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TMI Blog2022 (9) TMI 1636X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of certain AY's. The assessee firm was formed on 02-08-2006 and was primarily engaged in the business of construction of building/property/development in Mumbai. Shri Naresh Jain and Shri Sunil Shah were originally equal partners in the assessee firm. Vide supplementary deed dated 05-02-2008, four other partners were admitted into the firm inter alia including Shri Jitendra Jain whose share of profit was 25%. Shri Naresh Jain however continued to be the main promoter-partner with share of profit of 50% and the bank account of the assessee was to be operated by Shri Naresh Jain jointly with any of other five partners. Search under section (hereinafter referred to as "u/s.") 132 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") was conducted against the Kamla Landmarc Group, on 10-12-2013 which triggered section 153A of the Act. Prior to the date of search, since the returns of income for these assessment years (hereinafter in short 'AYs') AYs 2010-11, 2011-12 & 2012-13 were filed on 11-10-2010, 28-09- 2011 & 28-09-2012 respectively, and undisputedly the time limit for issuance of notices u/s 143(2) of the Act for all these years had expired as on the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o why the unsecured loans procured/shown to have been taken from the twenty eight (28) lenders/accommodation entry providers should not be assessed as undisclosed income of the assessee u/s 68 of the Act and the interest paid on such bogus loans claimed as expenditure u/s 37 of the Act, be disallowed. In response, the assessee had sought for the copies of the statements of the key persons including Shri Jitendra Jain, which according to the AO, was provided to the assessee on 25-02- 2016. However since the AO did not receive any explanation on or before the specified due date i.e. 01-03-2016, he proceeded to make the addition u/s 68 of the Act in the relevant AY 2010-11, since according to him, the assessee failed to prove the nature and the source of the credit entries in the books of account of the assessee. The AO also disallowed the interest paid on such unsecured loans u/s 37 of the Act, across all the AYs. The AO further made addition on account of notional commission expense which the assessee would have incurred for obtaining such accommodation entries in the relevant AY 2010-11. Further, the AO is also noted to have made adhoc disallowances out of several items of expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said parties, Accordingly, the assessee contended that there has been a violation of principles of natural justice. On the said submissions of the assessee, it is noted that the powers of the First Appellate Authority (FAA) are co-terminus with that of the AO and therefore, in the present appellate proceedings, the submissions made by the assessee vide the said letters dated 07.03.2016 & 18.03.2016 which were allegedly not considered by the AO will be duly considered while dealing with the specific grounds of appeal in respect of the various specific additions made by the AO. Accordingly, Ground No II of the appeal of the assessee is partly allowed." 5. After examining the contentions set out by the assessee in these letters, the Ld. CIT (A) rejected the same and sustained the addition made u/s 68 of the Act on account of unsecured loans of Rs. 6,60,00,000/-. The Ld. CIT (A) accordingly also confirmed the disallowance of interest incurred on such loan of Rs. 17,753/- and the addition on account of notional commission of Rs. 13,20,000/- paid for obtaining such loan. 6. The Ld. CIT (A) also rejected plea of the assessee (legal ground) that these additions were no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the search conducted on the assessee, the Ld. AR pointed out that no incriminating material was found in relation to the assessee in the course of search conducted at their premises. He further pointed out that the partner, Shri C. Shah, who was present at the premises at the time of search, was examined u/s 132(4) of the Act. Taking us through the statement of Shri C. Shah which was placed at Pages 12-21 of the paper book, the Ld. AR submitted that no questions were posed to him regarding the assessee, particularly doubting the genuineness of the unsecured loans obtained by the assessee. The Ld. AR thereafter invited our attention to warrant no. 9397 dated 09-12-2013 which was executed in relation to the Kamla Landmarc Group and particularly the names of the twenty one (21) concerns belonging to the said Group, to show that the assessee did not feature therein. Taking us through his statements, placed at Pages 35-66 of paper book, the Ld. AR showed us that nowhere, Shri Jitendra Jain had named the assessee firm as a beneficiary of purported accommodation entries in the form of unsecured loans. These aforesaid facts considered cumulatively, according to him, supported their cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the books of accounts which were regularly maintained in tally software was not in the nature of 'incriminating material'. According to him, these accounts formed part of the returns filed with the authorities and such regular books of accounts maintained in the ordinary course of business did not suggest anything of incriminating nature. He contended that, the report of the AO showed that the addition/s made were not supported or backed by any incriminating material unearthed during the course of search and for that reason the Revenue is now trying to make out a new case that the regular accounts maintained by the assessee was in the nature of 'incriminating material', which according to him, was untenable both on facts and in law. He further pointed out that based