Loose papers cannot be classified as ‘incriminating material’ unless AO establishes nexus

Mani Square Ltd Vs ACIT (ITAT Kolkata)

ITAT Kolkata allowing appeal of addition of 214 crores (approx) on host of issues on search assessment mainly on 1) Incriminating material 2) addition u/s 68 for unsecured loans 3) Alleged Undisclosed on money consideration and Theory of extrapolation 5) Cash Purchases  6) Unexplained expenditure also deciding basis of Evidentiary value of Third party statement and Cross examination angle . (all imp judgements referred) .

Ist aspect

16. Considering the judicial precedents (supra) on the subject, particularly the decision of the Hon’ble jurisdictional Calcutta High Court in the case of PCIT vs Salasar Stock Broking Ltd. (supra) which is binding upon this Tribunal as well as the Hon’ble Apex Court decision, 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 tangible, cogent and relevant incriminating material found during the course of search qua the assessee and qua the AY

IInd aspect

The nature of the evidence or information gathered during the search should be of such nature that it should not merely raise doubt or suspicion but should be of such nature which would prima facie show that the real and true nature of transaction between the parties is something different from the one recorded in the books or documents maintained in ordinary course of business. In some instances, the information, document or evidence gathered in the course of search, may raise serious doubts or suspicion in relation to transaction reflected in regular books or documents maintained in the ordinary course of business, then in such event the AO is not permitted to straightaway treat such material as ‘incriminating’ in nature unless the AO thereafter brings on record further corroborative material or evidence to transform his suspicion to belief and conclude that the transaction reflected in regular books or documents did not represent the true state of affairs and rather that can be the starting point of inquiry to un-earth further material or evidence to transform his suspicion to belief and conclude that the transaction reflected in regular books or documents did not represent the true state of affairs. Until these conditions are satisfied, it cannot be held that every seized material or document found in the course of search as incriminating in nature qua the assessee justifying the additions in unabated assessments. In other words, any and every seized material which comes in AO’s possession cannot be construed as ‘incriminating material’ straightaway. For instance, scribbling or rough notings found on loose papers cannot be straightaway classified as ‘incriminating material’ unless the AO establishes nexus or connect of such notings with unearthing of undisclosed income of the assessee. This nexus or connect has to be brought out in explicit terms with corroborative material or evidence which any prudent man properly instructed in law must be able to understand or correlate so as to justify the AO’s inference of undisclosed income from such seized incriminating material.

IIIrd aspect

Upon going through the above response to the RTI query, we find substance in the Ld. AR’s submission that when Shri Satyam Bubna had stated that these documents i.e. RB/12 were rough calculations, the AO of M/s Satyam Bubna HUF accepted his submission and neither drew any adverse inference nor made any addition on account of alleged cash payments in its hands as unexplained expenditure; then as a corollary the very same document cannot be said to constitute incriminating material or evidence qua the assessee. We further note that the assessee has also placed the copy of the sale deed dated 30.06.2014 along with its ledger at Pages 340 to 380 of the convenience compilation from which it is evident that all the transactions involving receipt of payments in lieu of sale of flat & car park to M/s Satyam Bubna HUF was conducted through proper banking channel without there being any involvement of cash. For the reasons discussed in the foregoing, we therefore hold that documents ID marked RB/12 cannot be construed to be ‘incriminating’ in nature qua the assessee for drawing adverse inference and so it cannot be considered as a basis for making any addition against the assesse.

IVth aspect

We also find merit in the Ld. AR’s alternate contention that the documents ID marked RB/12 was a third party document found in the course of search conducted on a different person i.e. Ambica Dhatu Group and not the assessee; and therefore this document did not constitute incriminating material found in the course of search at the premises of the assessee, based on which any addition could be validly made in assessment u/s 153A of the Act. In this regard, we may gainfully refer to the Hon’ble Delhi High Court in the case of Pr. CIT vs Subhash Khattar in ITA No. 60 of 2017 dated 25.07.2017 wherein the Hon’ble Court, on similar facts, held that, no addition is permissible in an unabated assessment u/s 153A of the Act on the basis of evidence gathered in the course of search conducted against other third parties. The relevant facts involved in this judgment and the findings of the Hon’ble High Court are as follows:

The facts leading to the filing of the present appeal are that a search took place on 17th August, 2011 in the corporate office of AEZ Group at 301-303, Bakshi House, Nehru Place, New Delhi during which a hard disc was found and seized from which, a print out of a file named “D.P. Correction Sheet.xls” was taken. This sheet contained details of Sales Status of lndirapuram Habitant Centre and at serial No. 32 of the said sheet, the name of the Assessee appeared. According to the Revenue, the Assessee had invested a sum of Rs. 20 crores. Therefore, on 10th February, 2012, a search operation was undertaken under Section 132 of the Act in the case of the Assessee. There is no dispute that this search did not result in the discovery of any incriminating material qua the Assessee. ……. 6. The Assessee went in appeal before the Commissioner of Income Tax (Appeals) who dismissed it by an order dated 27th November, 2014. A further appeal was filed by the Assessee before the ITAT. The ITAT, inter alia, found substance in the contention of the Assessee that the assessment under Section 153(A) of the Act, in the absence of any incriminating material found during the search on the premises of the Assessee was not sustainable in law. Reliance was placed on the decision of this Court in Commissioner of Income Tax v. Kabul Chawla, [2016] 380 ITR 573. 8. Consequently, the impugned order of the ITAT calls for no interference of this Court. The question framed by this Court on 7th February, 2017 is answered in negative, that is, in favour of the Assessee and against the Revenue.” 7. A question was posed to the learned counsel for the Revenue whether in the present case anything incriminating has been found when the premises of the Assessee was searched. The answer was in the negative. The entire case against the Assessee was based on what was found during the search of the premises of the AEZ Group. It is thus apparent on the face of it, that the notice to the Assessee under Section 153A of the Act was misconceived since the so-called incriminating material was not found during the search of the Assessee’s premises. The Revenue could have proceeded against the Assessee on the basis of the documents discovered under any other provision of law, but certainly, not under Section 153A. This goes to the root of the matter. 8. Consequently, the impugned order of the ITAT calls for no interference of this Court. The question framed by this Court answered in negative, that is, in favour of the Assessee and against the Revenue.” (emphasis supplied by us )

Vth aspect

And moreover, if the AO wanted to still rely on the statements of third party to draw any adverse inference against the assessee/IQCIPL/Appellant, then he was duty bound to furnish a copy of the third party statement to assessee/IQCIPL/Appellant and then summon the third parties and examine them himself and thereafter allowed the assessee/IQCIPL/Appellant an opportunity to cross examine and thereafter if he is satisfied about the veracity of their statements then he can rely on such statement, which unfortunately the AO has not done, so the third party statement cannot be relied upon by the AO to draw adverse inference against the assessee/ IQCIPL/Appellant. It has to be kept in mind that wide though his power, the AO must act in consonance with the rules of Natural Justice. One such rule is that he shall not use any material against the assessee without giving him an opportunity to meet it. In short, the AO cannot assess keeping the assessee in dark as to the materials against him. And even after the material/statement is furnished to the assessee, and the assessee contest the veracity of the statement against him, then the AO is bound to give an opportunity to the assessee to test the veracity of the statement on the touch stone of cross examination and thereafter only the AO can rely on the statement or else he cannot be allowed to rely on the statement of the third party against the assessee. (Refer Hon’ble Supreme Court decision in Andaman Timber Industries in Civil Appeal No. 4228 of 2006). In the circumstances we find merit in the Ld. AR’s claim that the third party statements relied upon by the AO without even recording their statement and allowing the assessee to cross examine, cannot justify the additions u/s 68 & 69C and the statements cannot be said to be incriminating material or documents found and/or collected in the course of search conducted against the assessee and so, cannot be used against the assesse

VIth aspect

Additionally, we also find merit in the Ld. CIT(A)’s reliance on the following decisions holding that the theory of extrapolation cannot be applied on mere theoretical or hypothetical basis in absence of any incriminating & corroborative evidence or material brought on record by the AO to warrant the same.

(A) C.J. Shah & Co., [2000] 246 ITR 671 (Bombay H.C.)

 “3. It is well-settled that in cases where material is detected after search and seizure operations are carried out, the Assessing Officer is required to determine the undisclosed income. In such cases additions are generally based on estimates. In matters of estimation some amount of latitude is required to be shown to the Assessing Officer, particularly when relevant documents are not forthcoming. However, it does not mean that the Assessing Officer can arrive at any figure without any basis by adopting an arbitrary method of calculation. In the present matter, A3, A4 and A6 nowhere records the turnover of the assessee as found by the Tribunal and yet on the wrong basis of the incoming and outgoing cash transactions, the Assessing Officer has arrived at the turnover. Moreover, the peak investment was Rs. 40,14,806 for three months. However, there is no material seized to justify any figure to be included for a period earlier to the said period of three months. In the circumstances, the Tribunal has recorded a finding of fact and has held that the addition of Rs. 3.40 crores was totally unjustified. The entire finding of the Tribunal is based on the facts. No substantial question of law arises. Hence, the appeal is dismissed.”

7^th aspect

It is to be appreciated that this is a case of two unrelated parties i.e. lender and borrower, brought together by a finance broker, and the loans were given and thereafter repaid along with interest through banking channel after deducting  tax on it.Accordingly when there was no continuing relationship with the loan creditors, then post the conclusion of such loan transactions and applying the tests of human probabilities, the non-attendance/ non-service of summons by the loan creditors could not be viewed adversely by the AO in the light of the evidences furnished by the assessee on this issue we discussed supra. In the present case on hand, considering the facts and circumstances discussed, such non-compliance alone cannot be the decisive fact to justify the impugned addition in the hands of the appellant, particularly when the appellant had furnished all the relevant documents which it was required to maintain in ordinary course to substantiate its loan transactions with independent third party loan providers.

According to Ld. AR’s plea section 68 of the Act nowhere prescribes that the identity, creditworthiness and genuineness of the transaction should be proved by an assessee only by producing concerned creditors for personal examination by the AO. It is true that section 68 of the Act does not require so. However, it is insisted when there is reasonable doubt as to the identity, creditworthiness and genuineness of the transactions. Presence of creditor before the AO in such case is a Rule of Prudence to repel the doubts if any in the mind of the AO. However, in this case on hand we note that the appellant/assessee had furnished the requisite documentary evidences; to substantiate the loan creditors’ identity, creditworthiness and genuineness of the transactions. Having received these documents, the AO was not able to point out as to which other documentary proof was required or expected by him, which had not been submitted by the appellant/assessee, or found any infirmities on these documents. On these facts and in our considered view therefore the adverse inference drawn by the AO u/s 68 and 69C of the Act solely on the premise that the summons went non-complied or remained unserved was not justified.

8^th aspect

 Ld. AR has pointed out to us that the so-called entry operators were not even shareholders or directors of the loan creditor companies. We also note that although the AO had heavily relied upon the statements of the sundry creditors/entry operators, the AO had neither personally or independently examined even a single entry operator in the capacity as the Assessing Officer to verify the correctness of the facts or to dig or probe and unearth the link if any with the Appellant/assessee. However, the unfortunate part is that the AO blindly relied on the bald statements of these operators and in the process has not brought out any link to connect them with the Appellant/assessee. And if the AO wanted to use the statements of the so-called entry operators, then the AO during the assessment proceedings ought to have summoned these entry operators and examined them thoroughly and should have unearthed the links, materials or relevant evidences if any against the appellant/assessee and thereafter called the assessee and confronted him with any materials or statement which he discovers and which material he wishes to rely against the assessee and after giving an opportunity to assessee to cross examine the maker of the statement etc, and in the event, the maker of the statement could pass the cross examination, then the statement of the entry provider could have been acted upon by the AO against the assessee or he cannot use it against the assessee. The lack of enquiry of AO by not even summoning these operators and reliance of their statements, how it affects the action of AO can be seen from the following facts.

9^th aspect

74. In view of the above judicial precedents (supra), we note that in the facts of the present case, save and except extracting the statements of so-called entry operators, the AO did not bring on record any credible evidence/material which could show that the appellant had routed its unaccounted monies in the form of bogus loans. In fact the AO himself never examined any one of the persons whose statements were relied upon by him in the assessment order nor did he grant the appellant/assessee an opportunity to cross-examine the witnesses whose statements were extracted in the assessment order. Except the bald references to the recorded statements, the AO did not bring on record any material which could link the appellant with any wrong doing as held by him that the assessee’s unaccounted monies were introduced in the garb of unsecured loans. For the reasons set out in foregoing, we are of the considered view that the AO’s failure to personally examine the witnesses and his denial to allow the appellant opportunity to cross examine the third parties/Departmental witnesses on whose statements he was relying upon was a serious and fundamental error which resulted in the additions as well as the action of AO to point out any material and irrelevant to justify the addition made u/s 68 & 69C of the Act in the assessment order untenable and so it cannot be sustained.

10^th aspect

75. Moreover, as noted by us supra, the AO in the most perfunctory manner and based on conjecture rejected the financial capacity of the loan creditors to advance loans. Before drawing adverse inference regarding creditworthiness, the AO did not objectively apply his mind to the financial statements submitted before him from which it was prima facie apparent that the loan creditors possessed sufficient funds out of which the loans could be advanced. The financial statements also demonstrated that the loan creditors were otherwise engaged in the business of granting loans to other parties and in the course of their financing business, the appellant was granted loans carrying commercial interest rates. Before rejecting the appellant’s explanation regarding the creditworthiness of the parties, the AO was required to demonstrate with cogent fact that financial position of the loan creditor in fact was weak consequent which they would not be in a position to advance the loan amounts. Even in such case, where the financial position was doubtful and yet the loan creditor had accepted the fact of granting loan, then in such case it is not proper for the AO to brand the creditor as unworthy of credence. In such a scenario, the AO should enquire from the AO of the loan creditor as to the genuineness of the transaction as to whether the loan creditor’s AO has accepted the loan transactions as genuine or not. Without doing this exercise the AO of the loan taker (debtor) cannot brand the loan creditor as unworthy of credence. Here, in this case on hand, the AO has not done this exercise and these loan creditors all are income tax assessees and all their detail were furnished before the AO and they have all shown the interest income as their income and while paying interest, the assessee had deducted tax at source also.

11^th aspect

This action of the lower authorities has been challenged by the appellant/assessee as untenable both factually as well as legally. It is true that Section 132(4A) read with Section 292C of the Act, raises a presumption that that the contents of books of account and other documents seized during the course of search is true. But it should be kept in mind that this presumption is only qua the person who is searched and/or from whose possession the books of account and documents are found and none else. Moreover this presumption is rebuttable. In the given facts of the case, since the documents in question was not found or impounded from the appellant’s premises but in the course of survey (not search) conducted against a third party, the presumption set out in Section 292C of the Act does not apply to the appellant. The appellant/assessee, therefore, is legally entitled to an opportunity of examining these documents, which were admittedly not impounded from its premises, and can seek cross examination of the third party from whose possession such document was found and furnish its rebuttals and defence with cogent evidence.

12^th aspect

8. From the facts on record, it is abundantly clear that M/s Abasan Realty LLP did not perform its obligation agreed in the sub-lease agreement for which dispute was referred for arbitration/reconciliation to fellow builders. It is noted that even after the award of the fellow builders, M/s Abasan Realty LLP did not act on the same. Neither did it pay the interest which it was/is required to pay within 31-10-2015 nor did it ensure that the bottlenecks in construction are removed and the work resumed. Instead, the construction got suspended and no payment was ever made to the appellant by either M/s Abasan Realty LLP or Shri Hari Sharma. In the circumstances it is erroneous to hold that the appellant/assessee could have been able to realize interest from M/s Abasan Realty LLP or Shri Hari Sharma in real terms. Further such compensatory interest determined in terms of an award, by its very nature is such that unless the payment is actually received from the defaulter, one cannot estimate its chances of realization. In fact, the AO did not bring on record any cogent documentary evidence/material to support his findings that in terms of any legally enforceable award or decree of the court or arbitral tribunal, the assessee had acquired any vested right to receive such interest. In the present case the CFO of the appellant had unilaterally made calculations of expected interest without there being demand from the appellant. Accordingly, since no ‘real’ income had accrued or was received in the relevant year, the interest computed and added by the AO on mercantile basis could not be brought to tax in the hands of the appellant. Before imposing tax on any sum it is necessary for the Revenue to establish that the income assessable is “real income” which legally accrued during the relevant year. Unless, in fact, an assessee earns income in the real sense; there cannot be charge of tax. This legal proposition is laid down by the Hon’ble Supreme Court in the following cases. 1) UCO Bank Vs. CIT (237 ITR 889) 2) CIT Vs. Shoorji Vallabhdas (46 ITR 144) 3) Godra Electricity Co. Ltd Vs. CIT (225 ITR 746)

FULL TEXT OF THE ITAT JUDGEMENT

All these cross appeals preferred by the revenue and assessee are against the common order of Learned Commissioner Income Tax (Appeals)-21 [herein after referred to as Ld. CIT(A)], Kolkata dated 13.08.2019 for AYs 2013-14 to 2017-18. Since issues involved are common, all the appeals for all the assessment year/years (hereinafter referred to as “AY”) were heard together. Both the parties also argued them together raising similar arguments on these issues. Accordingly, for the sake of convenience and brevity, we dispose all the appeals by this consolidated order.

2. Before we advert to the grounds taken in the cross appeals, it would first be relevant to cull out the basic facts of the case and effect of law in brief in respect of certain AY’s. Search u/s 132 of the Income Tax Act, 1961 (hereinafter referred to as “the “Act”) was conducted against the Mani Group, on 22-06-2016 thereby triggering section 153A of the Act. Prior to the date of search, the income-tax assessment under section (hereinafter referred to as “u/s.”) u/s 143(3) of the Act (scrutiny assessment) for AY 2013-14 stood already completed on 29-03-2016 i.e. (two months before the search). Accordingly, the assessment for AY 2013-14 did not abate consequent to the search on 22.06.2016. The original return of income for AY 2014-15 was filed on 30-03-2016 and the time limit for issuance of notice u/s 143(2) of the Act had not expired as on the date of search. Accordingly AY 2014-15 was an abated assessment year. With regards AY’s 2015-16, 2016-17 & 2017-18, it was pointed out that the returns of income for all these years were filed only after the date of search. Therefore, except AY 2013-14, all the other AYs 2014-15, 2015-16, 2016-17 & 2017-18 were abated assessments. The summary of the additions/disallowances in Rupees made by the Assessing Officer (in short the AO) which are in dispute in the cross appeals for AYs 2013-14 to 2017-18 are as follows:

Issue	2013-14	2014-15	2015-16	2016-17	2017-18
Undisclosed On-monies on sale of flats & car parks in ‘Shiromani Project’	47,20,09,864	–	–	–	–
Unexplained cash credit u/s 68[loan]	39,73,50,000	19,14,00,000	6,22,00,000	2,55,00,000	67,50,000
Unexplained interest expenditure u/s 69C	3,20,13,463	4,85,22,497	2,98,16,765	1,09,91,452	1,33,74,308
Unexplained cash credit u/s 68[loan] [in the hands of IQ C Infrastructure Pvt Ltd (since merged with Mani Square Ltd]	2,15,00,000	–	60,00,000	–	–
Unexplained interest expenditure u/s 69C [in the hands of IQ C Infrastructure Pvt Ltd (since merged with Mani Square Ltd]	25,76,219	22,68,000	–	–	–
Cash Purchases [Proloy Mandal & Satyendra Singh etc.]	15,07,993	14,37,690	15,31,380	14,55,893	–
Delayed payment of EPF & ESI u/s 36(1)(va)	–	5,59,622	6,41,059	25,57,784	74,65,217
Interest receivable from Hari Sharma	–	–	1,93,75,000	5,69,06,250	7,29,42,188
Undisclosed On-monies on sale of flats in Swarnmani Project	–	–	44,33,46,979	9,91,12,262	10,91,55,961
TOTAL in Rupees	92,69,57,539	24,41,87,809	56,29,11,183	19,65,23,641	20,96,87,674

3. We first take up the appeals filed by the assessee and the Revenue for AY 2013-14 in IT(SS) No.58/Kol/2019 & IT(SS) No.75/Kol/2019. For AY 2013-14, the assessee had originally filed return of income on 30.11.2013 declaring total income of Rs. 4,68,76,660/-. The income tax scrutiny assessment u/s 143(3) of the Act for AY 2013-14 was completed on 29-03-2016 at total income of Rs.4,97,56,300/-. After the search conducted on 22.06.2016, the assessee filed a return in response to notice u/s 153A of the Act, and thereafter statutory notices u/s 143(2) & 142(1) of the Act were issued calling for certain details/information. The AO in his notice dated 31-08-2018 issued u/s 142(1) of the Act conveyed to the assessee that the documents ID marked RB/12, seized in the course of search at the premises on Ambica Dhatu Group [‘third party’] on 22-09-2015 (i.e. before search in assessee’s premises) revealed that the assessee had received onmonies (cash) of approximately Rs.4.82 crores from M/s Satyam Bubna (HUF) against sale of flat in its ‘Shiromani’ project. Referring to the documents with identification mark RB/12 [found at the premises of Ambica Dhatu Group on 22-09-2015], the AO concluded that the assessee had received 46.67% of the actual sale consideration of the flat sold to M/s Satyam Bubna (HUF) in cash and the balance 53.33% was received in cheque which alone was accounted in the books of the assessee. Relying on the same document, he further held that the assessee also received Rs.6,00,000/- in cash against sale of car park to M/s Satyam Bubna (HUF) in ‘Shiromani’ Project. The relevant finding recorded by the AO in this regard is as follows:

(2)”It was conveyed to the assessee by issue of notice u/s. l42(1) of the Act dated 31.08.2018 that the documents seized during the course search and seizure operation (ID Marked RB-12) conducted at the premises of AmbicaDhatu Group on 22.09.2015, it was found that RS.4.82 croresapprox was paid to ‘Mani Group’ in ‘Otherwise’ (Cash) against sale of flat in Second Floor of the said project and car parks by Sat yam Bubna (HUF). From the said seized documents, it was found that the cash consideration paid by Satyam Bubna (HUF) was:

For sale of Flats	Rs.7,000/- per square fee(Rs. 15,000 – Rs. 8,000)
For sale of Car Parking	Rs.6,00,000/- per car park) (Rs.9,00,000 – Rs. 3,00,000

The relevant extracts of the said RB-12 is reproduced below:

………

From the above it is seen that the total consideration for sale of Flat in Second floor of Shiromani Project and 4 car parks is Rs.10,40,25,000/- (total sales consideration for sale of flat and terrace totaling to 6,695 sq. ft. @ Rs.15, 000/- per sq. ft. plus 4 car parks @Rs.9, 00, 0001 – per car park)

Out of the said total sale consideration Rs.4,81,38, 000/- was paid by Satyam Bubna (HUF) and ‘Otherwise’ (cash) mode and was received by Mani Square Limited. It is noteworthy that even interest of Rs.16,33,2181 – was charged @ 18% p.a. for delay payment from Sat yam Bubna (HUF) by Mani Square Limited.

The calculation mentioned in the extracts of RB-1 2 Page No.3 is pretty detailed and clear and thus not require further calculation. The calculation of interest part which found in RB-12 page No.2 is also detailed and reproduced below:-

Relevant Extracts of RB-12 Page No.2

	Shree Interest Calculation
	Date of demand	Date of receipt	No. of Days	Demand Account	Deficit b/f	Shortfall	Interest @18%
				(Rs.)	(Rs.)	(Rs.)	(Rs.)
	01-04-2013	30-06-2013	91	67,34,752	–	67,34,752	3,02,234
	01-07-2013	30-09-2013	92	–	70,3 6,986	70,3 6,986	3,19,267
	01-10-2013	31-12-2013	92	–	73,56,253	73,56,253	3,33,752
	01-01-2014	31-03-2014	90	–	76,90,005	76,90,005	3,41,310
	01-04-2014	24-06-2014	85	–	80,31,315	80,31,315	3,3 6,655
				67,34,752			1 6,33,218
	Due as per Statement			72,38,042
	Less:
	a) deposit 3,34,750
	b) Legal Charges1, 68,540			5,03,290
				67,34,752

Thus, the above solidifies the fact of payment of cash consideration (referred as ‘Otherwise’ in the extracts above) to Mani Square Limited for purchase of fiat and car parks in Shiromani Project.

Further, it is also noteworthy that the above calculations were though found from the premises of Ambica Dhatu Group, They have been prepared by Mani Square Limited only. The same is evident from the following two observations:

• • The amount of Rs.4,81,38,000/- have been as ‘received till date;. Since M/ s. Satyam Bubna (HUF) is the buyer, had he been preparing the above statement, then the nomenclature would have probably been ‘paid till date’.
  • Further, m the interest calculation part, the nomenclature of the words ‘shortfall’ ‘deficit’ would have been probably different like ‘not paid’ or ‘pending. ‘

4. The AO thereafter required the assessee to furnish complete details of the units sold in its ‘Shiromani’ Project. Based on the information submitted by the assessee, the AO made enquiries u/s 133(6) of the Act from all the flat purchasers and the summarized details of all the flats sold during the year and the information was set out in the Table at Page 8 of the assessment order. Referring to documents identified with mark, MSL/23 Pages 1 to 3, MSL/8 Page 13, SJ/MHD/MZ Page 2 and MSL/21 Page 32 to 36, the AO concluded that the assessee was regularly involved in accepting part of the consideration for sale of flats in cash and accordingly held that the assessee must have received similar cash component on sale of other units and car parks from the remaining purchaser of the flats in its Shiromani Project. Extrapolating the on-monies @ 46.67% of the declared sale consideration and Rs.6,00,000/- on sale of each car park, the AO made an addition of Rs.47,20,09,864/- by way of receipt of undisclosed “on monies” (cash) on sale of flats and car parks in the relevant AY 20 13-14. The manner in which the AO computed the amount added u/s 68 of the Act is as follows:

“5.7 ………………

In the light of the above, the calculation of ON Money is done as under:-

Computation of cash component (%) in total deal value (cash + agreement) value for sale of flats:

Particulars	Details
Cash Component in Sale of Flats to Satyam Bubna (HUF)	Rs. 7,000/- per sq.ft
Total Sale Consideration (Cash + Agreement Rate)	Rs. 15,000/- per sq.ft
% of Cash Component in total consideration	46.67% (Rs. 7,000/Rs.15,000)

Computation of cash component in total deal value (cash + agreement) value for sale of car parks:

Particulars	Details
Total Deal Value (Cash+Agreement value) of Car Parks	Rs.9, 00,000 per car park
Agreement Rate of Car Park	Rs.9, 00,000 per car park
Cash Component for Car Park	Rs. 6,00,000 per car park
No. of Car Parks Per Flat	4 nos.
Cash Component of Car Park for sale of each Flat	Rs. 24,00,000/- (4   car parks * Rs. 6,00,000 per car park)

Computation of ON MONEY (Cash Consideration) for sale of Flats

Particulars	Details
No.of Flats Sold in AY 2013-14	12 Nos.
Total Sales Consideration (including consideration for car parks) received as per agreement rate	Rs. 52,08,5 7, 725/-
Less: Consideration of Car Parks ( as per Agreement Rate)	(Rs. 1,44,00,000) (4 car parks * Rs. 3,00,000 per car park * 12 Nos.
Net Consideration ( as per agreement rate) for sale of flats	Rs. 50,64,57,725/- (Rs. 52,08,57,725 – Rs. 1,44,00,000)
Agreement value represents 53.33% (100% – 46.67%) of total sales consideration. Thus, the balance 46.67 i.e. the cash component (ON MONEY) for sale of Flats comes to Rs. 44,32,09,864/-	Rs. 44,00,000/- (Rs. 50,64,57,725 / 53.33%) * 46.67%

Computation of ON MONEY (Cash Consideration) for sale of Car Parks

Particulars	Details
No.of Car Park Sold in AY 2013-14 (each flat has 4 Nos. of car parks)	48 Nos.
Cash Component on each Car Park	Rs. 6,00,000/-
ON MONEY received for sale of car parks	Rs.2,88,00,000/- (48 Nos. * Rs. 6,00,000 per car park)

Thus, Rs. 47,20,09,864/- [ Rs. 44,32,09,864 (+) Rs. 2,88,00,000] is considered as undisclosed income and is added to the total income of the assessee.

5. On appeal, the ld. CIT(A) held that the Revenue was able to find only one instance of payment of on-money (cash) i.e. in relation to sale of M/s Satyam Bubna(HUF) and accordingly confirmed the addition made by the AO u/s 68 of the Act to the extent of Rs.4,81,38,000/-. The Ld. CIT(A) however held that extrapolation of unaccounted sales done by the AO on the basis of this singular instance was untenable. In support of this finding, the Ld. CIT(A) relied on the decisions of the Hon’ble Delhi High Court in the cases of Anita Rani reported in 392 ITR 501 and Kurele Papers Mill reported in 380 ITR 571 and Hon’ble Bombay High Court in the case of C.J. Saha & Sons reported in 246 ITR 671. The Ld. CIT(A) accordingly deleted the balance addition of Rs.42,38,71,864/-. The relevant findings of the Ld. CIT(A) in this regard are as follows:

“(3) I have perused the assessment order, reply of the assessee. RB-12, pag3-3 clearly shows that it is an accounts statement of Mr. Sat yam Bubna for purchase of property. The assessee has not denied that the cheque portion mentioned in this seized material has not been received by the assessee. Therefore, it is clear that the paper relates to purchase of flat in Shiromani Project by Mr. Sat yam Bubna. RB-12/ 3 also clearly specifies that the total consideration is for Rs. l0,40,25,000 / – and the agreement value would be Rs.5,4 7,60,000/ -. It also specifies substantial amount of Rs. 4,81,38,000/ on receipt in otherwise mode (cash mode). Therefore, the finding of the A. O that the assessee has received an amount of Rs. 4,81,38,000 on sale of flats inShiromani project is correct. It is also seen from the RB-12 Page-2 hat Mani Square Ltd. is also charging interest on the overdue amount. This also shows that these papers relate to sale of flat by Mani Square Ltd to Sat yam Bubna, HUF. I also agree with the observation of the A. O. that in view of the noting like received till date, short fall ,deficit etc. indicates that these papers were prepared by Mani Square Ltd. and sent to Sat yam Bubna, HUF for payments follow up(AO page -6).

Regarding the point of the assessee that third party document cannot be used to foist liability on the assessee, it may be pointed out that income tax proceedings are in the nature of civil proceedings and therefore, what is required is preponderance of probability and not proof beyond doubt. The noting details which were seized from search in the case of clearly indicates that the assessee has received cash on sale of flats. Regarding the assessee’s statement that Mr. Sat yam Bubna, HUF has not accepted these papers in his statement recorded. Non admission of alleged unaccounted transaction will not nullify the evidence gathered which are fairly detailed and authentic. In view of the above discussion, I agree with the findings of the A. O. that these papers does indicate received for unaccounted money on sale of particular flats by Mani Square Ltd. and therefore, in my opinion, the unaccounted cash money received of Rs.4,81,38,000/- could be taxable in the hands of the assessee.

………

5.10 I have perused the submission of the assessee and the case laws on this subject as to whether extrapolation should be done for unaccounted sales found in the case of the assessee or not. In the case of C.J. Saha and sons 246 ITR 671 undisclosed sales for three months was found extrapolation to the entire block period was found to be non tenable by Mumbai High Court. In the case of M/s. Ford Project Pvt. Ltd. Vs. DCIT, ITA No.11213/Cal/2011 addition of Rs. 64.83 crore made by extrapolation of noting in seized material RN / 5 was not found tenable. The Hon ‘ble Court held that the assessee was bound by the presumption u/ s.292C of the Act in respect of seized papers and addition on account of On Money can be limited to the seized material, no further addition was sustained. In the case of Savitri Developers Pvt. Ltd. ITA No.401/Amd./2014 and 3188/A md/2014 two purchasers had given a statementfor payment of ON Money on sale of Flats. Department sought extrapolating it to all the flats sold by the assessee. While the addition for ON Money paid for two flats was upheld, the extrapolation was struck down. Delhi ITAT In Minda Industries Vs. DCIT has also upheld that extrapolation would not be allowed. This view is also supported by the case of Smt. Anita Rani 392 ITR 501 Delhi and Kurele Papers Mill 380 ITR 571. In view of the above case laws I agree that since, in the instant case, the only one instance for payment of On Money has been found therefore, while addition to the extent of the actual material found can be sustained but its extrapolation to all the flats sold by the assessee cannot be sustained.

Therefore, I agree that while addition of Rs.4,81 ,38, 000/ – being sale would be taxable on project completion basis in the year in which Shiromani Project is completed (as per the Ld. A/R the assessee is following project completion method for Shiromani Project. However, the addition made on the basis of exploration amounting to Rs.47,20,09,864/- cannot be sustained. Therefore, ground no. 3 is partly allowed.”

6. The AO in his impugned order further referred to the document printed from the seized hard disk ID marked, SVPL-PD-1-33A, Canal Circular Road-File No.F-Loan.xls‑Cash which according to AO showed that the assessee had received loan of Rs.75.99 crores from more than 50 parties on different dates. The AO also referred to the documents seized and ID marked MSL/8 Pages 23 & 24 which according to him were acknowledgment slips of cash loans. However, the AO thereafter acknowledged the fact that the notings found in SVPL-PD-1-33A, Canal Circular Road-File No.F-Loan.xls­Cash had already been considered in the preceding search and offered to tax by the  assessee before the Income-Tax Settlement Commission,[in short ITSC] Kolkata. The  AO further observed that the documents seized and ID marked MSL/8 Pages 23 & 24  were duly covered under Income Disclosure Scheme, 2016 (in short IDS scheme 2016).  The AO accordingly did not draw any adverse inference with reference to these seized  documents. According to the AO, however, the aforesaid facts necessitated enquiry into the unsecured loans taken by the assessee. The AO claimed to have undertaken a three step process wherein, (a) Firstly he issued summons u/s 131 of the Act to verify physical identity of parties (lenders), (b) Secondly to cross-check the names of the lenders with the departmental database of shell companies and (c) Thirdly to check the financial creditworthiness of the companies whose notices returned un-served. Undertaking this exercise, the AO identified fifty two (52) lenders, out of which according to AO, forty two (42) lenders were shell companies which had advanced loans of Rs.34,08,50,000/- on which interest of Rs.3,04,62,997/- was paid. Five (5) lenders had weak financials whose principal sum was Rs.5,65,00,000/- on which interest of Rs.15,50,466/- was paid. The AO thereafter set out “entry operator” wise summary of the loan creditors and extensively reproduced statements of several so-called entry operators to conclude that the loan creditors were controlled and managed by these so-called entry operators and that the unsecured loans obtained from these loan creditors were in the nature of accommodation entries provided by them to route assessee’s own unaccounted monies. The AO accordingly added outstanding unsecured loans of Rs.39,73,50,000/- by way of unexplained cash credit u/s 68 of the Act and disallowed the interest of Rs.3,20,13,463/- paid on such unsecured loans u/s 69C of the Act. Aggrieved by the order of the AO, the assessee preferred an appeal before the Ld. CIT(A). In the appellate order, the Ld. CIT(A) in principle upheld the additions made u/s 68 & 69C by the AO, but directed the AO to exclude the opening balance of loans of Rs.17,03,57,761/- brought forward from earlier years after verification and also reduce the quantum of loan added on account of M/s Earth Link Estates Pvt Ltd from the incorrect figure of Rs.3 crores to the actual loan amount of Rs.30 lacs.

