Addition based on PEN drive data without checking its veracity is unsustainable

ACIT Vs Ramesh Kumar Mantri (ITAT Jaipur)

ITAT Jaipur held that addition solely on the basis of PEN drive found during the search proceedings, without checking the veracity/ reliability of the data recorded in the PEN drive, is unsustainable in law.

Facts-

The main issues involved in this case, as found by the AO in the assessment proceedings is long term capital gain income claimed by the assessee is considered as bogus for an amount of Rs. 11,96,03,020/- and added u/s 68 of the Act. The ld. AO also added an amount of commission paid for acquiring such alleged bogus long term capital gain was also added u/s 69C of the Act for an amount of Rs. 71,76,181/-. The ld. AO made an addition of Rs. 2,86,948/- as an adjustment amount of interest based on the entries recorded in the PEN drive found as undisclosed source income. The. Ld. CIT(A) has allowed the appeal of the assessee in part where in addition of Rs. 11,96,03,220/- and Rs. 71,76,181/- deleted and Rs.2,86,948/- was confirmed. Aggrieved from the said order of the ld. CIT(A) both the assessee and revenue has preferred this appeal before us.

Conclusion-

The only issue is for an amount claimed as additional interest demanded which has neither been paid nor in the seized material found to have been paid.

Thus, the addition cannot be made without checking the veracity / reliability of the data recorded in the pen drive.

The bench has noted that when the PEN drive find during the search proceeding no questions are raised to the parties not only that the employee from this PEN drive found, his statement is not recorded. Thus, merely from that PEN when the veracity about that evidence is not recorded no addition either protective or substantive can be made.

FULL TEXT OF THE ORDER OF ITAT JAIPUR

All these appeals have been filed by the department in the case of respective assessee against the respective orders of the learned ITA No. 164 & 165/JP/2020 & others CO No. 15 & 16/JP2020 & others ACIT vs. Sh. Ramesh Kumar Mantri Commissioner of Income Tax (Appeals)-4, Jaipur [hereinafter referred to as ld.CIT(A)’]. Since the issues involved are common, all these revenue appeals were heard together and are being disposed off by this consolidated order. Against the department appeal there are cross objections filed by the respective assessee.

2. At the outset, the ld. AR has submitted that the matter pertaining to Shri Ramesh Kumar Mantri in ITA no. 165/JPR/2020 & Co. No. 16/JPR/2020 may be taken as a lead case for discussions as the issues involved in the lead case are common and inextricably interlinked or in fact interwoven and the facts and circumstances of other cases are exactly identical. The ld. DR did not raise any specific objection against taking the case of Shri Ramesh Kumar Mantri as a lead case. Therefore, for the purpose of the present discussions, the case of Shri Ramesh Kumar Mantri is taken as a lead case.

3. Based on the above arguments we have also seen that for all these appeals and cross objections grounds are similar, facts are similar and arguments were similar and were heard together we consider the facts and ground taken in ITA No. 165/JP/2020 for A. Y. 2011-12 & CO No. 16/JP/2020 and considering the said case as lead case.

4. The Department has assailed the appeal in ITA No. 165/JP/2020, before us on the following grounds;

“1.Whether on the facts and in the circumstances of the case and in law, the CIT(A)-4, Jaipur, is justified in deleting the addition u/s 68 of Rs. 11,96,03,020/-on account of unexplained credits of LTCG made by the A.O.

2. Whether on the facts and in the circumstances of the case and in law, the CIT(A)-4, Jaipur, is justified in deleting the addition of Rs. 71,76,181/- on account of Commission paid for acquiring on such accommodation entries u/s 69C made by the AO.”

5. The assessee has also marched the cross objection which is recorded as CO No. 16/JP/2020. The grounds confronted in this CO are as under;

“1. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in upholding the addition of Rs. 2,86,948/- made by alleging the same as interest payment out of undisclosed sources of income, on the basis of excel sheets in a pen drive which was found and seized from the possession of Shri Kailash Chand Khandelwal, who is one of the employee of the Maverick Group, without appreciating the true nature of entries, thus the addition so upheld deserve to be deleted.

1.1 That the Ld. CIT(A) has further erred in confirming the addition by ignoring the facts that assessee has not made any interest payment appearing column No. 2 of Excel Sheets in pen drive, thus consequent addition confirmed by Ld. CIT(A) deserves to be deleted.