on the same statement of Shri Jitendra Jain, the AO had passed similar assessment orders in the cases of the concerns belonging to Kamala Landmarc Group i.e. M/s Kamla Landmarc Enterprises Vs DCIT & Others, in which similar additions u/s 68 on account of unsecured loans, disallowance of interest u/s 37, addition of notional commission, disallowance of other expenses etc. were made by the AO. He brought to our n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore any admission by the partner of the assessee to any wrong doing itself constitutes incriminating material to justify additions in unabated assessments. The Ld. CIT, DR further contended that, the decisions relied upon by the assessee in the cases of Pr. CIT Vs Anand Kr. Jain HUF (133 taxmann.com 288), Pr. CIT Vs Best Infrastructure (I) Pvt Ltd (397 ITR 82), CIT Vs Harjeev Aggarwal (241 Taxmann 199), PKSS Infrastructure Pvt Ltd Vs DCIT (ITA No. 5680 & 5681/Mum/2019), amongst others, wherein it was held that statements recorded u/s 132(4) cannot alone constitute incriminating material to justify addition in unabated assessments, were distinguishable on facts from the present case. According to him, since the statement of one of the Partner, Shri Jitendra Jain was also corroborated by the statements of entry operators, it was indeed incriminating enough to justify the additions made by the AO. 12. We have heard both the parties, perused the details, documents and submissions along with the judicial precedents relied upon by both sides. The first ground raised in the appeal is, whether in absence of any incriminating material found in the course of search at the premis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g before the AO on the date of search, which would be treated as abated. In the case of abated assessments, the AO is free to frame the assessment in regular manner and determine the correct taxable income for the relevant year inter alia including the undisclosed income un-earthed during search, having regard to the provisions of the Act. However, in relation to unabated assessments (AYs), which were not pending on the date of search, there is a restriction on the powers of the AO. In case of unabated assessments, the AO can re-assess the income only to the extent and with reference to any incriminating material which the Revenue has unearthed in the course of search. Merely because an assessee is subjected to search, he cannot be placed on a different pedestal or put in a more disadvantageous position than an assessee who is not subjected to search unless in the course of search some incriminating documents or evidence or information or material is gathered by the Investigating authorities so as to vest the AO with the necessary powers to make additions to the total income in relation to assessments which did not abate on account of search. This view finds support from the judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire proceedings under Section 153A of the Act were without jurisdiction and therefore the addition made had to be deleted on the aforesaid ground. The impugned order also thereafter considered the issues on merits and on it also held in favour of the respondent-assessee. 6. Mr. Kotangale, the learned Counsel for the revenue very fairly states that the decision of the Special Bench of the Tribunal in Al-Cargo Global Logistics Ltd. was a subject matter of challenge before this Court as a part of the group of appeals disposed of as CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd. [2015] 374 ITR 645/58 taxmann.com 78/232 Taxman 270 (Bom.) upholding the view of the Special Bench of the Tribunal in Al- Cargo Global Logistics Ltd. Consequently, once an assessment has attained finality for a particular year i.e. it is not pending then the same cannot be subject to tax in proceedings under Section 153A of the Act. This of course would not apply if incriminating materials are gathered in the course of search or during proceedings under Section 153A of the Act which are contrary to and/or not disclosed during regular assessment proceedings. 7. In view of the above, on issue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gra and stands concluded in the above referred judgments." 14. In light of the above judicial precedents, and particularly the judgment of the Hon'ble Bombay High Court (supra) which is binding upon this Tribunal, we hold that in the case of unabated assessments of an assessee, no addition is permissible in the order u/s 153A of the Act unless it is based on any relevant incriminating material found during the course of search qua the assessee and qua the AY. 15. In view of the above legal position, the issue which now requires our consideration is whether the additions/disallowances which the AO made in the order impugned in this appeal was based on or made with reference to any incriminating material/document found in the course of search. The only material now being referred to by the lower authorities in their submissions dated 21-06- 2022 was the regular books of accounts maintained in the Tally Accounting Software. We find merit in the submissions of the Ld. AR that the regular books of accounts cannot be treated as 'incriminating material' unless the Revenue makes out a case with corroborative evidence that the transaction reflected in the books of accounts did not represe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as follows: "14. We have heard the parties and perused the details, documents and submissions alongwith case laws relied upon by the Ld. AR as well as Ld.DR. The Ld. Representative of the assessee has argued that no incriminating materials were found during the search carried out on 10.12.2013 at the various premises of the Kamla Group, therefore, the assessment is not liable to be reopened in accordance with