7. The AO had further disallowed sum of Rs.15,07,993/- u/s 40A(3) of the Act. According to AO, the entries in the books of accounts found from MSL/HD/1, showed that cash payments exceeding Rs.20,000/- were made in a single day to the two persons, namely Shri Proloy Mondal and Shri Satyendra Singh and therefore added the aggregate sum of Rs. 15,07,993/- by way of unaccounted transactions of the assessee. On appeal, the CIT(A) held the disallowance to be unsustainable on three grounds viz., (a) the addition was made without confronting the assessee which was against the principles of natural justice, (b) since addition/s by way of unaccounted receipt were confirmed then the assessee was entitled to benefit of telescoping these unaccounted expenses and (c) the assessee had duly substantiated that these entries were recorded in the books of accounts and that these expenses were disbursed/paid in cash ‘through’ assessee’s own staff, namely Shri Proloy Mondal and Shri Satyendra Singh and not ‘to’ these persons.

8. It is further noted that the AO had separately framed the income-tax assessment u/s 153A/143(3) dated 31.12.2018 of M/s IQ City Infrastructure Pvt Ltd. (hereinafter referred to as “M/s. IQCIPL”) which, according to AO, stood amalgamated with the appellant/ assessee vide order of the Hon’ble Calcutta High Court dated 12.12.2016. The AR however pointed out that M/s IQCIPL stood amalgamated with the appellant/assessee on 06.03.20 17. He further submitted that although the Department was informed about the amalgamation, but the notice u/s 153A dated 05.02.2018 was issued in the name of the non-existent entity. Our attention was drawn to the notice issued u/s 143(2) dated 05.10.2018 which was also issued in the name of the non-existent entity. The AO however framed the assessment order in the name of “M/s IQ City Infrastructure Pvt Ltd amalgamated into M/s Mani Square Ltd vide Hon ’ble High Court at Calcutta Order dated 12.12.16 in C.P. No. 864 of 2016 connected with C.A. No. 322 of 2016”. The AO in this separate assessment order identified nine (9) loan creditors who had advanced loans to M/s IQCIPL, which according to him were in the nature of accommodation entries. The AO extensively reproduced statements of several so-called entry operators to conclude that these nine loan creditors were controlled and managed by the so-called entry operators and that the unsecured loans obtained from these loan creditors were in the nature of accommodation entries provided by them to route assessee’s own unaccounted monies. The AO accordingly added principal loan amount of Rs.2, 15,00,000/- by way of unexplained cash credit u/s 68 of the Act and disallowed the interest of Rs.25,76,2 19/- paid on such unsecured loans u/s 69C of the Act. Aggrieved by this separate order of the AO, the assessee raised various grounds challenging the addition/disallowance made therein, which formed part and parcel of the main appeal filed by the appellant i.e. M/s Mani Square Limited before the Ld. CIT(A). The Ld. CIT(A) in his consolidated appellate order dated 13.08.2019 confirmed the additions/disallowances made by the AO in the separate assessment order passed in the case of M/s. IQCIPL. Since M/s. IQCIPL stood amalgamated with the assessee and it being no longer in existence from 06.03.2017 and onwards, the appellant/assessee, being the successor entity/assessee, has agitated the disallowances/additions confirmed by the Ld. CIT(A) with respect to M/s. IQCIPL in the present appeal filed for the AY 20 13-14.

9. Aggrieved by the order of Ld. CIT(A), the assessee as well as Revenue are in appeal before us by taking the following grounds for AY 20 13-14.

Assessee’s Grounds Of Appeal

1. That, the impugned additions/disallowances made by the Ld. A.O., and sustained by the CIT(A) are illegal, arbitrary, erroneous, bereft of jurisdiction and unsustainable in law.

2. That, the impugned additions/disallowances made by the Ld. A.O., and sustained by the CIT(A) are bereft of jurisdiction and bad in law, since no such incriminating material has been found/discovered during the course of the Search and Seizure operations dt.22. 06.2016 conducted at the business premises of the Assessee to warrant the reopening of a concluded assessment, and making/sustaining the subsequent impugned additions/disallowances under assessments concluded u/s 153A of the I. T.Act, 1961.

3. That, the Ld. A.O. has erred and the Ld.CIT(A) has wrongly sustained the impugned addition made vis-à-vis the sale of flat and car park(s) in the Shiromani Project on the alleged basis of cash consideration having been received by the Assessee against the sale of flat and car park(s) to Satyam Bubna (HUF).

4. That, the Ld. A.O. has erred and the Ld.CIT(A) has wrongly sustained the impugned addition made vis-à-vis the sale of flat and car park(s) in the Shiromani Project, by erroneously placing reliance on the documents seized during the course of the third party search dt. 22.09.2015 conducted at the business premises of the Ambica Datu Group, and the third party statement of Mr. Satyam Bubna, dt. 17.11.2015 u/s 132(4) of the I. T. Act, 1961 in spite of the fact that they do not in any manner implicate the Assessee to warrant the impugned addition u/s 153A of the I. T. Act, 1961.

5. That, the Ld. A.O. has erred and the Ld.CIT(A) has wrongly sustained the impugned addition made vis-à-vis the sale of flat and car park(s) in the Shiromani Project to Satyam Bubna (HUF), by placing reliance on third party material and third party statements – in spite of the fact that the said material seized from the premises of Ambica Dattu Group and the statement of Satyam Bubna u/s 132(4) were neither provided, nor confronted to the Assessee, and neither was the opportunity of cross examination provided to the Assessee.

6. That the Ld. A. O. has erred and the Ld. CIT(A) has wrongly sustained the impugned addition u/s 68 solely on suspicion, surmises and conjures without considering the fact that the entire transaction for unsecured loans is supported by proper documentary material/evidence(s) on record proving identity, genuineness and creditworthiness of the respective transactions, and which have not been disputed and/or rebutted and/or doubted by both the lower authorities.

7. That the Ld. A. O. has erred and the Ld. CIT(A) has wrongly sustained the impugned addition u/s 68 solely on “borrowed satisfaction” based on the alleged information received from DDIT, Kolkata, and pre-existing departmental data and third party statements of unrelated third parties recorded by the Investigation Wing without conducting any such independent enquiry and investigation of their own to arrive at their own independent conclusions vis-à-vis the Assessee ’s case in hand to sustain the impugned additions u/s 68 of the I. T. Act, 1961.

8. That the Ld. A. O. has erred and the Ld. CIT(A) has wrongly sustained the impugned addition u/s 68 without considering the settled position of Law which has consistently held that addition(s) made on the basis of statements recorded at the back of the Assessee without affording him an opportunity of cross-examination before passing the assessment order is in gross violation of the principles of natural justice and thus bad in law, especially when the assessee has no where been implicated in such third party statements.

9. That, the Ld. A.O. has erred and the Ld.CIT(A) has wrongly sustained the impugned addition u/s 68 by erroneously relying on “borrowed satisfaction” to assume and presume the existence on an alleged modus operandi, the principle of preponderance of probabilities, surrounding circumstances and human conduct to hold that the Assessee has not discharged his burden of proof under law, in spite of that fact that both the lower authorities have not once doubted and/or rebutted the material/evidences brought on record by the assessee, that effectively meet the ingredients of Sec. 68 (i.e., identity, geniuses and creditworthiness) and which thereby result in the discharging of the Assessee ’s burden of proof.

10. That the Ld. A.O. has erred and the Ld.CIT(A) has wrongly sustained the impugned addition u/s 69C with respect to the disallowance of interest on such unsecured loans in an unwarranted, whimsical and arbitrary manner, purely on the basis of surmises and conjectures.

11. That the Ld. A.O. has erred and the Ld.CIT(A) has wrongly sustained the impugned addition u/s 69C with respect to the disallowance of interest on such unsecured loans in complete ignorance of the fact that the addition u/s 69C was unwarranted since the payment of interest was out of the regular books of accounts of the Assessee, the source of which was duly explained, and no such transaction was undertaken outside the regular books of accounts.

12. That, since the order of the Ld. CIT(A) on the above issues suffers form illegality, and infirmity and is devoid of any merit, the impugned additions sustained by the Ld. CIT(A) ought to be quashed and your Assessee be given such relief(s) as prayed for.

13. That, the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/ or rescind any or all of the above grounds.

14. That, the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/ or rescind any or all of the above grounds.

Revenue’s grounds of appeal

“1. On the facts and circumstances of the case, the Ld. CIT(A) is not justified in law as well as on facts by allowing the appeal of the assessee regarding addition of Rs. 42,38,71,864/- on account of undisclosed income as being the cash consideration received by the assessee against the sale of 12 flats and 48 car parks in the Shiromani Project.

2. On the facts and circumstances of the case, the Ld. CIT(A) is not justified in law as well as on facts by allowing the appeal of the assessee regarding addition of Rs. 15,07,993/- as undisclosed expenses on account of payments made by the assessee to the Proloy Mandal and Satyendra Singh on the basis that no such explanation had been received with respect to the said payment.”

10. The Ld. AR, Shri S. K. Tulsiyan, Advocate, appearing on behalf of the assessee raised additional grounds in the appeals for AYs 2013-14, 2014-15 and 2015-16. Since additional grounds raised in appeal are identical for all these three (3) years, we reproduce the additional grounds of appeal for AY 2013-14 as under:

1. The Ld. AO erred in passing an order u/s 153A/143(3) of the IT Act, 1961 for AY 2013-14 in the case of the Appellant who is now a non existing entity after Order dt. 06.03.2017 passed by the Hon ‘ble Calcutta High Court that granted approval of the amalgamation/merger of M/s IQ City Infrastructure Pvt. Ltd td. with M/s Mani Square Pvt. Ltd. w.e.f 06.03.2017 Thus, the Assessment Order passed by the Ld. AO dt. 31.12.2018 is bad in Law and thus void ab initio in nature.

2) That the Ld. A.O. has erred is passing a separate assessment order u/s 143 (3)/153A of the T Act for AY 2013-14 as well as raising three separate demand u/s 156 of the I.T Act, for M/s Mani Square Ltd., for M/s IQ City Infrastructure Pvt. Ltd. in spite of the fact that M/s IQ City Infrastructure Pvt. Ltd. stood merged/amalgamated with M/s Mani Square Ltd. vide Order dt. 06.03.2017 passed by Hon ‘ble Calcutta High Court (respectively), therefore rendering their existence as nonexistent in Law.

3) That the Ld. A.O has erred in computing a separate total income for the amalgamating/merging entity, i.e., M/s IQ City Infrastructure Pvt. Ltd. and the amalgamated/merged entity (M/s Mani Square Ltd.) in complete ignorance of the fact and law that upon the merger/amalgamation of the Appellant with M/s Mani Square Ltd. vide Order dt. 06.03.2017 of the Hon ‘ble Calcutta High Court, only one such total income ought to have been computed as per the provisions of the Income Tax Act, 1961 in the name of the merged/amalgamated entity, i.e., M/s Mani Square Ltd.”

11. It is noted that the above additional grounds have been raised for the first time before this Tribunal. We note that the issue involved in these additional grounds is purely legal in nature. The jurisdictional facts relating to these grounds are already available on record and no verification of new fact is required. Thus, following the ratio of the decision of the Hon’ble Supreme Court in the case of NTPC Vs. CIT 229 ITR 383, we deem it fit to admit this legal issue for adjudication.

12. After giving thoughtful consideration to the facts of the present case and the grounds raised in appeal by both parties and taking their consent, we frame the following issues/questions for our adjudication.

(A) Whether in absence of any incriminating material found in the course of search at the premises of the appellant, the additions/disallowances made in the assessments of the appellant and M/s IQCIPL which were unabated [since assessment of AY 2013-14 was non-pending] on the date of search, could be held to be sustainable on facts and in law?

(B) Whether the Ld. CIT(A) was justified in confirming the addition made on account of alleged on-monies of Rs.4, 81,38,000/- received upon the sale of flat and car park(s) to M/s Satyam Bubna (HUF) in the Shiromani Project ? If yes, whether based on this singular instance, the AO was justified in extrapolating and making addition by way of unaccounted sales in respect of all units and car parks sold in the Shiromani Project ?

(C) Whether the Ld. CIT(A) was justified in confirming the AO’s order making addition on account of unsecured loans and interest paid thereon u/s 68 & 69C of the Act?

(D) Whether the Ld. CIT(A) was justified in deleting the addition of Rs. 15,07,993/- made by the AO by way of unaccounted transactions conducted by the appellant ?

(E) Whether the AO could be held to have validly assumed jurisdiction by issuing notices u/s 153A and 143(2) in the name of non-existent entity (M/s IQCIPL) and consequent thereto frame separate assessment order dated 31.12.2018 and whether such action of the AO was tenable in the eyes of law or not ?

13. We first proceed to answer the question (A) which is again repeated for the sake of ready reference (A) Whether in absence of any incriminating material found in the course of search at the premises of the appellant, the additions/disallowances made in the assessments of the appellant and M/s IQCIPL which were unabated [since assessment of AY 2013-1 4 was non-pending] on the date of search, could be held to be sustainable on facts and in law?

We note in light of the facts narrated in the preceding paragraphs, it is noted that on the date of search i.e. 22-06-2016, income tax assessment for AY 2013-14 both in the matters of the appellant as well as M/s IQCIPL was unabated. We note that the provisions of Section 1 53A of the Act, forms part of Chapter XIV of the Act contain special provisions for completing assessments in case of search conducted u/s 132 of the Act or requisition made u/s 1 32A of the Act. These provisions can be invoked only in cases where the Income-tax Department has exercised its extra ordinary powers of conducting search and seizure operations after complying with stringent pre-conditions prescribed in Section 132 of the Act. We do not deny the ld. CIT, DR’s contention that once a search u/s 132 is conducted against a person, then irrespective whether any incriminating material is found, the AO is required to proceed against such person for completing the assessments u/s 153A of the Act for the specified six assessment years. To this extent, there is no quarrel. However we find that Section 153A itself creates the fine distinction/differentiation amongst specified six assessment years depending whether prior to the date of search, the assessment proceedings are pending or not before the AO. We note that the relevant section itself clarifies that where an assessment was already completed against an assessee and any appeals or further proceedings are pending, then such appeals or other proceedings do not abate. We should keep in mind that merely because an assessee is subjected to search u/s 132 of the Act, such action by itself does not give carte blanche to the Department to subject such an assessee to the rigors of the assessment afresh for all the six years. It is for this reason that the Parliament in its wisdom has categorically created two classes among the six years, (a) un-abated assessment and (b) abated assessments. Consequent to a search conducted u/s 132 of the Act, the AO is required to issue notices u/s 153A of the Act to assess the income of the assessee for six assessment years preceding the date of search. These six assessment years comprise of assessments which are not abated ( non-pending assessment before AO on the date of search); and assessments which are pending 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. Considering these aspects the Hon’ble Delhi High Court in the case of CIT vs Kabul Chawla reported in (2016) 380 ITR 573 (Del) held as under:-

“37. On a conspectus of section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:

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 A Ys immediately preceding the previous year relevant to the AY in which the search takes place. 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 Ld AOs as a fresh exercise.

The Ld AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The Ld 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”.

Although Section 153A 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 Ld 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.”

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 complete assessment proceedings.

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 Ld AO.

Completed assessments can be interfered with by the Ld 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.”

38. The present appeals concern AYs 2002-03, 2005-06 and 2006-0 7, on the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed.”

14. We find that the Hon’ble Delhi High Court while adjudicating the appeal in the case of CIT vs Kabul Chawla (2016) 380 ITR 573 had taken judicial note of host of the earlier decisions in the cases of CIT vs Anil Kumar Bhatia reported in (2013) 352 ITR 493 (Del) ; CIT vs Chetan Das Lachman Das reported in (2012) 211 Taxman 61 (Del HC) ; Madugula Venu vs DIT reported in (2013) 215 Taxman 298 (Del HC) ; Canara Housing Development Co. vs DCIT reported in (2014) 49 com 98 (Kar HC) ; Filatex India Ltd vs CIT reported in (2014) 229 Taxman 555 (Del HC) ; Jai Steel (India) vs ACIT reported in (2013) 219 Taxman 223 (Del HC) ; CIT vs Murli Agro Products Ltd reported in (2014) 49 taxmann.com 172 (Bom HC) ; CIT vs Continental Warehousing Corporation (Nhava Sheva) Ltd reported in (2015) 374 ITR 645 (Bom HC) and All Cargo Global Logistics Ltd vs DCIT reported in (2012) 137 ITD 287 (Mum ITAT) (SB). We also find that Revenue’s SLP against the decision of the Hon’ble Delhi High Court in the case of Kabul Chawla (Supra) was dismissed by the Hon’ble Apex Court which is reported in 380 ITR (St.) 4 (SC).

15. We also find that the Hon’ble Jurisdictional High Court in the case of Principal CIT vs M/s Salasar Stock Broking Ltd in G.A.No. 1929 of 2016 ITAT No. 264 of 2016 dated 24.8.20 16 endorsed the aforesaid view of Hon’ble Delhi High Court in Kabul Chawla’s case. The Hon’ble High Court also placed reliance on their own decision in the case of CIT vs Veerprabhu Marketing Ltd reported in (2016) 73 taxmann.com 149 (Cal HC) and held as follows:

“Subject matter of challenge is a judgement and order dated 18th December, 2015 by which the learned Tribunal dismissed an appeal preferred by the Revenue registered as ITA No. 1775/Kol/2012 and allowed a cross-objection registered as CO-30/Kol/2013 both pertaining to the assessment year 2005-06. The learned Tribunal was of the opinion that the Assessing Officer had no jurisdiction under Section 153A of the Income Tax Act to reopen the concluded cases when the search and seizure did not disclose any incriminating material. In taking the aforesaid view, the learned Tribunal relied upon a judgement of Delhi High Court in the case of CIT[A] vs. Kabul Chawla in ITA No. 707/2014 dated 28th August, 2014. The aggrieved Revenue has come up in appeal.

Mr. Bagaria, learned Advocate appearing for the assessee, submitted that more or less an identical view was taken by this Bench in ITA 661/2008 [CIT vs. Veerprabhu Marketing Ltd.] wherein the following views were expressed –

“We are in agreement with the views expressed by the Karnataka High Court that incriminating material is a pre- requisite before power could have been exercised under section153C read with section 153A.

In the case before us, the assessing officer has made disallowances of the expenditure, which were already disclosed, for one reason or the other. But such disallowances were not contemplated by the provisions contained under section 153C read with section 153A. The disallowances made by the assessing officer were upheld by the CIT(A) but the learned Tribunal deleted those disallowances.”

In that view of the matter, we are unable to admit the appeal. The appeal is, therefore, dismissed.”

16. Considering the judicial precedents (supra) on the subject, particularly the decision of the Hon’ble jurisdictional Calcutta High Court in the case of PCIT vs Salasar Stock Broking Ltd. (supra) which is binding upon this Tribunal as well as the Hon’ble Apex Court decision, we hold that in the case of unabated assessments of an assessee, no addition is permissible in the order u/s 1 53A of the Act unless it is based on any tangible, cogent and relevant incriminating material found during the course of search qua the assessee and qua the AY.

17. In view of the above legal position, let us now proceed to examine whether the additions/disallowances which the AO made in the orders impugned in this appeal [AY 2013-14] was based on or made with reference to any incriminating material/document found in the course of search. The material referred to by the AO in the order impugned to justify the addition/s was as follows:

Sl No.	Document	Found From	Relatable Addition
(I)	RB/12 Pages 2,3,6&7	Ambica Dhatu Group	Unaccounted on-monies on sale of flat to Mr. Bubna – Rs.4,8 1,38,000/-
(II)	MSL/23 Pages 1 to 3, MSL/8 Page 13, SJ/MHD/MZ Page 2 and MSL/21 Page 32 to 36	Appellant	Extrapolation of unaccounted sales w.r.t other flats and car parks sold in Shiromani Project – Rs.42,38,71,864/-
(III)	Third Party Statements recorded in 2013-2015	Obtained from public domain of the Department	Additions u/s 68 & 69C of the Act – Rs.42,93,63,463/- [Appellant] and Rs. 2,40,76,219/- [IQ Infrastructure Pvt Ltd]
(IV)	MSL/HD/1	Appellant	Cash payments in excess of Rs.20,000 – Rs.15,07,993/-

18. Before we proceed to examine the contents of the seized documents referred to by the AO, it is first relevant to understand as to the meaning of the expression “incriminating material” or evidence. There can be several forms of incriminating material or evidence. In order to constitute an incriminating material or evidence, it is necessary for the AO to establish that the information, document or material, whether tangible or intangible, is of such nature which incriminates or militates against the person from whom it is found. Some common forms of incriminating material, inter alia, are for instance, where the search action u/s 132 of the Act reveals information (oral or documented) that the assets found from the possession of the assessee in form of land, building, jewellery, deposits or other valuable assets etc. do not corroborate with his returned income (which includes earlier AY’s return also) and/or there is a material difference in the actual valuation of such assets and the value declared in the books of accounts. Further, incriminating evidence may also constitute of information, tangible or intangible which suggests or leads to an inference that the assessee is conducting transactions outside the regular books of account which are not disclosed to the Department. Incriminating material may also comprise of document or evidence found in search which demonstrates or proves that what is apparent is not real or what is real is not apparent . In other words, let us assume that an assessee has recorded transactions in his books or other documents maintained in the ordinary course of business, then it is discovered in the search certain material or evidence in such an event then, in order to hold the discovered material or evidence to be incriminating in nature, only when the discovered/seized material/evidence/ document should affect the veracity of the entries made in the books of the assessee and thus lead to the conclusion that the entries made regularly/maintained by the assessee do not represent true and correct state of affairs. Rather the evidence unearthed or found in the course of search would go on to show that the real transaction of the assessee was something different than what was recorded in the regular books and therefore the entries in the books did not represent true and correct state of affairs i.e. the assessee has undisclosed income/expense outside the books or that the assessee is conducting income earning activity outside the books of accounts or all the revenue earning activities are not disclosed to the tax authorities in the books regularly maintained or the returns filed with the authorities from time to time is not true etc. The nature of the evidence or information gathered during the search should be of such nature that it should not merely raise doubt or suspicion but should be of such nature which would prima facie show that the real and true nature of transaction between the parties is something different from the one recorded in the books or documents maintained in ordinary course of business. In some instances, the information, document or evidence gathered in the course of search, may raise serious doubts or suspicion in relation to transaction reflected in regular books or documents maintained in the ordinary course of business, then in such event the AO is not permitted to straightaway treat such material as ‘incriminating’ in nature unless the AO thereafter brings on record further corroborative material or evidence to transform his suspicion to belief and conclude that the transaction reflected in regular books or documents did not represent the true state of affairs and rather that can be the starting point of inquiry to un-earth further material or evidence to transform his suspicion to belief and conclude that the transaction reflected in regular books or documents did not represent the true state of affairs. Until these conditions are satisfied, it cannot be held that every seized material or document found in the course of search as incriminating in nature qua the assessee justifying the additions in unabated assessments. In other words, any and every seized material which comes in AO’s possession cannot be construed as ‘incriminating material’ straightaway. For instance, scribbling or rough notings found on loose papers cannot be straightaway classified as ‘incriminating material’ unless the AO establishes nexus or connect of such notings with unearthing of undisclosed income of the assessee. This nexus or connect has to be brought out in explicit terms with corroborative material or evidence which any prudent man properly instructed in law must be able to understand or correlate so as to justify the AO’s inference of undisclosed income from such seized incriminating material.

19. With these principles in mind, we now proceed to examine each of the seized documents referred to by the AO in the order impugned for AY 20 13-14. The first seized document referred to in the assessment order relates to addition made on account of on-money (cash) of Rs.4,81,38,000/- allegedly received outside the books on the sale of flat and car park(s) to M/s Satyam Bubna (HUF) in Shiromani Project. From the order of the lower authorities, it is abundantly clear that the basis of this impugned addition was the documents seized in the course of search conducted on 22-09-20 15 [ i.e. nine (9) months before search in assessee’s premises which was on 22.06.2016 ] against Ambica Dhatu Group (third party), bearing identification marks RB/12, Pages 2,3,6 & 7. The Ld. AR took us through the contents of the said documents and pointed out that these documents were mere rough notings on loose papers and therefore did not have any evidentiary value. Taking us through Pages 2 & 3 of the document ID Marked RB/12, the Ld. AR showed that nowhere did the name of the appellant/assessee or its project etc. was anywhere mentioned in the said papers. He further pointed out that this paper neither in any manner constitute agreement between the appellant/assessee and M/s Satyam Bubna (HUF) nor did the notings suggest that any sort of such agreement or arrangement had been entered into. He pointed out that there was also no specific noting of any cash payment made to the assessee in these documents. It was thus claimed that the rough notings found on loose papers seized from a third party premises did not in any manner incriminate the assessee let alone suggest that the assessee was in receipt of on-monies (cash). The Ld. AR took us through Pages 6 & 7 of RB/12 which was the letter of possession issued by the assessee to M/s Satyam Bubna (HUF) informing that vacant possession of the flat purchased by him was being handed over. It was thus claimed by the Ld AR that neither the contents of these papers were incriminating nor it even remotely suggested any receipt of cash/on-monies from third party M/s Satyam Bubna (HUF). Further the Ld. AR also took us through the statement given by Shri Satyam Bubna u/s 132(4) of the Act wherein he had explained the contents of the document ID Marked RB/12 found from his premises in the course of search. The Ld. AR pointed out that Mr. Bubna himself had stated that this bunch of documents comprised of loose papers which had rough calculations having no bearing on the actual transaction with the appellant/assessee. Shri Bubna also affirmed that all the payments made for purchase of flat in Shiromani Project were made through proper banking channel and that there was no involvement of any cash. The Ld. AR submitted that the explanation put forth by Shri Bubna was accepted by the Department and no addition on account of payment of alleged on-monies was made in the hands of M/s Satyam Bubna (HUF). Further, to support this contention, the Ld. AR invited our attention to the information gathered by the assessee under the Right to Information Act, 2005 [in short the RTI], which revealed that no adverse inference was drawn with regard to these documents ID marked RB/12 in the income-tax assessment against M/s Satyam Bubna (HUF) (third party). The Ld. AR also raised a legal objection to the AO’s action of referring to these documents ID Marked RB/12, which were admittedly seized in the course of search conducted on 22-09-20 15 at the premises Ambica Dhatu Group (third party), in the proceedings u/s 153A of the Act in the assessee’s case. According to the Ld. AR, the documents ID marked RB/12 did not constitute incriminating material found in the course of search at the premises of the assessee and therefore it could not be utilized for making any addition/disallowance qua the assessee in the unabated assessment completed u/s 153A of the Act. The Ld. AR pointed out the contradiction/double-standard in the action of the AO in the treatment of this document. According to him, on one hand the AO of the assessee treated the documents as incriminating though not seized from its premises, on the other hand, the AO of M/s Ambica Dhatu Group (third party) from whom the document was seized, did not thought it fit to draw adverse inference against it (for giving cash to assessee) which means according to Ld AR, the AO of M/s Ambica Dhatu Group did not treat the seized document as incriminating material against it and so as a natural consequence it (the same material) cannot be used against the assessee. The Ld AR further contented that if the AO of M/s Ambica Dhatu Group (third party which was searched earlier) was of the opinion that these documents belonged to the assessee, then the correct course of action would have been to record such satisfaction and forward these documents to the assessee’s AO to initiate proceedings u/s 153C of the Act, which was not done or resorted to against the assessee. Thus according to Ld AR, the AO was legally unjustified in making addition in proceedings u/s 153A of the Act on the basis of the third party seized documents since it did not constitute incriminating material found/unearthed in the course of search at the premises of the assessee. Per contra, the Ld. CIT, DR Shri Jamir ably supported by Ld. Addl. CIT, DR Smt. Ranu Biswas vehemently supported the order of the lower authorities and submitted that the AO has reproduced in the assessment order itself all the materials on the basis of which only addition has been made and accordingly he wants us to uphold the action of the AO.

20. Having heard both the parties at length and after giving our thoughtful consideration to the submissions of rival parties and after careful examination of the material on record, it is noted that the Pages 2 & 3 of the document ID Marked RB/12 are un-earthed from third party premises and nine (9) months before search took place in assessee’s premises. And these are loose sheets of paper which neither contained the name of the assessee nor any mention of its project. Further the document also does not suggest that this document was prepared at the instance of the assessee. After going through each line of these loose papers, we do not find any mention of any cash payment by M/s Satyam Bubna (HUF) to the assessee. Moreover even if the document is taken at its face value [literal sense] then also we note that it suggests that these notings pertained to the year 2010 and therefore no inference could be drawn against the assessee qua the relevant AY 20 13-14. It is however observed that the AO had assumed that the amounts mentioned as ‘otherwise’ represented on-monies/cash paid by M/s Satyam Bubna (HUF) to the assessee for the relevant AY 2013-14. The AO however has not been able to spell out as to how he arrived at such conclusion. The fact that some of the notings on the said document pertained to the assessee and were found recorded in its books may at best trigger suspicion in his mind but this fact alone and by itself does not, suggest that each and every noting on the loose papers pertained to the assessee or that all other amounts mentioned in this document represented on-monies/cash paid to the assessee over and above the agreed sale consideration outside the books of accounts. However, no corroborative material has been brought on record by the AO to support the presumption drawn from notings on these loose papers even after the search conducted on assessee’s premises. Moreover, we find the Ld. AR’s reference to the excerpts from the statement of Shri Satyam Bubna recorded in the course of his search u/s 132(4) on 17.11.2015 to be of much relevance. The relevant part of the statement is as follows:

“Q15. I am Showing loose bunches bearing ID mark RB-12 found during the course of search operation on 22/9/15 at your residence. It relates to “Shiromani ” premises no. 60/1  Ballygunge Circular Rd. Kolkata, agreement dt 7/6/10 between Satyam Bubna (HUF) and Mani Square Ltd. it is noticed that out of Rs.10,40,25,000/- Rs.4,81,38,000 was paid by  otherwise mode. It is also noticed in the account statement of Satyam Bubna cash of Rs.49265000/- was paid to Mani Square Pvt. Ltd. against that property in cash. Please comment.

Ans. No cash payments were made in the above transaction. All payments were made by cheques and the account statement of Satyam Bubna was just an estimate and a rough  calculation not forming part of actual transaction. The property has been registered as per the valuation made by the Registrar of Assurance on 27/6/2014 by paying stamp duty.[Emphasis given by us]”

21. On perusal of the above statement recorded, it is noted that Shri Satyam Bubna, from whose premise these documents were found on 22-09-2015, had on oath stated u/s 132(4) of the Act that these documents were merely rough calculations prepared by him and did not form part of actual transaction. He also stated that all the payments were made to the assessee through account payee cheques and no cash transactions were made by him. The aforesaid statement given by Shri Satyam Bubna u/s 132(4) of the Act has evidentiary value and strengthens the assessee’s case that the Pages 2 & 3 of the document ID Marked RB/12 relied upon by the AO to justify the impugned addition were merely rough notings which was just an estimate and it cannot be a cogent basis to draw adverse inference against the appellant. We further note that the assessee had raised an RTI query dated 02.03.2020 with the information officer of the Income Tax Department wherein the following questions were raised in relation to the income-tax assessment of M/s Satyam Bubna HUF (third party):

1. Whether any such search assessment order(s) u/s 153A r.w.s. 143(3) of the Income Tax Act has been passed in the name of Satyam Bubna (HUF) for the Assessment Year (AY) 2010- 2011 and AY 2013-2014 pursuant to the search conducted on 22.09.2015

2. If the answer to Q.No. 1 is yes, then please provide for the copies of the search assessment orders passed u/s 153A r.w.s. 143(3) of the Income Tax Act that has been passed in the name of Satyam Bubna (HUF) for the AY 2010-2011 and AY 2013-2014.

3. If the answer to Q.No.1 is yes, then please also provide for the certified copy of the order sheet of the assessing officer w.r.t. the search assessment proceedings conducted in the case of Satyam Bubna (HUF) for the AY 2010-2011 and AY 2013-2014.

22. It is noted that in response thereto, the AO of Shri Satyam Bubna HUF furnished the following reply:

“Subject: Reply to your RTI Application vide Registration no: CCITK/R/E/20/00007 dated 02/02/2020.

The information required is as such:

Query no 1: No

Query No 2 & 3: NA”

23. Upon going through the above response to the RTI query, we find substance in the AR’s submission that when Shri Satyam Bubna had stated that these documents i.e. RB/12 were rough calculations, the AO of M/s Satyam Bubna HUF accepted his submission and neither drew any adverse inference nor made any addition on account of alleged cash payments in its hands as unexplained expenditure; then as a corollary the very same document cannot be said to constitute incriminating material or evidence qua the assessee. We further note that the asses see has also placed the copy of the sale deed dated 30.06.2014 along with its ledger at Pages 340 to 380 of the convenience compilation from which it is evident that all the transactions involving receipt of payments in lieu of sale of flat & car park to M/s Satyam Bubna HUF was conducted through proper banking channel without there being any involvement of cash. For the reasons discussed in the foregoing, we therefore hold that documents ID marked RB/12 cannot be construed to be ‘incriminating’ in nature qua the assessee for drawing adverse inference and so it cannot be considered as a basis for making any addition against the assessee.

24. We also find merit in the Ld. AR’s alternate contention that the documents ID marked RB/12 was a third party document found in the course of search conducted on a different person i.e. Ambica Dhatu Group and not the assessee; and therefore this document did not constitute incriminating material found in the course of search at the premises of the assessee, based on which any addition could be validly made in assessment u/s 153A of the Act. In this regard, we may gainfully refer to the Hon’ble Delhi High Court in the case of Pr. CIT vs Subhash Khattar in ITA No. 60 of 2017 dated 25.07.2017 wherein the Hon’ble Court, on similar facts, held that, no addition is permissible in an unabated assessment u/s 153A of the Act on the basis of evidence gathered in the course of search conducted against other third parties. The relevant facts involved in this judgment and the findings of the Hon’ble High Court are as follows:

3. The facts leading to the filing of the present appeal are that a search took place on 17th August, 2011 in the corporate office of AEZ Group at 301-303, Bakshi House, Nehru Place, New Delhi during which a hard disc was found and seized from which, a print out of a file named “D.P. Correction Sheet.xls” was taken. This sheet contained details of Sales Status of lndirapuram Habitant Centre and at serial No. 32 of the said sheet, the name of the Assessee appeared. According to the Revenue, the Assessee had invested a sum of Rs. 20 crores. Therefore, on 10th February, 2012, a search operation was undertaken under Section 132 of the Act in the case of the Assessee. There is no dispute that this search did not result in the discovery of any incriminating material qua the Ass essee.

…….

6. The Assessee went in appeal before the Commissioner of Income Tax (Appeals) who dismissed it by an order dated 27th November, 2014. A further appeal was filed by the Assessee before the ITAT. The ITAT, inter alia, found substance in the contention of the Assessee that the assessment under Section 153(A) of the Act, in the absence of any incriminating material found during the search on the premises of the Assessee was not sustainable in law. Reliance was placed on the decision of this Court in Commissioner of Income Tax v. Kabul Chawla, [2016] 380 ITR 573.

8. Consequently, the impugned order of the ITAT calls for no interference of this Court. The question framed by this Court on 7th February, 2017 is answered in negative, that is, in favour of the Assessee and against the Revenue.”

7. A question was posed to the learned counsel for the Revenue whether in the present case anything incriminating has been found when the premises of the Assessee was searched. The answer was in the negative. The entire case against the Assessee was based on what was found during the search of the premises of the AEZ Group. It is thus apparent on the face of it, that the notice to the Assessee under Section 153A of the Act was misconceived since the  so-called incriminating material was not found during the search of the Assessee’s premises.  The Revenue could have proceeded against the Assessee on the basis of the documents  discovered under any other provision of law, but certainly, not under Section 153A. This goes to the root of the matter.