1.2 That the Ld. CIT(A) has further erred in confirming the addition by wrongly observing that the factum of such additional interest being paid and TDS deducted on such payments have been accepted by the assessee, whereas the assessee had admitted the TDS being deducted on the payment of interest which is duly recorded in the books of accounts of assesse and not on the excess amount as alleged by Ld.AO and further confirmed by Ld.CIT(A).

Appellant prays that such observation being incorrectly made deserves to ignored and excluded and the consequent addition so confirmed by Ld. CIT(A) by relying such observation, deserves to be deleted.

2. That the appellant craves the right to add, delete, amend or abandon any of the grounds of this cross objections at the time or before the actual hearing of the case.”

6. The brief facts of the case as culled out from the records is that a search and seizure actions u/s. 132 of the Act and/or survey action u/s. 133A of the Act was carried out by the Income Tax Department on the members of the Marverick Group, Jaipur on 22.07.2015 of which the assessee is one of the members. During the course of the above referred actions, cash Jewellery, valuables, stock-in-trade, documents, books of account and / or loose papers found and or seized from the premises of the Maverick Group Jaipur of which one such member happens to be the assessee. In this case original return of income was filed on 10.09.2011 for the A.Y. 2011-12 declaring total income at Rs. 42,01,900/-. On account of search jurisdiction over the cases was assigned to Central Circle -4, Jaipur vide order u/s. 127 of the Act. In compliance to the notice u/s. 153A of the Act, return of income e-filed on 25.11.2015 for the assessment years 2011-12 declaring total income at Rs. 42,01,900/-. After filling return u/s. 153A, the notices u/s. 143(2) were issued from time to time and the assessee has responded to the notices issued and filed the details required in the assessment proceeding. The assessee was engaged in the business of Share trading and earned income from salary, house property, business or profession, capital gain and other sources during the year under consideration.

7. The main issues involved in this case, as found by the AO in the assessment proceedings is long term capital gain income claimed by the assessee is considered as bogus for an amount of Rs. 11,96,03,020/- and added u/s 68 of the Act. The ld. AO also added an amount of commission paid for acquiring such alleged bogus long term capital gain was also added u/s 69C of the Act for an amount of Rs. 71,76,181/-. The ld. AO made an addition of Rs. 2,86,948/- as an adjustment amount of interest based on the entries recorded in the PEN drive found as undisclosed source income. The. Ld. CIT(A) has allowed the appeal of the assessee in part where in addition of Rs. 11,96,03,220/- and Rs. 71,76,181/- deleted and Rs.2,86,948/- was confirmed. Aggrieved from the said order of the ld. CIT(A) both the assessee and revenue has preferred this appeal before us.

8. In the assessment order ld. AO recorded his finding / basis the concise finding of the ld. AO is as under so as to understand the issue on hand;

“09 Main issues involved:

Searches have been conducted by the Investigation Wing of the Department at various places throughout the country in the past. During the searches & as per the information made public by the SEBI, it is discovered that various syndicates have arranged accommodation entry of bogus LTCG, Bogus STCG, Bogus Long/short term Capital Loss through trading of shares of Penny Stocks. The modus operandi found is that the investors/beneficiaries hold these shares for one year or so and then sale it to one of the shell private limited companies of the operator. These facts were confirmed by the stake holders viz. Operators/Syndicate members/Brokers which were providing accommodation entries in statements recorded during action u/s 133A of the I.T. Act. It has been manifestly accepted by them that such penny stock companies are the conduit for converting untaxed money brought on record by paying no taxes in the garb of exempted income. It is further detected that M/s Splash Media & Infra Ltd. (Scrip Code-512048) is a penny stock listed company. It has very small capital base but its market capitalization is multifold to its capital base. Further, information in respect of trading in penny stock i.e. M/s Splash Media & Infra Ltd. is also available at ITD Data/AIR.

