA No. 25/JP/2020) - - - Dated:- 26-9-2022 - Dr. S. Seethalakshmi, JM And Shri Rathod Kamlesh Jayantbhai, AM For the Assessee : Sh. Manish Agarwal, CA For the Revenue : Sh. P. R. Meena, PCIT ORDER PER BENCH: This appeal is filed by the revenue aggrieved from the order of the Commissioner of Income Tax (Appeal)- 4, Jaipur [ Here in after referred as Ld. CIT(A) ] passed on 16.10.2019 for the assessment years 2010-11 which in turn arises from the order passed by the DCIT, Central Cricle - 04, Jaipur passed under Section 143(3) r.w.s 153A of the Income tax Act, 1961 (in short 'the Act') dated 27.12.2017. The assessee has also preferred a cross objection against the revenue s appeal his cross objection is numbered as CO No. 17/JP/2020. 2. In ITA No. 25/JP/2020 for A.Y 2010-11, the revenue has taken following grounds of appeal, which is reproduced here in below ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred actions, cash jewellery, valuables, stock in trade, documents, books of account and / or loose papers found and or seized from the premises of the Maverick Group Jaipur of which one such member happens to be the assessee. In this case original return of income was filed on 12.10.2010 declaring total income at Rs. 9,45,990/-. On account of search jurisdiction over the cases was assigned to Central Circle -4, Jaipur vide order u/s. 127 of the Act. In compliance to the notice u/s. 153A of the Act, return of income e-filed on 25.11.2015 declaring total income at Rs. 9,45,990/-. After filling return u/s. 153A, the notices u/s. 143(2) along with the questionnaire were issued. The ld. AO called for the details and the assessee filed the details before the ld. AO. The assessee engaged in the business of stocks and share broking and derivatives, custodial services, depository services, registrars to the issue of securities, share transfer agents and earned income from business or profession and other sources during the year under consideration. 5. In the assessment order the ld. AO observed in the year under consideration the issue involved is misuse of client code modification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue. The ld. AO observed that during the course of search operation in the Marvick Group, Jaipur a PEN Drive was found and seized from the possession of Shri Kailash Chand Khandelwal, who is one of the employees of the Marvick Group. The pen drive so seized contained some files in excel software. The excel sheets contents adjustment entries in the last column with remark 2.4 %. The adjustment entries pertaining to the assessee, work out for Rs. 8,10,898/- for the year under consideration. In reference to this issue the assessee has show caused vide letter dated 30.11.2017 for the said adjustment entries of Rs. 8,10,898/- should not be added to total income treating it as interest paid from undisclosed sources of income for the year under consideration. The ld. AO did not find favour with the reply of the assessee dated 05.12.2017 and has added a sum of Rs. 8,10,898/- treating it as interest paid from undisclosed source of income for the year under consideration. Aggrieved from the said two addition made by the ld. AO the assessee has referred an appeal before the ld. CIT(A). 7. The ld. CIT(A) based on the submission made by the assessee deleted the addition of Rs. 1,94,83,13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igitized. The presumption u/s 132(4) of the Act has to be applied reasonably in the changing economic environment of data storage. 12.2 Such a pen drive was seized during the course of search on the same day from the premises of key employee who was entrusted in feeding and storage of data. Also this drive has visible and hidden files. This data sheet is a part of hidden file, entries of which are clearly in the name of appellant. The legal ground has no merit, in my view, is dismissed. 13. On merits, I am not in agreement with the Ld. A/R that the content of pen drive found from the premises of one of the employee, Shri Kailash Chand Khandelwal does not relates to the appellant in particular or the person of this group for the following reasons: That the name of the appellant specifically figure in column 2 of spread sheet, the scanned print of the sheet pertinent to the appellant can be seen on page 15 of the Ld. AO order. 1. That the transaction specifically mentions the name of appellant. 2. That the factum of interest payment after deduction of TDS is evident even acknowledged by the learned A/R in the written submissions. 13.2 Considering the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with submission merits, it is submitted that assessment of the captioned assessment year was completed u/s 153A as a result of search and therefore scope of additions to be made in assessment is restricted to incriminating documents only which are found/seized during the course of search. A detailed submission in this regard was made before the ld. CIT(A) (APB 239-243) and who after appreciating the facts has accepted the contention of the assessee and held that no addition could be made as no incriminating material was found with respect to the CCM by alleging the same as manipulated. The relevant observations of the ld. CIT(A) in para 9 at page 18 of the order are reproduced for sake of convenience: 9. Since the issue of routine additions NOT based on incriminating material found during the course of search is settled by the decision of Hon ble Supreme Court, I find no hesitation to conclude that the addition Rs. 1,94,83,135/- on account of Client Code