8. Consequently, the impugned order of the ITAT calls for no interference of this Court. The question framed by this Court answered in negative, that is, in favour of the Assessee and against the Revenue.”

(emphasis supplied by us )

25. We note that similar view was expressed by this Tribunal in the case of Krishna Kumar Singhania & Others Vs DCIT, CC-3(3), Kolkata in IT(SS) Nos. 106 to 112/Kol/2017 dated 06.12.2017. In the decided cases also an independent search was conducted on 23.12.2014 in the business premises of M/s. Cygnus Equipment & Rentals Pvt Ltd and other companies. In the course of search documents having identification marks CG/1 to CG/11 & CG/HD/1 were seized and impounded. On the same date, another independent search u/s 132 on the assessee was conducted and in course thereof documents ID marked KKS/1 was found and seized. Consequent to the search, proceedings u/s 1 53A was initiated against the assessee. In the assessment framed u/s 153A, the AO made addition/s relying on the documents ID marked CG/1 to CG/11 & CG/HD/1 found in the course of search upon Cygnus Group. On appeal the Ld. AR of the assessee objected to the validity of the addition/s. The relevant submissions made by the Ld. AR before this Tribunal were as follows:

“He reiterated the submissions made before the lower authorities with regard to framing of additions in section 153A assessments without any incriminating material found thereon. He further stated that the only seized document found in the assessee ’s premises was KKS /1 comprising of 8 pages and the explanation given thereon explaining its contents had been duly accepted by the ld AO and no addition was made in section 153A assessments. He argued that the materials found and seized from the premises of any other company should be considered in their respective search assessments in view of presumption provided in section 292C of he Act. He argued further that if at all such materials are to be used against the assessee, then the ld AO of the other person (i.e the party from whose premises materials were seized) should record a satisfaction in terms of section 153C of the Act and transfer those materials to the AO of the assessee and the AO of the assessee should have initiated proceedings u/s 153C of the Act on the assessee on the very same material. In the instant case, the materials used in third party premises had been used against the assessee in section 153A assessments which is not tenable as per law.”

26. Upholding the contention of the assessee, this Tribunal deleted the addition/s made by the AO in the unabated assessments framed u/s 153A of the Act holding that no incriminating document was found in the course of search conducted upon those assessee/s. The relevant findings of this Tribunal are as follows:

10. We have heard the rival submissions. We find that it is not in dispute that there were no documents that were seized from the premises of the assessee except loose sheets vide seized document reference KKS /1 comprising of 8 pages , for which satisfactory explanation has been given by the assessee and no addition was made by the ld AO on this seized document. The seized document used by the ld AO for making the addition in section 153A assessment is CG/1 to 11 and CG/HD/1 which were seized only from the office premises of Cygnus group of companies in which assessee is a director. In this regard, it would be pertinent to note that as per section 292C of the Act, there is a presumption that the documents , assets, books of accounts etc found at the time of search in the premises of a person is always presumed to be belonging to him /them unless proved otherwise. This goes to prove that the presumption derived is a rebuttable presumption. Then in such a scenario, the person on whom presumption is drawn , has got every right to state that the said documents does not belong to him /them . The ld AO if he is satisfied with such explanation , has got recourse to proceed on such other person (i.e the person to whom the said documents actually belong to) in terms of section 153C of the Act by recording satisfaction to that effect by way of transfer of those materials to the AO assessing the such other person. This is the mandate provided in section 153C of the Act. In the instant case, if at all, the seized documents referred to in CG/1 to 11 and CG/HD/1 is stated to be belonging to assessee herein, then the only legal recourse available to the department is to proceed on the assessee herein in terms of section 153C of the Act. In this regard, we would like to place reliance on the recent decision of the Hon ’ble Delhi High Court in the case of CIT vs Pinaki Misra and Sangeeta Misra reported in (2017) 392 ITR 347 (Del) dated 3.3.2017, wherein it was held that, no addition could be made on the basis of evidence gathered from extraneous source and on the basis of statement or document received subsequent to search. Hence we hold that the said materials cannot be used in section 153A of the Act against the assessee.”

27. In this regard, we may also refer to the following observations made by the Ranchi Bench of this Tribunal in the case of Rajat Minerals (P) Ltd Vs DCIT reported in 114 taxmann.com 536;

“15. We shall now venture to delineate on yet another legal objection of assessee towards proposition (v) carved out in para 13 above. As per the aforesaid proposition, the controversy that arises for adjudication is on the scope and ambit of assessment proceedings in search cases under s. 153A of the Act. section 153A of the Act provides for the procedure for completion of assessment where a search is initiated under s. 132 of the Act or books of accounts or other documents or any assets are requisitioned under s.132A of the Act. The case propounded on behalf of the assessee is that additions/disallowances made in section 153A of the Act proceedings has no rational connection with incriminating material, if any, discovered as a result of search and in the absence of any speaking material against the assessee found as a result of search, the AO is estopped from exercising unfettered powers in the matter of unabated and already concluded assessments. It is further case of the assessee that the assessment order also does not make any reference to any incriminating material found as a result of search while making additions/disallowances. The additions/disallowances were made by taking cognizance of some TEP received in the course of the assessment proceedings under s.153A of the Act which mainly refers to the financial statement of the assessee. Noticeably, one of the major additions have been made under s. 68 of the Act which is not permissible unless the entries are found to be credited in the books maintained by the assessee. Once the entries are found to be entered in the books of assessee, the addition under s. 68 of the Act could not be made in unabated assessments in the absence of any contradictions emerging from incriminating documents unearthed in the course of search. No such reference has been made in the assessment order. The additions under s.68 of the Act has been made on the basis of credits appearing in financial statement annexed to TEP only which petition was received at a much later stage in the course of assessment post search. It was pointed out that a reference was, however, made to certain documents in the ‘remand proceedings’ before the CIT(A) at belated stage. The AO is not entitled to make radical changes in basis of assessment in the remand proceedings at belated stage. Without prejudice, a reference was made to the incriminating documents ‘CMB-24’ in the remand report is admittedly seized from the possession of other searched person namely ‘Core Minerals’ at Barbil. Seized documents marked as ‘AK-01’ was admittedly seized from ‘Padam Kumar Jain’. Document marked (CMB-1) was seized from ‘Core Minerals’. Documents bearing identification mark ‘UKD-1’ was also seized from third party which is unknown and no reference to such documents are found in the ‘list of inventories’ prepared at the time of search. No reference of such documents is also found in the statement recorded under s.132(4) of the Act. It was contended that alleged incriminating nature of information against the assessee as contented in TEP dated 21.11.2016 was obtained post search at a very belated stage after time limit for assessment in relation to A Ys. 2009-10, 2010-11, 2011- 12 & 2012-13 stood expired and thus remained unabated and achieved finality. It was however fairly conceded that assessments for AYs. 2013-14; 2014-15 & 2015-16 were pending assessment at the time of search and therefore normal assessments under s. 153A r.w.s. 143(3) of the Act would be possible in accordance with law subject however to the findings on plea towards all assessment orders being antedated are bad in law and non-est.”

28. In view of the facts discussed in the foregoing and the above judicial precedents, we are of the considered view additions/ disallowances made by the AO on account of alleged on-monies/cash received on sale of flats & car parks in the Shiromani Project was clearly beyond the scope of authority vested under section 153A of the Act owing to absence of any incriminating material or evidence deduced as a result of search conducted at the premises of the assessee in so far as unabated assessment for AY 20 13- 14 is concerned.

29. With regard to the documents ID marked MSL/23 Pages 1 to 3, MSL/8 Page 13, SJ/MHD/MZ Page 2 and MSL/21 Page 32 to 36 referred to by the AO in the impugned order, the Ld. AR invited our attention to Para 5.4 to 5.6 of the Ld. CIT(A)’s order to show that the Ld. CIT(A) had held that these papers do not contain any incriminating content to make addition in the hands of the ass essee with reference to the Shiromani Project. The relevant findings of the Ld. CIT(A) in the appellate order are as follows:

“5.4. The AO has also mentioned seized material MSL/23, Page-1, 2, 3 which indicate that the assessee received part of the sale consideration in cash. MSL/23 page-2, 3 also indicate possibility of receipt of part consideration in cash (Asst. Order Page 9, 10 & 11).

The Ld. A/R in his reply has stated that Mr. Bubna is a part time employee of Mani Group and the transaction mentioned in these papers relate to Mani Karn project and not with respect to Shiromani Project. I agree with the contention of the assessee that since these papers relate to Mani Karn Project therefore, no addition on the basis of these papers can be made in the case of Shiromani Project.

5.5. Seized document MSL/8, Page-13 relates to cash transaction made by client Manoj Rathi. However the AO has made addition for this in another assessment year and the paper would be relevant for that year’s assessment.

5.5.1. Extract of seized document (SJ/HD/MZ1 Page 2)- It is extract of Mobile Messages found from Srikant Jhunjhunwala. The papers show cash received/paid on different date to different persons. According to the assessee these papers were disclosed in IDS therefore, no addition can be made on the basis of these papers.

5.6. Seized document MSL/21, Page-32, 33, 34, 35 & 36-

These pages also indicate receipt of cash in some other project of Mani Group. However, this does not relate to Shiromani Project or any other project under Mani Square Ltd. Therefore, these papers will not be of much use in the assessment of Mani Square Ltd.”

30. The Ld. AR pointed out that the Revenue has not raised any grievance/grounds against the above findings of the Ld. CIT(A) in its appeal and therefore contended that these findings of fact by the Ld. CIT(A) have attained finality. At the time of hearing before us, neither the Ld. CIT DR was able to controvert this contention of the Ld. AR nor the grounds of appeal preferred by the revenue assails the aforesaid finding of fact by the Ld CIT(A). Therefore we find that the aforesaid factual finding of the Ld. CIT(A) crystallizes and therefore we do not see any reason to interfere with the order of the Ld. CIT(A) on this matter and confirm the finding of Ld. CIT(A) (supra) and accordingly hold that the documents ID marked MSL/23 Pages 1 to 3, MSL/8 Page 13, SJ/MHD/MZ Page 2 and MSL/21 Page 32 to 36 also did not constitute incriminating material or evidence qua the assessee.

31. Coming next to the additions made u/s 68 & 69C in the hands of the assessee and M/s IQCIPL (since merged into the appellant company), the AO for justifying the addition had referred to the statements of so-called entry operators recorded by different officers of Income-tax Department between the years 2013 to 2015. The Ld. AR pointed out that none of the statements referred to by the AO, justifying the additions made in the assessment order were recorded in the course of search conducted against the assessee on 06.2016 or in any proceedings connected with the said search. It is noted from the assessment order that the AO has stated that these statements and data were obtained by him from departmental database and public domain on which he placed reliance to justify the additions made u/s 68 & 69C of the Act. These averments of the AO make it clear that the alleged statements and data from public domain was not collected or found in the course of search conducted on 22-06-20 16. And neither the so-called entry operators were summoned by the AO nor examined by him independently in relation to the income-tax assessment of the assessee. It also appeared from the discussion in the assessment order that except, making selective reference to part of the statements of few persons, recorded between year 2013 to 2015 by some other officers of the Department, the AO himself never examined any of the so called entry operators independently during the assessment proceedings and elicited any answers so as to bring on record relevant facts which would prove that assessee was beneficiary of the accommodation entries allegedly provided by any of them and thus justify his adverse view. And moreover, if the AO wanted to still rely on the statements of third party to draw any adverse inference against the assessee/IQCIPL/Appellant, then he was duty bound to furnish a copy of the third party statement to assessee/IQCIPL/Appellant and then summon the third parties and examine them himself and thereafter allowed the assessee/IQCIPL/Appellant an opportunity to cross examine and thereafter if he is satisfied about the veracity of their statements then he can rely on such statement, which unfortunately the AO has not done, so the third party statement cannot be relied upon by the AO to draw adverse inference against the assessee/IQCIPL/Appellant. It has to be kept in mind that wide though his power, the AO must act in consonance with the rules of Natural Justice. One such rule is that he shall not use any material against the assessee without giving him an opportunity to meet it. In short, the AO cannot assess keeping the assessee in dark as to the materials against him. And even after the material/statement is furnished to the assessee, and the assessee contest the veracity of the statement against him, then the AO is bound to give an opportunity to the assessee to test the veracity of the statement on the touch stone of cross examination and thereafter only the AO can rely on the statement or else he cannot be allowed to rely on the statement of the third party against the assessee. (Refer Hon’ble Supreme Court decision in Andaman Timber Industries in Civil Appeal No. 4228 of 2006). In the circumstances we find merit in the Ld. AR’s claim that the third party statements relied upon by the AO without even recording their statement and allowing the assessee to cross examine, cannot justify the additions u/s 68 & 69C and the statements cannot be said to be incriminating material or documents found and/or collected in the course of search conducted against the assessee and so, cannot be used against the assessee.

32. For the above finding of ours, we rely on the decision rendered by the coordinate Bench of this Tribunal in the case of Bankatesh Synthetic Pvt Ltd Vs ACIT in IT(SS) No. 142/Kol/2018 dated 24.04.2019. In this decided case also the AO had made additions by way of unexplained share capital in assessment framed u/s 153A of the Act. The basis of the addition was the third party statements of alleged entry operators who had purportedly admitted of providing accommodation entries to the assessee. On appeal the Ld. CIT(A) confirmed the order of the AO. Before this Tribunal the question which came up for consideration was whether addition made by the AO u/s 68 of the Act was tenable when no proceedings were pending before the Assessing officer on the date of search and no incriminating material was found/unearthed by the search team from the premises or possession of the assessee. The assessee had contended that the statements of entry operators referred to by the AO for making the addition/s u/s 68 did not constitute ‘incriminating material found in course of assessee’s search’ and therefore the addition made in the assessment framed u/s 153A was legally invalid. Answering the question in favour of the assessee, this Tribunal held that the statements of alleged entry operators recorded in the actions conducted u/s 132/133A in their respective searches cannot be said to constitute ‘incriminating material found in the course of search upon the assessee’ and accordingly deleted the additions made in the order u/s 153A since no incriminating material was unearthed in the course of search in relation to an unabated assessment. The relevant findings of this Tribunal are as follows:

“7. Before us, ld Counsel for the assessee begins by pointing out that during both the search operations conducted in the case of Banktesh Group, no document or incriminating material was found or seized pertaining to the assessee company. The assessee’s assessment under section 143(3) of the Act also stood completed for the relevant assessment year and in absence of any incriminating material, found/ unearthed during the course of search u/s 132 of the Act, the ld AO had no jurisdiction to make such additions. The incriminating material is the sine qua non for making addition u/s 153A of the Act, which is absent in the assessee`s case under consideration. Therefore, according to the well settled principles of law, that is, in absence of any incriminating material, making additions to the assessee’s income already assessed u/s 143 (3)/153A/ 143(1) of the Act for unabated years, is not only without jurisdiction but also erroneous. Therefore, addition made by AO under section 68 of the Act, to the tune of Rs. 50,00,000/- is not sustainable in law and may be deleted.

8. On the other hand, ld DR for the Revenue, furnished before the Bench, a copy of written submissions and paper book. The written submissions of ld DR is reproduced below:

1. The assessee is a limited company engaged in textile business. It is one of the group companies of Banktesh Group.

2. A search and seizure operation was conducted in the case of Banktesh Group on 29/05/2012 and the assessee company was covered in the search warrant.

3. Thereafter again on 02/03/2016 a search and seizure operation was conducted in the case of Banktesh Group and the assessee company’s name was covered in the search warrant.

IT SS) A No. 142/Kol/2018 A.Y 2010-11 M/s. Banktesh Synthetics Ltd

4. Pursuant to the search operation a notice u/s 153A of the Act was issued to the assessee for A.Y. 2010-11 and in response the assessee filed the Return of Income on 10/12/2016 declaring a total income of Rs.5,98,550/-

5. Assessment u/s 153A/143(3) of the Act was completed on 31/12/2017 assessing the total income at Rs. 56,23,550/- and raised consequential demand of Rs. 28,25,940/-. In the assessment order the ld. ACIT, Central Circle–3(2), Kolkata (A.O.) made the following additions to the assessee’s income.

a. Addition u/s 68 of the Act on account of share capital- Rs. 50,00,000/- b. Addition of alleged expenditure on commission paid – Rs. 25,000/-

For raising the share capital u/s 69C.

Total Rs. 50,25,000/-

6) Mr. Keshav Kumar Bubna, the Director of the assessee company (BSL) and is the prima donna of the Bubna Group. He had admitted on oath that the assessee company was not having any business, earlier they were into textiles. (7)Company had issued shares (F. V.10+30 Premium) to two shares subscribing companies (SSCO), thus the premium of Rs. 30 is not based on commercial expediency, in which no prudent person/ company would invest.

As on 31/03/2010 Banktesh Synthetic limited, the assessee co. had allotted shares to two (2) share subscribing companies with face value of Rs. 10 with Premium of Rs. 30 total Rs 40 each per share.

It is against the human probability that anyone will invest and Pay Rs 10/- along with share premium of Rs. 30/- per share without having any future prospect of the earning by the company. It would be pertinent that assessee company BSL had discontinued its earlier business as mentioned by the director of assessee company Mr. Keshav Kumar Bubna (KKB), The current directors haven’t been able to justify, why the shares were priced at high premium of Rs. 30/- per share, without corresponding valuation of the company, which was already experiencing down turn in business prospect. In the normal circumstances it is not possible until unless all the two (2) companies are being controlled remotely by one person. All the circumstances manifests that these are all paper companies not having sufficient worth and created for providing entries of share application money or share capital or loans by way of accommodation entries.

(8) The accommodation entry provider (AEP) Mr. Bhagwan Das Agarwal in multiple statement recorded u/s 131, 133(1), 132(4) and 132(3) read with 132(4). On IT SS) A No. 142/Kol/2018 A.Y 2010-1 1 M/s. Banktesh Synthetics Ltd 1 0/012014 has replied to question no.8, “Please state the name of companies managed / operated by you and also state who are the directors in these companies” :

Ans: as far as my knowledge is concerned, I am having control of few companies, such as West Well Tie up Pvt. Ltd, Well Plan Tie up Pvt. Ltd, Malinath Tradecon Pvt. Ltd, And also names Shantanu Bose (DIN 01116428), Dinesh Kumar Patwari (DIN 00511386), Loknath Sen (DIN 01363525).

9. We have heard both the parties and perused the material available on record, we note that the original return of income under section 139(1) of the Act was submitted by the assessee company on 12.10.2010. The said Return of income of the assessee was processed under section 143(1) of the Income Tax Act, 1961, on 14.04.2011. Before us, the assessee is in appeal for assessment year 2010-11, which was completed on 14.04.2011.

We note that after completion of original assessment dated 14.04.2011, for A. Y.2010- 11, a search and seizure operation was conducted in the case of Banktesh Group on 29.05.2012 (first search) and the assessee company was covered in the search warrant, therefore, A. Y.2010-11 is an unabated assessment. Consequent upon the said search operation, assessment u/s 153A r/w 143(3) of the Act was completed on 30.03.2015 and no adverse inference was drawn in the said assessment order regarding the share capital raised during the previous year relevant to the A. Y. 2010-11.

Thereafter, again on 02.03.2016, a search and seizure operation (second search) was conducted in the case of Banktesh Group and the assessee company’s name was covered in the search warrant. Pursuant to the search operation, a notice u/s 153A of the Act was issued to the assessee for A. Y. 2010-1 1 and in response, the assessee filed the Return of Income on 10.12.2016, declaring a total income of Rs. 5,98,550/-. Thereafter, an assessment u/s 153A/143(3) of the Act was completed on 31.12.2017 assessing the total income at Rs. 56,23,550/-. In the Assessment Order, the Ld ACIT, Central Circle-3(2), Kolkata (AO) made addition u/s 68 of the Act on account of share capital, to the tune of Rs. 50,00,000/-.

IT SS) A No. 142/Kol/2018 A. Y 2010-1 1 M/s. Banktesh Synthetics Ltd We note that on the basis of the search conducted on 29.05.2012, the assessee’s assessment stood completed u/s 153A/ 143(3) of the Act, on 30.03.2015. We note that again, during the course of second search operation conducted on 02.03.2016, no documents pertaining to the assessee was found and/or seized, that is, there were no any incriminating material found or unearthed during the search. Therefore, in absence of any incriminating material being found in connection to the assessee, the addition of Rs. 50,00,000/- in garb of unexplained cash credit u/s 68 of the Act, made by the ld AO in the impugned assessment order is wholly untenable in law and on facts of the case. Thus, we note that in absence of any incriminating material or document found during the course of search, the Assessing Officer cannot make additions/disallowances in the assessments u/s 153A/143(3) of the Act for the unabated assessment years.”

33. We also place reliance on the decision of this Tribunal in the case of Loyalka Farms Pvt Ltd Vs DCIT in ITA(SS) No. 67/Kol/201 8 dated 14.11.2018. In the decided case also additions were made by the AO u/s 68 of the Act referring to statements of alleged entry operators in the unabated assessments which were completed u/s 153A of the Act. On appeal this Tribunal held that the third party statements by themselves do not constitute incriminating material found in the course of search upon the asses see and therefore deleted the additions made u/s 68 of the Act by the AO. The relevant findings of the Tribunal are as follows:

“8. We have heard the rival submissions. We find it would be necessary to address the preliminary issue of whether the addition could be framed u/s 153A of the Act in respect of a concluded proceeding without the existence of any incriminating materials found in the course of search. At the outset, it is evident from the categorical findings of the ld CITA that there is absolutely no incriminating materials found during the course of search regarding the share capital and share premium received by the assessee company during the year under appeal except the fact that the modus operandi of raising of such capital was discovered in the search action. We find that the ld CITA was only harping on the admission made by certain parties at the time of search without corroborating the same with material evidences found during the course of search. In this regard, the instructions issued by the Central Board of Direct Taxes (CBDT in short) in F.No.286/2/2003-IT(Inv) dated 10.3.2003 would be relevant to be looked into wherein it is mentioned that while recording statement during the course of search and seizure and survey operations, no attempt should be made to obtain confession as to the undisclosed income. For the sake of convenience and clarity, the relevant instructions dated 10.3.2003 issued by CBDT is reproduced hereunder:-

To All Chief Commissioners of Income tax (Cadre Contra) & All Directors General of Income Tax Inv.

Sir, Sub:- Confession of additional Income during the course of search & seizure and survey operation – regarding Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, on confessions during the course of search& seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on’ collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income Tax Departments. Similarly, while recording statement during the course of search it seizures and survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely.

Further, in respect of pending assessment proceedings also, assessing officers should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders

Yours faithfully,
Sd/-
(S. R. Mahapatra] Under Secretary (Inv. II)

We find that there is absolutely no corroborative evidence found in the course of search by the search team or material evidence brought on record by the ld AO or by the ld CITA in order to give credence to the statement recorded during search. Hence we hold that no addition could be made merely by placing reliance on the statement recorded during search.”

34. Following the judicial view endorsed by the coordinate Benches of this Tribunal, we therefore hold that the third party statements referred by the AO to justify additions of 4 1,88,50,000/- [ 39,73,50,000 + 2,1 5,00,000]& Rs.3,45,89,682/- [3,20,13,463 + 25,76,2 19] without being tested by cross examination cannot be the basis for making addition u/s 68 & 69C of the Act both in the case of M/s. IQCIPL and the appellant/assessee and we hold that these statements with the legal infirmities pointed out does not constitute as an ‘incriminating material’ unearthed in the course of search conducted upon the assessee and in that view of the matter, the aforesaid additions made by the AO were unsustainable in law and on facts.

35. Now coming to the last material i.e. MSL/HD/1 referred to by the AO for justifying the disallowance of Rs. 15,07,993/- in respect of cash payments made to Mr. Proloy Mondal and Mr. Satyendra Singh towards professional fees and purchases respectively. The Ld. AR of the assessee invited our attention to the fact that Mr. Proloy Mondal and Mr. Satyendra Singh were the employees of the assessee through whom these cash payments were made to various parties. According to him, each individual payment was however less than Rs.20,000/- per day and therefore no disallowance was Taking us through the cash books attached at Page Nos. 1123 to 1264 of PB­2, he explained that the statement made out by the AO at Pages 263 to 267 of the assessment order from MSL/HD/1 formed part of the regular books and all these expenses were recorded in the books. The Ld. CIT(A) also found that the assessee has given cogent reason that the entries are duly accounted for in the books. Before us the Ld. CIT, DR was unable to dislodge the aforesaid factual finding of the Ld. CIT(A) that the entries are duly accounted for in the books and we also note that no grounds of appeal has been preferred by the revenue challenging this finding of fact on this issue by the Ld CIT(A), therefore this finding of fact of Ld CIT(A) that the entries are duly accounted for in the books crystallizes. And therefore it is held that the statement of cash expenses drawn up by the AO from MSL/HD/1 formed part of the regular books of the assessee and therefore by no stretch of imagination be construed to be ‘incriminating’ in nature.

36. For the reasons discussed in the preceding paragraphs and the judicial precedents discussed above, we hold that the seized documents referred by the AO for justifying the various addition/s made in the assessment orders passed in the name of the appellant/assessee and M/s IQCIPL, which has since merged with the assessee, did not constitute incriminating material and therefore no additions were legally permissible in the assessments framed u/s 153A for the AY 2013-14 for which the assessments did not abate when the search was conducted on 22-06-2016. Ground Nos. 1 & 2 of the assessee’s appeal for AY 20 13-14, therefore stand allowed in favour of the assessee and against the Revenue.

37. Coming to the Question (B) which is repeated for easy reference (B) Whether the Ld. CIT(A) was justified in confirming the addition made on account of alleged on-monies (cash) of Rs.4,81,38,000/- received upon the sale of flat and car park(s) to M/s Satyam Bubna (HUF) in the Shiromani Project ? If yes, whether based on this singular instance, the AO was justified in extrapolating and making addition by way of unaccounted sales in respect of all units and car parks sold in the Shiromani Project ?

We have already held in Paras 19 to 23 above, the document ID Marked RB/12, relied upon by the lower authorities to justify the addition of Rs. 4,81,38,000/- on account of on-monies received in cash upon sale of flat & car park by the assessee to M/s Satyam Bubna HUF, were mere loose sheets of paper which cannot be construed as an incriminating material qua the appellant/assessee relating to Shiromani Project. As noted earlier, the documents seized from third party neither contained the name of the appellant/assessee nor any mention of the appellant’s project nor did it suggest that the seized document was prepared at the instance of the appellant/assessee. There is also no mention of any cash payment by M/s Satyam Bubna (HUF) to the appellant/assessee. Moreover the notings in this document based on which the AO inferred payment of on-monies of Rs.4,81,38,000/- is dated 2010 [year] and therefore we found that no adverse inference could have been legally drawn qua the relevant AY 2013-14 under consideration. It was further noted that Shri Satyam Bubna, from whose premises the documents were seized, had denied the Department’s version of the contents of these documents. In his statement recorded u/s 132(4) of the Act, Shri Bubna had stated on oath that these documents were merely rough calculations prepared by him and did not represent actual transaction. He also affirmed that all the payments were made only through account payee cheques and no cash transactions were made by him. We further note from the reply dated 02-02-2020 gathered by the assessee in response to the RTI query made from the AO of Satyam Bubna HUF, goes on to show that the AO of the third party Satyam Bubna HUF had not made any addition on account of alleged undisclosed cash payments made upon purchase of flat & car park from the appellant/assessee. The orders passed u/s 143(1) of the Act in the case of M/s Satyam Bubna HUF for AYs 2010-11& 2013-14 are found placed at Pages 382 to 393 of the paper book. And a conjoint reading of the RTI application by the assessee and the reply to it by the department (supra at para 21) corroborates that the income of M/s Satyam Bubna HUF for both these years was assessed at the same sum as returned by it. In the aforesaid facts and circumstances inter-alia we found that when no addition on account of alleged payment of on-monies/cash was made in the hands of Satyam Bubna HUF from whose possession the documents ID marked RB/12 were found in search at their premises, and the said document was never considered to be incriminating in nature in the assessment of the person searched and to whom the document pertained; then as a necessary corollary no addition was logically warranted in the hands of the appellant/assessee because neither this document was found from the premises of the appellant/assessee nor any corroborative material or evidence could be unearthed from the premises of the assessee/appellant. These statement of Shri Satyam Bubna recorded u/s. 132(4) of the Act (supra at para 20) and the action of AO of the Satyam Bbna HUF not to draw any adverse inference against Satyam Bubna HUF on the very same material discovered in search from their premises and the fact that in the subsequent search in assessee/appellant’s premises did not yield any corroborative material, and in the absence of any other incriminating material to support the view of AO, no addition was warranted. Moreover, we note that assessee had filed corroborative material and evidence which substantiated that the entire sale consideration was received upon sale of flat & car park to M/s Satyam Bubna HUF was through proper banking channel. We accordingly do not find merit in the Ld. CIT(A)’s action of confirming the addition of Rs.4,81,38,000/- by way of alleged on-monies/cash received upon sale of flat & car park to M/s Satyam Bubna HUF u/s 68 of the Act. The AO is accordingly directed to delete the same. Ground Nos. 2 to 5 of the assessee’s appeal therefore stand allowed in its favour and against the Revenue.

38. As a consequence of the above finding, the Revenue’s ground No. 1, against the Ld. CIT(A)’s action of deleting the addition of Rs.42,38,7 1,864/- made by the AO u/s 68 of the Act, by extrapolating unaccounted sales across all units sold by the appellant in Shiromani Project, on the basis of the addition made on account of on-monies alleged to have been received from M/s Satyam Bubna HUF, have no legs to stand and has to necessary fall. Moreover we note that the AO had made independent enquiries from all the flat purchasers in the ‘Shiromani’ Project and despite such enquiries, the AO did not find any statement/material or transaction which would in any manner suggest let alone prove that the other flat purchasers had paid any part of the consideration in cash/ on-monies over and above the declared sale consideration. In absence of any such material (oral or documentary) therefore, we find merit in the Ld. CIT(A)’s conclusion that the extrapolation made by the AO was per-se arbitrary and un-reasonable, therefore he rightly deleted the addition made. On this score, these grounds of the Revenue fail. Additionally, we also find merit in the Ld. CIT(A)’s reliance on the following decisions holding that the theory of extrapolation cannot be applied on mere theoretical or hypothetical basis in absence of any incriminating & corroborative evidence or material brought on record by the AO to warrant the same.

(A) C.J. Shah & Co., [2000] 246 ITR 671 (Bombay H.C.)

“3. It is well-settled that in cases where material is detected after search and seizure operations are carried out, the Assessing Officer is required to determine the undisclosed income. In such cases additions are generally based on estimates. In matters of estimation some amount of latitude is required to be shown to the Assessing Officer, particularly when relevant documents are not forthcoming. However, it does not mean that the Assessing Officer can arrive at any figure without any basis by adopting an arbitrary method of calculation. In the present matter, A3, A4 and A6 nowhere records the turnover of the assessee as found by the Tribunal and yet on the wrong basis of the incoming and outgoing cash transactions, the Assessing Officer has arrived at the turnover. Moreover, the peak investment was Rs. 40,14,806 for three months. However, there is no material seized to justify any figure to be included for a period earlier to the said period of three months. In the circumstances, the Tribunal has recorded a finding of fact and has held that the addition of Rs. 3.40 crores was totally unjustified. The entire finding of the Tribunal is based on the facts. No substantial question of law arises. Hence, the appeal is dismissed.”

(B) M/s Fort Projects (P) Ltd. v. DCIT, Kolkata, [2013] 29 com 84 (Kolkata – Trib.):

4. “… … … Revenue is in appeal before Tribunal against deletion of addition on the basis of project completion method of accounting for reasons that on-money receipts from  various projects have to be added in the year of receipt, since books of account were rejected by AO. As against the order of CIT(A), assessee contended that disputed seized document RM/5 was forcibly manufactured by the search party at the time of search and entire alleged on-money receipt of Rs. 9.02 crores mentioned in RM/5 in respect of few flats in these three projects was however offered in entirety by assessee as its income for asst. yr. 2008-09 solely to buy peace and avoid unnecessary dispute. According to assessee, no other evidence, whether documentary or circumstantial, pertaining to receipt of on-money for other flats in these three projects or other projects were found in course of search or survey operation and AO was thus completely unjustified in extrapolating on-money to the balance flats in these three projects merely on the basis of disputed seized loose papers and making an exorbitant addition of Rs. 64.83 crores on the basis of surmises and conjectures. However, assessee  contended that CIT(A) was correct to the extent of holding that assessee was regularly following project completion method of accounting and these three projects were incomplete  till asst. yr. 2008-09, no receipt, whether in cheque or cash was taxable for asst. yr. 2008-09.

5. … …. …. We find that AO has summarized on-money receipts of seized document RM-1 and even this document is enclosed in assessee’s paper book at pp. 101 to 111. We find that the assessee vide letter dt. 28th Dec., 2009 filed before AO, pointed out following defects/inconsistencies in seized documents RM/5 and according to assessee which proved that same were manufactured by search party at the time of search and did not represent actual state of affairs………We find that AO rejected assessee’s plea that seized papers were forcibly manufactured by search party at the time of search on the pretext that the said issue had been raised after 22 months from the date of search and furthermore there was no evidence that Sri Vivek Kathotia was forced to write said papers by search party. The AO observed that assessee had suo motu offered sums mentioned in RM/5 as its income for asst. 2008-09 and even CIT(A) also rejected assessee’s stand on similar grounds. We find that said seized papers were not manufactured by search party at the time of the search but were found from the possession and control of assessee in the course of search. As such, the  presumption under s. 292C regarding the correctness of the contents of seized documents  applies to RM/5 also. Further, it is assumed that the presumption regarding the correctness  of contents of seized documents under s. 292C is applicable to RM/5, the said presumption is  rebuttable and assessee unsuccessfully tried to rebut the presumption under s. 292C by  pointing out defects/mistakes in RM/5, but unable to do the same by any cogent evidence.  Accordingly, we have to accept the seized document RM/5 as correct and true.

6. When we have assumed that assessee was bound by the presumption under s. 292C in respect of the contents of seized documents marked as RM/5, the addition of Rs. 64.83 crores is also unsustainable because no corroborating document or evidence whatsoever was found in the course of search or survey action in support of addition of Rs. 64.83 crores. The said figure of Rs. 64.83 crores was arrived at by the AO by extrapolating the notings in RM/5 to all the other flats in three projects. We are of the view that AO was not justified in  extrapolating few stray notings in RM/5 to the balance flats in three projects given that no  incriminating evidence pertaining thereto was found in course of search more so when the  authenticity of the subject seized documents, RM/5 was itself challenged by assessee. Since it was presumed by us that assessee was bound by presumption under s. 292C in respect of seized paper RM/5, additions on account of alleged on-money could at best be limited to the  seized materials and since assessee had suo motu offered entire on-money in its return of income, no further addition on this count was warranted. We find that Hon ‘ble Courts and Tribunals have time and again held that assessments cannot be framed merely on  extrapolation theory i.e. discrepancies in respect of items must have existed in other years or other instances or projects unless a definite trend of malpractice is conclusively proved by  substantial evidence on record……Therefore, we agree with the findings of CIT(A) that assessee was following project completion method of accounting, therefore all the amounts  whether allegedly received in cash or by cheque were taxable in the years in which the  projects were completed. In regard to extrapolating of noting in RM/5, the same cannot be  applied to other projects, because on-money would fructify into income or partake the  character of income only in the year of completion of project in accordance with project completion method of accounting followed by assessee. The undisclosed income, if any, had to be computed in accordance with the method of accounting followed by assessee and not in  the year of receipt in accordance with cash system of accounting.