9.1. As per the details furnished by the assessee, it is noticed that the assessee claimed exemption u/s 10 (38) of the Income Tax Act, 1961 as tabulated here in below:-

Name of scrip	Quantity	Date of Purchase	Cost of purchase	Date of sale	Sale proceeds	Long term capital gain
SPLASH MEDIA	10,70,000	15.04.2009	15,75,945/-	11.02.2011	12,11,7-8,965/-	11,96,03,020/-

9.2 On examination of the share sale transactions made by the assessee during the Year, it was found that the entire sale proceeds that have been claimed as exempt income were received from sale of one scrip namely M/s SPLASH MEDIA & INFRA LTD. The assessee was asked to give details regarding when and how the shares of M/s SPLASH MEDIA & INFRA LTD. were purchased and evidence in this respect. The Ld. A/R submitted that “the assessee has sold 10,70,000 shares of M/s SPLASH MEDIA & INFRA LTD., during the year under consideration. Initially, assessee purchased 35000 shares of M/s SPLASH MEDIA & INFRA LTD. Further, M/s SPLASH MEDIA & INFRA LTD. issued bonus shares at the rate of 3 to 1. Accordingly, the assessee was having 1,05,000 shares 30.12.2009. Thereafter, face value of shares of the scrip were splitted from Rs. 10 to 1, hence the assessee was holding 10,70,000 shares of M/s SPLASH MEDIA & INFRA LTD. as on date of sale.”

9.3 The details of purchase and sale of this particular scrip i.e. M/s SPLASH MEDIA & INFRA LTD. (hereinafter referred as The Scrip) were examined.

The assessee bought 35,000 shares of M/s SPLASH MEDIA & INFRA LTD. without any market research whatsoever because M/s SPLASH MEDIA & INFRA LTD. had no fundamentals. However, later on as per the scheme of stake holders viz. Operators/Syndicate members/Brokers, issuing bonus shares and splitting of the face value of shares, the assessee held these shares at face value of Rs. 1 each, the average price of total 10,70,000 shares of SPLASH MEDIA & INFRA LTD. was only Rs 1.47/- per share. It was also found that the price of the scrip kept rising throughout the period when the shares were held by the assessee and its prices sold at average price of Rs. 113.25/-, i.e. a humongous rise of over 7604% over a very short period. Thus, the assessee bought these shares at a meager price but accumulated huge profits. These facts demanded a deeper study of the price movements and share market behavior of the entities involved in trade, of the scrip as the share price movements and the profit earned by the beneficiaries were beyond human probabilities. Thus, a deeper study was needed to ascertain whether the transactions were genuine investment transaction or sham ones and colorable device only to convert the unaccounted cash into tax exempt income. In short, it was to be ascertained whether the apparent was real.”

9. The ld. Assessing Officer further mentioned the various facts about the company in his assessment order at para 9.4, 9.4.1, 9.4.2 wherein the ld. AO has placed on record the balance sheet of the company and various facts as extracted from the web site of Money Control. The ld. AO has also extracted the key financial ratios of the said company and were part of the order. The AO observed that the company’s share prices were on the higher side and in bell shape and then he has commented that the company has no major turnover and assets. Based on these analysis ld. AO observed that the company was merely a paper company based on the said findings the ld. AO concluded that the reasons of astronomical price rise. The learned AO has also recorded the movement of share price from 01.01.2009 to 01.08.2017 based on the aforesaid tabulated information ld. AO reveals that the steep decline of share price without any big loss to the company or any corporate disallowance of sale etc. also suggests that price movements were manipulated. Based on the price pattern has also drawn chart. Based on the said observations he alleged that the scrip has been made specifically for the purpose of providing bogus long term capital gain to beneficiaries.