Modification cannot be sustained. I may point out that the opening para 9.1 of the Ld. AO order reads as under .... Complaint were received... noticeably the entire discussion in the Ld. AO order on CCM disallowance nothing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... situations there occur certain genuine mistakes/errors which are attributable to the urgency of executing the order of the client at the instructed price and human involvement in as much as several times there remains communication gap between the person who notes/receives the order on phone from the client (actual buyer/seller) and the person who actually punches/executes the order on the e-portal on behalf of such client. The facility of Client Code Modification is used in such circumstances to rectify the order originally punched. In this regard it was submitted before ld.CIT(A) that, the information received by ld. AO was related to some brokers and not of the assessee. Further, admittedly there is no nexus between the Assessee and the some brokers against whom the fact of fictitious entries on the basis of misuse of Client Code Modification has been highlighted on the basis of verification undertaken under Section 131(1A) of the Act. It was further submitted that the rectifications made through client code modification facility in the name of the Assessee have been duly owned by the Assessee and the same are also being reflected in the accounts as well as the ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal right to cross-examine the persons concerned. The Assessee had requested for an opportunity of cross examination vide letter dated 16.11.2017. In the last to sum up, it is submitted that the assessee has no knowledge about any client code modification in any of the transactions appearing in the transaction ledger with the broker and the transaction if any, had taken place with client code modification, it is not in the knowledge of the assessee and was done at the office of the broker. It is also a matter of fact that assessee has no control over the affairs of the broker and thus could not be made answerable for any mistake / corrections done in any of the transaction of the assessee. It is submitted that all the transactions entered by assessee in F O segment of NSE are owned by the assessee which were actually made on the direction and request of the assessee during the business hours and were transacted and executed by the broker on real time online system provided to it by the exchange i.e. NSE. It was requested by assessee before ld.AO also that if any transaction involving CCM has allegedly benefitted the assessee, details of the same be provided so that the ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and very negligible if compared with the total trade done by the broker. Since the alleged modified trade is quite less than 1% of the total trade and as stated in earlier paras, same has occurred due to human error. Reliance was placed on decision of Hon ble Mumbai bench of ITAT in the case of Pat Commodity Services P. Ltd. vs ACIT, ITA No 1257 of 2016 (Case law Vol II pages 216-217), wherein the appeal of assessee has been allowed by Hon ble ITAT by upholding the order of CIT(A), who had allowed the appeal of assessee on following grounds: (i) No material was brought on record by AO to show that client code modification made by the assessee was not genuine one. (ii) None of the clients examined by the tax authorities had disowned the transactions carried on by the assessee. (iii) Under the penalty mechanism, no penalty shall be leviable is the modification was less than 1% of total transactions, meaning thereby, the MCX is also accepting the fact that such kind of client code modification is inevitable. (iv) None of the clients was shown as related to the assessee. (v) If the assessee had really shifted the profits to an outsider, then the human pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h findings of facts were not controverted by Revenue at any point of time. Hon ble Jaipur ITAT in the case of M/s Noble Securities vs. ITO in ITA No.911/JP/2016 in decision dated 23.03.2017 has deleted the addition on account of CCM by following decision of Hon ble Ahmedabad ITAT in the case of M/s KunwarJi Finance (cited supra) by observing as under: Had the modification been done after the transaction period when the price of the commodity had changed, then perhaps there could have been some basis to presume that client code modification was intentional. It is submitted that similar addition was made for A.Y. 2009-10 also, where ld. CIT(A),after considering detailed submission and judicial pronouncement relied upon by assessee, allowed the appeal of assessee. On the basis of such order passed by ld. CIT(A), relief was allowed in impugned Assessment year also. Assessee further places reliance on following decisions including the judgments of hon ble Jaipur bench: - Sandeep Sharma vs ACIT, ITA No. 1275/JP/19 orders dt. 24.08.2020 (ITAT, Jaipur) - ITO vs Sh. Gyandeep Khemka ITA No. 695/JP/18 order dt. 23.10.2018(ITAT, Jaipur) - ITO vs Sh. Gyandeep Khe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income in the form of advances given out of undisclosed sources. In response to it, detailed reply (APB 7-12) was given explaining the nature of entries contained in all the files found in the pen-drive seized during search operation. Thereafter, ld.AO changed his stand and took the view to treat the entries as Interest paid instead of earlier allegation as interest received and alleged that the