7. Further, Hon ‘ble Rajasthan High Court in the case of CIT v. Rajendra Prasad Gupta [2001] 248 ITR 350/117 Taxman 507 wherein Hon’ble High Court observed that under the scheme of provisions for block assessment it is apparent that it related to assessment of ”undisclosed income” of assessee excluding incomes subjected to regular assessment in pursuance of returns filed by assessee for such period. And further observed that a perusal of s. 158BB of the Act makes it clear that returns are required to be filed in pursuance of a notice under s. 158BC(a) and assessment has to be framed on that basis in the light of material that had come into possession of assessing authority during the course of search which was the foundation of proceedings. The correctness or otherwise of the returns filed in pursuance of the notice under s. 158BC(a) has to be examined with reference to the material in possession of the assessing authority having nexus to assessment of ”undisclosed income”. If the returns filed did not accord with the materials which were already in the possession of the authority the income could be estimated to the best of his judgment by the assessing authority on the basis of the material in his possession. And Hon ‘ble High Court held that there was no finding by the AO that the estimate of income was made after consideration of the material that came to light during the course of search and seizure, accordingly, Tribunal was justified in setting aside the best judgment assessment made by AO.

8. Similarly, Hon’ble Bombay High Court in the case of CIT v.C.J. Shah & Co. [2000] 246 ITR 671/[2001] 117 Taxman 577 held that where material is detected after search and seizure operations are carried out, the AO is required to determine the undisclosed income and in such cases additions are based on estimates but in matter of estimation some amount of latitude is required to be shown to AO particularly when relevant documents are not However, Hon ‘ble High Court observed that it does not mean that the AO can arrive at any figure without any basis by adopting any arbitrary method of calculation.

9. We find that even Hon’ble Apex Court in Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 laid down principle regarding estimation that while making assessment under s. 23(3) of the IT Act 1922, the ITO is not fettered by technical rules of evidence and pleadings, and he is entitled to act on material which may not be accepted as evidence in a Court of law, but he is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support assessment under s. 23(3). Hon ‘ble apex Court on facts of the case held that both ITO and Tribunal in estimating the GP rate on sales of the assessee did not act on any material but acted on pure guess and suspicion and therefore it was a fit case for the exercise of the power of the Supreme Court under Art. 136 of the Constitution of India.

10. In the present case before us, we find that assessee was following project completion method of accounting and these projects were incomplete during the year under consideration. Even if it is assumed that AO was justified in extrapolating the noting in RM/5, no income from other projects could be recognized for asst. yr. 2008-09. We are of the view that on-money would fructify into income or partake the character of income only in the year of completion of the project in accordance with the project completion method of accounting followed by the assessee. The AO was not justified in extrapolating few notings of RM/5 to balance flats of other three projects given that no incriminating evidence pertaining thereto was found during the course of search and even authenticity of document RM/5 was under challenge. Under these circumstances, we are of the view that Revenue as well as assessee were bound by presumption under s. 292C of the Act in respect of seized papers and addition on account of on-money can be limited to the seized materials. Since assessee  himself has offered entire on-money seized as per document RM/5 in its return of income, no  further addition can be sustained.”

(C) M/s Savitri Developers Pvt Ltd ITA No. 401/Amd./2014 and 3188/Amd/2014 (Ahemdabad – Trib.):

“4.3 The CIT(A) took note of the detailed submissions made on behalf of the assessee and found considerable merit therein. The CIT(A) accordingly observed that the AO was not justified in making extrapolation on basis of statement of two purchasers and estimation of probable on-money receipts from remaining other flat byers. The CIT(A) accordingly deleted the addition on account of on-money receipt of Rs. 3,28,13,355/- made by the AO. However, it sustained Rs. 14,10,000/- being aggregate of the confessional amount from two purchasers whose statements were actually recorded. In short, the CIT(A) sustained addition of Rs. 14,10,000/- out of total addition of Rs. 3,28,13,355/- made by the AO………………………

8. We have carefully considered the rival submissions. Both assessee as well as the Revenue are aggrieved by the order of the CIT(A). The addition on account of alleged on money receipt towards sale of residential flat by the assessee is subject matter of controversy. While it is the case of the assessee that in view of the voluntary declaration made by the assessee in its own record to the tune of Rs.2 Crore which sufficiently covers any remotely possible on money receipt on sale of flats, separate addition over and above which is volunteered not plausible. The Revenue, on the other hand, seeks to contend that quantification of on-money receipt actually works out to Rs.5,28, 13,355/- and therefore addition of Rs.3,28, 13,355/- over and above Rs.2 Crore declared is fully justified. In the course of search conducted under s. 132 of the Act, the partners of the assessee are stated to have voluntarily disclosed an amount of Rs.25 Crore in aggregate as undisclosed income for and on behalf of the Savaliya Group concerns for F. Y. 2010-1 1 relevant to AY 2011-12. The disclosure of Rs.2 Crore out of aggregate disclosure of Rs.25 Crores pertains to the assessee firm herein. It appears that after the post search inquiry, two of the purchasers of the residential flats in the housing projects of the assessee have confessed to have given Rs. 9Lakhs and Rs.5. 10 Lakhs to assessee in a statement recorded under s.131 of the Act. The AO on the basis of such statements at its command, proceeded to make estimation of probable unaccounted receipt from sale of residential flats in respect of all the flats sold during the year. Applying the theory of extrapolation to remaining 87 flats on the basis of statement recorded in respect of the two flats, the AO arrived at an estimated on-money receipt of Rs.5,28, 13,355/- in the hands of the assessee. After giving credit for the amount already disclosed in the search proceedings amounting to Rs.2 Crore, the AO made an addition of remaining amount of Rs.3,28,13,355/- in the hands of the assessee.

8.1 In the first appeal, the CIT(A) found merit in the plea of the assessee that suo motu disclosure conceded in the course of search proceedings was without any incriminating material towards any clandestine income. The disclosure was made to buy peace and avoid protracted litigation. The CIT(A) also opined that extrapolation of such confession to the remaining flats is not possible on the basis of statement of two purchasers. The CIT(A) accordingly deleted the additions measured on the basis of extrapolation theory but however retained the additions to the extent of admission actually made by two purchasers over and above the disclosure made. While the Revenue seeks addition for on account of on-money receipt for all the flats applying extrapolation theory, the assessee seeks to challenge the addition of Rs. 14.10 Lakhs sustained by the CIT(A) on the basis of statements of two purchasers on the fact of generic declaration already made. 8.2 The statement of two purchasers is the bedrock for additions in controversy. It is an admitted position that the statements of two purchasers allegedly claiming to have paid cash money of Rs. 14.10 Lakhs in aggregate, were obtained behind the back of the assessee. The copy of the statement was not provided to the assessee at all. The cross examination of the purchasers were also not provided by the Revenue authorities despite several requests made by the assessee. Such overwhelming facts remain unrebutted on behalf of the Revenue. This being so, the action of the AO in placing reliance upon statement of third party to crucify the assessee is clearly in negation of overriding principles of natural justice which is supposed to be guiding factor in an adjudication process. Needless to say, the appropriate opportunity to an affected party is not a gift but an absolute and salutary right which cannot be simply bypassed. The infringement of basic principles of natural justice has thus vitiated the order of the AO to the core. The legitimate expectation of the assessee to seek cross examination of a person making adverse comments against the assessee to enable it to traverse the assertions cannot be shunned in sub-version of judicial propriety while weighing an issue. The right to fair hearing is a guaranteed right. Every person affected by the statement of third party has indispensible right to know the evidence used against him. The AO as well as the CIT(A) has violated this cardinal principle as squarely underscored in Kishanchand Chellaram vs. CIT 125 ITR 713 (SC) and host of other decisions. Apart from a bald statement of third party loaded against the assessee which was never confronted, the Revenue has not adduced any material which could expose the falsehood in the records of the assessee despite drastic action of search. Therefore, we are unable to subscribe to the view taken by the AO for exercise of the power in a manner most beneficial to the Revenue and consequently most adverse to the assessee in total disregard of fairness in its action. From its submissions before lower authorities, the assessee has clearly demonstrated that it has repeatedly asked for cross examination of the witnesses against him. The department was thus duty bound to produce its witness for cross examination more particularly when no other tangible material is shown to be available to implicate the assessee. In the absence of any corroborating evidence and in the absence of cross examination offered, the statement of third party cannot be taken cognizance of, as it will apparently lead to miscarriage of justice. Therefore, we find total justification in the action of the CIT(A) in directing the AO to delete the estimated additions towards unaccounted receipt in respect of flats sold on the basis of some unverified and bald statement. Once such statements of the purchasers are taken out of reckoning, the edifice of estimated additions towards sale of residential flats would crumble down. 8.3 Besides, estimated cash receipts on-money of sale of all flats merely on the basis of statement of two purchasers without any tangible corroboration clearly falls in the realm of conjunctures and surmises. It is obvious that driven by misplaced suspicion, the AO has presumed the presence of on-money in respect of each of the residential flat sold. The action of the AO is a mere ipse dixit which is not objectively justifiable by some inculpatory evidence. It is only elementary to say that estimation of unaccounted money cannot be made only on the basis of contemplation. The order of the AO in making additions of Rs.3.28 Crores is thus clearly arbitrary and unsustainable in law. It is well settled that the Revenue authorities cannot base its findings on suspicions, conjunctures or surmises nor should it act on no evidence at all or on vague considerations partly on evidence and partly on suspicion, conjunctures or surmises. The Revenue could not demonstrate any material except unsupported statements of two persons. Such unverified statements without any proof towards its assertions are not a good evidence and do not raise any estoppel against the assessee. Therefore, the addition made by the AO is in the realm of speculation without any basis whatsoever. Hence, we decline to interfere with the order of the CIT(A) in so far as appeal of the Revenue is concerned.”

(D) ACIT Vs Minda Industries Ltd, in ITA No.4455 & 4456/Del/2015 dated 27.04.2018 (Delhi – Trib)

“14. Coming to the issue of deletion of addition by the Ld. CIT (Appeals) in respect of the scrap sales which has been challenged by the Department, it is seen that the Ld. CIT (Appeals) has accepted the assessee ’s contention that the impugned addition had been made by the assessing officer on an estimate and that the same was not based on any evidence that was found during the course of search proceedings. While allowing the relief, the Ld. CIT (Appeals) has also accepted the assessee ’s reliance on the judgment of the Hon ’ble Delhi High Court in the case of Kulwant Rai reported in 291 ITR 36 (DEL). Although the Ld. CIT DR has contested the deletion of addition by the Ld. CIT (Appeals), she could not point out any legal infirmity or factual infirmity on this adjudication by the Ld. CIT (Appeals). The Department also could not point out any judgment to the contrary and in favour of the Department in this regard. It is settled law that there is no scope for extrapolation in assessment framed under section 153A of the Act and the additions can be made only with reference to incriminating material found during the course of search. This view supported by another judgment of the Hon ’ble Delhi High Court in the case of Principal CIT versus Smt. Anita Rani reported in 392 ITR 501 (Delhi). Another judgment of the jurisdictional High Court to the point is Principal CIT versus Kurele Paper Mills (Private) Limited reported in 380 ITR 571 (Delhi). Therefore, in view of the finding of fact by the Ld. CIT (Appeals) that incriminating material found in respect of the scrap sales amounted to Rs. 20,73,211/- only and further in view of the judgments of the Hon ’ble Delhi High Court as aforementioned, we find no reason to interfere with the findings of the Ld. CIT (Appeals) on this issue and we, accordingly, dismiss ground No. 2 of the Department’s appeal.

39. For the reasons set out above therefore, the Ground No. 1 of the Revenue’s appeal stand dismissed.

40. Now we proceed to decide the issue (C), which is again repeated for easy reference (C) Whether the Ld. CIT(A) was justified in confirming the AO’s order making addition on account of unsecured loans and interest paid thereon u/s 68 & 69C of the Act?

As noted earlier, the AO had drawn up summary statements in the assessment orders setting out the details of the unsecured loans which were outstanding as on 31.03.2013 and the interest paid thereon. According to AO he had issued summons u/s 131 of the Act to the loan creditors most of which remained non-complied and that on cross checking the names of the lenders with the departmental database of shell companies, he concluded that all the lenders were paper/shell companies. The AO thereafter set out an entry operator wise summary of the loan creditors and extensively reproduced statements of several so-called entry operators to conclude that these loan creditors were controlled and managed by these so-called entry operators and that the unsecured loans obtained from these loan creditors were in the nature of accommodation entries provided by them to route appellant’s own unaccounted monies. The AO accordingly made additions u/s 68 & 69C of the Act on account of unsecured loans and interest paid thereon, in the separate assessments framed u/s 153A/143(3) in the name of the appellant/assessee and M/s. IQ City Infrastructure Pvt Ltd [M/s IQCIPL] which since stood merged with the appellant/assessee. On appeal, the Ld. CIT(A) confirmed the action of the AO.

41. At the time of hearing of appeal, the ld. AR submitted that before the lower authorities, the appellant had submitted the following documents to prove the identity, genuineness and creditworthiness of the unsecured loans taken.

a. The PAN No. Addresses and MCA details of ALL the creditors in question (for identity)

b. The financial statements of all the unsecured loan creditors (for creditworthiness)

c. The Ledger copies in the Assessee’s books of accounts evidencing the receipt and the repayment of the loans and interest (for genuineness)

d. Bank statement evidencing that payment has been made via banking channels (for genuineness)

e. Confirmation of Loans from all the parties from whom the said unsecured loans stood taken during the year (for genuineness)

f. TDS certificates showing such TDS deduction on the interest paid against such unsecured loan creditors by the Assessee (for genuineness)

42. The Ld. AR submitted that (a) the identity of loan creditor stood established by the very fact that the names, addresses of the lenders, PAN numbers, bank details and confirmatory letters were filed before both the lower authorities, (b) creditworthiness stood proved by the financial statements, bank details and payment by account payee cheques and (c) the genuineness of the transaction was established by the details of interest paid, TDS deducted thereon, brokerage paid to the finance brokers for arranging the loans, loan confirmations and also the MCA data evidencing that all the lenders were existing and active companies. The Ld. AR thus argued that the appellant had placed on AO’s record sufficient material and evidences to discharge its onus for establishing the identity and creditworthiness of the loan creditors and the genuineness of the transaction. He pointed out that none of the documentary evidences filed by the appellant/assessee were found defective nor any falsity or infirmity in the documents filed by it could be pointed out the AO. The Ld. AR submitted that the additions u/s 68 & 69C of the Act were made primarily on the basis of the statements of alleged entry operators. The Ld. AR took us through the statements of the entry operators, which were reproduced in the assessment order, to show that the AO himself neither independently examined these persons nor any opportunity to cross examine these persons was given to the appellant. He submitted that no enquiry or investigation whatsoever was conducted by the AO in this regard. The Ld. AR pointed out that the AO had mechanically extracted the statements of the persons, which prima facie showed that contents of these statements had no relation or link with the appellant’s case. The Ld. AR submitted that the AO had made the additions in the assessment order without bringing on record any corroborative evidence and he also invited our attention to the order of the Income Tax Settlement Commission (hereinafter referred to as the “ITSC”) passed u/s 245D(4) dated 10.06.2014 in appellant’s own case for AYs 2005-06 & 2012-13 wherein similar allegation was raised by the Revenue regarding the genuineness of the unsecured loans taken by the appellant from various bodies corporate. The ITSC, having considered the material facts and the Revenue’s similar arguments, however did not find any merit in the plea of the Revenue and consequently none of the unsecured loans received by the appellant from other bodies corporate were held to be in the nature of accommodation entries. The Ld. AR pointed out that on this issue, the order of ITSC had since attained finality and was therefore binding on the Revenue. He further pointed out that some of the creditors who had advanced loans in AYs 2005-06 & 2012-13 were common in the relevant AY 2013-14 and/or subsequent years. The Ld. AR contended that when these common loan creditors had been accepted to be genuine in the earlier years by the ITSC, Kolkata, then it was no longer open for the Revenue to keep on doubting their identity or creditworthiness or genuineness in the subsequent years. Per contra, the Ld. CIT, DR fully supported the order of the lower authorities.

43. Having heard both the parties and after giving thoughtful consideration to the facts of the case and upon examining the material on record, we first deem it fit to set out the details of the loan creditors, whose principal sum and interest was added by the AO u/s 68 & 69C of the Act.

Sl No.	Name of Loan Creditor	Principal	Interest
1	Susri Finance Pvt. Ltd.	1,00,00,000	10,70,137
2	Venkatesh Vyapaar Pvt. Ltd.	25,00,000	73,973
3	Sanwaria Marketing Pvt. Ltd.	1,50,00,000	10,99,726
4	Narantak Dealcomm Pvt. Ltd.	2,00,00,000	6,44,3 84
5	Remahay Stores Pvt. Ltd.	2,06,00,000	9,87,024
6	Satyam Vyapaar Pvt. Ltd.	3,13,00,000	18,69,140
7	Shaily Sales & Services Pvt. Ltd.	1,00,00,000	2,89,3 15
8	Romanchak Merchandise Pvt. Ltd.	50,00,000	3,53,424
9	Speed Business Pvt. Ltd.	1,00,00,000	4,99,726
10	Reetal Vyapaar Pvt. Ltd.	1,50,00,000	1,2 1,644
11	Sri Durga Minerals Pvt. Ltd.	80,00,000	9,03,6 16
12	Vicky Fincon Pvt. Ltd.	5,75,00,000	34,03,068
13	Aastha Tradelink Pvt. Ltd.	25,00,000	1,04,384
14	Nagancheji Credit Pvt. Ltd.	25,00,000	2,74,520
15	Desire Vincom Pvt. Ltd.	–	5,49,863
16	City Wings Courier & Travels Pvt. Ltd.	5 0,00,000	3,45,205
17	Dayanidhi Vyapaar Ltd.	25,00,000	84,658
18	Orbital Contractors & Fin.	25,00,000	1,96,438
19	PCJ Finvest Pvt. LTd.	30,00,000	84,822
20	Samrat Finvestors Pvt. Ltd.	50,00,000	3,30,411
21	Seema Holdings Pvt. Ltd.	4,62,50,000	26,66,959
22	Pragya Commodities Pvt. Ltd.	3 5,00,000	1,63,726
23	Postitive Management Pvt. Ltd.	5 0,00,000	1,33,151
24	Premium Dealers Pvt. Ltd.	1,00,00,000	10,06,027
25	Starwise Tie-up Pvt. Ltd.	50,00,000	4,02,740
26	Vidyalaxmi Retails Pvt. Ltd.	50,00,000	1,93,973
27	Sharma Hire Purchase Ltd.	15,00,000	99,616
28	Panchkoti Mercantile Pvt. Ltd.	60,00,000	4,9 1,178
29	Lavanya Nirman Pvt. Ltd.	1,92,00,000	14,66,170
30	Kasturi Home Pvt. Ltd.	1,16,00,000	7,44,362
31	Himadri Enclave Pvt. Ltd.	15,00,000	23,671
32	Starlite Vyapaar Pvt. Ltd.	–	7,58,137
33	Hector Merchants Pvt. Ltd.	–	19,20,275
34	Eathlink Estates Pvt. Ltd.**	30,00,000	92,712
35	Vaikunth Vintrade Pvt. LTd.	1,30,00,000	4,00,000
36	Tista Nirman Pvt. Ltd.	1,19,00,000	7,44,658
37	Chirag Commodeal Pvt. Ltd	–	10,99,726
38	Compact Finstock Pvt. Ltd.	–	2,7 5,342
39	Majestic Commercial Pvt. Ltd.	–	4,62,329
40	BLB Stocks Pvt. Ltd.	–	1,85,206
41	Desire Merchandise Pvt. Ltd.	–	32,877
42	Eastern Alloy & Engg I P Ltd	–	13,54,93 1
43	Mahadeo Tracon Pvt. Ltd.	–	3,09,041
44	Pace Tradelink Pvt. Ltd.	–	91,918
45	Vindya Agencies Pvt. Ltd.	–	5,6 1,095
46	Alosha Marketing Pvt. Ltd.	–	7,22,302
47	Damodar Niketan Pvt. Ltd.	–	8,17,644
48	Rameshwar Finvest Pvt. Ltd.	–	4,44,65 8
49	Bhikshu Vinimay Pvt. Ltd.	–	2,74,931
50	Ganaswaro Marketing Pvt. Ltd.	–	2,65,890
51	Ajayhari Textrde Pvt. Ltd.	–	4,00,000
52	Nikhar Dealers Pvt. Ltd.	–	1,22,740
	TOTAL	37,03,50,000	3,20,13,463

* wrongly taken as Rs.3,00,00,000/- by the AO

44. From the material on record, it is noted that the appellant had furnished name, complete address, PAN details, account confirmation, audited financial statements and MCA details of all the lenders. All the loans were transacted through bank accounts of the creditors. Further, it is important to note that each of the loan creditors was regularly assessed to income-tax. Further, from a perusal of the financial statements of each loan creditor for the financial year 2012-13 revealed that the transaction with the appellant/assessee was duly reflected therein. Moreover, it is noted that the appellant/assessee had paid interest to each loan creditor after duly deducting tax u/s 194A of the Act and thus the appellant had also complied with provisions of the Act concerning filing of TDS returns. It is also noted that majority of these loans were arranged through finance brokers and the appellant/assessee had also paid brokerage to the tune of Rs. 1.98 crores to these finance brokers for securing the loans and in the assessment order framed against the assessee, the AO did not disallow the payment of brokerage paid for availing the services of those finance brokers for arranging the loans.

45. Moreover, from the assessment order it is discerned that the AO made independent enquiries from some of these loan creditors. From the information set out at Pages 23 to 25 of the assessment order, it is noted that summons were issued u/s 131 of the Act to loan creditors at Serial No.1 to 33 above. And out of the 33 loan creditors, lenders at Serial No.1 to 7 had responded to the notices, notices were served on lenders at Serial 8 to 15 but no reply was received and the notices sent to the lenders at Serial No.16 to 33 remained un-served. We note that the AO did not make any enquiries whatsoever from the loan creditors mentioned at Serial Nos.34 to 52. According to AO, the non­attendance and/or non-service of the summons indicated that the transactions with the loan creditors were not genuine.

46. From the material on record, it is noted that the transactions in question involved receipt of unsecured loans which were fully re-paid along with interest by the time enquiry was attempted to be made by the AO in the year 2018. In the transactions under enquiry, the appellant/assessee had debtor-creditor relationship with the parties and the appellant was a debtor. It is common knowledge that in a relationship between the debtor and creditor, the debtor always operates from the position of weakness and the creditor enjoys dominant position. The loan creditor because of his superior financial strength and status dictates the terms of transaction. Moreover once the loan along with interest is re­paid, the borrower is not expected to maintain continued relationship with the loan In the circumstances to expect the borrower to enforce compliance of the lenders to the summons issued by the Department or be informed about the whereabouts of the creditor is un-reasonable and cannot be the sole ground to draw adverse inference against the loan creditor or assessee. It is to be appreciated that this is a case of two unrelated parties i.e. lender and borrower, brought together by a finance broker, and the loans were given and thereafter repaid along with interest through banking channel after deducting tax on it. Accordingly when there was no continuing relationship with the loan creditors, then post the conclusion of such loan transactions and applying the tests of human probabilities, the non-attendance/ non-service of summons by the loan creditors could not be viewed adversely by the AO in the light of the evidences furnished by the assessee on this issue we discussed supra. In the present case on hand, considering the facts and circumstances discussed, such non-compliance alone cannot be the decisive fact to justify the impugned addition in the hands of the appellant, particularly when the appellant had furnished all the relevant documents which it was required to maintain in ordinary course to substantiate its loan transactions with independent third party loan providers.

47. According to Ld. AR’s plea section 68 of the Act nowhere prescribes that the identity, creditworthiness and genuineness of the transaction should be proved by an assessee only by producing concerned creditors for personal examination by the AO. It is true that section 68 of the Act does not require so. However, it is insisted when there is reasonable doubt as to the identity, creditworthiness and genuineness of the transactions. Presence of creditor before the AO in such case is a Rule of Prudence to repel the doubts if any in the mind of the AO. However, in this case on hand we note that the appellant/assessee had furnished the requisite documentary evidences; to substantiate the loan creditors’ identity, creditworthiness and genuineness of the transactions. Having received these documents, the AO was not able to point out as to which other documentary proof was required or expected by him, which had not been submitted by the appellant/assessee, or found any infirmities on these documents. On these facts and in our considered view therefore the adverse inference drawn by the AO u/s 68 and 69C of the Act solely on the premise that the summons went non-complied or remained un­served was not justified.

48. At this juncture, we may gainfully refer to the observations made by the Hon’ble Apex Court in a similar case of CIT Vs Orissa Corporation Ltd reported in 159 ITR 78,which are reproduced hereunder as follows:

“In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were the income-tax assessees. Their index number was in the file of the revenue. The revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such could arise.”

49. In the case of Nemi Chand Kothari 136 Taxman 213, the Hon’ble Guahati High Court has thrown light on another aspect touching the issue of onus on assessee under section 68 of the Act, by holding that the same should be decided by taking into consideration the provision of section 106 of the Evidence Act which says that a person can be required to prove only such facts which are in his knowledge. The Hon’ble Court in the said case held that, once it is found that an assessee has actually taken money from depositor/lender who has been fully identified, the assessee/borrower cannot be called upon to explain, much less prove the affairs of such third party, which he is not even supposed to know or about which he cannot be held to be accredited with any knowledge. In this view, the Hon’ble Court has laid down that section 68 of Income-tax Act, should be read along with section 106 of Evidence Act. The relevant observations at page 260 to 262, 264 and 265 of the report are reproduced herein below:-

“While interpreting the meaning and scope of section 68, one has to bear in mind that normally, interpretation of a statute shall be general, in nature, subject only to such exceptions as may be logically permitted by the statute itself or by some other law connected therewith or relevant thereto. Keeping in view these fundamentals of interpretation of statutes, when we read carefully the provisions of section 68, we notice nothing in section 68 to show that the scope of the inquiry under section 68 by the Revenue Department shall remain confined to the transactions, which have taken place between the assessee and the creditor nor does the wording of section 68 indicate that section 68 does not authorize the Revenue Department to make inquiry into the source(s) of the credit and/or sub-creditor. The language employed by section 68 cannot be read to impose such limitations on the powers of the Assessing Officer. The logical conclusion, therefore, has to be, and we hold that an inquiry under section 68 need not necessarily be kept confined by the Assessing Officer within the transactions, which took place between the assessee and his creditor, but that the same may be extended to the transactions, which have taken place between the creditor and his sub-creditor. Thus, while the Assessing Officer is under section 68, free to look into the source(s) of the creditor and/or of the sub-creditor, the burden on the assessee under section 68 is definitely limited. This limit has been imposed by section 106 of the Evidence Act which reads as follows: “Burden of proving fact especially within knowledge.- When any fact is especially within the knowledge of any person, the burden) of proving that fact is upon him. ” ********

What, thus, transpires from the above discussion is that white section 106 of the Evidence Act limits the onus of the assessee to the extent of his proving the source from which he has received the cash credit, section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s)of the creditor but also of his (creditor’s) sub-creditors and prove, as a result, of such inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself. In other words, while section 68 gives the liberty to the Assessing Officer to enquire into the source/source from where the creditor has received the money, section 106 makes the assessee liable to disclose only the source(s) from where he has himself received the credit and IT is not the burden of the assessee to prove the creditworthiness of thesource(s) of the sub-creditors. If section 106 and section 68 are to stand together, which they must, then, the interpretation of section 68 are to stand together, which they must, then the interpretation of section 68 has to be in such a way that it does not make section 106 redundant. Hence, the harmonious construction of section 106 of the Evidence Act and section 68 of the Income- tax Act will be that though apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor is it the burden of the assessee to prove that the sub- creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been. eventually, received by the assessee. It, therefore, further logically follows that the creditor’s creditworthiness has to be Judged vis-a-vis the transactions, which have taken place between the assessee and the creditor, and it is not the business of the assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub- creditors, for, these aspects may not be within the special knowledge of the assessee. ” ** * * * * * * * * “

… If a creditor has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the assessee to obtain such amount of money or part thereof from the creditor, by way of cheque in the form of loan and in such a case, if the creditor fails to satisfy as to how he had actually received the said amount and happened to keep the same in the bank, the said amount cannot be treated as income of the assessee from undisclosed source. In other words, the genuineness as well as the creditworthiness of a creditor have to be adjudged vis-a-vis the transactions, which he has with the assessee. The reason why we have formed the opinion that it is not the business of the assessee to find out the actual source or sources from where the creditor has accumulated the amount, which he advances, as loan, to the assessee is that so far as an assessee is concerned, he has to prove the genuineness of the transaction and the creditworthiness of the creditor vis-a-vis the transactions which had taken place between the assessee and the creditor and not between the creditor and the sub-creditors, for, it is not even required under the law for the assessee to try to find out as to what sources from where the creditor had received the amount, his special knowledge under section 106 of the Evidence Act may very well remain confined only to the transactions, which he had’ with the creditor and he may not know what transaction(s) had taken place between his creditor and the sub-creditor… “

“In other words, though under section 68 an Assessing Officer is free to show, with the help of the inquiry conducted by him into the transactions, which have taken place between the creditor and the sub-creditor, that the transaction between the two were not genuine and that the sub-creditor had no creditworthiness, it will not necessarily mean that the loan advanced by the sub-creditor to the creditor was income of the assessee from undisclosed source unless there is evidence, direct or circumstantial, to show that the amount which has been advanced by the sub-creditor to the creditor, had actually been received by the sub-creditor from the assessee ….” **********

“Keeping in view the above position of law, when we turn to the factual matrix of the present case, we find that so far as the appellant is concerned, he has established the identity of the creditors, namely, NemichandNahata and Sons (HUF) and Pawan Kumar Agarwalla. The appellant had also shown, in accordance with the burden, which rested on him under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors aforementioned. In fact the fact that the assessee had received the said amounts by way of cheques was not in dispute. Once the assessee had established that he had received the said amounts from the creditors aforementioned by way of cheques, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter the burden had shifted to the Assessing Officer to prove the contrary. On mere failure on the part of the creditors to show that their sub-creditors had creditworthiness to advance the said loan amounts to the assessee, such failure, as a corollary, could not have been and ought not to have been, under the law, treated as the income from the undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assessee. Viewed from this angle, we have no hesitation in holding that in the case at hand, the Assessing Officer had failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-creditors from the assessee. In the absence of any such evidence on record, the Assessing Officer could not have treated the said amounts as income derived by the appellant from undisclosed sources. The learned Tribunal seriously fell into error in treating the said amounts as income derived by the appellant from. undisclosed sources merely on the failure of the sub-creditors to prove their creditworthiness.”

50. Further the Hon’ble jurisdictional Calcutta High Court in the case of S.K. Bothra & Sons, HUF v. Income-tax Officer, Ward- 46(3), Kolkata (347 ITR 347)also held as follows:

“15. It is now a settled law that while considering the question whether the alleged loan taken by the assessee was a genuine transaction, the initial onus is always upon the assessee and if no explanation is given or the explanation given by the appellant is not satisfactory, the Assessing Officer can disbelieve the alleged transaction of loan. But the law is equally settled that if the initial burden is discharged by the assessee by producing sufficient materials in support of the loan transaction, the onus shifts upon the Assessing Officer and after verification, he can call for further explanation from the assessee and in the process, the onus may again shift from the Assessing Officer to assessee.

16. In the case before us, the appellant by producing the loan-confirmation-certificates signed by the creditors, disclosing their permanent account numbers and address and further indicating that the loan was taken by account payee cheques, no doubt, prima facie, discharged the initial burden and those materials disclosed by the assessee prompted the Assessing Officer to enquire through the Inspector to verify the statements.”

51. Further, the Hon’ble High Court of Calcutta in the case of Crystal Networks (P.) Ltd. v. Commissioner of Income-tax (353 ITR 171), on the issue of unexplained cash credits, held that when the basic evidences are on record, the mere failure of the creditor to appear cannot be the basis to make addition. The Hon’ble Court held as follows:

“8. Assailing the said judgment of the learned Tribunal learned counsel for the appellant submits that Income-tax Officer did not consider the material evidence showing the creditworthiness and also other documents, viz., confirmatory statements of the persons, of having advanced cash amount as against the supply of bidis. These evidence were duly considered by the Commissioner of Income-tax (Appeals). Therefore, the failure of the person to turn up pursuant to the summons issued to any witness is immaterial when the material documents made available, should have been accepted and indeed in subsequent year the same explanation was accepted by the Income-tax Officer. He further contended that when the Tribunal has relied on the entire judgment of the Commissioner of Incometax (Appeals), therefore, it was not proper to take up some portion of the judgment of the Commissioner of Income-tax (Appeals) and to ignore the other portion of the same. The judicial propriety and fairness demands that the entire judgment both favourable and unfavourable should have been considered. By not doing so the Tribunal committed grave error in law in upsetting the judgment in the order of the Commissioner of Income-tax (Appeals).

9. In this connection he has drawn our attention to a decision of the Supreme Court in the case of UdhavdasKewalram v. CIT [19671 66 ITR 462. In this judgment it is noticed that the Supreme Court as proposition of law held that the Tribunal must In deciding an appeal, consider with due care, all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner in the light of the evidence and the relevant law.

10. We find considerable force of the submissions of the learned counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore, it shall be assumed that the assessee failed to prove the existence of the creditors or for that matter the creditworthiness. As rightly pointed out by the learned counsel that the Commissioner of Income-tax (Appeals) has taken the trouble of examining of all other materials and documents, viz., confirmatory statements, invoices, challans and vouchers showing supply of bidis as against the advance. Therefore, the attendance of the witnesses pursuant to the summons issued, in our view, is not important. The important is to prove as to whether the said cash credit was received as against the future sale of the product of the assessee or not. When it was found by the Commissioner of Income- tax (Appeals) on facts having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this -fact finding. Indeed the Tribunal did not really touch the aforesaid fact finding of the Commissioner of Income-tax (Appeals) as rightly pointed out by the learned counsel. The Supreme Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 464, the Supreme Court has observed as follows:

“The Income-tax Appellate Tribunal performs a judicial function under the Indian Income-tax Act; it is invested with authority to determine finally all questions of fact. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. “

11. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. It is also ruled in the said judgment at page 465 that if the Tribunal does not discharge the duty in the manner as above then it shall be assumed the judgment of the Tribunal suffers from manifest infirmity. 12. Taking inspiration from the Supreme Court observations we are constrained to hold in this matter that the Tribunal has not adjudicated upon the case of the assessee in the light of the evidence as found by the Commissioner of Income-tax (Appeals). We also found no single word has been spared to up set the fact finding of the Commissioner of Income-tax (Appeals) that there are materials to show the cash credit was received from various persons and supply as against cash credit also made.

13. Hence, the judgment and order of the Tribunal is not sustainable. Accordingly, the same is set aside. We restore the judgment and order of the Commissioner of Income-tax (Appeals). The appeal is allowed.”