10. The ld. AO further stated that the SEBI passed an interim order in the case of First Financials Services Ltd. wherein it has been concluded that various entities have been engaged in price rigging of various shares. The ld. AO further stated that Shri A.K. Nevatia is a director of M/s Splash Media as well as Comfort group in which M/s First Financials have invested for price rigging of various shares thereafter he relates to the findings of SEBI that the matter. The ld. AO further stated that during the search operations in the case of M/s Anil Agarwal HUF, Mumbai accepted that Shri Jagdish Purohit is the key person and engaged in manipulating the share price of “SPLASH MEDIA” and convert black money of the person who wants it in form of LTCG and he receives certain percentage of commission in return. The ld. AO extracted the statement of Anil Agarwal in his order. The ld. AO further stated that the statement of Shri RajKumar Kedia was also taken during the search operation u/s 132(4) wherein he accepted that he has arranged investment in the shares of M/s SPLASH MEDIA & INFRA and the company is controlled by Shri Anil Agarwal, Mumbai. Thus, he is engaged in providing bogus LTCG entries to various beneficiaries in lieu of commission and for that the ld. AO relied and extracted the statement of Raj Kumar Kedia in his order. The ld. AO further stated that the assessee was allotted shares by M/s SPLASH MEDIA & INFRA LTD. which is one of the shell companies of Shri A.K. Newatia in physical form violating the existing rules of SEBI. As such, the whole transaction of purchase and sale by the assessee is sham transaction camouflaged with an intention to evade taxes. Based on the these finding, the ld. AO concluded that these share price movements and sale purchase transactions were not genuine, were result of meticulously planned circular trading and the entities involved in these were part of this exercise in an effort to create documentary evidences for a pre-planned scheme for converting unaccounted money into tax exempt income. Applying this finding he observed that the assessee earned huge capital gains within a very short period of time by investing in a penny stock i.e. M/s Splash Media & Infra Ltd. was neither the result of a coincidence nor of a genuine investment activity but were created through well planned and executed scheme in which the company, the brokers and the buyers and sellers of scrip worked in tandem to achieve the predetermined objectives. The ld. AO citing report of 11 members special Investigation Team (SIT) of the Hon’ble Supreme Court of India on black money given a report about the misuse of long term capital gain for money laundering was extracted in the order. Based on all these finding a show cause notice was issued to the assessee extracting all these averments made by the AO and relying on the statement on oath given by the assessee u/s 132(4) of the Act wherein the assessee has declared additional income of Rs. 11,96,03,020/- which was not declared in the return of income denying the benefit of section 10(38) and asking the assessee to show cause as to why the same should not be added u/s 68 of the Act to the total income of the assessee and also to show cause as to why the amount of Rs. 71,76,181/- be added u/s 69C of the Act being unexplained expenditure incurred by way of commission paid to arrange bogus entry of long term capital gains. In response to the above show cause notice, the assessee submitted a detailed reply which is also part of the order of the assessment. The ld. AO stated that the reply of the assessee and based on his finding given in his order and relying on the various judicious decisions added both sums as income of the assessee. The ld. AO has also added a sum of Rs. 2,86,948/- based on a Pen drive found from one of the employee of the group of Shri Kailash Chand Khandelwal in this pen drive the excel sheets were found wherein in addition to the regular interest paid and additional interest @ 2.4% both computed in the excel sheet and added as unexplained expenditure paid out of undisclosed income.

11. Aggrieved from the above order of the Assessing Officer making the addition the ld. AR of the assessee preferred an appeal before the ld. CIT(A). The ld. CIT(A) has deleted the addition of long-term capital gain made u/s 68 of the Act and also deleted the disallowance of addition of commission u/s 69C of the Act. Against the said deletion revenue has filed the appeal before us and aggrieved from the order of ld. CIT(A) confirming the disallowance of Rs. 2,86,948/- being unexplained expenditure on account of interest paid by the assessee.

12. Before, we deal matter we perused the relevant findings of the ld. CIT(A) and the same reiterated here in below:-

“9. I have perused the written submissions submitted by the Ld. A/R and the order of AO. I have also gone through various judgments cited by the Ld. A/R and those contained in the order of AO. I have also gone through the relevant pages of the APB for the different A.Yrs.

The Ld. A/R has taken a legal ground for A.Yrs 2010-11 & 2011-12 which may be reads as under:

That in facts and circumstances of the case the AO has erred in completing the assessment u/s 143(3)/153A when no incriminating seized material was found during the course of search u/s 132 and assessment for the said AY stood completed on the date of search.

10. I have perused the order of the AO and submissions made in this regard. Perusal of assessment order passed u/s 143(3)/153A shows that the additions made by the AO are not relatable to any incriminating seized material found during the course of search. I also find that for the A.Yr. the assessments stood completed on the date of search & there was no time to issue notice u/s 143(2) for the instant A.Yr. Following information as taken from the assessment order u/s 143(3)/153A may be referred to.

Date of search = 22-07-2015

A.Yrs.	Date of filing of 139 return	Date till which notice 143(2) can be issued	Remark
2010-11	06-10-2010	30-09-2011	Assessment completed
2011-12	10-09-2011	30-09-2012	Assessment completed

143(2) notice time: 6 months from the end of the F.Yr. in which return is filed.