amount appearing under the last column is the amount of interest paid by assessee out of his undisclosed sources and not recorded in the books of accounts as over and above the interest amount mentioned in other column and paid through cheque. The explanation given in this regard before the ld.AO is summarized as under: (i) That the sheets contained information about amounts borrowed by various individuals and entities of the Maverick Group along with many other individuals and entities, which were unrelated and unknown to the assessee as also the entire Maverick group; (ii) That excel sheets contained details of loan taken, interest paid, Tax deducted, amount repaid, along with dates thereof which are made through cheques; (iii) That there were repetition of details in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings to support the allegation that assessee had paid anything more than what was recorded in the books of the assessee. It is also a matter of fact that during the course of assessment proceedings, assessee had filed copies of confirmation from the concerned parties along with the PAN and complete address, duly confirming the amount borrowed with the amount of Interest paid and Tax deducted by the assessee which stood accepted by ld.AO without raising any doubts. Thus the assessee has duly discharged the burden of explaining the entries in the pen-drive found in possession of an employee of the assessee, so far as it pertained to the assessee. Ld. AO, except the so called entries, has failed to bring on record any evidence / material whatsoever by making independent enquiries to support the allegation that the said amount was paid by assessee over and above the amount of interest paid and recorded in the books of accounts. The additions have been made on presumptions and assumptions for which there is no scope in the scheme of assessment of search case as envisaged in chapter XIV of the Income Tax Act, 1961. In the circumstances, it is humbly prayed that the addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded in the pen drive. Based on that confirmation the ld. AR of the assessee demonstrated that the assessee and its group concerned have recorded and accounted the interest which is recorded in the Excel Sheet of the PEN Drive found. Even the TDS is also deducted wherever applicable and the same is also recorded in the books of account. There are no further consideration flows in addition to what has been recorded in the books of accounts. The ld. AR of the assessee submitted that it is respective parties who were demanding, further interest @ 2.4% in addition to what has been recorded in the books. The additional interest which the assessee or its group concern never paid and there is no evidence of any such further sums paid and found as paid in the course of search. Since the issue is revolving about the PEN Drive found, the bench directed both the parties whether any finding of any person recorded and/or the statement of the person under whose possession this PEN drive found is recorded or not? In response it has been confirmed that there is no corresponding income addition is made and the statement of the person from whom the PEN drive found is not recorded. Therefore, wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found and seized from the possession of Shri Kailash Chand Khandelwal one of trusted employee of the assessee. It was mandatory for the assessee to explain the contents of the details/account found from the pen drive which was in the possession of the assessee. During the post search enquiries and assessment proceedings, the assessee could not produce any corroborative evidences in sport of their support. Thus, adjustment entries to the other than assessee's group persons amounting to Rs. 69,499/- in the A.Y. 2010-11. Rs. 85,361/- in the A.Y. 2011-12 Re 27,912- in the A.Y. 2012-13 and Rs. 37,32,344 in the A.Y. 2013-14 were added to the total income of the assessee on protective basis. However, nothing on assessment record has been found which provide the details of the persons in which the substantive addition were made. iii. During the course of appellate proceedings, the assessee has contended that the pen drive found from the premises of one of the employee, Sh. Kailash Chand Khandelwal does not relates to the appellant in particular or the persons of the assessee group. However, the Ld. CIT(A) rejected the contention of the assessee and stated that the pen drive fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel that we propose to make an order on these lines they all agreed that this would be a fair and reasonable order to make in the present proceedings. 11. He has further submitted that the coordinate bench of Indore ITAT has also taken a view following that judgement of the apex court in the case of Dilipkumar Jain Vs. ITO. The relied upon finding in that decision is reiterated here in below: 8. I have considered the rival submissions and perused the entire evidence on record. There could be no dispute to the proposition that the ITO had jurisdiction to complete the assessments on protective basis. In cases where it appears to the income-tax authorities that certain income has been received during the relevant assessment year but it is not clear as to who has received that income, and, prima facie, it appears that the income may have been received either by A or by B or both together, it would be open to the appropriate authority to determine the said question by taking appropriate proceedings both against A and B. Reference may be