52. The Ld. AR’s reliance on the decision of the Hon’ble Gujarat High Court in the case of CIT Vs Apex Therm Packaging (P) Ltd reported in 42 taxmann.com 473 is also found to be of much relevance. In this decided case in the course of proceedings u/s 143(3) of the Act, the assessee had furnished complete details of loan creditors along with their PAN, financial statements, loan confirmations, bank statements etc. The AO however added the entire loan received u/s 68 of the Act and also disallowed the interest paid thereon. On appeal the Ld. CIT(A) allowed the assessee’s appeal which was also affirmed by this Tribunal. On appeal by the Department u/s 260A, the Hon’ble High Court observed that when full particulars, inclusive of the confirmation with name, address, PAN, IT returns, balance sheet & profit and loss account in respect of all the lenders were furnished and that it has been found that the loans were received through cheques, then the AO was not justified in making addition u/s 68 of the Act. Accordingly the Hon’ble High Court dismissed the appeal of the Department. The relevant findings of the Hon’ble High Court are as follows:

“5. Heard Shri Sudhir Mehta, learned advocate appearing on behalf of the revenue. At the outset, it is required to be noted that the Assessing Officer directed to make the addition of Rs. 33,55,011/- under Section 68 of the Income Tax Act with respect to 17 lenders. However, it has been found that with respect to most of the lenders, except two, necessary documents, inclusive of confirmation with name, address and PAN Numbers, copy of the IT return and acknowledgment, balance sheet and profit and loss account and computation of total income in respect of all the parties, except two parties, were furnished before the Assessing Officer. Even with respect to the remaining two depositors the assessee filed the confirmation, address and PAN Numbers. Under the circumstances, when it was found that the assessee already discharged the initial onus cast upon him with respect to all the creditors and accordingly when the CIT(A) has deleted the addition of Rs. 33,55,011/- made under Section 68 of the Income Tax Act and consequently deleted the disallowance of Rs. 3,10,478/-, which was made with respect to interest and when the same has been confirmed by the ITAT, it cannot be said that ITAT has committed any error and/or illegality, which calls for the interference of this Court.

In paragraph 11, ITAT has observed and held as under:

“We have heard the rival submissions and perused the material on record. It is an undisputed fact that during the year the assessee had received loan from 17 parties aggregating to 33,35,011/-. The details of which are listed at page 2 of Assessing Officer order. CIT(A) while deleting the addition has given a finding that the assessee had filed before Assessing Officer the confirmations with name, address, PAN Number, copy of ledger account, copy of balance sheet and profit and loss account, copy of Income Tax returns and computation of total income in respect of all the parties except two depositors. With respect to the two depositors, the assessee had filed confirmation, address and PAN Numbers and hence the assessee had also discharged the initial onus cast upon the assessee with respect to the two creditors. He has further noted that the loans were received through cheques and the loan account were duly reflected in the balance sheet of lenders. The CIT(A) has further held once the onus was fulfilled by the assessee, it was for the Assessing Officer to examine and bring any material on record which may help in rebutting the onus of assessee. The Assessing Officer has not brought any material on record in its support. The CIT(A) while deleting the addition has also relied on the decision of the Hon ‘ble Gujarat High Court in the case of Dy. CIT v. Rohini Builders [2002] 256 ITR 360 and the decision of Hon ‘ble Supreme Court, in the case of Orissa Corpn. Ltd. 153 ITR 78. Before us, nothing has been brought on record by the revenue to controvert the findings of CIT(A). Revenue has relied on the decision of Hon ‘ble Delhi High Court in the case of N.R. Portfolio (supra). We however find that the ratio of the aforesaid Delhi High Court decision are distinguishable on facts and therefore cannot be applied to the facts of the present case. In view of the aforesaid facts, we find no reason to interfere with the order of CIT(A) and thus dismiss this ground of revenue.”

6. We are in complete agreement with the reasoning given by the CIT(A) as well as the ITA T. When full particulars, inclusive of the confirmation with name, address and PAN Number, copy of the Income Tax Returns, balance sheet, profit and loss accounts and computation of the total income in respect of all the creditors/lender were furnished and when it has been found that the loans were received through cheques and the loan account were duly reflected in the balance sheet, the Assessing Officer was not justified in making the addition of Rs. 33,55,011/-. Under the circumstances, no question of law, much less substantial question of law arises in the present Tax Appeal. Accordingly, the present Tax Appeal deserves to be dismissed and is accordingly dismissed.”

53. In the above judgment the Hon’ble High Court referred to its earlier decision in the case of DCIT Vs Rohini Builders (256 ITR 360). In the decided case, the Hon’ble Court had observed that the assessee had discharged its onus of proving the identity of creditors by giving their complete addresses, permanent account numbers and copies of assessment orders. It was further observed that the assessee had also proved capacity of creditors by showing that amounts were received by account payee cheques from the bank account of loan-creditor. The Hon’ble High Court held that only on the ground that some of the creditors could not be served with notice u/s 131 or they failed to appear before Assessing Officer, the loans could not be treated as non-genuine and therefore upheld the order of the Tribunal deleting the addition u/s 68 of the Act. The relevant findings of the Hon’ble High Court are as follows:

“7. We have considered the rival submissions and have also gone through the order passed by the Assessing Officer, the relevant portion of which we have also extracted in para. 2 above. The Commissioner of Income-tax (Appeals) more or less confirmed the addition on the reasoning given by the Assessing Officer in the assessment order. A perusal of the chart given by us in para. 3 above indicates that out of 21 creditors the Assessing Officer has recorded the statements of only six creditors, viz., creditors at serial Nos. 1, 2, 3, 4, 6, and 7. However, in respect of all the 21 creditors the assessee has furnished their complete addresses along with GIR numbers/permanent account numbers as well as confirmations along with the copies of assessment orders passed in the cases of creditors at serial Nos. 1, 2, 4, 5, 6, 7, 9, 10, 11, 12 and 16. In the remaining cases where the assessment orders passed were not readily available, the assessee has furnished the copies of returns filed by the creditors with the Department along with their statement of income. All the loans were received by the assessee by account payee cheques and the repayments of loans have also been made by account payee cheques along with the interest in relation to those loans. It is rather strange that although the Assessing Officer has treated the cash credits as non-genuine, he has not made any addition on account of interest claimed/paid by the assessee in relation to those cash credits, which has been claimed as business expenditure and has been allowed by the Assessing Officer. It is also pertinent to note that in respect of some of the creditors the interest was credited to their accounts/paid to them after deduction of tax at source and information to this effect was given in the loan confirmation statements by those creditors filed by the assessee before the Assessing Officer. Thus it is clear that the assessee had discharged the initial onus which lays on it in terms of section 68 by proving the identity of the creditors by giving their complete addresses, GIR numbers/permanent accounts numbers and the copies of assessment orders wherever readily available. It has also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee is not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of account but not the source of the source as held by the Bombay High Court in the case of Orient Trading Co. Ltd. v. CIT [1963] 49 ITR 723. The genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques. Merely because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee -from those creditors as non-genuine in view of the principles laid down by the Supreme Court in the case of Orissa Corporation [1986] 159 ITR 78. In the said decision the Supreme Court has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue’s case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw an adverse inference against the assessee. In the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69.

8. Further, we may point out that section 68 under which the addition has been made by the Assessing Officer reads as under :

“68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.”

9. The phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this, case the legislative mandate is not in terms of the words “shall be charged to income-tax as the income of the assessee of that previous year”. The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word “may” and not “shall”. Thus the unsatisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as held by the Supreme Court in the case of CIT v. Smt. P. K. Noorjahan [1999] 237 ITR 570.

10. Thus taking into consideration the totality of the facts and circumstances of the case, and, in particular, the fact, that the Assessing Officer has not disallowed the interest claimed/paid in relation to these credits in the assessment year under consideration or even in the subsequent years, and tax deducted at source has been deducted out of the interest paid/credited to the creditors, we are of the opinion that the Departmental authorities were not justified in making the addition of Rs. 12,85,000 which is directed to be deleted.

11. In the result, the appeal is allowed.”

54. It is noted that similar view was also expressed by the Hon’ble Gujarat High Court in the case of CIT Vs Patel Ramanikal Hirji (41 com 493) wherein on similar set of facts as involved in the appellant’s case, the Court observed that when the assessee had furnished loan confirmations from lenders, copies of creditors’ bank statements, Income Tax returns etc., these materials duly proved the genuineness of the transaction of loan as well as the identity & creditworthiness of the lenders.

55. We further rely on the decision of the Hon’ble Delhi High Court in the case of CIT Vs Shiv Dhooti Pearls & Investment Ltd (64 com 329). In the decided case the assessee had received unsecured loans in the year in question. In the course of assessment, the AO requisitioned the details of the loans received by the assessee. From the details furnished by the assessee, it was observed that few loan creditors had returned loss and their source of advancing loans were other bodies corporate who had also returned miniscule taxable income in their income-tax returns. The AO therefore doubted the creditworthiness of the lenders. The AO accordingly made addition u/s 68 of the Act. On appeal the Hon’ble High Court held that the onus of the assessee is ‘to the extent of his proving the source through which he has received the cash credit.’ The Hon’ble High Court held that the AO has ample ‘freedom’ to make inquiry ‘not only into the source of the creditor, but also of its sub-creditors; but the assessee has indeed discharged its onus of proving the creditworthiness and genuineness of the lender by furnishing the documents & details which it was required to maintain in the normal course and under law and therefore the addition made u/s 68 of the Act was deleted by the Hon’ble High Court. The relevant findings of the Hon’ble High Court are as follows:

“12. The Court has examined the decision of the Gauhati High Court in Nemi Chand Kothari (supra). Therein the Gauhati High Court referred to Section 68 of the Act and observed that the onus of the Assessee “to the extent of his proving the source whom which he has received the cash credit.” The High Court held that the AO had ample ‘freedom’ to make inquiry “not only into the source(s) of the creditor, but also of his (creditor’s) sub-creditors and prove, as a result, of such inquiry, that the money received by the Assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself.” Thereafter, the High Court, on a harmonious construction of Section 106 of the Evidence Act and Section 68 of the Act, held as under:

“What, thus, transpires from the above discussion is that while Section 106 of the Evidence Act limits the onus of the Assessee to the extent of his proving the source from which he has received the cash credit, Section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s) of the creditor, but also of his (creditor’s) sub-creditors and prove, as a result, of such inquiry, that the money received by the Assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the Assessee himself. In other words, while Section 68 gives the liberty to the Assessing Officer to enquire into the source/sources from where the creditor has received the money, Section 106 makes the Assessee liable to disclose only the source(s) from where he has himself received the credit and it is not the burden of the Assessee to show the source(s) of his creditor nor is it the burden of the Assessee to prove the creditworthiness of the source(s) of the sub-creditors. If Section 106 and Section 68 are to stand together, which they must, then, the interpretation of Section 68 has to be in such a way that it does not make Section 106 redundant. Hence, the harmonious construction of Section 106 of the Evidence Act and Section 68 of the Income Tax Act will be that though apart from establishing the identity of the creditor, the Assessee must establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the Assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the Assessee and the creditor. What follows, as a corollary, is that it is not the burden of the Assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor is it the burden of the Assessee to prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been, eventually, received by the Assessee. It, therefore, further logically follows that the creditor’s creditworthiness has to be judged vis-a-vis the transactions, which have taken place between the Assessee and the creditor, and it is not the business of the Assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub-creditors, for, these aspects may not be within the special knowledge of the Assessee.” (Emphasis Supplied)

13. The above observations, far from supporting the case of the Revenue, does the opposite. In the subsequent decision of this Court in Mod. Creations (P.) Ltd. v. ITO [2013] 354 ITR 282/[2011] 202 Taxman 10 (Mag.)/13 com. 114 (Delhi), the position was clarified by the Court and it was held:

“It will have to be kept in mind that Section 68 of the I. T. Act only sets up a presumption against the Assessee whenever unexplained credits are found in the books of accounts of the Assessee. It cannot but be gainsaid that the presumption is rebuttable. In refuting the presumption raised, the initial burden is on the Assessee. This burden, which is placed on the Assessee, shifts as soon as the Assessee establishes the authenticity of transactions as executed between the Assessee and its creditors. It is no part of the Assessee’s burden to prove either the genuineness of the transactions executed between the creditors and the sub-creditors nor is it the burden of the Assessee to prove the creditworthiness of the sub-creditors.”

14. In Mod. Creations (P.) Ltd. (supra) this Court negatived the case of the Revenue that the onus was on the Assessee to prove the source of the sub-creditor. It was observed as under:

“14. With this material on record in our view as far as the Assessee was concerned, it had discharged initial onus placed on it. In the event the revenue still had a doubt with regard to the genuineness of the transactions in issue, or as regards the creditworthiness of the creditors, it would have had to discharge the onus which had shifted on to it. A bald assertion by the A. O. that the credits were a circular route adopted by the Assessee to plough back its own undisclosed income into its accounts, can be of no avail. The revenue was required to prove this allegation. An allegation by itself which is based on assumption will not pass muster in law. The revenue would be required to bridge the gap between the suspicions and proof in order to bring home this allegation. The ITAT, in our view, without adverting to the aforementioned principle laid stress on the fact that despite opportunities, the Assessee and/or the creditors had not proved the genuineness of the transaction. Based on this the ITAT construed the intentions of the Assessee as being mala fide. In our view the ITA T ought to have analyzed the material rather than be burdened by the fact that some of the creditors had chosen not to make a personal appearance before the A. O. If the A. O. had any doubt about the material placed on record, which was largely bank statements of the creditors and their income tax returns, it could gather the necessary information from the sources to which the said information was attributable to. No such exercise had been conducted by the A.O. In any event what both the A.O. and the ITAT lost track of was that it was dealing with the assessment of the company, i.e., the recipient of the loan and not that of its directors and shareholders or that of the sub-creditors. If it had any doubts with regard to their credit worthiness, the revenue could always bring it to tax in the hands of the creditors and/or sub-creditors. [See CIT v. Divine Leasing & Finance Ltd. (2008) 299 ITR 268 (Delhi) and CIT v. Lovely Exports (P.) Ltd. (2008) 216 CTR 195 (SC)].”

15. In view of the legal position explained in the above decisions, the Court holds that as far as the present case is concerned, the Assessee has indeed discharged its onus of proving the creditworthiness and genuineness of the lender (TIL). There was no requirement in law for the Assessee to prove the genuineness and creditworthiness of the sub-creditor, which is in this case was TCL.

56. In the light of the aforesaid decisions of the Hon’ble Apex Court and jurisdictional and other High Courts, let us now examine the facts of the present case. From the analysis of the loan creditors we note that during the FY 2012-13, the appellant had received loans aggregating to Rs. 11,97,00,000/- from eight parties set out at Serial No.12, 13, 14, 29, 31, 35 & 36 of Table from whom the loans were received in the earlier years as well to whom interest of Rs.71,60,833/- was paid. Besides, the appellant had paid interest of Rs.1,06,48,905/- to 19 parties at Serial No. 15, 32, 33, 37 to 52 of the Table in respect of loans brought forward from the earlier years. We note that no addition u/s 68 of the Act in respect of the loans brought forward from the earlier years was made in the past assessments. In the circumstances therefore we find that if in the past assessments, the Revenue did not draw adverse inference in respect of the principal loan amounts received from these 27 parties, then there was no apparent reason for the AO to dispute and disbelieve the genuineness of the transaction involving only the interest payment. We also note that in respect of interest paid during the relevant year, the appellant had complied with relevant provisions of Section 194A of the Act [TDS] and necessary evidence in respect thereof was also furnished. In the circumstances we find that in respect of payment of interest to these 27 parties, provisions of Section 69C of the Act had no application. Accordingly the addition made u/s 69C to the extent of Rs.1,78,09,738/- is hereby deleted.

57. We further note that in respect of loans of Rs. 11,97,00,000/- taken from eight parties listed at Serial No.12, 13, 14, 29, 31, 35 & 36 of the above Table, the loans were taken from these parties in the earlier years as well. Before the Settlement Commission, the Revenue had argued that the unsecured loans received by the assessee from several bodies corporate were assessable as the appellant’s income in the year of receipt of loans, since the assessee had failed to substantiate the genuineness of the loan creditors. We however find that the Settlement Commission by its consolidated order dated 10.06.20 14 for the AYs 2005-06 to 2012-13 repelled the Revenue’s said contention. The relevant findings of the Settlement Commission are as under:

“…… that the search has revealed that the applicant company has been borrowing heavily from the market through the finance brokers both in cheque and in cash. As such, there was no question of indulging into entry transactions, which was resorted by persons having surplus, and more spare black money, whereas in case o the applicant company there was shortage of funds. He further stated that it may have been possible that loans might have been provided by third parties in name of the lending parties in connivance with Mr. Kejriwal. Neither the applicant company was aware of any such thing nor was it aware of the details of lending parties since the loans were received through the brokers. Moreover, most of the loans were repaid back when in case of jamakharchi transaction, such entries of loans are carried from year to year. Moreover, the applicant company was searched and not an iota of evidence was found relating to the applicant having indulged in any jamaKharchi transaction. Further, the department did not afford the applicant company any opportunity to cross examine Mr. Kejriwal though the hearings of scrutiny assessments were held on 11 different dates. Being a tainted person Mr.Kejriwal ’s unilateral statement should not be relied upon without putting the same to the test of further scrutiny.

(iii) During the course of hearing, it was submitted by the AR that if these are the only jama kharchi transactions, the normal tendency of any person is to carry the entries for a long periods, and normally, there will not be any repayment in a short period. It was also submitted by him that not only the money has been borrowed from these parties, but the repayment has also been made by cheque, and the interest on the same has also been paid by cheque, on which the TDS has also been deducted.

(iv) The CIT, ITSC, vide his letter dt. 31.03.2014 requested the applicant to file the copy of complete accounts along with the details of interest on TDS deducted, the details were filed by the applicant on 3 .4.2014. It was submitted by the AR that the applicant and its group is not acquainted with Shri Suresh Kejriwal and they had not entered into any jama kharchi transactions with Suresh Kejriwal. The loan received from them has since been re-paid and many of the repayments are before the date of search.

(v) We have gone through the submissions made by the AR and the conduct of the applicant. We find there are repayments made to these companies even in the period prior to the date  of search. The interest has also been paid to these companies by cheque on which the TDS have been deducted. The submissions of the AR that in case of jama kharchi transactions, normally the entries/funds are carrying longer durations, while in the case of the applicants the repayments are within short period also. We, therefore, do not find any reason to accept the submissions of the department that the additions are required to be made in this settlement in the manner suggested by the department. ”(emphasis given by us)

58. We thus note that in the proceedings before the Settlement Commission for the past years, identity and creditworthiness of loan creditors were questioned by the Revenue but the Settlement Commission accepted the genuineness of the appellant’s loan transactions with the loan creditors. In the circumstances since the loans aggregating to 11,97,00,000/- were received from the bodies corporate, who had also advanced loans in the earlier years, and there being no change in the factual matrix and the nature of documentation produced in support of the loan transactions being same, we do not see any reason to take contrary view. Therefore, the addition of Rs. 11,97,00,000/- made under Section 68 of the Act in respect of these loan creditors is hereby deleted. Consequent to our said finding, we also direct the AO to delete the disallowance u/s 69C of the Act amounting to Rs.71,60,833/- being interest paid by the appellant on these loans.

59. During the relevant year the appellant received loan of Rs.30,00,000/- from M/s Earthlink Estates Pvt Ltd. [Serial No.34 of the Table]. Although the loan actually received was only Rs.30,00,000/-, in the order passed u/s 153A/143(3), the AO erroneously treated the loan amount to be Rs.3,00,00,000/- and thereby artificially enhanced the addition u/s 68 of the Act. We note that in respect of the loan received from M/s Earthlink Estates Pvt Ltd, the appellant had furnished before the AO, the name, PAN, address, financial statements, bank details, loan confirmations and MCA data to substantiate genuineness of the loan transaction. On receipt of the relevant documents, the AO did not thereafter conduct any further verification of the documents or independent enquiry from the loan creditor. We also find that no notice u/s 131 or 133(6) of the Act was issued to M/s Earthlink Estates Pvt Ltd though the address of the creditor was made known. We also note that unlike other cases, where the AO had relied on third party statements of entry providers to justify the addition, the AO did not bring on record any material which would even suggest let alone show that the loan received from M/s Earthlink Estates Pvt Ltd was in the nature of accommodation entry or that the loan was not genuine. In this factual background therefore we find that the addition had been made by the AO simply on surmise and conjecture and without bringing on record any tangible and cogent material which proved that the loan received from M/s Earthlink Estates Pvt Ltd was not genuine. Applying the ratio discussed in Paras 48 to 55 above, we hold that the appellant had discharged the primary onus of proving identity and creditworthiness of the loan creditor and genuineness of the transaction and therefore even the addition of Rs.30,00,000/- [wrongly taken as Rs.3,00,00,000/- by the AO] sustained by the Ld. CIT(A) is not tenable. Accordingly the addition of Rs.30,00,000/- is hereby deleted. Following our said finding, the AO is also directed to delete the disallowance of the corresponding interest of Rs.92,712/- made u/s 69C of the Act

60. As regards remaining additions u/s 68 and 69C of the Act, sum of 24,76,50,000/- in relation to principal loan amount received from twenty four parties and interest of Rs. 1,41,11,013/- paid to them, we note that the appellant/assessee had furnished before the AO the requisite documentary evidences substantiating the identity and creditworthiness of the loan creditors and genuineness of the transactions. Rejecting the documents and explanations of the appellant/assessee, the AO proceeded to make addition principally by relying on the statements of alleged entry operators in which they had admitted of being engaged in the business of providing accommodation entries to various beneficiaries. Besides placing reliance on such statements, in few cases, the AO also discussed the financials of the loan creditors and opined that the financial position of the loan creditors was weak and therefore the creditworthiness of the loan creditors remained unproved. On appeal the Ld. CIT(A), without examining the merits of the averments made in support of the individual loan credits; upheld the AO’s action principally on the ground that the AO’s reasoning was backed by the observations made by the Investigation Wing of the Department in the appraisal report prepared pursuant to the search conducted u/s 132 of the Act.

61. After careful analysis of the documents placed before us and after examining the statements of the so-called entry operators, which the AO have selectively extracted in the assessment order, we find on careful examination of these statements that neither in the sworn statements the so-called entry operators had admitted of providing accommodation entries to the appellant/assessee nor they had admitted of receiving any cash from the appellant/assessee in lieu of cheques. In fact we note that although the AO had extracted at length the statements of the entry operators, none of the specific instances, the AO was able to show any credible link between the person whose statement was relied upon and the company from whom the loans were received by the appellant/assessee. The Ld. AR has pointed out to us that the so-called entry operators were not even shareholders or directors of the loan creditor companies. We also note that although the AO had heavily relied upon the statements of the sundry creditors/entry operators, the AO had neither personally or independently examined even a single entry operator in the capacity as the Assessing Officer to verify the correctness of the facts or to dig or probe and unearth the link if any with the Appellant/assessee. However, the unfortunate part is that the AO blindly relied on the bald statements of these operators and in the process has not brought out any link to connect them with the Appellant/assessee. And if the AO wanted to use the statements of the so-called entry operators, then the AO during the assessment proceedings ought to have summoned these entry operators and examined them thoroughly and should have unearthed the links, materials or relevant evidences if any against the appellant/assessee and thereafter called the assessee and confronted him with any materials or statement which he discovers and which material he wishes to rely against the assessee and after giving an opportunity to assessee to cross examine the maker of the statement etc, and in the event, the maker of the statement could pass the cross examination, then the statement of the entry provider could have been acted upon by the AO against the assessee or he cannot use it against the assessee. The lack of enquiry of AO by not even summoning these operators and reliance of their statements, how it affects the action of AO can be seen from the following facts.

(A) The assessee received loans aggregating to Rs.8. 19 crores from bodies corporate namely M/s Narantak Dealcomm Pvt. Ltd., M/s Remahay Stores Pvt. Ltd., M/s Satyam Vyapaar Pvt. Ltd. and M/s Shaily Sales & Services Pvt. Ltd. According to AO, all these loan creditors were allegedly controlled by Shri Anirban Dutta whose statement was recorded u/s 131 of the Act on 16-1 1-20 15 at 167/1A Lenin Sarani, New Barrakpur, Kolkata – 700 131. From the foregoing facts it is evident that the statement of Shri Anirban Dutta was not recorded in connection with search u/s 132 conducted upon the appellant/assessee on 22-06-2016. We thus, first of all note that the statement of Shri Anirban Dutta was recorded in some other proceedings unconnected with the appellant’s search. From the contents of the statement extracted at Pages 56 to 59 of the assessment order, we note that nowhere in his statement Shri Anirban Dutta had made any admission that M/s Narantak Dealcomm Pvt. Ltd., M/s Remahay Stores Pvt. Ltd., M/s Satyam Vyapaar Pvt. Ltd. and M/s Shaily Sales & Services Pvt. Ltd were controlled or managed by him. Although in his answer to Q No. 5, he had identified the names of fifteen (15) companies which he allegedly controlled but we find that none of the companies named by him, contain name of any of the companies from whom the assessee had received loans. The AO also did not bring on record any material which could have shown that the bank accounts of the loan creditors through which the loan amounts were disbursed were operated by Shri Anirban Dutta. We also note that even though in his statement, Shri Anirban Dutta had admitted of being engaged in providing accommodation entries yet nowhere in his statement he had identified either Shri Sanjay Jhunjhunwala or Mani Square Limited as beneficiary of accommodation entries provided by him. We also note that while recording statement u/s 131 of the Act, Shri Anirban Dutta was asked to identify the parties to whom he had provided accommodation entries in form of share capital/loans. From his answers extracted at Page 58 & 59 of the assessment order, we note that though he identified the groups/parties to whom he provided accommodation entries but none of the parties or groups identified inter alia included the name of Shri Sanjay Jhunjhunwala or Mani Square Limited. As stated earlier, the AO before he relied upon the statement of Shri Anirban Dutta as evidence, he himself never issued notice u/s 131 or 133(6) of the Act to Shri Anirban Dutta and examined him to ascertain the facts regarding the appellant’s case, particularly when no information contained in his statement dated 16.11.2015 connected the loan transactions of the appellant/assessee with M/s Narantak Dealcomm Pvt. Ltd., M/s Remahay Stores Pvt. Ltd., M/s Satyam Vyapaar Pvt. Ltd. and M/s Shaily Sales & Services Pvt. Ltd. The statement of Shri Anirban Dutta which was available in the public domain an year before search was conducted in assessee, could have raised suspicion in the mind of the AO and at best would have been the starting point of further enquiries. However, we find that the statement on its own did not contain any material whatsoever on the basis of which any prudent person instructed in law would have reached the conclusion that the loans received by the appellant/assessee from four bodies corporate have any connection with Shri Anirban Dutta. So, we find that the AO erred in relying on the statement of Shri Anirban Dutta to draw adverse inference against the assessee in respect of loan received from these four (4) companies. Moreover, neither the AO himself examined the so-called entry operator and brought out any material relevant to link these loan creditor companies with the entry operators nor their statements could be tested on the touch stone of cross examinations, so the third party statement could not be acted upon to the disadvantage of the appellant/assessee since it would offend the principles of natural justice. So, we find that the AO erred in drawing adverse view against the assessee in the light of the discussion (supra) and the addition of loan given to the assessee by these four loan creditors are erroneous.

(B) The assessee received loan of Rs. 15,00,000/- from M/s Sharma Hire Purchase Limited, which according to AO was allegedly controlled by Shri Anuj Bhukediwala whose statement was recorded u/s 131 of the Act on 16-05-2016 at 51/1 Bonehari Bose Road, Howrah – 711 101. Thus, the statement of Shri Anuj Bhukediwala was also not recorded in pursuance of any proceedings against the assessee in connection with search u/s 132 of the Act conducted upon the appellant/assessee on 22-06-2016. We note that the AO had selectively extracted the contents of his statement which was recorded in some other proceedings unconnected with the appellant’s search. From the contents extracted at Pages 64 to 68 of the assessment order, we note that nowhere in his statement Shri Anuj Bhukediwala had admitted that M/s Sharma Hire Purchase Limited was controlled by him. We further note that in his answer to Q No. 15 though he identified the group to whom he provided accommodation entries but the parties identified by him was neither Shri Sanjay Jhunjhunwala or Mani Square Limited. We find that the selective extracts of the statement did not contain any material whatsoever on the basis of which any prudent person instructed in law would have reached the conclusion that the loans received by the appellant from M/s Sharma Hire Purchase Limited had any connection with Shri Anuj Bhukediwala. Moreover, when the AO himself never examined the so-called entry operator or opportunity of cross examination of Shri Anuj Bhukediwala was given to the assessee, the AO erred in relying on the statement. So, we find that the addition made by the AO by relying on such statement was erroneous and, therefore, the addition was untenable on facts and in law.

(C) The assessee received loan of Rs.50,00,000/- from M/s Romanchak Merchandise Pvt Ltd. According to AO this body corporate was allegedly controlled by Shri B D Agarwal whose statement was recorded u/s 133A of the Act on 09-04-2015 at 21, Hemanta Basu Sarani, Kolkata – 700 001. This fact also shows that the statement of Shri B D Agarwal was not recorded in pursuance of any proceedings against the assessee and in connection with search u/s 132 conducted upon the appellant on 22-06-2016. Instead the statement of Shri B D Agarwal was recorded in some other proceedings unconnected with the appellant’s search. From the contents of the statement extracted at Pages 78 to 81 of the assessment order, we note that nowhere in his statement Shri B D Agarwal had admitted of providing accommodation entries in the form of unsecured loans to the appellant/assessee. On careful perusal of the entire statement it is noted that he had admitted of providing accommodation entries in the form of bogus gains & losses in shares & commodities and also share capital. In his answer to Q No. 11 he had enlisted six bodies corporate which were controlled or managed by him and M/s Romanchak Merchandise Pvt Ltd did not feature in the said list. We also note nowhere in his statement, Shri B D Agarwal had identified either Shri Sanjay Jhunjhunwala or Mani Square Limited as beneficiaries of his activities or admitted of providing accommodation entries to either of them. We further note that for Question Nos. 13 to 17 wherein the concerned authorized officer specifically asked Shri Agarwal to give specific answers concerning transactions with the named parties, to whom according to the authorized officer, Shri B D Agarwal had allegedly provided accommodation entries. From a perusal of the answers to the questions, we note that though he admitted to be providing accommodation entries to the named groups/parties but none of the parties identified by Shri Agarwal, inter alia, included the name of Shri Sanjay Jhunjhunwala or Mani Square Limited. We find that the statement of Shri B D Agarwal on its own did not contain any assertion/admission against the assessee or about his connection with Ms. Romanchak Merchandise Pvt. Ltd. the basis on which any negative inference can be drawn against the assessee or the loan creditor M/s. Romanchak Merchandise Pvt. Ltd. So, the statement of Shri Aggarwal cannot be relied upon to draw any adverse inference. So, we find that M/s. Romanchak Merchandise Pvt. Ltd had no connection with Shri B D Agarwalwa. We also note that before the AO used statement of Shri B D Agarwal as evidence, he himself never issued notice u/s 131 or 133(6) of the Act to Shri B D Agarwal to ascertain whether he has any connection with M/s. Romanchak Merchandise Pvt. Ltd. and with the appellant/assessee and about the facts of the case, particularly when no information appearing from his statement connected the loan transactions between M/s Romanchak Merchandise Pvt Ltd and the appellant/assessee. Moreover, Shri B D Agarwal’s statement was never tested on the touch stone of cross examination. Therefore, the addition made by AO on the basis of Shri B. D. Agarwal was erroneous, so it is untenable.

(D) The assessee received loans aggregating to Rs.4,67,00,000/- from M/s Lavanya Nirman Pvt. Ltd., M/s Kasturi Home Pvt. Ltd., M/s Himadri Enclave Pvt. Ltd., M/sTista Nirman Pvt. Ltd. and M/s Orbital Contractors & Financiers Pvt Ltd. According to AO all the loan creditors were allegedly controlled by Shri Pankaj Agarwal whose statement was recorded u/s 131 of the Act on 03-02-20 15 at 138B Manicktala Main Road, Kolkata – 700 054. From the foregoing facts it is evident that the statement of Shri Pankaj Agarwal was not recorded in pursuance of any proceedings against the appellant/assessee in connection with search u/s 132 conducted upon the appellant on 22-06-2016. From the contents of the statement extracted at Pages 126 to 129 of the assessment order, we note that he had stated that he was providing accommodation entries only till the year 2011 and thereafter he was engaged in the business of producing films. This fact, on its face, itself suggests that the loans obtained by the appellant in the relevant FY 20 12-13 could not have been provided by Shri Pankaj Agarwal or his entities. Further in his answer to Q No. 14, he had identified the names of six companies which he allegedly controlled but we find that none of five loan creditors which provided loan to assessee does figure in it. Thus, we find that nowhere in his statement Shri Pankaj Agarwal admitted that M/s Lavanya Nirman Pvt. Ltd., M/s Kasturi Home Pvt. Ltd., M/s Himadri Enclave Pvt. Ltd., M/sTista Nirman Pvt. Ltd. and M/s Orbital Contractors & Financiers Pvt Ltd were controlled or managed by him. We also note that even though in his statement, he had admitted of being engaged in providing accommodation entries till the year 2011 yet nowhere in his statement Shri Pankaj Agarwal had identified either Shri Sanjay Jhunjhunwala or Mani Square Limited as beneficiary of accommodation entries provided by him. Further, we note that before the AO used the statement of Shri Pankaj Agarwal as evidence against the assessee, he himself never issued notice u/s 131 or 133(6) of the Act to Shri Pankaj Agarwal to ascertain the facts of the case, particularly when no information was appearing from his statement which connected the loan transactions between appellant/assessee and the loan creditors M/s Lavanya Nirman Pvt. Ltd., M/s Kasturi Home Pvt. Ltd., M/s Himadri Enclave Pvt. Ltd., M/sTista Nirman Pvt. Ltd. and M/s Orbital Contractors & Financiers Pvt Ltd. We find that the statement of Shri Pankaj Agarwal on its own did not contain any assertion/admission whatsoever on the basis of which any prudent person instructed in law would have reached the conclusion that the loans received by the appellant from five bodies corporate, admittedly have any connection with Shri Pankaj Agarwal. Moreover, when the AO himself never examined the so-called entry operator, nor gave any opportunity to assessee to cross examine Shri Pankaj Agarwal the statement cannot be relied upon against the assessee or the loan creditors and by doing so, the AO erred in his action of making addition. On the facts discussed in the foregoing we therefore find that the addition made by the AO was both factually as well as legally unsustainable.

(E) The assessee received loan of Rs. 1,00,00,000/- from M/s Susri Finance Pvt Ltd, which according to AO was allegedly controlled by Shri P K Jain whose statement was recorded u/s 131 of the Act on 24-02-2014 at 88 Regent Park, Tollygunge, Kolkata – 700 040. It is noted that even this statement was not recorded in pursuance of any proceedings against the assessee/appellant in connection with search u/s 132 of the Act conducted upon the appellant on 22-06-2016. It is noted from the contents of the statement selectively extracted at Pages 147 to 148 of the assessment order that he had admitted that previously he was involved in providing accommodation entries but now he was rendering accounting services. It is further observed that in his answer to Q No. 18, he has admitted of providing accommodation entries to three bodies corporate, none of which figures the name of Shri Sanjay Jhunjhunwala or Mani Square Limited or the loan creditor M/s. Susri Finance Pvt. Ltd. We thus note that the selective extracts of the statement did not contain any assertion/admission/material whatsoever on the basis of which any prudent person instructed in law would have reached the conclusion that the loans received by the appellant from M/s Susri Finance Pvt Ltd. had any connection with Shri P K Jain. Moreover when the AO himself never examined the so-called entry operator, nor opportunity of cross examination of Shri P K Jain was given to the assessee, the AO’s action of relying on this statement to make the addition is erroneous and is against the principle of Natural Justice. We, therefore, find that the addition made by the AO by relying on such statement was untenable on facts and in law.