10.2 It is clear from the table above that assessment for the A.Yrs. 2012-13 & 2013-14 stood completed on the date of search and there was no time left to issue the notice u/s 143(2). In case of completed assessments the law permits to make additions only on the basis of incriminating seized material found & seized during the course of search.

Remand proceedings

11. Before a discussion is made it may be pointed out that this office wrote letters for A Yr 2010-11 & 2011-12 dated 27-07-2018 to the Ld. AO asking specifically that whether any incriminating material was found during the course of search or not. The letter for the A Yr 2010-11 reads as under:

Please refer to the above. It is seen that the AD while completing the assessment u/s 143(31/153A has made the addition in respect of the Long Term Capital Gain (LTCG) of Rs. 33,36,321/- declared by the appellant in this connection you are requested to furnish following evidences/copy of impugned seized documents or loose papers, if any

(i) Copies of seized or impounded material (document or loose papers), if any, wherein cash payment, if any, made by the appellant for obtaining the long term capital gain is recorded or reflected

(ii) Copy of the statement, if any, of any person wherein that person has stated that any accommodation entry in respect of the Long Term Capital Gain declared by the appellant was provided by him or his agent/associate to the appellant.

(iii) Copy of Statement, if any, of any person wherein he has stated that the stock broker through whom the shares, on sale of which the appellant has declared LTCG, were sold by the appellant, was involved in providing accommodation entry to the appellant in the form of Long Term Capital Gain.

(iv) Copy of order/ enquiry report, if any, of SEBI or any other Government Agency giving the finding that the prices of shares on sale of which the appellant has declared Long Term Capital Gain were rigged or manipulated during the relevant period for the purpose of obtaining bogus Long Term Capital Gain

(v) Any other information received by the AO from any government agency or any other organization gersoll response to enquiries conducted u/s 131/ 133(6) or otherwise, which shows that the appellant had received accommodation entry in the form of Long Term Capital Gain by making cash payment to the person or his agent/ associate involved in providing such accommodation entry.

The aforesaid evidences/ copies of statement/ documents/ loose pipers may be submitted to this office latest by 10.8 2018 The Ld. AO responded vide letter dated 10-08-2018.”

11.2 The Ld. AO responded vide letter dated 10-08-2018. The content of the same are as under:-

Kindly refer to yours officer letter No. 412 dated on 27.7.2018 the subject cited above. In this regard the requisite information is as under No such material found seized or impounded.

I. No such material found seized or impounded.

II. The assessee in his statement dated 22/07/2015 has admitted that he had managed LTCG out of the sale of penny stock and surrendered the same for taxation, copy of admission statement of Sh Ramesh Kumar Mantri dated 22.7.2015 and dr 27.7.2015 is being enclosed herewith.

III. Copy of the statement, of Sh. Anil Agrawal dt 12.4.2015 enclosed herewith wherein he has stated that the price of script sold by the assessee was managed by him in stock market.

IV. Any enquiry report of SEBI or other government agency is not available on record.

V. No such information found on record.

In the above context it is submitted that the all the above statement have been made as part of assessment order by the Assessing Officer.

11.3 Perusal of the remand report shows that no incriminating material was found during the course of search.

12. Recently Hon’ble Supreme Court vide order dated 02-07-2018 in Meeta Gutgutia Vs. Pr CIT (96 Taxmann.com 468) have held that Invocation of section 153A to re-open concluded assessments of assessment years earlier to year of search was not justified in absence of incriminating material found during search qua each such earlier assessment year. The head note of the judgment is as under:-

Section 153A of the Income-tax Act, 1961 Search and seizure (General principles) Assessment years 2001-02 to 2003-04 and 2004-05 High Court in impugned order held that invocation of section 153A to re-open concluded assessments of assessment years earlier to year of search was not justified in absence of incriminating material found during search qua each such earlier assessment year-Whether SLP against said decision was to be dismissed-Held, yes (Para 21 in favour of assessee]

The issue of additions made by the AO in the assessment u/s 143(3)/153A without any reference to incriminating seized material was considered by the Hon’ble Rajasthan High Court in the case of Jai Steel limited vs. ACIT (88 DTR 1). The Hon’ble Court was of the view in case of completed assessments no addition can be made if no incriminating material is found during the course of search. The relevant observation of the judgment is reproduced below:

“In the firm opinion of this Court from o plain reading of the provision along with the purpose and purport of the said provision, which is intricately linked with search and requisition under Sections 132 and 137A of the Act, it is apparent that

(a) The assessments or reassessments, which stand abated in terms of li proviso to Section 1534 of the Act, the 40 acts under his original jurisdiction, for which assessments have to be made

(b) Regarding other cases, the addition to the income that has already been assessed, the assessment will be made on the basis of incriminating material and

(c) in absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or 13 D.B. INCOME TAX APPEAL NO.53/2011 Jai Steel (India), Jodhpur vs Assistant Commissioner of Income Tax, Jodhpur (Along with other 16 similar matters) reassessment can be made.”

Similar view point was expressed by the Hon’ble Delhi High Court in the case of Kabul Chawla vs. ACIT 380 ITR 573 (Del HC). The relevant observation of Hon’ble Court could be seen in para 37 & 38 of order, same is reproduced below:

Para 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:

i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.

ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYS will have to be computed by the AOs as a fresh exercise.

iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the total income of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYS “in which both the disclosed and the undisclosed income would be brought to tax.

iv. Although Section 153 A does not say that additions should be strictly mode on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or mode without any relevance or nexus with the seized material. Obviously assessment has to be made under this Section only on the basis of seized material”

v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word ‘assess in Section 153 A is relatable to abated proceedings (i.e those pending on the date of search) and the word ‘reassess to completed assessment proceedings.

vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.

vii. Completed assessments can be interfered with by the AD while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.

Conclusion

38. The present appeals concern AYS, 2002-03, 2005-06 and 2006-07.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.

Similar view is also taken in the following judgments, including by Hon’ble ITAT Jaipur, in many cases:

a) Continental warehousing Corporation 374 ITR 645

b) POT vs Meeta Gutgutia 152 DTR 153

c) Vijay Kumar D Agarwal V/S DOT in ITISSJA Nos 153, 154, 155 & 156/Ahd/2012

d) Ratan Kumar Sharma vs. DCIT ITA 797 & 798/Jaipur/2014

e) Vikram Goyal vs. DCIT ITA 174/Jaipur/2017 etc

f) Jadau Jewellers & Manufacturer PL VS. ACIT (686/Jaipur/2014)

g) Prateek Kothari Vs ACIT (312/Jaipur/2015)

12.2 The aspect of search or survey on the entry operators based in Kolkatta and the additions based on the statement of entry operators is dealt with and decided elaborately by the Hon’ble ITAT Jaipur in the case of Kota Dall Mill Vs. DCIT CC, Kota in appeal ITA 997 to 1002/JP/2018 & 1119/JP/2018 (order dated 31-12­2018). In this judgment Hon’ble ITAT Jaipur has discussed all the decision cited above very elaborately.

12.3 In Kota Dall Mill case the appellant was subjected to search u/s 132(1) of the Act & on the date of search the assessment stood completed. The additions made by the AO on the basis of statement of entry operator, Shri Anand Sharma, recorded much prior to the search were directed to be deleted. The grounds raised by the appellant before the tribunal, in Kota Dall Mill, was as under:

Assessee’s grounds:

1. On the facts and in the circumstances of the case and in law the order passed u/s 153A read with section 143(3) of the Income Tax Act 1961 is bad in law, void ob-initio, and deserves to be annulled as the assessment for the year under consideration was not abated as on the date of search and CIT (A) erred in holding that the contention of the assessee cannot be accepted in view of SLPS admitted in various cases. The id CTF (A) further erred in holding that the additions are to be adjudicated on ments as per relevant ground of appeal hence the issue remains for academic discussion only

2. On the facts and in the circumstances of the case and in law the id. CIT(A) erred in not declaring the assessment order as bad in low and void ab initio. The findings of id CIT (A) in this regard are perverse and erroneous it is contended that the id AG passed the assessment order against the doctrine of “audi alterm partem”, violating the principle of natural justice and not giving the opportunity of cross examination of the alleged accommodation entry providers, therefore the assessment order ought to held as bad in law and deserves to be annulled.

3. That the order of the Id. CIT (A), confirming the addition made by the AD is arbitrary, whimsical, capricious, perverse, based on no evidence or irrelevant material or irrelevant evidence, and against the law and facts of the case. The addition confirmed by Id. CIT (A) deserves to be deleted.