made to the ratio of decision in the case of Lalji Haridas v. ITO [1961] 43 ITR 387 (SC). I may state at this stage that there is no spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be [commenced] against such assessee. Under the circumstances, in my opinion, the present assessment orders cannot be called the protective assessments. The learned AAC, without bringing on record any evidence, was of the view that the assessments were rightly made on protective basis. Even the learned AAC did not point out that who was the real owner of such income. When the matter came before the learned AAC, at least he should have come to a conclusion that really such income belonged to somebody else. Even if the ITO can blow hot and cold, it is certainly not open to the learned AAC or the Tribunal to blow hot and cold. Again it might be open to the ITO to make the protective assessments, but it is certainly not open to the AAC and the Tribunal to make a protective order. When the assessments are completed on protective basis and the appeals are pending before the Tribunal, in such situation the Tribunal ought to have decided both the appeals together and finally determined as to whether the said sum was, if at all, the income of the assessees or somebody else. 12. Thus, without making known to whom the substantive income flaws how the related unexplained expenditure sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpleted 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 2010-11 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. 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 and an addition can only be made on the basis of undisclosed income derived from material/documents seized as a result of search. The completed asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this search there is no incriminating evidence or any connected information found and seized is also not noted and reflected. It is the only the third-party information based upon which the AO has made the addition on account of Client Code Modification on the ground that the assessee has shifted its profit to other clients or shifted loss to its sister concerns as alleged by the I CI Mumbai. The ld.CIT(A) deleted the addition on the ground that additions NOT based on incriminating material found during the search is settled based on that technical ground deleted the addition. The requirement that the incriminating material to have the co-relation to the particular addition sought to be made is a logic that will hold good as it is held in number of cases decided by this coordinate bench and the jurisdictional High Court. Consequently, in our considered view we do not find any error having been committed by the ld. CIT(A) in accepting the plea of the Assessee that there is no incriminating document which was seized in the course of search relating to the addition sought to be made on account of the CCM reflected in the return of income filed by the assessee. Therefore, the jurisd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing the dicta of this court laid down in CIT v. Kabul Chawla [2015] 61 taxmann.com 412/234 Taxman 300/[2016] 380 ITR 573 (Delhi), held that no assessment/reassessment proceedings were pending on 30-3-2012 when search action took place and hence no assessment was abated. The addition made by the AO is not based on any incriminating document/seized material found during the course of search and seizure action u/s 132 of the Act and accordingly the same were deleted. In further appeal preferred by the Revenue before the ITAT, the findings of the CIT(A) were confirmed. 4. Before us, Mr. Ajit Sharma, senior standing counsel for the Revenue, further submits that findings of the ITAT are perverse in as much as the incriminating material was infact found during the course of search and therefore additions were justified. In support of his submissions, he refers to para 2 of the assessment order which records that during the course of search incriminating documents and evidences have been found and seized. The data is the computer was also cloned and seized alongwith physical documents . Mr. Sharma further submits that at the stage of passing of the assessment order, the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s by the AO and secondly when the income is not considered as not recorded the addition made contending that the same would have been paid will not survive. The amount in dispute is nothing but the amount of the additional interest demanded and not paid by the assessee as claimed by the ld. AR of the assessee. The ld. DR did not oppose this contention and has also not pointed out any incriminating material or a statement on this PEN drive. This based on these set of facts before us and based on the decision relied upon by the ld. AR and on careful consideration of the said decision with that of the facts in this case, we hold that the addition is without any supporting contentions, enquiry or confirmation of the party we have received the additional interest or not. The AO is supposed to point out the name of the assessee who may be the owner of such income. It is common ground that in the present case, till this date, the authorities below did not bring on record any material to show that the unexplained expenditure in question really belongs to some other assessee as income or not. The ld. DR honestly conceded that till this date no proceedings in respect of the disputed income h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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