(F) The assessee received loan of Rs.5,75,00,000/- from M/s Vicky Fincon Pvt Ltd, which according to AO was allegedly controlled by Shri Ramesh Poddar whose statement was allegedly recorded u/s 131 of the Act on 12-06-20 14 at P-136, Bangur Avenue, 3^rd Floor, Kolkata – 700 055. It is noted that even this statement was not recorded in pursuance of any proceedings against the appellant/assessee in connection with search u/s 132 conducted upon the appellant on 22-06-2016. On combined reading of the past director details and the contents of the statement extensively extracted at Pages 182 to 185 of the assessment order, it is noted that Shri Ramesh Poddar was neither a Director nor shareholder of M/s Vicky Fincon Pvt Ltd during FY 2012-13 in which it had advanced loan to the appellant. Moreover even the two persons named by Shri Ramesh Poddar, who were allegedly acting under his directions and control, were not the Directors of the loan creditor. In his entire statement, Shri Ramesh Poddar neither named the loan creditor nor suggested that the loan creditor was controlled by him. He has also not admitted to be providing accommodation entries to either Shri Sanjay Jhunjhunwala or Mani Square Limited. We are of the opinion that the statement of Shri Ramesh Poddar at best could have raised suspicion in the mind of the AO and it would have been the starting point of an enquiry to dig out facts which could have unraveled any wrong doing connecting the assessee. However, the statement on its own did not contain any material whatsoever on the basis of which any prudent person instructed in law would have reached the conclusion that the loans received by the appellant/assessee from M/s Vicky Fincon Pvt Ltd was not genuine. Moreover the AO himself never examined the so-called entry operator, nor gave an opportunity to cross examine Shri Ramesh Poddar. We therefore find that the addition made by the AO by relying on such statement was untenable on facts and in law.

(G) The assessee received loan of Rs.25,00,000/- from M/s Nagancheji Credit Pvt Ltd. According to AO this body corporate was controlled by Shri R K Ajitsaria whose statement was recorded u/s 131 of the Act on 2 1-05-2014 at AA/2/2, Rajarhat Road, Miranda Appt, Baguihati, Kolkata – 700 059. This fact shows that the statement of Shri R K Ajitsaria was not recorded in pursuance of any proceedings conducted against the appellant/assessee in connection with search u/s 132 conducted upon the appellant on 22- 06-2016. Instead the statement of Shri R K Ajitsaria was recorded in some other proceedings unconnected with the appellant’s search. From the contents of the statement extracted at Pages 189 to 191 of the assessment order, we note that nowhere in his statement Shri R K Ajitsaria had admitted of providing accommodation entries in form of unsecured loans. On perusal of the entire statement it is noted that he had admitted of providing accommodation entries in form of bogus commodity profits. In his answer to Q Nos. 8, 9 & 10 he had set out the modus operandi followed by him for providing accommodation entries in the form of bogus commodity gains/losses through a commodity brokerage entity controlled and managed by him. Neither did he admit of providing accommodation entries in form of unsecured loans nor did the name of M/s Nancheji Credit Pvt Ltd feature in his statement. We also note nowhere in his statement, Shri R K Ajitsaria had identified either Shri Sanjay Jhunjhunwala or Mani Square Limited let alone admitted of providing accommodation entries to them. We find that the statement of Shri R K Ajitsaria relied upon by the AO was irrelevant and the statement on its own did not contain any assertion/admission/material whatsoever on the basis of which any prudent person instructed in law would have reached the conclusion that the loan received by the appellant/assessee from M/s Nancheji Credit Pvt Ltd have any connection with Shri R K Ajitsaria. We also note that before the AO used the statement of Shri R K Ajitsaria as evidence against the appellant/assessee, he himself never issued notice u/s 131 or 133(6) of the Act to Shri R K Ajitsaria to ascertain the facts of the case, particularly when no information appearing from his statement connected the loan transactions between M/s Nancheji Credit Pvt Ltd and the appellant. Moreover when the AO himself never examined the so-called entry operator, and provided any opportunity of cross examination of Shri R K Ajitsaria, the statement of Shri R. K. Ajitsaria cannot be relied upon and the AO erred in relying on the statement to make the addition which action of AO was factually as well as legally untenable.

62. The foregoing was the illustrative analysis of the statements of entry operators relied upon by the AO for justifying the additions made u/s 68 & 69C of the Act. On the same lines, as discussed in the earlier paras, the AO relied on statements of other entry operators. On examination of these statements we are satisfied that in none of the statements any of them had admitted of having any transactions or providing accommodation entries to the appellant nor the AO has brought on record any material to link these entry operators with the bodies corporate from whom the loans were received by the appellant. We therefore, for the facts and reasons, elaborately set out, in sub-paras (A) to (G) above, hold that the AO was unjustified in making additions u/s 68 & 69C of the Act based on the unsubstantiated and irrelevant statements of so-called entry operators.

63. Apart from relying on the statements of the entry operators, the AO also discredited the abilities of the loan creditors to advance loans to the appellant on the ground the financial positions revealed by the audited accounts of the respective loan creditors did not prove their capacity and ability to advance such loans. We however find that before rejecting the financial ability of the loan creditors, the AO did not carry out the objective analysis of the financial strength and net worth of the loan creditors from their audited accounts. This fact can be analyzed from the following facts, which the Ld. CIT(A) cited in his impugned appellate order.

(A) In respect of loans received from M/s Nikhar Dealers Pvt Ltd, apart from relying on the statement of Shri Amit Dalmia, both the AO and the Ld. CIT(A) fortified the addition on the ground that the financial position revealed by its Profit & Loss Account and Balance Sheet did not establish the creditworthiness of the loan creditor. In support of this conclusion, the AO set out the salient financial details at Page3 1 of the assessment order. We note that the conclusions drawn by the AO were based on mere suspicion and conjectures and not supported by the overall financial data available from the audited accounts. In order to decide the financial capacity and capability to advance loan, it is necessary for the AO to take into consideration the overall financial capacity and ability. In the present case, we note that the AO discarded the financial capacity of M/s Nikhar Dealers Pvt Ltd in the most perfunctory manner without discussing the relative financial strength or worth of the loan creditor. We note from the financial statements of M/s Nikhar Dealers Pvt Ltd for the year ended 31^st March 2013, the capital & reserves as on 31.03.2013 were Rs.279.62 lacs. The total loans & advances granted by the company were Rs. 1107.05 lacs. Out of such loan portfolio, the loan given to the appellant was only Rs. 1,00,00,000/- which in percentage terms amounted only to 9.03%. During the FY 2012-13, the creditor had earned gross revenues of Rs.349.74 lacs which inter alia included interest income of Rs. 1,81,41,518/- and interest received from the appellant was only Rs. 1,22,740/-. The net profit of the company for the relevant year was Rs.1,45,98,91 1/-. From the foregoing facts and figures, it is evident that only small fraction of the investible funds of M/s Nikhar Dealers Pvt Ltd were used for granting loan to the appellant. The fact that the loan creditor earned interest income of Rs.1,81,41,518/- and the net profit for the year was Rs.1,45,98,91 1/- clearly shows that the financial health of the creditor was indeed sound. On these facts therefore we are unable to accept the AO’s conclusion that M/s Nikhar Dealers Pvt Ltd did not had the financial capacity to grant loan to the appellant and for that reason the loan was required to be treated as unexplained cash credit u/s 68 of the Act. The action of AO, therefore, cannot be accepted.

(B) Similarly we find that the lower authorities was not justified in making the addition in respect of loan obtained from M/s Majestic Commercial Pvt Ltd on the ground that the financial position of the loan creditor as revealed by the Profit & Loss Account and Balance Sheet did not establish the creditworthiness of loan creditor. The financials of M/s Majestic Commercial Pvt Ltd is seen set out in Pages 38 & 39 of the assessment order. After analyzing the financials of the loan creditor, we note that the conclusion drawn by the AO that this loan creditor had negligible business activity and nil business profits was per se wrong and incorrect. We note from the financial statements of M/s Majestic Commercial Pvt Ltd for the year ended 31^st March 2013, the capital & reserves as on 3 1.03.2013 were Rs.38.11 crores. The total loans & advances granted by the company were Rs.37.87 crores. Out of such loan portfolio, the loan given to the appellant was only Rs.2,50,00,000/- which in percentage terms amounted only to 6.60%. During the FY 2012-13, the creditor had earned interest income of Rs. 1,62,75,613/- from its loan portfolio which inter alia comprised of interest of only Rs.4,62,329/- received from the appellant. The net profit of the company for the relevant year was Rs.65,78,979/- against which provision for tax of Rs.20.77 lacs was provided for by the loan creditor. From the foregoing facts and figures, it is evident that the loan creditor was engaged in the business of money lending and it had substantial business activities as well as reasonable profitability. On these facts therefore we are unable to accept the AO’s conclusion that M/s Majestic Commercial Pvt Ltd did not have the requisite financial capacity to grant loan to the appellant.

(C) It is noted that the AO had treated the loans aggregating to Rs.245 lacs received from M/s Pragya Commodities Pvt Ltd, M/s. Starlite Vyapar Pv Ltd, M/s. Starwise Tie-up Pvt Ltd and M/s. Earthlink Estates Pvt Ltd to be in the nature of unexplained cash credit on the premise that they had weak financial credentials. The AO had set out the financial details of these loan creditors at Page 245 to 253 of the assessment order. On analysis of their audited accounts, the following picture emerges:

Name of loan creditor	Gross      Own Investible Funds	Loan given to appellant	Gross Revenue	Interest                received from appellant
Pragya Commodities Pvt Ltd	7867.31 lacs	35 lacs	41.01 lacs	1.63 lacs
Starlite Vyapaar Pvt Ltd	1383.21 lacs	130 lacs	165.11 lacs	7.58 lacs
Starwise Tie-up Pvt Ltd	989.06 lacs	50 lacs	13.66 lacs	4.02 lacs
Earthlink Estates Pvt Ltd		30 lacs		0.92 lacs

64. From the above it is thus apparent that the loans advanced by these creditors to the appellant were only a fraction of their investible funds as well as their loan portfolio. Moreover each of the loan creditor had derived substantial gross revenues from their business activities and the interest received from the appellant in percentage of their gross revenues was miniscule. We therefore note that the conclusions drawn by the AO were clearly not supported by the data available from the audited accounts of these loan creditors. In our considered view, to decide the financial capacity and capability to advance loan, it was necessary for the AO to take into consideration the overall financial capacity and ability rather than only going by the profitability of the loan creditor.

65. From the above discussion it is evident that before rejecting the appellant’s explanation with regard to financial capacity and ability of the loan creditors, the AO did not objectively take into consideration financial net worth of the creditors having regard to facts and figures available in the audited accounts. On examination of the financial statements of the loan creditors, we find that each loan creditor possessed sufficient investible funds out of which the creditors had advanced the loans to the assessee. We also find that in each case, the loan creditor had reported substantial interest income. Further, compared with the gross interest accounted in the books of the creditor, the amount of interest paid by the appellant was relatively lower. We also note that the interest paid by the appellant was accounted in the books of the loan creditor and before payment of interest, the tax was duly deducted u/s 1 94A of the Act. Having regard to the totality of the facts and circumstances of the case therefore, we do not find merit in the conclusion of the lower authorities that the loan creditors did not have financial credentials to advance loans and on that ground justify the addition u/s 68 & 69C of the Act.

66. As far as the decisions cited by the Ld. CIT(A) in his impugned appellate order for upholding the additions made u/s 68 & 69C of the Act are concerned, we have examined the facts involved in each of these judgments and found them to be materially different from the facts involved in the present case, for the following reasons:

(A) As far as the decision of Hon’ble Calcutta High Court in the case of CIT Vs Precision Finance Pvt Ltd reported in 208 ITR 465 is concerned, it is noted that in this decided case, the income tax file numbers of the creditors provided by the assessee were either found to be non-existent or did not tally with the Department’s records. It is on this fact that the Hon’ble High Court held that the appellant was unable to prove the identity and creditworthiness of the creditors and therefore upheld the addition made u/s 68 of the Act. In the facts of the present case however it is neither the AO’s case that the loan creditors are not income-tax assessee’s nor has he alleged that the documents and evidences furnished by the appellant in support of loan transactions were false or suffered from defects or do not tally with the Department’s records. Accordingly the judgment cited by the Ld. CIT(A) for upholding the addition is found to be factually distinguishable.

(B) From the facts as narrated by the Hon’ble Calcutta High Court in the case of Bharati Pvt Ltd Vs CIT reported in 111 ITR 372, it is noted that the assessee had claimed to have received Rs.20,000/- from two individuals. Apart from furnishing confirmatory letters, the assessee was unable to furnish any other document or evidence such as income tax file number, bank account details, their financials etc. which would in any manner substantiate their identity. On these facts therefore the Hon’ble High Court upheld the addition. The facts of this case are therefore found to be not similar with the appellant’s case.

(C) In the decision rendered in the case of Bhola Shankar Cold Storage Pvt Ltd Vs JCIT reported in 270 ITR 487, the question before the Hon’ble Calcutta High Court was whether, in absence of any independent verification, the share application monies received in cash from several individuals, who were not income-tax assessees, but claimed to be farmers, was rightly assessed by the AO u/s 68 of the Act. We note that the facts as well as the question involved in this judgment are of no relevance in the appellant’s case. The Ld. CIT(A)’s reliance on this judgment is therefore, incorrect.

(D) We have also gone through the decisions of the Hon’ble Delhi High Court in the case of Nova Promoters and Finlease Pvt Ltd reported in 342 ITR 169, Sophia Finance Ltd reported in 205 ITR 98, CIT Vs MAF Academy Pvt Ltd reported in 361 ITR 258, CIT Vs NR. Portfolio Pvt Ltd reported in 214 Taxman 408 and Navodaya Castle Pvt Ltd reported in 367 ITR 306. In our opinion the ratio laid down in these decisions cannot be applied to the appellant’s case because the sums in question are not share application In the cases decided by the Hon’ble High Court, the private limited companies had received share application monies on private placement. By its very nature, the shares of private limited companies are transacted between the small circle and therefore the Court held that it was unnatural for the shareholders who continued to have stake in the company did not cooperate with the Department and provide the requisite evidences as called for. In the present case however, as noted earlier, the relationship was that of the debtor-creditor and which had ceased to exist when the loans were fully repaid. As such it was not a case of continued relationship at the time when the enquiries were conducted by the AO. We therefore do not find merit in the reliance placed by the Ld. CIT(A) on these decisions for upholding the addition.

67. For the aforesaid facts and the reasons discussed in the foregoing therefore we hold that the addition of Rs.24,76,50,000/- being principal loan amount received by the appellant from twenty four bodies corporate did not constitute its income chargeable u/s 68 of the Act. Consequently, for the same reason we also do not find any justification in sustaining the disallowance of Rs.1,41,1 1,013/- being the interest on such loans u/s 69C of the Act.

68. Moreover, we also find that these additions were made by the AO without adhering to the principles of natural justice which constitutes bedrock in any quasi judicial proceedings. We have already discussed in the earlier paragraphs that the AO’s reliance on the statements of so-called entry operators to justify the additions u/s 68 & 69C of the Act was factually unsustainable. In addition, we are also of the opinion that such reliance was also legally untenable. As noted by us, the statements of the entry operators were recorded on various dates in the years 2013, 2014, 2015 connected with some other proceedings not at all connected with the appellant/assessee and it is not understood as to what was the condition in which the makers of the statement made the statement and in what context they made the statement. It is not known whether the makers of the statement have retracted the statements alleging threat, coercion, inducement etc. These statements were recorded much prior to the date on which the search was conducted upon the appellant. Admittedly, these statements were recorded in the absence/back of the appellant and therefore the appellant did not have any means to determine the veracity or correctness of the averments made in these statements. Moreover, as noted by us in the earlier paras, in their statements none of the persons had admitted of having any transactions with the appellant or Mr. Jhunjhunwala. In the aforesaid factual background if the AO intended to use these statements to draw adverse inference against the appellant, he himself ought to have examined these entry providers to ascertain the correct facts and in case if it is revealed by these entry operators as to any role of the appellant/assessee or connection with the loan creditors as suspected by the AO, then he should have collected material and in all fairness thereafter give a copy of the admission against the assessee or material discovered in the process and allowed the assessee an opportunity to cross examine the makers of the statement or the gave an opportunity to assessee to meet/rebut the material against it and after hearing the explanation or defence of the appellant/assessee, should have drawn his conclusion or else, the action of AO will be held to be bad in the eyes of law for violation of principle of Natural Justice. Without doing what we suggested supra, we find that the AO has accepted the statements recorded by some other officers of the Department in some unconnected proceedings and believed it as gospel truth against the appellant/assessee and relying on it proceeded to draw inference against the appellant, even though there was nothing contained in these statements which would in any manner suggest that the entry providers had any relation or connection with the appellant or that they had provided accommodation entries to the appellant/assessee. Be that as it may be, if these statements of the so-called entry operators somehow triggered suspicion in the mind of the AO in relation to appellant’s loan transactions with the bodies corporate, then as said earlier the AO was duty bound to conduct enquiry independently from the said persons and not simply rely on the statements recorded by some officers of the Department in unconnected proceedings admittedly behind the back of assessee and cannot be used against the assessee without testing it on the touch stone of cross-examination. The AO is no doubt an authority appointed by the State to exercise statutory powers to ascertain the income of a subject and the tax payable by him to the State. It is well settled that the principles of Natural Justice shall be presumed to be necessary unless there exist a statutory interdict. The principle of Natural Justice, a cardinal part of which is “audi alterem partem” (the right to be heard), is the bed rock of all quasi judicial proceedings. It should be kept in mind by the AO that his decision must be based upon logical proof or evidence/material and should not be based on speculation or suspicion or surmises or conjectures. The AO should point out clearly in his decision/order the material/evidence on which the inference or determination is based. Not only that if the AO intends to use any adverse material (allegation, documents, photos, statement etc.) against the assessee to support his decision/draw any adverse inference against the assessee, then the AO is duty bound to disclose the adverse material to the assessee, so that the assessee can scrutinize it and counter it. Since the order of AO have civil consequences to the assessee (infraction of property), the order of AO should be consistent with the Natural Justice. It has to be kept in mind that the aim of Natural Justice is to secure justice or to put it negatively to prevent miscarriage of justice. The AO was duty bound to bring on record the true and correct facts because while discharging the duties as an Assessing Officer, he was expected to function both as an investigator and adjudicator. In his role as an investigator, he was duty bound to investigate fully and bring out all the facts on record and while discharging the duty as an adjudicator he was required to comply with the principles of natural justice as discussed supra. We however note that before passing the assessment order, the AO failed to perform his twin duties, that of the investigator and adjudicator resulting in the additions being vitiated in the process.

69. We may in this regard, gainfully refer to the decision of Hon’ble Apex Court in the case of CIT Vs Odeon Builders Pvt Ltd reported in 418 ITR 315 involving similar facts as involved in the present case. In this decided case, the Revenue had disallowed the purchases made by the assessee holding it to be bogus based on the statements given by a third party. On appeal, the Ld. CIT(A) noted that on one hand the assessee had discharged its initial burden of substantiating the purchases by producing all relevant documentary evidences which it was ordinarily required to maintain in the regular course of business, whereas on the other hand, the Revenue had denied the opportunity of cross examination to the appellant. The Ld. CIT(A) therefore held the purchases to be acceptable and deleted the disallowance made by the AO. On the self-same reasoning this Tribunal and later on the Hon’ble High Court also dismissed the appeal of the Revenue. On further appeal, the Hon’ble Supreme Court also concurred with the findings of the Ld. CIT(A) and did not find any infirmity in the orders passed by the lower appellate authorities and accordingly dismissed the appeal of the Revenue. The relevant portion of the judgment of the Hon’ble Supreme Court reads as under:

“3. However, on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance of Rs. 19,39,60,866/- was based solely on third party information, which was not subjected to any further scrutiny. Thus, the CIT (Appeals) allowed the appeal of the assessee stating:

“Thus, the entire disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO who has not provided the copy of such statements to the appellant, thus denying opportunity of cross examination to the appellant, who has prima facie discharged the initial burden of substantiating the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, & VAT Registration of the sellers & their Income Tax Return. In view of the above discussion in totality, the purchases made by the appellant from M/s Padmesh Realtors Pvt. Ltd. is found to be acceptable and the consequent disallowance resulting in addition to income made for Rs. 19,39,60,866/-, is directed to be deleted.”

4. The ITAT by its judgment dated 16th May, 2014 relied on the self-same reasoning and dismissed the appeal of the revenue. Likewise, the High Court by the impugned judgment dated 5th July, 2017, affirmed the judgments of the CIT and ITAT as concurrent factual findings, which have not been shown to be perverse and, therefore, dismissed the appeal stating that no substantial question of law arises from the impugned order of the ITAT.”

70. In this regard, we also rely on the following findings recorded by the Hon’ble Apex Court in the case of Andaman Timber Industries Ltd vs Commissioner of Central Excise in Civil Appeal No. 4228 of 2006 reported in (2015) 62 Taxman 3 (SC),which reads as under:

“According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses 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.”

71. It is by now a settled proposition of law that where in the revenue proceedings any inference is drawn against the assessee on the basis of statements of any third person then such inference is legally unsustainable if opportunity of cross examining the Departmental Witness/third party is not granted to the affected person. In this regard, we may make useful reference to the decision of the Hon’ble Bombay High Court in the case of CIT Vs Reliance Industries Ltd (102 com 372). In this case the assessee had claimed deduction for consultancy charges paid to one S, a Consultant. On the basis of statement recorded from S, in the course of search conducted u/s 132 of the Act, the AO held that S. did not render any service to the assessee and therefore the deduction claimed for consultancy charges paid was not allowable. The Tribunal held that the disallowance; based solely relying on the statement of S, recorded in the course of search without there being any independent material was not justified. On appeal by the revenue the Hon’ble Bombay High Court upheld the order of the Tribunal. In this judgment, it was thus in principle held that unless and until there is a corroborative evidence or material to substantiate the statement of a third party, it is not open for the Tax Authorities to draw conclusions against the assessee solely based on the statement recorded in the course of search. The relevant findings of the Hon’ble High Court are as follows:

“Question Nos. 1 and 2 are elements of the same issue and relate to the addition of Rs. 3.39 crores (rounded off) made by the Assessing Officer by disallowing expenditure of the said sum incurred by the respondent-assessee in form of payments to one Shri S.K. Gupta. The Assessing Officer on the basis of statement of said Shri Gupta recorded during search operations held that the said person had not rendered any service to the assessee-company so as to receive such payments. CIT (Appeals) however deleted the addition inter-alia on the grounds that Shri S.K. Gupta had retracted the statement recorded during search, that the assessee-company had pointed out range of services provided by Shri Gupta and that the Assessing Officer had no other material to disallow the expenditure. The Tribunal in further appeal by the revenue confirmed the view of the CIT (Appeals) independently coming to the conclusion that the Assessing Officer was not justified in making the addition. It was noted that Shri Gupta retracted his statements within a short time by filing an affidavit. Subsequently, his further statement was recorded in which he also reiterated the stand taken in affidavit. The Tribunal also referred to the decision in case of the Dy. CIT v. Link Engineers (P.) Ltd. [IT Appeal No. 968 & 2248 (Delhi) of 2011] in whose case also a similar issue of genuineness of payment to Shri S.K. Gupta had come up for consideration. The Tribunal noted that in such a case also the Tribunal had held in favour of the assessee.

3. Having heard learned counsel for the parties and having perused documents on record, we notice that the entire issue is based on the appreciation of materials on record. CIT (Appeals) and the Tribunal concurrently held that there was sufficient evidence justifying the payment to Shri S.K. Gupta, a Consultant and that the Assessing Officer other than relying upon the retracted statements of Shri Gupta recorded in search, had no independent material to make the additions. No question of law arises.”

72. Similar view was expressed by the Hon’ble Gujarat High Court in the case of CIT Vs Kanti Bhai Ravidas Patel (42 taxmann.com 128), wherein it was observed as follows:

“5. We have heard rival contentions and gone through the material on record. Ld. A. O. has used third party statement of Vikas A. Shah in framing the assessment. The statement of Shri Vikas A. Shah recorded under Section 131(1A) not under Section 132 of the IT Act on 14/03/2005 and 19/04/2005. The ld. A.O. had used this statement without allowing cross examination of Vikas A. Shah which is against the principle of natural justice. This land had registered document and the value has been accepted as to correct by registering authority to the charge of stamp duty. There was no material or evidence that any on money was paid by the appellant on the transaction. Ld. A. O. had not referred this land to the DVO for determining the market value on date of registration. The statement given by Vikas A. Shah was self service statement without any supporting evidence. There was no search carried out on the appellant. The seized papers were found in the possession of Shri Vikas A. Shah. The third person evidence cannot be base for addition on the basis of any entries therein. The ld. CIT(A) had also considered following decisions.

I. Prathana Construction (P.) Ltd. v. Dy. CIT [2001] 70 TTJ 122 (Ahd.)

II. CIT v. Prabhat Oil Mills [1995] 52 TTJ 533 (Ahd.)

III. Jindal Stainless Ltd. v. Asstt CIT [2009] 120 ITD 301 (Delhi)

After considering all the facts and legal position of this issue, we do not find any reason to intervene in the order of the CIT(A). Accordingly, we uphold the order of the CIT(A).” 6. It is required to be noted that the order passed by the ITAT in the case of the co­purchaser-A bhalbhai Arjanbhai Jadeja was further carried before this Court by way of Tax Appeal No. 233/2013 and other allied appeals and it is reported that vide order dated 03/04/2013, the Division Bench of this Court has dismissed the said appeal confirming the order of deletion of similar addition in the case of Abhalbhai Arjanbhai Jadeja-co- purchaser.

7. In view of the above, when in the case of the co-purchaser, similar addition came to be deleted by the CIT(A), which came to be confirmed up to this Court, it cannot be said that the tribunal1 has committed any error in dismissing the appeal preferred by the revenue and consequently confirming the order passed by the CIT(A) deleting the addition of Rs.92, 00,000/- made on account of unaccounted investment. No question of law, much less substantial question of law arises in the present Tax Appeal. Hence, the present Tax Appeal deserves to be dismissed and is accordingly dismissed.”

73. We also rely on the following observations of the Hon’ble Rajasthan High Court in the case of CIT Vs A L Lalpuria Construction Pvt. Ltd (32 taxmann.com 384);

“2. The revenue has preferred instant appeals U/s 260A of Income Tax Act,1961 (“Act, 1961 “) assailing judgment of the Tribunal dt.31. 03.2010 affirming order of Commissioner (Appeals) dt. 05.03.2008, with modification that on the statement of Kripa Shanker Sharma, the income of Rs. 5 Lacs was assessed in the hands of assessee and it was observed by the Tribunal that the statement of Kripa Shanker Sharma was never confronted and no documentary evidence was supplied to the assessee, in absence whereof the income in the hands of the assessee on the basis of statement of Kripa Shanker Sharma deserves deletion.

3. The assessee as alleged carried out construction activities and disclosed income from sub­contract and investment in building construction. After the search U/s 132 of the Act, 1961 was carried out on 12.04.2005 in the case of another assessee M/s. B.C. Purohit & Company at Jaipur & Kolkata, evidence was gathered and from the investigation it revealed that in the garb of tax consultation the owners and employees of this group were running the racket of providing accommodation entries of gifts, loans, share application money, share investment and long term capital gains in shares. It will be relevant to record that the present assessee might have been in consultation with M/s. B.C. Purohit & Company and a member of the group and has drawn inference regarding providing accommodation entries and the assessing officer was of the view that details made available by the assessee as regards unsecured loans and share application money, reference of which has been made in para-4 of its order, appears to be the accommodation entries and the present assessee was middle man and invoking Sec.68 of the Act, it was considered to be part of the income in the hands of the assessee. However, on appeal preferred before the Commissioner (Appeals) by the assessee U/s 143(3) r/w 147 of the Act, 1961 all the factual statements were examined at length and the Commissioner (Appeals), after due appreciation of material which came on record, observed that from independent enquiry the copies of bank account were obtained by the assessing officer and found that for clearing of the cheques issued by these companies either cash was deposited in the same account or in another account of the group company in fact was M/s. B.C. Purohit of which the present assessee was considered to be one of the group member. However, it was further observed that summons issued U/s 131 of the Act were served upon all such applicant/ creditors and their confirmation letters were filed and the companies were assessed to tax being the private limited companies, the existence of their separate legal entity ordinarily could not have been doubted. However on the basis of statement of Kripa Shanker Sharma which was recorded by the search authorities as regards accommodation entries, a sum of Rs.5 Lacs was assessed in the hands of present assessee alone and as regards other income, it was not considered to be in the hands of the present assessee. Obviously the department being aggrieved preferred appeal before the Tribunal and at the same time, the present assessee filed cross objection regarding part of the income, to the extent of a sum of Rs.5 Lacs, as being recorded in the hands of present assessee on the basis of statement of Kripa Shanker Sharma. The Tribunal while appreciating the factual matrix came on record observed that after the summons were issued U/s 131 of the Act, 1961 to the applicant/creditors and their confirmation letters were filed and the companies were assessed to tax being private limited companies the existence of their separate legal entity ordinarily could not have been challenged more so when the identity of existence of the investor is not disputed and accordingly upheld the view of Commissioner (Appeals), at the same time further observed that merely on the basis of oral statement of Kripa Shanker Sharma recorded before the search authorities that the assessee provided accommodation entries was not sufficient for the income to be assessed for a sum of Rs. 5 Lacs in the hands of the assessee and while allowing the cross objection filed by the assessee dismissed the appeal preferred by the revenue under order impugned.

4. We have heard the parties at length and of the view that what has been observed by the Commissioner (Appeals) & the Tribunal appears to be based on factual matrix and there appears no substantial question of law arises which may require interference by this Court to be examined in the instant appeal.

5. Consequently, the instant appeals are wholly devoid of merit and accordingly stand ”

74. In view of the above judicial precedents (supra), we note that in the facts of the present case, save and except extracting the statements of so-called entry operators, the AO did not bring on record any credible evidence/material which could show that the appellant had routed its unaccounted monies in the form of bogus loans. In fact the AO himself never examined any one of the persons whose statements were relied upon by him in the assessment order nor did he grant the appellant/assessee an opportunity to cross-examine the witnesses whose statements were extracted in the assessment order. Except the bald references to the recorded statements, the AO did not bring on record any material which could link the appellant with any wrong doing as held by him that the assessee’s unaccounted monies were introduced in the garb of unsecured loans. For the reasons set out in foregoing, we are of the considered view that the AO’s failure to personally examine the witnesses and his denial to allow the appellant opportunity to cross examine the third parties/Departmental witnesses on whose statements he was relying upon was a serious and fundamental error which resulted in the additions as well as the action of AO to point out any material and irrelevant to justify the addition made u/s 68 & 69C of the Act in the assessment order untenable and so it cannot be sustained.

75. Moreover, as noted by us supra, the AO in the most perfunctory manner and based on conjecture rejected the financial capacity of the loan creditors to advance loans. Before drawing adverse inference regarding creditworthiness, the AO did not objectively apply his mind to the financial statements submitted before him from which it was prima facie apparent that the loan creditors possessed sufficient funds out of which the loans could be advanced. The financial statements also demonstrated that the loan creditors were otherwise engaged in the business of granting loans to other parties and in the course of their financing business, the appellant was granted loans carrying commercial interest rates. Before rejecting the appellant’s explanation regarding the creditworthiness of the parties, the AO was required to demonstrate with cogent fact that financial position of the loan creditor in fact was weak consequent which they would not be in a position to advance the loan amounts. Even in such case, where the financial position was doubtful and yet the loan creditor had accepted the fact of granting loan, then in such case it is not proper for the AO to brand the creditor as unworthy of credence. In such a scenario, the AO should enquire from the AO of the loan creditor as to the genuineness of the transaction as to whether the loan creditor’s AO has accepted the loan transactions as genuine or not. Without doing this exercise the AO of the loan taker (debtor) cannot brand the loan creditor as unworthy of credence. Here, in this case on hand, the AO has not done this exercise and these loan creditors all are income tax assessees and all their detail were furnished before the AO and they have all shown the interest income as their income and while paying interest, the assessee had deducted tax at source also. In this regard, we may make useful reference to the judgment in the case of CIT Vs Dataware Pvt Ltd [ GA No.2856 of 2011] wherein the following observations were made by the jurisdictional Hon’ble Calcutta High Court;

“In our opinion, in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an income tax assessee. After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence. So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness of transaction through account payee cheque has been established.”

76. For the reasons as discussed in the foregoing, the additions of Rs.39,73,50,000/-& 3,20,13,463/- made u/s 68 & 69C of the Act in the hands of the appellant therefore stand deleted.

77. We further note that in the impugned order the Ld. CIT(A) upheld the additions of Rs.2, 15,00,000/- & Rs.25,76,2 19/- being loan received & interest paid by M/s IQCIPL [since merged with the appellant] on the ground that the factual matrix of the addition was same as in the case of the appellant. Since in the foregoing paragraphs, we have elaborately discussed the reasons for deleting these additions, we hold that these reasons mutatis mutandis apply in relation to addition of Rs.2,15,00,000/- & Rs.25,76,219/- as Accordingly, following our findings recorded in respect of the appellant, these additions also directed to be deleted. Accordingly, Ground Nos. 6 to 11 of the assessee’s appeal are answered in favour of the appellant/assessee and against the Revenue.

78. Coming to issue (D), we note that the question for adjudication is whether the Ld. CIT(A) was justified in deleting the addition of Rs. 15,07,993/- which was allegedly made by way of unaccounted transactions as held by the AO. As noted earlier, the AO had drawn up a statement from the documents contained in MSL/HD/1, that cash payments exceeding Rs.20,000/- were made in a single day to two persons, namely Shri Proloy Mondal and Shri Satyendra Singh and added the aggregate sum of Rs. 15,07,993/- by way of unaccounted transactions of the appellant/assessee. On appeal the Ld. CIT(A) deleted the disallowance after noting that the entries were recorded in the regular books of accounts and therefore could not be considered to be unaccounted transactions of the appellant/assessee. Moreover we note that the persons to whom the payments were made in cash were staff of the appellant/assessee through whom the payments were made for meeting expenses of the appellant. The Ld. CIT, DR was unable to controvert this factual finding of the Ld. CIT(A). We note that since the payments were made to staff members which facts were duly recorded in the regular books of accounts, the additions of 15,07,993/- on the ground of being unaccounted payments was rightly deleted by the Ld. CIT(A). Ground No. 2 of the Revenue is therefore dismissed.