law. It is also argued that the period for issuing the notices u/s 143(2) of The Income Tax Act, 1961 expired by the time of search for the assessment years from 2009 - 2010 to 2012 - 2013 and no notices were issued u/s 143(2) for the aforesaid assessment years. It is also argued that the assessment order for A.Y. 2008 - 2009 was passed u/s 143(3) of the Act as observed by the Assessing Officer while passing the assessment order u/s 143(3) r.w.s 153A dated 18.03.2016 for AY 2008-09, therefore, the assessment in relation to the assessment years 2008-2009 to 2012-2013 are non-abated assessments and are not liable to be sustainable. It is specifically argued that the statement recorded u/s 132(4) of the Act itself cannot be treated as incriminating evidence. In support of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee during search operation 25. (...) However, as stated earlier, a statement on oath can only be recorded of a person who is found in possession of books of accounts, documents, assets, etc. Plainly, the intention of the Parliament is to permit such examination only where the books of accounts, documents and assets possessed by a person are relevant for the purposes of the investigation being undertaken. Now, if the provisions of Section 132(4) of the Act are read in the context of Section 158BB(1) read with Section 158B(b) of the Act, it is at once clear that a statement recorded under Section 132(4) of the Act can be used in evidence for making a block assessment only if the said statement is made in the context of other evidence or material discovered during the search. A statement of a person, which is not relatable to any incriminating document or material found during search and seizure operation cannot, by itself, trigger a block assessment. The undisclosed income of an Assessee has to be computed on the basis of evidence and material found during search. The statement recorded under Section 132(4) of the Act may also be used for making the assessment, but only to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder | section 132/4 stand abated and not the assessments / reassessments already finalised for those assessment years covered under section 153A. By a Circular No. 8 of 2003, dated 18-9-2003 (See 263 ITR (St) 61 at 107) the CBDT has clarified that on initiation of proceedings under section 153A, the proceedings pending in appeal, revision or rectification proceedings against finalised assessment / reassessment shall not abate. It is only because, the finalised assessments / reassessments do not abate, the appeal revision or rectification pending against finalised assessment / reassessments would not abate. Therefore, the argument of the revenue, that on initiation of proceedings under section 153A, the assessments / reassessments finalised for the assessment years covered under section 153A stand abated cannot be accepted. Similarly on annulment of assessment made under section 153A(1) what stands revived is the pending assessment / reassessment proceedings which stood abated as per section 153A(1). "Once it is held that the assessment has attained finality, then the Assessing Officer while passing the independent assessment order under section 153A read with section 143(3) c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that in assessment framed under section 153(A) in case of the unabated assessment addition without reference to incriminating material is not sustainable. This issue has been clearly spelt out and affirmed by honourable jurisdictional High Court in the Catena of case laws including that of continental warehousing (supra). 40. The learned departmental representative and the learned CIT appeals have tried to distinguish this decision from Hon'ble Bombay High Court by referring to Hon'ble Delhi High Court decision in the case of Kabul Chawla (supra). 41. In this regard we are of the considered opinion that the decision from honourable jurisdictional High Court in Continental Warehousing (supra) is clear and unambiguous. It was clearly held in that case that assessments which are not pending and which have attained finality, addition under section 153(A) cannot be done without reference to incriminating seized material. We may gainfully refer to the relevant order of the honourable High Court as under: ....... 47. As regards the issue of seized material it is clear that in the appeals which have remained unabated the addition is without reference to any seized material. The m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that, the additions / disallowances made in the unabated AYs by the AO u/s 68 of the Act on account of unsecured loans, interest incurred thereon, and the alleged notional commission expense incurred for procurement of such loan, were not backed by any incriminating material found as a result of search, and therefore the AO is directed to delete the same. 19. Even in respect of the disallowances made out of several expenses viz., labour charges, professional fees, brokerage, compensation expenses etc., it is noted that the same was disallowed only on the premise that the details were not submitted before the AO or they were insufficient. It is therefore noted that, none of these additions/disallowances were based on any incriminating material or evidence found in the course of search. The Ld. CIT, DR was also not able to point out the relevant incriminating material or evidence based on which the impugned additions were made by the AO. 20. Having regard to the above facts, in our considered opinion therefore, the additions impugned before us in the assessment order passed u/s 153A/143(3) of the Act by the AO were not supported or backed by any incriminating material found o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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