79. Now we proceed to decide the Issue (E) raised by the assessee. From the facts on record it is noted that M/s IQCIPL stood amalgamated with the appellant vide order of the Hon’ble Calcutta High Court dated 06.03.20 17. It is noted that this fact was brought to the notice of the AO by letters dated 23.02.2018, 18.05.2018 and 04.10.2018 (paper book pages 47, 48, 51 & 52). The Ld. AR claimed that, despite giving due intimation regarding the amalgamation to the AO, the notice u/s 143(2) dated 05.10.2018 was issued by the AO in the name of the non-existent entity (M/s. IQCIPL) which according to the Ld. AR was an incurable defect u/s. 292BB of the Act and as a consequence, the assessment order passed by the AO dated 31.12.2018 in the name of M/s. IQCIPL was non-est in the eyes of law, since M/s. IQCIPL is a non-existing /expired entity in the eyes of law from the appointed date i.e. on 01.04.2015 and, therefore, assessment order framed after issuance of invalid mandatory statutory notice u/s. 143(2) of the Act is null in the eyes of law and, therefore, AO’s order in respect of non-existing entity is void in the eyes of law and, therefore, has to be quashed. The Ld. Counsel for the appellant, in this regard, relied on the decision of the Hon’ble Supreme Court in the case of M/s. Saraswati Industrial Syndicate and M/s. Spice Infotainment Ltd. He therefore urged us to quash the additions made by the AO to the tune of Rs.2,15,00,000/- u/s. 68 of the Act and Rs.25,76,219/- u/s. 69C of the Act in the relevant AY 2013-14 and likewise for AYs 2014-15 and 2015-16.

80. Per contra, the Ld. CIT, DR vehemently opposed the argument of the Ld. Counsel for the assessee and submitted that the assessment has been passed by the AO in the name of “M/s IQ City Infrastructure Pvt Ltd amalgamated into M/s Mani Square Ltd vide Hon ’ble High Court at Calcutta Order dated 12.12.16 in C.P. No. 864 of 2016 connected with C.A. No. 322 of 2016”. Therefore, according to Ld. CIT DR, the AO has passed the order in the name of the amalgamating company M/s. MSPL and the name of M/s. IQCIPL mentioned in the cause title of the order will not have any material bearing on the legal issue raised by the assessee. The Ld. CIT, DR further submitted that the Ld. CIT(A) has considered the addition made by the AO in the hands of M/s. IQCIPL as well as that of M/s. MSPL/assessee in a consolidated manner and has disposed of the appeal, therefore, the legal issue does not survive.

81. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the Hon’ble Calcutta High Court in the Company Petition No. 864 of 2016 connected with the Company Petition No. 322 of 2016 has passed an order dated 06.03.2017 in the case of M/s. Tollygunge Estate Pvt. Ltd. (demerged company of M/s. IQCIPL,( transferor company) and M/s. MSPL, (transferee company) which is found placed at pages 1 to 14 of the paper book I wherein M/s. IQCIPL has been merged with M/s. MSPL. Thus, we note from the aforesaid facts that the demerged company (M/s. MSPL) and the transferor company (M/s. IQCIPL) has been merged with the transferee company (M/s. MSPL)w.e.f. 01.04.2015 (appointed date) vide order of Hon’ble Calcutta High Court dated 06.03.2017. It is noted that M/s. MSPL had informed the AO about the amalgamation of M/s. IQCIPL with it vide letter dated 23.02.2018 which is available at page 47 of paper book. The intimation regarding the amalgamation of M/s IQCIPL with M/s MSPL was also given in their subsequent letters dated 18.05.2018 and 04.10.12018. Despite being informed about the amalgamation, it is noted from Page 152 of the paper book, that the AO issued notice u/s 143(2) for AY 2013-14 on 05.10.2018 in the name of M/s. IQCIPL which was admittedly non-existent on that date. The AO thereafter proceeded to frame the assessment in the name of M/s. IQCIPL which was a non-existing company after amalgamating with M/s. MSPL by the order of the Hon’ble Calcutta High court dated 06.03.2017 w.e.f. 01.04.2015.

82. It is by now well settled in law that any notice or order issued in the name of non­existent entity which has since stood merged/ amalgamated / dissolved is ab initio void and bad in law. Once it is found that the notice assuming jurisdiction is issued in the name of a non-existent entity, then the assessment framed consequent thereto, is non-est in the eyes of law. In this case, the mandatory notice to scrutinize the assessment of the amalgamated company (appointed date of amalgamation dated w.e.f. 01.04.2015) u/s. 143(2) of the Act was issued on 05.10.2018 in the name of the already amalgamated company/non-existing entity [M/s IQCIPL] was void ab initio and therefore, the AO usurped without jurisdiction to assess the non-existing entity (M/s. IQCIPL). So the framing of assessment u/s. 143(3) of the Act without assuming valid jurisdiction is null in the eyes of law. It is settled law that the issuance of mandatory notice in the name of a non-existent entity is an incurable defect and cannot be treated as a procedural irregularity and section 292BB of the Act cannot come to the rescue of revenue. Instead it is a jurisdictional defect which renders the proceedings / assessment non-est in the eyes of law. This legal proposition finds support in the judgments of the Hon’ble Supreme court in the case of M/s. Saraswati Industrial Syndicate Vs. CIT (1990) 186 ITR 278 (SC) and M/s. Spice Infotainment Ltd. Vs. CIT (2012) 247 CTR 500 (Del) which decision was upheld by the Hon’ble Supreme Court. We therefore find that notice issued by the AO u/s 143(2) of the Act in the name of the non-existing entity M/s. IQCIPL rendered the assessment order dated 31.12.2018 to be a nullity in the eyes of law. The relevant findings of the Hon’ble Supreme Court in the case of Saraswati Industrial Syndicate Ltd. Vs. CIT (supra) is reproduced hereunder:

“5. Generally, where only one company is involved in change and the rights of the shareholders and creditors are varied, it amounts to reconstruction or reorganisation or scheme of arrangement. In amalgamation two or more companies are fused into one by merger or by taking over by another. Reconstruction or ‘amalgamation’ has noprecise lega1 meaning. The amalgamation is a blending of two or more existing undertakings into one undertaking, the shareholders of each blending company become substantially the shareholders in the company which is to carry on the blended undertakings. There may be amalgamation either by the transfer of two or more undertakings to a new company, or by the transfer of one or more undertakings to an existing company. Strictly ‘amalgamation’ does not cover the mere acquisition by a company of the share capital of other company which remains in existence and continues its undertaking but the context in which the term is used may show that it is intended to include such an acquisition. See Halsbury ’sLaws of England, Fourth Edn.., Vol. 7, paragraph 1539. Two companies may join to form a new company, but there may be absorption or blending of one by the other, both amount to amalgamation. When two companies are merged and are so joined, as to form a third company or one is absorbed into one or blended with another, the amalgamating company loses its entity.

7. In view of the above discussion, we agree with the Tribunal’s view that the amalgamating company ceased to exist in the eye of Iaw, therefore, the appellant was not liable to pay tax on the amount of Rs. 58,735. The appeal is accordingly allowed and we set aside the order of the High court and answer the question in favour of the assessee against the revenue. There will be no order as to costs.

83. Now we deal with the Ld. CIT, DR’s contention that, since the cause title of the assessment order bore the names of both amalgamating company M/s. IQCIPL and the name of amalgamated company, M/s. MSPL, the assessment order shall survive and cannot be held to be bad in law. In this regard, we note that this identical argument was taken by the Revenue before the Hon’ble Supreme Court in the case of CIT Vs Maruti Suzuki India Limited reported in 416 ITR 613 wherein the Hon’ble Apex Court dealt with it as follows:

“17.  Mr Zoheb Hossain, learned Counsel appearing on behalf of the appellant submitted that:

(i) The High Court was not justified in quashing the final assessment order under Section 143 (3) only on the ground that the assessment was framed in the name of the amalgamating company, which was not in existence, ignoring the fact that the names of both the amalgamated company and the amalgamating company were mentioned in the assessment order;

(ii) Even on the hypothesis that the assessment order was framed incorrectly in the name of the amalgamating company, it would amount to a “mistake, defect or omission” which is curable under Section 292B when the assessment is, “in substance and effect, in conformity with or according to the intent and purpose” of the Act;

(iii) During the assessment proceedings and the subsequent proceedings in appeal, the amalgamating company was duly represented by the amalgamated company. No prejudice was caused to any of the parties by the assessment order and hence rendering the assessment order invalid on a ‘mere technicality’ would be incorrect in law. There was effective participation of the assessee in the assessment proceedings and there was no doubt in the minds of those who participated about the entity in relation to which the assessment proceedings took place;

84. We note the Hon’ble Supreme Court answering the question against the Revenue and in favour of the assessee, held that irrespective of the fact that the final order contained the names of the amalgamating and the amalgamated company, since the notice u/s 143(2) of the Act was issued in the name of non-existent entity, it rendered the entire proceedings and consequent order to be nullity in the eyes of law. The relevant findings of the Hon’ble Supreme Court, are as follows:

“19.  While assessing the merits of the rival submissions, it is necessary at the outset to advert to certain significant facets of the present case:

(i) Firstly, the income which is sought to be subjected to the charge of tax for AY 2012-13 is the income of the erstwhile entity (SPIL) prior to amalgamation. This is on account of a transfer pricing addition of Rs. 78.97 crores;

(ii) Secondly, under the approved scheme of amalgamation, the transferee has assumed the liabilities of the transferor company, including tax liabilities;

(iii) Thirdly, the consequence of the scheme of amalgamation approved under Section 394 of the Companies Act 1956 is that the amalgamating company ceased to exist. In Saraswati Industrial Syndicate Ltd., (supra) the principle has been formulated by this Court in the following observations:

“5. Generally, where only one company is involved in change and the rights of the shareholders and creditors are varied, it amounts to reconstruction or reorganisation of scheme of arrangement. In amalgamation two or more companies are fused into one by merger or by taking over by another. Reconstruction or ‘amalgamation’ has no precise legal meaning. The amalgamation is a blending of two or more existing undertakings into one undertaking, the shareholders of each blending company become substantially the shareholders in the company which is to carry on the blended undertakings. There may be amalgamation either by the transfer of two or more undertakings to a new company, or by the transfer of one or more undertakings to an existing company. Strictly ‘amalgamation’ does not cover the mere acquisition by a company of the share capital of other company which remains in existence and continues its undertaking but the context in which the term is used may show that it is intended to include such an acquisition. See: Halsbury’s Laws of England (4th edition volume 7 para 1539). Two companies may join to form a new company, but there may be absorption or blending of one by the other, both amount to amalgamation. When two companies are merged and are so joined, as to form a third company or one is absorbed into one or blended with another, the amalgamating company loses its entity.”

(iv) Fourthly, upon the amalgamating company ceasing to exist, it cannot be regarded as a person under Section 2(31) of the Act 1961 against whom assessment proceedings can be initiated or an order of assessment passed;

(v) Fifthly, a notice under Section 143 (2) was issued on 26 September 2013 to the amalgamating company, SPIL, which was followed by a notice to it under Section 142(1);

(vi) Sixthly, prior to the date on which the jurisdictional notice under Section 143 (2) was issued, the scheme of amalgamation had been approved on 29 January 2013 by the High Court of Delhi under the Companies Act 1956 with effect from 1 April 2012;

(vii) Seventhly, the assessing officer assumed jurisdiction to make an assessment in pursuance of the notice under Section 143 (2). The notice was issued in the name of the  amalgamating company in spite of the fact that on 2 April 2013, the amalgamated company  MSIL had addressed a communication to the assessing officer intimating the fact of In the above conspectus of the facts, the initiation of assessment proceedings against an entity which had ceased to exist was void ab initio.

20. In Spice Entertainment, (supra) a Division Bench of the Delhi High Court dealt with the question as to whether an assessment in the name of a company which has been amalgamated and has been dissolved is null and void or, whether the framing of an assessment in the name of such company is merely a procedural defect which can be cured. The High Court held that upon a notice under Section 143 (2) being addressed, the amalgamated company had brought the fact of the amalgamation to the notice of the assessing officer. Despite this, the assessing officer did not substitute the name of the amalgamated company and proceeded to make an assessment in the name of a non-existent company which renders it void. This, in the view of the High Court, was not merely a procedural defect. Moreover, the participation by the amalgamated company would have no effect since there could be no estoppel against law :

“11. After the sanction of the scheme on 11th April, 2004, the Spice ceases to exit w.e.f. 1st July, 2003. Even if Spice had filed the returns, it became incumbent upon the Income tax authorities to substitute the successor in place of the said ‘dead person’. When notice under Section 143 (2) was sent, the appellant/amalgamated company appeared and brought this fact to the knowledge of the AO. He, however, did not substitute the name of the appellant on record. Instead, the Assessing Officer made the assessment in the name of M/s Spice which was non existing entity on that day. In such proceedings an assessment order passed in the name of M/s Spice would clearly be void. Such a defect cannot be treated as procedural defect. Mere participation by the appellant would be of no effect as there is no estoppel against law.

12. Once it is found that assessment is framed in the name of non-existing entity, it does not remain a procedural irregularity of the nature which could be cured by invoking the provisions of Section 292B of the Act.”

Following the decision in Spice Entertainment, (supra) the Delhi High Court quashed assessment orders which were framed in the name of the amalgamating company in:

(i) Dimension Apparels (supra);

(ii) Micron Steels; and (supra)

(iii) Micra India (supra).

21. In Dimension Apparels, (supra) a Division Bench of the Delhi High Court affirmed the quashing of an assessment order dated 31 December 2010. The Respondent had amalgamated with another company and thus, ceased to exist from 7 December 2009. The Court rejected the argument of the Revenue that the assessment was in substance and effect in conformity with the Act by reason of the fact that the assessing officer had used correct nomenclature in addressing the Assessee; stated the fact that the company had amalgamated and mentioned the correct address of the amalgamated company. It was the Revenue’s contention that the omission on the part of the assessing officer to mention the name of the amalgamated company is a procedural defect. The Delhi High Court rejected this contention. In doing so, it relied on the holding in Spice Entertainment, (supra) where the High Court expressly clarified that “the framing of assessment against a non-existing entity/person” is a jurisdictional defect. The Division Bench also relied on the holding in Spice Entertainment (supra) that participation by the amalgamated company in proceedings does not cure the defect as “there can be no estoppel in law”, to affirm the quashing of the assessment order.

22. In Micron Steels, (supra) a notice was issued to Micron Steels Pvt Ltd (original assessee) after it had amalgamated with Lakhanpal Infrastructure Pvt Ltd. A Division Bench of the Delhi High Court upheld the setting aside of assessment orders, noting that Spice Entertainment (supra) is an authority for the proposition that completion of assessment in respect of a non-existent company due to the amalgamation order, would render the assessment a nullity.

23. In Micra India, (supra) the original assessee Micra India Pvt. Ltd had amalgamated with Dynamic Buildmart (P) Ltd. Notice was issued to the original assessee by the Revenue after the fact of amalgamation had been communicated to it. The Court noted that though the assessee had participated in the assessment, the original assessee was no longer in existence and the assessment officer did not the take the remedial measure of transposing the transferee as the company which had to be assessed. Instead, the original assessee was described as one in existence and the order mentioned the transferee’s name below that of the original assessee. The Division Bench adverted to the judgment in Dimension Apparels (supra) wherein the High Court had discussed the ruling in Spice Entertainment (supra). It was held that this was a case where the assessment was contrary to law, having been completed against a non-existent company.

….

33. In the present case, despite the fact that the assessing officer was informed of the amalgamating company having ceased to exist as a result of the approved scheme of amalgamation, the jurisdictional notice was issued only in its name. The basis on which jurisdiction was invoked was fundamentally at odds with the legal principle that the  amalgamating entity ceases to exist upon the approved scheme of amalgamation.  Participation in the proceedings by the appellant in the circumstances cannot operate as  an estoppel against law. This position now holds the field in view of the judgment of a co­ordinate Bench of two learned judges which dismissed the appeal of the Revenue in Spice Enfotainment (supra) on 2 November 2017. The decision in Spice Enfotainment has been followed in the case of the respondent while dismissing the Special Leave Petition for AY 2011-2012. In doing so, this Court has relied on the decision in Spice Enfotainment (supra). (emphasis supplied)

85. In view of the above ratio decidenti of the Hon’ble Apex Court and judicial precedents (supra), the assessee succeeds on the legal issues raised as additional grounds and since in this case, the mandatory notice to scrutinize the assessment of the amalgamated company (appointed date of amalgamation dated w.e.f. 01.04.2015) u/s. 143(2) of the Act was issued on 05.10.2018 in the name of the already amalgamated company/non-existing entity [M/s IQCIPL] was ab-initio void and therefore, the AO usurped to assess without jurisdiction in-respect of the non-existing entity (M/s. IQCIPL). So the framing of assessment u/s. 143(3) of the Act without assuming valid jurisdiction is null in the eyes of law. Therefore, we hold that the separate assessment order dated 12.2018 framed in the matters of M/s IQCIPL is non-est and so null in the eyes of law and, therefore, all the additions against M/s. IQCIPL which has been confirmed by the Ld CIT(A) stands deleted. The additional grounds taken by the appellant therefore stands allowed.

86. Overall therefore, the appeal of the assessee in IT(SS) No.58/Kol/2019 for AY 2013-14 stands allowed and the appeal of the Revenue in IT(SS) No.75/Kol/2019 stands dismissed.

IT(SS) No. 59/Kol/2019 (Assessee’s Appeal – A.Y 2014-15)

87. Ground Nos. 1,8,9 and 10 are general in nature and therefore does not call for any specific adjudication.

88. Ground Nos. 2 to 7 of the appeal relates to the additions of Rs. 19,14,00,000/- and 5,07,90,497/- [4,85,22,497 +22,68,000] made u/s 68 & 69C of the Act respectively in the assessments framed u/s 153A/143(3) of the Act in the names of the appellant/assessee and M/s. IQCIPL. After considering the rival submissions, it is observed that, except variation in figures, the reasoning adopted both by the AO & Ld. CIT(A) to justify these additions is verbatim same as in AY 20 13-14.

89. Following our reasons and conclusions recorded in Paras 43 to 77,(supra) while deciding Ground Nos. 6 to 11 of assessee’s appeal in A.Y. 20 13-14, we hold that the additions of Rs. 19,14,00,000/- and Rs.5,07,90,497/- of the Act are also untenable on facts and in law. We therefore allow the Ground Nos. 2 to 7 raised by the assessee and direct the AO to delete the impugned additions made u/s 68 & 69C of the Act for AY 2014-15.

90. Additional Grounds raised in this appeal are against the legality of the assessment order on the ground that the notice issued u/s 143(2) of the Act was issued to M/s. IQCIPL, a non-existent entity consequent to its amalgamation with the appellant/assessee pursuant to the order of the Hon’ble Calcutta High Court dated 06-03-2017. After considering the rival submissions, it is observed that these additional grounds are identical to the additional grounds raised in AY 20 13-14. Following our reasons and conclusions drawn in AY 2013-14 at Para 78 to 85, we hold that the assessment order framed in the name of M/s. IQCIPL was without jurisdiction and so assessment framed is non-est and null in the eyes of law and, therefore, all the additions made against M/s. IQCIPL which were confirmed by the Ld CIT(A) stand deleted. The additional grounds of assessee are accordingly allowed.

IT (SS) No. 60/Kol/2019 (Assessee’s Appeal – A.Y 2015-16 as well as ground No. 2 of Revenue appeal)

91. Ground Nos. 1,12,13 and 14 are general in nature and therefore does not call for any specific adjudication.

92. Ground Nos. 2 to 5 of the assessee appeal are against the addition of Rs. 1,29,07,228/- confirmed by the Ld. CIT(A) on account of cash/on-monies allegedly received by the appellant on sale of Flat Nos. 23EA and 24EA in its ‘Swarnamani Project’ [Another Project] , which was made on the basis of on-monies/cash alleged to have been received from Shri S S Patodia and Ground No. 2 of the Revenue’s appeal in IT (SS) No.76/Kol/2019 is connected with the same issue. The Revenue’s ground No 2 is against the Ld. CIT(A)’s action of deleting the addition of Rs.43,04,39,75 1/- made by the AO u/s 68 of the Act, by extrapolating unaccounted sales across all units sold by the appellant in Swarnamani Project, on the basis of on-monies/cash alleged to have been received from Shri S S Patodia. Hence these grounds are in respect of same issue and so the cross appeals on this issue are dealt together. The facts regarding this issue is that along with the search conducted u/s 132 of the Act on 22-06-20 16 on the appellant, the Investigating authorities also conducted survey operations u/s 133A of the Act at the business premises of M/s Overtone Dealcom Pvt Ltd [Third Party], whose key person was Shri S.S. Patodia. From the documents impounded from the business premises of M/s Overtone Dealcom Pvt Ltd, the AO extracted the following statement which according to him was cash book summarizing the payment of Rs. 1.29 crores by Shri S.S. Patodia to the appellant towards purchase of Flat Nos. 23EA and 24EA in its ‘Swarnamani Project’.

Date	Main A/c	Sub A/c	Received	Paid	R. Balance	Remarks
22nd May-14					99,358
22nd May-14	Bank	KBPL	32,43,038		33,42,396	Ubi ca prebpl
22nd May-14	Bank	KCPL	32,10,5 76		65,52,9 72	Ubi ca prebpl
22nd May-14	Bank	KDPL	32,43,038		97,96,010	Ubi ca prebpl
22nd May-14	Bank	KHPL	32,10,5 75		1,30,06,585	Ubi ca prebpl
22nd May-14	Flat Booking	Mani Square Ltd		32,43,038	97,63,547	A/c Swarnamani
22nd May-14	Flat Booking	Mani Square Ltd		32,10,5 76	65,52,9 71	A/c Swarnamani
22nd May-14	Flat Booking	Mani Square Ltd		32,43,038	33,09,933	A/c Swarnamani
22nd May-14	Flat Booking	Mani Square Ltd		32,10,5 75	99,358	A/c Swarnamani

93. The AO further extracted Page No. 78 of the impounded document vide Mazharnama SSP/HD/MZ/2 which was seized on 09-08-2016, which according to him, showed that cash of Rs. 1,29,07,228/- was paid by Shri S.S. Patodia for purchase of flats. He further referred to the sworn statement dated 05.08.2016 given by Shri S.S. Patodia u/s 131 of the Act wherein he admitted of making payment of the aforesaid sum in cash to the appellant. The relevant extracts of the Question Nos. 16 & 17 and the answers given by Shri Patodia is reproduced hereunder:

Q.16. I am reproducing a portion of the cash book Impounded during the survey operations conducted u/s 133A of the I. T. Act, 1961 at the office premise of M/s. Overtone Dealcom Pvt. Ltd. and other companies at 3A, Hare Street, Kolkata on 22.06.2016:

Date	Main A/c	Sub A/c	Received	Paid	R. Balance	Remarks
22nd May	Flat Booking	Mani Square Ltd		32,43,038	97,63,547	A/c Swarnamani
22nd May	Flat Booking	Mani Square Ltd		32,10,5 76	65,52,9 71	A/c Swarnamani
22nd May	Flat Booking	Mani Square Ltd		32,43,038	33,09,933	A/c Swarnamani
22nd May	Flat Booking	Mani Square Ltd		32,10,5 75	99,358	A/c Swarnamani

Ans: Sir, these transactions refer to amount paid to Mani Group of Companies in cash against the two flats that I purchased from Mani Group in Swarnmani .Initially Mani Group demanded Rs.2000/- per sq. fl. in cash for each of these two flats I purchased, but because of my old business relation I requested Mani Group to reduce this rate and finally rate was fixed toRs. 1400/- per sq. ft. that i needed to pay in cash for these two flats my group companies purchased from Mani Group of Companies. I have paid the amounts in cash aggregating to approx.Rs.1.29 crore on 22.05.2014 to Shri. Sanjay Jhunjhunwala of Mani Group, Kolkata.

Q.17 Kindly explain whether the transactions referred in the question No.16 of are parts of the regular books of accounts

Ans: Sir, these transactions are not part of my regular books of accounts”

94. In view of the above, the AO concluded that the assessee had received 1,29,07,228/- cash on sale of flat Nos. 23EA and 24EA to M/s Kalamunj Builder Pvt Ltd, M/s Kalamunj Developers Pvt Ltd, Kalamunj Height Pvt Ltd and M/s Kalamunj Construction Pvt Ltd. Having regard to the declared sale consideration of Flat Nos. 23EA and 24EA, the AO observed that this cash/on-monies roughly translated to Rs. 1400/- per sq ft. The AO thereafter required the assessee to furnish complete details of the units sold in its ‘Swarnamani’ Project. Again referring to documents identified with marks, MSL/23 Pages 1 to 3, MSL/8 Page 13, SJ/MHD/MZ Page 2 and MSL/21 Page 32 to 36 [also referred to in the assessment order of AY 20 13-14 for justifying extrapolation of on-monies in ‘Shiromani Project], the AO concluded that the appellant was regularly accepting part of the consideration for sale of flats in cash and accordingly held that the assessee must have received similar cash component on sale of other units in its Swarnamani Project. Extrapolating the on-monies @ 13.86% of the declared sale consideration, the AO made an addition of Rs.44,33,46,979/- by way of receipt of undisclosed “on monies” received on sale of flats and car parks in the relevant AY 20 15- 16. On appeal, having regard to the statement of Shri S S Patodia, the Ld. CIT(A), sustained the addition to the extent of Rs. 1,29,07,228/-. The Ld. CIT(A) however deleted the addition of Rs.43,04,39,75 1/- which was made solely on the theory of alleged on money receipt. In support of this finding, the ld. CIT(A) relied on the decisions of the Hon’ble Bombay High Court in the case of C.J. Saha & Sons (supra) and the decisions of the Kolkata & Delhi Benches of this Tribunal in the cases of Fort Project Pvt Ltd Vs DCIT(supra)and Minda Industries vs DCIT (supra). Aggrieved by the action of the Ld. CIT(A), both the assessee and the Revenue are in appeal before us.

95. We have heard the rival submissions of both the parties and examined the material placed on record. It is noted that Flat No. 23EA having built-up area of 4749 sq ft was booked by M/s Kalamunj Builder Pvt Ltd & M/s Kalamunj Developers Pvt Ltd vide agreement dated 08-03-20 14. The Flat No. 24EA having built-up area of 4758 sq ft was booked by M/s Kalamunj Height Pvt Ltd and M/s Kalamunj Construction Pvt Ltd vide Agreement for sale dated 08-03-20 14. The AO added the following sums by way of, paid by the purchasers to the appellant over and above the declared sale consideration.

Flat	Paid
23EA	32,43,038
23EA	32,10,5 76
24EA	32,43,038
24EA	32,10,5 75
TOTAL	1,29,0 7,228

96. The above data was gathered from a cash book impounded from the business premises of M/s Overtone Dealcom Pvt Ltd and the edifice of the impugned addition is the above statement of Shri S S Patodia. From the orders of the lower authorities, it is noted that the contents of above extracted statement of Shi S S Patodia has been taken to be gospel of truth for justifying the impugned addition. This action of the lower authorities has been challenged by the appellant/assessee as untenable both factually as well as legally. It is true that Section 1 32(4A) read with Section 292C of the Act, raises a presumption that that the contents of books of account and other documents seized during the course of search is true. But it should be kept in mind that this presumption is only qua the person who is searched and/or from whose possession the books of account and documents are found and none else. Moreover this presumption is rebuttable. In the given facts of the case, since the documents in question was not found or impounded from the appellant’s premises but in the course of survey (not search) conducted against a third party, the presumption set out in Section 292C of the Act does not apply to the appellant. The appellant/assessee, therefore, is legally entitled to an opportunity of examining these documents, which were admittedly not impounded from its premises, and can seek cross examination of the third party from whose possession such document was found and furnish its rebuttals and defence with cogent evidence.

97. From the material on record, it is noted that the appellant in its letter dated 2 1-12- 2018 [Pages 731 to 771 of the paper book] had requested the AO to provide the copy of the cash book seized from the premises of M/s Overtone Dealcom Pvt Ltd as well as the statement of Shri S S Patodia, which formed the basis of the impugned addition. We however note that the AO neither provided copy of the cash book which allegedly contained notings of the cash payments to the appellant/assessee nor furnished the statement of Shri S S Patodia and an opportunity to cross examine was provided by him. So, this statement of Shri S. S. Patodia as well as the cash book containing the notings of cash payment cannot have been relied by the AO/Ld. CIT(A) to make/confirm the addition of Rs. 1,29,07,228/-. Apart from the selective extraction of certain entries found in SSP/HD/MZ/2 as discussed, we note that the AO did not bring any material on record which could lead to conclusion that the appellant was in receipt of on-monies/cash on sale of Flat Nos. 24EA and 23EA in its ‘Swarnamani Project’. On the contrary, it is noted that the appellant had furnished evidences which showed that amounts impugned in the table above were actually received by it in cheque through proper banking channel. It is noted that the appellant had received the following payments from M/s Kalamunj Builder Pvt Ltd, M/s Kalamunj Developers Pvt Ltd, M/s Kalamunj Height Pvt Ltd and M/s Kalaunj Construction Pvt Ltd via banking channel which was credited in the books of accounts of the appellant.

Gross Amount Credited	TDS Deducte d	Date of TDS Deposited	Net Amount Receivable	Amount Received	Date of Payment	Balance Amount deposited as TDS during
						21013-14
(1)	(2)	(3)	(4)	(5)	(6)	(7)
32,10,576	32,106	30.05.2014	31,78,470	31,58,626	22.05.2014	19,844
32,10,576	32,106	30.05.2014	31,78,470	31,58,626	22.05.2014	19,844
32,43,038	32,430	30.05.2014	32,10,608	31,87,646	22.05.2014	22,962
32,43,038	32,430	30.05.2014	32,10,608	31,87,646	22.05.2014	22,962
1,29,07,228	1,29,072		1,27,78,156	1,26,92,544		85,612

98. It is noted that each figure of ‘Gross Amount Paid’ in Column (1) fully tallies with each of the figures mentioned in the alleged cash book found in SSP/HD/MZ/2. The period of payment reconciles as well. It is noted that these payments were received on 30- 05-2014 which is much prior to the date of search, i.e. 22-06-2016 and the receipts are  corroborated by the entries in the bank statements, therefore it cannot be termed as an after-thought action. It is further observed that the AO in this regard had made independent enquiry from UCO Bank u/s 133(6) of the Act, which in response, also affirmed the explanation put forth of the assessee. The appellant has also furnished copy of the Form 26AS which also shows that these amounts were paid by the four purchasers and tax u/s 194IA was deducted at the rate of 1% on the advance paid for booking of the flats. The appellant has also placed on record contemporaneous evidence in the form of copies of email communications between the appellant and the representatives of the purchasers which further fortifies its case that all the payments were received in cheques. For the reasons set out in the foregoing, we therefore find that clinching evidence had been placed on record by the appellant, before us, which clearly negates the AO’s case that the impugned amounts in question were received in cash and not cheque. The facts as discussed in the aforesaid therefore clearly disprove the entries found in the alleged cash book [SSP/HD/MZ/2].

99. As far as the statement of Shri S S Patodia is concerned, it is noted that this statement was recorded in the course of survey u/s 133A of the Act. It is trite law that the statement recorded u/s 133A of the Act (survey) cannot be equated with the statement recorded u/s. 132 (search) and evidentiary value of statement recorded u/s 133A of the Act [survey] stands on a lower pedestal and the statement u/s. 133A of the Act cannot be even recorded on oath, which if recorded cannot be admissible/relied upon or acted upon. For this we rely on the decision of the Hon’ble Supreme Court in the case of CIT vs Khader Khan Son 352 ITR 480 (SC) wherein it has been held that section 133A does not empower any income tax authorities to examine any person on oath, hence any such statement lacks evidentiary value and any admission made during the survey cannot by itself be made the basis of addition. Moreover it has also been brought to our notice that Shri S S Patodia had retracted from his statement, copy of which was placed on our The relevant excerpt is quoted below:-

“By inadvertence, I having little knowledge of accounts and am an engineer, under pressure of the learned DDIT who conducted survey, stated during course of my statement recorded on 05.08.2016 u/s 131 of the Income Tax Act in reply to query no.16 that these payments were made by cash but sir out of the aforesaid amount of Rs.1,29,07,2281- the sum of Rs.1,26,92,5441- were made by banking channel to Mani Group of Companies vide RTGS drawn on Union Bank of India, Dharamtalla Branch from our various group companies. Details of payment made by the various group companies is enclosed herewith. The balance amount was either outstanding or adjusted with TDS.

Sir, I confirm that I have made payment of Rs.1,26,92,544/- by banking channel and not by cash. And out of balance amount of Rs.2, 14, 6841- (1,29,07,228 – 1,26,92,544 = 2,14,684) the sum of Rs. 1,29,072/-was the TDS amount and Rs. 85, 612/- was the outstanding balance. Sir, we request your honour to verify the same from our bank statement. “

100. In the above letter dated 20-12-2018, Shri S S Patodia has thus affirmed that the sum of Rs. 1,29,07,228/- was paid via banking channel after deducting tax at source, which finding of fact we have already recorded supra at para 98, which now stands further corroborated. The statement of Shri S. S. Patodia recorded on 05.08.2016 pursuant to survey in his premises is infirm because it has been obtained by pressure/coercion from the Officer (DDIT) and due to inadvertence (mistake of fact). Accordingly, not only do we find the statement of Shri S. S. Patodia after survey to be factually erroneous and obtained by coercion, so it cannot be acted upon or relied upon and therefore, in view of the aforesaid retraction and the fact that the transactions referred being duly reflected and reconciled with the payments made through banking channel. We therefore hold that the statement of Shri S S Patodia recorded on oath after the survey proceedings and subsequently retracted could not have been the basis for drawing adverse inference against the assessee, when the fact proved was that the payments were duly reflected, tallied and reconciled with the exact payments made through banking channel well before the search on the assessee’s premises. So, the AO erred in making the addition and Ld. CIT(A) erred in confirming Rs.1,29,07,228/-.

101. In this regard, we may gainfully refer to the decision of the Hon’ble Madras High Court in the case of CIT Vs P.V. Kalyanasundaram reported in 282 ITR 259. In the decided case, search operations were conducted against the assessee and it was found that the assessee had purchased a land which was registered for Rs. 4.10 lakhs. The AO recorded the statement of the seller wherein he admitted to have received consideration of Rs. 34.35 lakhs instead of Rs.4.10 lacs. Later on the seller retracted from the statement but thereafter again filed an affidavit admitting that total consideration of Rs. 34.85 lakhs was received, out of which Rs. 4.10 lakhs was received in demand draft and the balance in cash. The seller also revised his return of income and offered the entire sale consideration of Rs.34.85 lacs to tax. The AO relying upon the statement of the seller made the addition of the difference of Rs.30.75 lacs as undisclosed income of the purchaser. On appeal the Ld. CIT(A) deleted the addition. On further appeal, the Tribunal confirmed the action of the Ld. CIT(A). Tribunal observed that the seller had given conflicting statements as well as income-tax returns which showed that his action of admitting sale consideration and paying tax was nothing but an obvious effort to save himself from further harassment from the Revenue. Tribunal noted that apart from the statement of the seller, neither the AO conducted any independent inquiry nor did he discharge the burden of proving that the actual consideration received by the assessee was to the tune of Rs.34.85 lacs, over and above Rs.4. 10 lakhs as shown in the sale registration documents. On Revenue’s appeal, the Hon’ble High Court upheld the findings of the Tribunal. The Hon’ble High Court held that the addition made by the AO by merely relying on the statement given by the seller was untenable in law and thereby upheld the order of this Tribunal and the Ld. CIT(A). The relevant findings of the Hon’ble High Court are as follows:

5. We heard counsel. The seller had initially given conflicting statement about the sale consideration he received. When confronted by the Revenue on 11-12-1998, the seller admitted that he had deposited Rs. 4.10 lakhs received through draft in the bank and the rest amount was held by him in cash. The Revenue authorities could well have seized the cash invoking section 132 of the Act, but for obvious reasons this was not done. Had the cash been seized from the seller, the matter would have been concluded in favour of the In a subsequent submission, the seller claimed on 20-11-2000 that he had paid Rs. 15 lakhs out of the sale proceeds to settle old family debts, Rs. 4.80 lakhs for construction of house in Pullkasi Village and the balance was advanced to parties for keeping Rs. 2 lakhs and Rs. 3 lakhs in the house for family expenses and educational expenses of his daughter, respectively. It was also noted that the revised return was filed by the seller wherein he had shown approximately Rs. 2.5 lakhs being available with him in cash. Even after giving the retraction and admitting that he had sold the property for a sale consideration of Rs. 4.10 lakhs, the seller filed his income-tax return on 28-1-2000, wherein he did not admit the cash on money consideration for the sale transaction. Subsequently he revised the income-tax return wherein he admitted the sale consideration and showing Rs. 4.80 lakhs out of the above as utilised for construction of residential house property and consequently claiming exemption under section 54, the seller filed the computation of income paying Rs. 1,83,576 as tax, which was quite evident from the conflicting statements given by the seller and the conflicting income-tax returns filed by him that his action of admitting sale consideration and paying tax was nothing but an obvious effort to save from further harassment from the Revenue and escape from the exigibility of tax on undisclosed income of the cash consideration under section 158BD of the Act, which in magnitude would far exceed the tax paid by him. The burden of proving actual consideration in such transaction was that of the Revenue. The Tribunal had given factual finding and held as follows :

“We find that it is the uniform view of the courts and also held by the Apex Court as reported in K.P. Varghese v. ITO [1981] 131 ITR 597 the burden of proving actual consideration in such transaction is that of the Reve-nue. Considering the entire gamut of the case, we find that the Revenue has failed to discharge its duties and as held by the learned Commissioner of Income-tax (Appeals) instead made up a case on surmises and conjectures which cannot be allowed. Under the circumstances, we do not find any infirmity in the order of the learned Commissioner of Income-tax (Appeals) and we uphold the appellate order in this regard.”

6. We also found that the Assessing Officer did not conduct any independent enquiry relating to the value of the property purchased. He merely relied on the statement given by the seller. If he would have taken independent enquiry by referring the matter with the Valuation Officer, the controversy could have been avoided. Failing to refer the matter was a fatal one.

7. In view of the foregoing conclusions, we find no error in the order of the Income-tax Appellate Tribunal and requires no interference. Hence no substantial questions of law arises for consideration of this Court. Accordingly, the above tax case is dismissed.”

102. It is material to mention here that the Revenue went in further appeal before the Hon’ble Supreme Court. The Hon’ble Apex Court in its judgment reported in 294 ITR 49 did not find any infirmity in the order of the Hon’ble High Court.

103. We may also make useful reference in this regard to the decision of the Chennai Bench of this Tribunal in the case of M.M. Financers (P) Ltd Vs Dy CIT reported in 17 SOT 5. In the decided case search actions were conducted at business premises of assessee and also at premises of a known business associate, ‘KM’. From the premises of ‘KM’ an unsigned MOU between the assessee and five others on one hand and ‘KM’ and ‘KMR’ firm on the other, was found wherein transaction for purchase of 95 acres of land for a total consideration of Rs. 2,40,40,000/- was reflected. The AO however noted that the amount of purchase consideration of land disclosed by the assessee in its books was 91 lakhs as opposed to Rs. 2,40,40,000/- admitted by ‘KM’ vide the unsigned MOU. The AO relying upon the statement of ‘KM’ treated the difference between said amounts i.e. Rs. 1,49,40,000/- as income of the assessee. On appeal the Tribunal observed that although the sworn statement recorded under section 132(4) is evidence but the Assessing Officer has to establish the link with other seized documents. It was held that the statement from the third party recorded cannot be considered as conclusive evidence. The Tribunal held that the words ‘may be presumed’ appear in section 132(4A) of the Act and it only gives an ‘option’ to the authorities concerned to presume the things. The said option however is rebuttable and it does not give definite authority. The assessee has every right to rebut the same by producing evidence in support of its claim and contentions. It was held that each case depends on the facts and circumstances and the assessee has every right to shift the burden of proof. The Revenue authorities cannot automatically presume things especially when the actual things are contrary to the facts and circumstances of case. The Tribunal held that whenever documents are seized, the authorities concerned should not presume it to be fully true without considering other factors which may dissuade the authorities from doing so. The authorities concerned should draw the conclusion judiciously depending upon the facts and circumstances of each case. The Tribunal noted that the AO blindly relied upon the original statement made by ‘KM’ and presumed the seized material to be fully true while making the addition. The Tribunal further observed that ‘KM’ had retracted his statement. Accordingly the Tribunal held that the statement of ‘KM’ could not be considered as conclusive in nature against the assessee. The Tribunal also took note of the various discrepancies in the seized material as pointed out by the assessee and the Tribunal held that the AO should not have drawn adverse inference on the basis of suspicion, conjectures or surmises. It held that the Assessing Officer is required to act fairly and judicially as a reasonable person and not arbitrarily or capriciously. An assessment which is made on inadequate material cannot stand on its own leg. The Tribunal observed that the AO did not bring any corroborative evidence or material in support of the original statement of ‘KM’ to prove as to why the original statement alone should prevail. The addition made by the AO was thus deleted in full.

104. In view of the corroborative facts and evidences brought on record by the appellant which showed that the payment of Rs. 1,29,07,228/- was actually received in cheque (para 98 & para 100 refers)and the ratio laid down in the judicial precedents (supra), we do not find merit in the Ld. CIT(A)’s action of confirming the addition of 1,29,07,228/- by way of alleged on-monies received upon sale of Flat Nos. 23EA and 24EA u/s 68 of the Act. The AO is accordingly directed to delete the same. Ground Nos. 2 to 5 of the assessee’s appeal succeeds and therefore stands allowed in favour of the assessee and against the Revenue.

105. As a consequence of the above discussion and the finding of fact recorded in para 98 & para 100 supra , the Revenue’s ground No 2 against the Ld. CIT(A)’s action of deleting the addition of Rs.43,04,39,751/- made by the AO u/s 68 of the Act, by extrapolating unaccounted sales across all units sold by the appellant in Swarnamani Project, on the sole basis of the addition made on account of on-monies alleged to have been received from Shri S S Patodia, have no legs to stand on since, when the foundation goes, the super structure falls and this ground of Revenue has to necessarily fail. Moreover, we note that the AO failed to bring on record any other material which would in any manner suggest let alone prove that the other flat purchasers had paid any part of the consideration in cash/ on-monies over and above the declared sale consideration paid to the appellant/assessee. In absence of any such material (oral or documentary), we find merit in the Ld. CIT(A)’s conclusion that the extrapolation made by the AO was per-se arbitrary and therefore he rightly deleted the addition of Rs.43,04,39,75 1/-. Though on this score alone, this ground of the Revenue fail. Additionally, we also find merit in the Ld. CIT(A)’s reliance on the decisions of the Hon’ble Bombay High Court in the case of C.J. Saha & Sons (supra), the decisions of Kolkata, Ahemdabad & Delhi Bench of this Tribunal in the cases of Fort Project Pvt Ltd Vs DCIT(supra), Savitri Developers Pvt Ltd (supra) and Minda Industries vs DCIT (supra) wherein it was held that the theory of extrapolation cannot be applied on mere theoretical or hypothetical basis in absence of any corroborative evidence brought on record by the AO to warrant the same. We accordingly dismiss Ground No. 2 of the Revenue.

106. Ground Nos. 6 to 11 of the assessee appeal relates to the additions of 6,82,00,000/- [6,22,00,000 + 60,00,000] & Rs.2,98,16,275/- made u/s 68 & 69C of the Act in the assessments framed u/s 153A/143(3) in the names of the appellant and M/s. IQCIPL. After considering the rival submissions, it is observed that, except variation in figures, the reasoning adopted both by the AO & Ld. CIT(A) to justify these additions is verbatim same as in AY 2013-14.

107. Following our conclusions recorded in Paras 43 to 77, while deciding Ground 6 to 11 of assessee’s appeal in A.Y. 2013-14, we hold that the additions of Rs.6,82,00,000/- & Rs.2,98,16,275/-u/s 68 & 69C of the Act respectively are also untenable on facts and in law. We therefore allow the Ground Nos. 6 to 10 raised by the assessee and direct the AO to delete the impugned additions made u/s 68 & 69C of the Act.

108. Additional Grounds raised by assessee in this appeal are against the legality of the assessment order on the ground that the notice issued u/s 143(2) of the Act was issued to M/s IQCIPL, a non-existent entity consequent to its amalgamation with the appellant pursuant to the order of the Hon’ble Calcutta High Court dated 06-03-2017. After considering the rival submissions, it is observed that these additional grounds are identical to the additional grounds raised in AY 2013-14. Following our conclusions drawn in AY 2013-14 at Paras 78 to 84, we hold that the assessment order framed is without jurisdiction since AO issued mandatory notice u/s 143(2) of the Act in the name of M/s IQCIPL is non-est and therefore null in the eyes of law and, therefore, all the additions made against M/s. IQCIPL which were been confirmed by the Ld CIT(A) stand deleted. The legal issue raised by assessee as additional grounds succeeds and are accordingly allowed.

IT (SS) No. 76/Kol/2019 (Department’s Appeal – A.Y 2015-16)

109. Ground No. 2 of the Revenue’s appeal has already been dealt with along with the Ground Nos. 2 to 5 of the assessee’s appeal in IT (SS) No.60/Kol/2019. For the reasons set out in Para 91 to 105 above, this ground of the Revenue stands dismissed.

110. Ground No. 1 of the revenue is against the action of Ld. CIT(A) in holding that employees’ contribution deposited by employer beyond due date is an allowable deducation.

111. Briefly stated facts are that in this case the AO disallowed a sum of Rs.25,57,784/- for delayed payment of employees PF and ESIC since the assessee has made payment of the employees Provident Fund and ESI contributions beyond the statutory date as provided in the respective provident Fund Act and ESIC Act, but within the due date of filing of Income Tax Return u/s. 139(1) of the Act. On appeal, the Ld. CIT(A) following the decision of Hon’ble Calcutta High Court in the case of CIT Vs. M/s. Vijay Shree Ltd. in ITAT No. 245 of 2011 held that the addition of Rs.25,57,784/-made on account of payment of employees PF & ESI contributions after due date as prescribed in the relevant legislation but before filing return of income satisfies the requirement of law and so no disallowance was warranted and ordered to delete the addition/disallowance. Aggrieved, the Revenue is in appeal before us.

112. We have heard rival submissions and gone through the facts and circumstances of the case. It is noted that the issue at hand is no longer res integra and as has been rightly noted by the Ld. CIT(A), the Hon’ble Calcutta High Court has held that employee’s contribution to PF/ESI paid on or before the due date of filing of return of income u/s. 139(1) of the Act should be allowed as deduction. In this regard, we gainfully refer to the decisions of Hon’ble Calcutta High Court in the case of M/s. Akzo Nobel India Ltd. Vs. CIT in ITA No. 110 of 2011 dated 14.06.2016 and in the case of CIT Vs. Vijayshree Ltd. of the Hon’ble Calcutta High Court in GA No. 2607 of 2011 dated 06.09.2011. In the order in the case of Vijayshree Ltd. (supra) the Hon’ble Calcutta High Court held as follows:

“The only issue involved in this appeal is as to whether the deletion of the addition by the Assessing Officer on account of Employees ‘Contribution to ESI and PF by invoking the provision of Section 36(1 )(va) read with Section 2(24 )(x) of the Act was correct or not. It appears that the Tribunal below, in View of the decision of the Supreme Court in the case of Commissioner of Income Tax vs. Alom Extrusion Ltd., reported in 2009 Vol.390 ITR 306, held that the deletion was Justified.

Being dissatisfied, the Revenue has come up with the present appeal.

After hearing Mr. Sinha, learned advocate, appearing on behalf of the appellant and after going through the decision of the Supreme Court in the case of Commissioner of Income Tax vs. Alom Extrusion Ltd., we find that the Supreme Court in the aforesaid case has held that the amendment to the second proviso to the Sec. 43(B) of the Income Tax Act, as introduced by Finance Act, 2003, was curative in nature and is required to be applied retrospectively with effect from 1 st April, 1988.

Such being the position, the deletion of the amount paid by the Employees’ Contribution beyond due date was deductible by invoking the aforesaid amended provisions of Section 43(B) of the Act.

We, therefore, find that no substantial question of law is involved in this appeal and consequently, we dismiss this appeal.”

113. In view of the aforesaid decision of the Hon’ble Calcutta High court, we are of the view that Ld. CIT(A) has rightly allowed the deduction in respect of employee’s contribution to PF & ESI which had been admittedly remitted on or before the due date for filing the return of income u/s. 139(1) of the Act. Therefore, we do not find any infirmity in the order of the Ld. CIT(A) and, we confirm the same and dismiss this ground of appeal of revenue.

114. Ground No. 3 of the revenue is against the action of Ld. CIT(A) in deleting the addition made by the AO on account of interest of Rs.1,93,75,000/-allegedly receivable from Shri Hari Sharma which was not accounted by the appellant in its books of Briefly stated the facts of the case are that the Kolkata Metropolitan Development Authority (‘KMDA’) and M/s Fort Projects Pvt Ltd had entered into an agreement dated 09-08-2007 wherein the latter was to develop the plot allotted by KMDA. For this purpose, a SPV under the name and style of M/s Abasan Realty LLP was created in which Shri Hari Sharma was a partner. Subsequently vide agreement for sub-lease dated 16-12-2011 between M/s Abasan Realty LLP and the appellant, it was agreed that the appellant shall construct Abasan’s allocation on behalf of Abasan in lieu of which Abasan would grant lease of 4 acres of the allotted land, which the appellant would be free to deal in the manner, in which it deemed fit, for the unexpired period of lease. In relation to this project, the appellant had incurred sum of Rs.48.56 crores towards the construction cost including the interest amount and lease premium. The lessor i.e. M/s Abasan Realty LLP, however, was unable to deliver the project in its entirety and since there was considerable delay in removing/shifting out of the occupants in the construction zone, disagreements arouse between the lessor and lessee regarding resumption of construction. Therefore, M/s Abasan Realty LLP and the appellant referred this dispute for reconciliation to fellow builders of Kolkata, namely Shri S Mohta of M Group and Shri S Dugar of PS Group. In an award dated 25-08-2015, it was resolved that Shri Hari Sharma shall pay interest/compensation on Rs.3 1 crores calculated at a rate of 15% for a period of one year. The award however was never implemented and the construction remained suspended and no payment was ever made by Shri Hari Sharma. In the course of search conducted on 22-06-20 16, the Department seized a document on which identification mark Page 52 of MSL/2 1 was put. The document is reproduced at Page 100 of the assessment order which contains the calculation of interest receivable from Shri Hari Sharma which was worked out by the CFO of the appellant. The AO further referred to another calculation sheet which was impounded with ID mark Page 112 of MSL/27. Relying on these loose papers, the AO concluded that the appellant was entitled to received interest from Abasan Realty (controlled by Hari Sharma) which was not accounted in the books of the assessee. According to AO the right to receive interest had accrued during the relevant year and therefore added interest of Rs.1,93,75,000/- computed for the period 01.11.2014 to 31.03.2015 to the total income of the appellant on the ground that the appellant regularly followed mercantile system of accounting.

115. On appeal, the Ld. CIT(A) sought a remand report from the AO on this issue wherein the AO stated that the impugned interest was rightly assessed to tax on accrual basis, since according to him the appellant had legal right to receive interest in the relevant year. The Ld. CIT(A) however did not agree with the AO’s findings. According to Ld. CIT(A) merely because the arbitrators had directed Shri Hari Sharma to pay compensation calculated @ 15% by itself was not sufficient to result in accrual of income to the appellant. The Ld. CIT(A) observed that there was no evidence that the other party had accepted the award or agreed to pay interest to the appellant. Moreover in his view the award is subject to further litigation and therefore it cannot be said that right to receive had accrued. The Ld. CIT(A) accordingly deleted the impugned addition made by the AO. Aggrieved by the action of the Ld CIT(A), the Revenue is in appeal before us.

116. Heard both the parties. After giving thoughtful consideration to the facts of the case which are not repeated for the sake of brevity and the material placed on record, it is observed that the premise on which the AO proceeded to adjudicate this issue was The Director of the appellant in his sworn affidavit dated 24-04-2019 has affirmed that the reconciliation was conducted in an informal manner amongst fellow builders and friends without any legal mandate and therefore the award as such was not enforceable in law. He further stated that since the award was in no manner binding on Shri Hari Sharma, he refused to accept the award. After perusing the records, we note that the award in question was not granted in terms of the Arbitration and Conciliation Act, 1996. and therefore the resolution passed by Shri S Mohta of M Group and Shri S Dugar of PS Group with the intent to resolve the dispute of the appellant and M/s Abasan Realty LLP cannot be construed to be an enforceable arbitral award, as misconstrued by the AO.

117. From a perusal of the contents of the documents identified at Page 52 of MSL/21 and Page 112 of MSL/27, we observe that the notings contained therein suggested unilateral claim raised by the appellant on M/s Abasan Realty LLP in terms of the reconciliation award passed on 25-08-20 15. There is nothing in these documents which proves that Shri Hari Sharma or M/s Abasan Realty LLP had ever accepted such claim of the appellant. Even the AO has not brought on record any tangible material which shows that Shri Hari Sharma or M/s Abasan Realty LLP had acceded to the award and/or accepted the award or claim of the appellant. It was brought to our notice that the AO did not make any enquiries from either Shri Hari Sharma or M/s Abasan Realty LLP to ascertain the correctness of these loose papers impounded in the course of search. Instead we find that the AO simply added the interest calculated in these loose papers on the unsubstantiated fact that the appellant/assessee had acquired the legal right to receive interest. In our considered view, such presumption drawn by the AO was clearly not borne out from the facts on record.

118. From the facts on record, it is abundantly clear that M/s Abasan Realty LLP did not perform its obligation agreed in the sub-lease agreement for which dispute was referred for arbitration/reconciliation to fellow builders. It is noted that even after the award of the fellow builders, M/s Abasan Realty LLP did not act on the same. Neither did it pay the interest which it was/is required to pay within 31-10-2015 nor did it ensure that the bottlenecks in construction are removed and the work resumed. Instead, the construction got suspended and no payment was ever made to the appellant by either M/s Abasan Realty LLP or Shri Hari Sharma. In the circumstances it is erroneous to hold that the appellant/assessee could have been able to realize interest from M/s Abasan Realty LLP or Shri Hari Sharma in real terms. Further such compensatory interest determined in terms of an award, by its very nature is such that unless the payment is actually received from the defaulter, one cannot estimate its chances of realization. In fact, the AO did not bring on record any cogent documentary evidence/material to support his findings that in terms of any legally enforceable award or decree of the court or arbitral tribunal, the assessee had acquired any vested right to receive such interest. In the present case the CFO of the appellant had unilaterally made calculations of expected interest without there being demand from the appellant. Accordingly, since no ‘real’ income had accrued or was received in the relevant year, the interest computed and added by the AO on mercantile basis could not be brought to tax in the hands of the appellant. Before imposing tax on any sum it is necessary for the Revenue to establish that the income assessable is “real income” which legally accrued during the relevant year. Unless, in fact, an assessee earns income in the real sense; there cannot be charge of tax. This legal proposition is laid down by the Hon’ble Supreme Court in the following cases.

1) UCO Bank Vs. CIT (237 ITR 889)

2) CIT Vs. Shoorji Vallabhdas (46 ITR 144)

3) Godra Electricity Co. Ltd Vs. CIT (225 ITR 746)

119. In all the above decisions; the Hon’ble Apex Court consistently held that the subject matter of tax under the Act can only be the “real income” and not hypothetical or illusory income. The two methods recognized in Section 145 of the Act only prescribe the rules as to when entries can be made in the assessee’s books. In the case of cash system the income/ expenditure is accounted only when actually realized/paid whereas under mercantile system of accounting, the income/expenditure is accounted when income/liability accrues though actually not received/paid. However neither of the two recognized accounting methods/systems contain specific rules governing/concerning “revenue recognition”. Neither of the two methods contain any schematic framework under which one can definitively say as to whether an income in real sense has been earned by an assessee from his transactions with the third party. In the circumstances, whether or not income has been earned by an assessee in the real sense must be judged with reference to the totality of the facts and surrounding circumstances of each case.

120. As noted in the earlier paragraphs, the overall conduct of M/s Abasan Realty LLP and the fact that it has till date not made any payment whatsoever supports the appellant’s contention that the interest calculated by the CFO of the appellant on loose papers did not represent ‘real’ income of the appellant and hence the same was rightly not recognized as income in the books by the appellant.

121. Useful reference in this regard may be made to the decision of the jurisdictional Hon’ble Calcutta High Court in the case of Sri Kewal Chand Bagri Vs CIT reported in 183 ITR 207. In the decided case, the assessee had advanced interest bearing loan to its father. Due to setback in father’s business, the loan itself had become doubtful. In the circumstances the assessee did not recognize notional interest income on such doubtful loan. The AO however rejected the assessee’s claim and added interest income since the assessee followed mercantile system of accounting. On appeal the Hon’ble High Court upheld the assessee’s claim stating as follows:

“In the instant case, it was true that the assessee had been maintaining his accounts on the basis of mercantile system of accounting. The interest income might have accrued according to the mercantile system, but the issue had to be viewed in the context of commercial and business realities of the situation. The fact remained that from the year 1970 onwards the assessee did not receive any interest as the debtor was unable to pay any interest; income by way of interest was not, in fact, realised by the assessee and had not become his income in the real sense. The assessee was not able to recover the principal, and, accordingly, the charge of interest in such a case would have only inflated the assessee’s income and the assessee would have been liable to pay tax on such hypothetical income, when it was not the real income of the assessee and when it really was not reflected in the accounts of the assessee.”

122. In this regard, we also refer to the following observations made by the Hon’ble Delhi High Court in the case of CIT Vs Eicher Ltd reported in 185 Taxman 243.

4. On the above facts, the Tribunal, therefore, found that it was clear that the outstanding interest amounting to Rs. 267 lakhs had already been offered to tax up to 31-3 -1999, and which amount of interest has been settled at only at Rs. 130 lakhs i.e., only Rs. 130 lakhs were received by the assessee company though tax had been paid on an amount of Rs. 267 This thus proved that the assessee’s principal amount as well as the interest accrued up to 31-3-1999 was doubtful of recovery. In Godhra Electricity Co. Ltd.’s case (supra). The Supreme Court has held as under:—

“Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income, which does not materialize.

******

The question whether there was real accrual of income to the assessee company in respect of the enhanced charges for supply of electricity has to be considered by taking the probability or improbability of realization in a realistic manner. If the matter is considered in this light, it is not possible to hold that there was real accrual of income to the assessee­company in respect of the enhanced charges for supply of electricity which were added by the Income-tax Officer while passing the assessment orders in respect of the assessment years under consideration. The Appellate Assistance Commissioner was right in deleting the said addition made by the Income-tax Officer and the Tribunal had rightly held that the claim at the increased rates as made by the assessee-company on the basis of which necessary entries were made represented only hypothetical income and the impugned amounts as brought to tax by the Income-tax Officer did not represent the income which had really accrued to the assessee-company during the relevant previous years. The High Court, in our opinion, was in error in upsetting the said views of the Tribunal.” [Emphasis supplied] (p. 757)

5. The relevant observations of this court in Goyal M. G. Gases (P.) Ltd.’s case (supra) are as under :

“Applying the law laid down by the Supreme Court, what has to be seen in the present case is whether there was any real accrual of interest to the assessee. Both the CIT(A) as well as the Tribunal came to the conclusion that there was real accrual of interest. It has been noted that the interest had not even been recorded by the assessee in its books of account. The assessee had also issued a notice to the parties under section 138 of the Negotiable Instruments Act for dishonour of cheques issued by all (except one of the debtors) followed by initiation of appropriate proceedings. The debts were written off as bad debts and were also allowed by the Assessing Officer in subsequent years. These facts lead to the inescapable conclusion that realization of even the principal amount was in jeopardy and, therefore, there cannot be said to be any real accrual of income by way of interest. We find no fault in this view taken by the Tribunal and are of the opinion that no substantial question of law arises for our consideration.” [Emphasis supplied] (p. 544)

6. On the basis of the ratio of the aforesaid decision and the facts which emerged on record, in our opinion the Tribunal rightly held that actual income in fact never accrued to the assessee and the assessee in fact had already paid tax on interest, income actually received by it may in fact on much more. The Tribunal, therefore, rightly deleted the addition of accrued interest as income of the assessee.

7. Before us, the counsel for the revenue has strongly contended that the debtor company of the assessee was in a strong financial position and had many assets and consequently, the decision of the assessee-company not to initiate any legal proceedings was clearly We do not agree. For business expediency and a practical approach a commercial decision was arrived at by the assessee to settle at an amount of Rs. 480 lakhs and which is nothing unusual because many factors come into play such as time of litigation, costs of litigation, need of the funds by the assessee-company and so on. We find that the Tribunal was right in observing as under :

“We do not find any reason why the sound principles based upon realisability of the amount due on the objective criterion of a sticky account should not be accepted even if accounts are maintained under the mercantile system, which recognizes revenue not on the abstract theory of right of recovery but on the actual prospect of such recovery as so observed and recognized in the above referred cases of Hon ‘ble Supreme Court, which have been followed by the jurisdictional High Court of Delhi in the case of CIT v. Goyal M.G. Gas (supra ).”

8. No substantial question of law arises for consideration. The appeal is accordingly dismissed.”

123. In view of the judicial precedents (supra) and the facts as discussed earlier, we are of the considered view that the Ld. CIT(A) had rightly deleted the addition of Rs.1,93,75,000/- made by the AO on account of interest allegedly receivable from Shri Hari Sharma. It is noted that neither there was any enforceable award nor any claim was raised by the appellant. There is also no material on record which shows that Shri Hari Sharma acknowledged his liability for payment of interest. It is further taken note that Shri Hari Sharma has not paid any interest to the appellant. On these facts and circumstances, we hold that no ‘real income’ accrued to the appellant and hence no addition on account of interest receivable was warranted in the given facts of the case. Accordingly, this ground of the Revenue stands dismissed.

IT (SS) No. 61/Kol/2019 (Assessee’s Appeal – A.Y 2016-17)

124. Ground No. 1,8, 9 and 10 are general in nature and therefore does not call for any specific adjudication.

125. Ground Nos. 2 to 7 of the appeal relates to the additions of Rs.2,55,00,000/- and 1,09,91,452/- made u/s 68 & 69C of the Act. After considering the rival submissions, it is observed that, except variation in figures, the reasoning adopted both by the AO & Ld. CIT(A) to justify these additions is verbatim same as in AY 2013-14.

126. Following our conclusions recorded in Paras 43 to 77, while deciding Ground 6 to 11 of assessee’s appeal in A.Y. 2013-14, we hold that the additions of Rs.2,55,00,000/- and Rs.1,09,91,452/- u/s 68 & 69C of the Act are also untenable on facts and in law. We therefore allow the Ground Nos. 2 to 7 raised by the assessee and direct the AO delete the impugned additions made u/s 68 & 69C of the Act.

IT (SS) No. 77/Kol/2019 (Department’s Appeal – A.Y 2016-17)

127. Ground No. 1 of the revenue is against the action of Ld. CIT(A) in holding that employees’ contribution deposited by employer beyond due date is an allowable After considering the rival submissions, it is observed that the issue involved in this ground is similar to the Ground No. 1 of Revenue’s appeal in A.Y. 2015-16. Following our conclusion drawn in A.Y. 2015-16, we dismiss this ground of the Revenue.

128. Ground No. 2 of the Revenue appeal relates to the Ld. CIT(A)’s action of deleting the addition of Rs.9,91,12,262/- made by the AO by way of extrapolation of on-monies allegedly received by the appellant on sale of units in its ‘Swarnamani Project’. After considering the rival submissions, it is observed that the issue involved in this ground is similar to the Ground No. 2 of Revenue’s appeal in A.Y. 2015-16. Following our conclusion drawn in A.Y. 2015-16, we dismiss this Ground of the Revenue.

129. Ground No. 3 of the appeal relates to the addition of Rs. 14,55,893/- made by way of unaccounted payments made by the appellant. After considering the rival submissions, it is observed that the issue involved in this ground is similar to the Ground No. 2 of Revenue’s appeal in A.Y. 2013-14. Following our conclusion drawn in A.Y. 2013-14, we dismiss this ground of the Revenue.

130. Ground No. 4 of the revenue is against the action of Ld. CIT(A) in deleting the addition made by the AO on account of interest of Rs.5,69,06,250/- receivable from Shri Hari Sharma [M/s Abasan Reality]. After considering the rival submissions, it is observed that the issue involved in this ground is similar to the Ground No. 3 of Revenue’s appeal in A.Y. 2015-16. Following our conclusion drawn in Paras 114 to 123 of A.Y. 2015-16, we dismiss these grounds of the Revenue.

IT (SS) No. 62/Kol/2019 (Assessee’s Appeal – A.Y 2017-18)

131. Ground No. 1,7,8,9 and 10 are general in nature and therefore does not call for any specific adjudication.

132. Ground Nos. 2 to 6 of the appeal relates to the additions of Rs.67,50,000/-and 1,33,74,309/- made u/s 68 & 69C of the Act. After considering the rival submissions, it is observed that, except variation in figures, the reasoning adopted both by the AO & Ld. CIT(A) to justify these additions is verbatim same as in AY 2013-14.

133. Following our conclusions recorded in Paras 43 to 77, while deciding Ground 6 to 11 of assessee’s appeal in A.Y. 2013-14, we hold that the additions of Rs.67,50,000/- & Rs.1,33,74,309/- u/s 68 & 69C of the Act are also untenable on facts and in law. We therefore allow the Ground Nos. 2 to 7 raised by the assessee and direct the AO delete the impugned additions made u/s 68 & 69C of the Act.

IT (SS) No. 78/Kol/2019 (Department’s Appeal – A.Y 2017-18)

134. Ground No. 1 of the revenue is against the action of Ld. CIT(A) in holding that employees’ contribution deposited by employer beyond due date is an allowable deduction. After considering the rival submissions, it is observed that the issue involved in this ground is similar to the Ground No. 1 of Revenue’s appeal in A.Y. 2015-16. Following our conclusion drawn in A.Y. 2015-16, we dismiss this ground of the Revenue.

135. Ground No. 2 of the appeal relates to the Ld. CIT(A)’s action of deleting the addition of Rs. 10,91,55,961/- made by the AO by way of extrapolation of alleged on-monies received by the appellant on sale of units in its ‘Swarnamani Project’. After considering the rival submissions, it is observed that the issue involved in this ground is similar to the Ground No. 2 of Revenue’s appeal in A.Y. 2015-16. Following our conclusion drawn in A.Y. 2015-16, we dismiss this ground of the Revenue.

136. Ground No. 3 of the revenue is against the action of Ld. CIT(A) in deleting the addition made by the AO on account of interest of Rs.7,29,42, 188/- receivable from Shri Hari Sharma. After considering the rival submissions, it is observed that the issue involved in this ground is similar to the Ground No. 3 of Revenue’s appeal in A.Y. 2015- Following our conclusion drawn in Paras 114 to 123 of A.Y. 2015-16, we dismiss this ground of the Revenue.

137. Ground no. 4 of revenue’s appeal is against the action of the Ld. CIT(A) in deleting the addition of Rs. 10,00,000/- on account of undisclosed expenses (from the seized material-MSL-8, page-15).

138. Facts relating to this issue is that AO noted at pages 122 and 123 of the assessment order that a piece of paper wherein it is hand-written underneath the heading ‘Swarnamani’; it is further written, client Manoj Rathi, A/c servant quarter, amount Rs. 10/00 lacs and initialled dated 21.06.2016 which was found wherein page no. 15 was According to the AO, one servant quarter was sold to one Manoj Rathi (customer) on 21.06.2016 in ‘Swarnamani project’. According to the AO, since the assessee failed to substantiate the said sale in its regular books of account, Rs. 10 lacs appearing in the said page was added to the income of the assessee as undisclosed income. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who deleted the addition by noting that this loose paper does not reveal that the assessee has received Rs. 10 lacs nor any date of receipt can be seen from it. Therefore, he deleted the addition. Aggrieved, the revenue is before us.

139. Having heard both the parties and after perusal of page no. 122 of the assessment order, wherein the (MSL-8 page 15) has been scanned and reproduced, we note that it is a hand written ‘parchi’ written under the heading ‘Swarnamani’. The scribbling on the loose sheet of paper states the name of Manoj Rathi, amount Rs. 10 lacs on account of servant quarter is seen which was marked on the top as 15. On a perusal of the same, AO was of the opinion that one servant quarter was sold to one Manoj Rathi who was a customer in the Swarnamani project for Rs. 10 lacs and the same transaction has not been recorded in the regular books of account, so the AO added it. So, we note that the AO has made the addition based on this fact that from a perusal of MSL-8 page 15 it reveals that the assessee has received sale consideration of Rs. 10 lacs on the sale of servant quarter to a customer Manoj Rathi without entering it in the regular books of account, so, according to AO, it was the undisclosed sale consideration of the servant quarter received by the assessee on 21.06.2016. However, the ground of appeal raised by the revenue reads as under:

“4. On the facts and circumstances of the case, the Ld. CIT(A) is not justified in law as well as on facts by allowing the appeal of the assessee regarding addition of Rs.10,00,000/- on account of undisclosed expenses (from the seized material documents MSL-8, page 15) on the basis that the same are not reflected in the books of assessee.”

140. From a perusal of the aforesaid ground of appeal raised by the revenue it is discerned that the revenue is aggrieved by the action of the Ld. CIT(A) in deleting the addition of Rs.10 lacs which was incurred on account of undisclosed expenses and which facts was not reflected in the books of account. We note that the ground of appeal of the revenue suggests that Rs. 10 lacs emanating from (MSL-8 page 15) is on account of undisclosed expenses. However, as discussed above, we note that the AO has made the addition on the basis that Rs. 10 lacs was on account of undisclosed sale consideration of the servant quarter received by the assessee. This ground of appeal of the revenue is erroneous per se for its contradiction and the Ld. DR could not point out as to how the material (MSL-8 page 15) can be construed as undisclosed expenses incurred by the assessee. On the contrary, we note that the Ld. CIT(A) after perusal of (MSL-8 page 15) has noted that it is a hand-written loose paper which does not reveal that the assessee had received Rs. 10 lacs as sale consideration or the sale consideration was to the tune of Rs. 10 lacs and so he deleted it. The conclusion of the Ld. CIT(A) on the facts discussed cannot be termed perverse and is a plausible view for the reason that the AO has assumed facts from a perusal of MSL-8 page 15 that the assessee has received sale consideration Rs. 10 lacs from Manoj Rathi in respect of Swarnamani project. We note that the AO has not made any attempt to summon Shri Manoj Rathi and confront him with MSL-8 page 15 and recorded his statement as to whether he has given Rs. 10 lacs to assessee on 2 1.06.2016 for the servant quarter in the said Swarnamani project. In the absence of any enquiry whatsoever, the hand written ‘parchi/loose sheet’ cannot be the basis for the assumption of adverse facts against the assessee and, therefore, the Ld. CIT(A) rightly deleted the addition and, therefore, we confirm the action of the Ld. CIT(A) and dismiss this ground no. 4 of the revenue.

141. In the result the appeals of the assessee in ITA Nos. 58 to 62/Kol/2019 stand allowed and the appeals filed by the Department in ITA Nos. 75 to 78/Kol/2019 stand dismissed.

Order is pronounced in the open court on 06 August, 2020.