4. On the facts and in the circumstances of the case and in law the ld. CIT (A) erred in confirming the additions made u/s 68 of the Income Tax Act, 1961 by:

a) Solely relying on the statements of some alleged accommodation entry providers recorded by some other authorities in some other cases/actions and the opportunity to cross examination was also not provided to assessee

b) Giving a contradictory finding that a doubt is raised on the identity and genuineness of the company whose name is mentioned in the statement of accommodation entry providers as well as reports of DDIT (inv.), Kolkata,

c) Holding that the assessee has not adduced any evidence to rebut the adverse factual finding made by the AO in the assessment order though detailed paper book for relevant AY and common paper books have been submitted, and

d) Holding that incriminating material had been found during the course of search of accommodation entry provider. Further incriminating material had been gathered by issuing commission to DDIT (Inv.) Kolkata.

13. Hon’ble ITAT Jaipur in no uncertain terms have ruled that no additions can be made unless there is incriminating evidence material found during the course of search in the case of appellant. The statement of entry operator was NOT considered as “incriminating material found during the course of search”.

The relevant para of Hon’ble ITAT Jaipur is para 6 on page 12 onwards. However the finding can be seen from page 28 onwards same is reproduced as under:

“In the case in hand, the transactions of unsecured loans as well as introduction of capital by the partners were duly recorded in the books of account and available with the AQ Further, during the course of search under section 132 of the Act on 2nd July 2015 no material much less incriminating material was either found or seized to disclose any undisclosed income on account of unsecured loans or partners’ capital received by the assessee firm. The AO has proposed to make the addition on account of unsecured loans and partners’ capital under section 68 being unexplained cash credit solely on the basis of the information received from Investigation Wing Kolkata. It is pertinent to note that the said information was available with the AO prior to the search conducted under section 132 of the Act in case of the assessee on 2nd July, 2015. Therefore, even the sole basis of assessments framed under section 153A of the Act is the information received from Investigation Wing Kolkataand statement of one Shri Anand Sharma, who is stated to be an entry operator and managed various concerns/companies including M/s Royal Crystal Dealers, one of the loan creditors of the assessee. Except the said statement and report of the Investigation Wing Kolkata, the AO has neither referred to or was having in possession of any material to indicate that the unsecured loans shown in the books of accounts as well as partners capital received by the assessee are nothing but assessee’s own unaccounted and undisclosed income routed back in the garb of unsecured loans and partners’ capital. There is no dispute that these transactions of unsecured loans and partners’ capital contribution are duly recorded in the books of accounts and disclosed in the return of income which were already completed as the assessments for these four assessment years were not pending on the date of search, therefore, it is manifest from the record that during the course of search and seizure under section 132 of the Act in the case of the assessee no material much less the incriminating material was unearthed or any undisclosed income which was not disclosed in the books of accounts was detected or found. The only incriminating material which was referred by the AO is pages 21 to 26 of Annexure AS-1 in respect of long term capital gain earned by Shri Rajendra Agarwal and his family members. The said long term capital gain was disclosed by Shri Rajendra Agarwal in his statement under section 132(4) and, therefore, it was surrendered and offered to tax by Shri Rajendra Agarwal and his family members in the year of search. The AO himself has not made any addition in the hand of the assessee on account of long term capital gain which was found during the course of search and seizure. Thus, except the material disclosing the long term capital gain in the hand of Shri Rajendra Agarwal, no other incriminating material either found or referred or is the basis of the addition mode by the AO while framing the assessment under section 153A of the Act for the assessment years 2010-11 to 13-14. It is appropriate to refer relevant part of the assessment order in para 12 pages 48 to 50, paro 19 page 83 and para 22 page 86 -not reproduced for the sake of brevity)

The Hon’ble ITAT Jaipur further observes that:

The entire finding of the AO is based on the information received from the investigation Wing Kolkata and statement of Shri Anand Sharma. The Id. CIT (A) though has not disputed the legal proposition on this issue, however, the contention of the assessee was turned down merely on the ground that the SLPS filed by the revenue in the cases of Kabul Chawla (supra) and M/s All Cargo Global Logistics (supra) etc have been admitted for decision by the Hon’ble Supreme Court. The relevant part of the finding of the Id. CIT (A) in para 3.2.2 and 3.2.4 of pages 35 and 36 are as under:

“3.2.2 As per the provisions of this section where a search is initiated u/s 132 of the Act, the A.O shall issue a notice requiring the person searched to furnish his return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. Once such returns are filed, the AO has to assess or reassess the total income of such six assessment years (emphasis supplied by me). (The decisive words used in the provisions are to assessee or reassess the total income). The A.O. is thus duty bound to determine the ‘total income of the assessee for such six assessment years and it is obvious that ‘total income’ refers to the sum total of income in respect of which a person is assessable. The total income therefore will cover not only the income emanating from declared sources or any material placed before the Assessing Officer but from all sources including the undisclosed ones, or based on the unplaced material before the AO.

3.2.3 The concept of ‘assess or reassess and shall abate’ as contemplated u/s 153A is under hot judicial debate. I find that legally,this issue is very contentious in view of the divergent views of the various authorities. The appellant has tried to highlight most of them. However, it is equally pertinent to mention here that the Department has not accepted the decisions of Hon’ble Mumbai High Court in the case of M/s All Cargo Global Logistics as well as Continental Warehousing (Nhava Sheva) Ltd, and SLP has been filed before the Hon’ble Supreme Court. The Hon’ble Supreme Court has granted leave vide order dated 12.10.2015 as reported in 64 taxmann.com 34 (5.C). Similarly, in the case of Kabul Chawla SLP has also been filed.

3.2.4 In view of SLPS admitted in case of Kabul Chawla, M/s All Cargo Global Logistics as well as Continental Warehousing (Nhava Sheva) Ltd, (supra), assessee’s contention con not be accepted. Moreover, in any case, the additions are to be adjudicated on merits as per relevant ground of appeal, the issue raised in this ground for present remains for academic discussion only. Accordingly, issue raised in ground no. 12 is dismissed.”

Therefore, neither in the assessment order nor in the order of the Id. CIT (A) there is any mention or finding that the additions have been made by the AO on the basis of any incriminating material found during the course of search and seizure in the case of the assessee. The AO has solely relied upon the report of the Investigation Wing Kolkata and statement of one Shri Anand Sharma recorded by the Investigation Wing during the survey under section 133A of the Act. Therefore, even if the information/report of the Investigate Wing Kolkata is considered as a relevant evidence, the same cannot be regarded as incriminating material unearthed during the course of search and seizure under section 132 of the IT Act in case of the assessee. The requirement for making the addition under section 153A in the assessment years where the assessment was not pending on the date of search and the proceedings are in the nature of reassessment is essentially the incriminating material disclosing undisclosed income which was not disclosed by the assessee. In the case in hand, the AO himself has not claimed any incriminating material found during the search and seizure in the case of the assessee. Accordingly, in the facts and circumstances of the case and in view of the binding precedents on this issue in Court, the additions made by the AO while passing the assessment orders under section 153A for the assessment years 2010-11 to 13-14 are not sustainable and accordingly the same are liable to be deleted. We order accordingly.

13.2 Thus the crux of the above decision is that in case of completed assessment as on the date of search u/s 132(1) of the Act no addition can be made unless there is incriminating seized material found & seized during the course of search. The statement of entry operator cannot be considered as incriminating seized material found during the course of search.

13.3 I may add that the statement of appellant recorded u/s 132(4) of the Act or statement of 3rd party recorded u/s 131 of the Act or u/s 132(4) of the Act is NOT considered as incriminating material. A detailed discussion in this regard is in the following paras.

13.4 On the facts and in the circumstances of the case and considering the above, I am of the view that the legal ground taken by the appellant is tenable and is allowed for the A.Yrs. 2010-11 & 2011-12.

Adjudication on merits

14. Perusal of the orders by the Ld. AO shows that the Ld. AO has relied on following evidences to disallow the claim of LTCG by the appellant for two A.Yrs as under:

A.Yrs	Qty	Purchase date	Purchase cost (Rs.)	Sale date	Sale (Rs.)	LTCG (Rs.)	Commission
10-11	15000	27-3-09	1252844	29-3-09	4589165	3336321	2001179
11-12	10.7 lakhs	15-4-09	1574945	11-2-11	121178965	1196030201	7176181

1. That the learned AO pointed out that the appellant has made a confession u/s 132(4) of the Act that such LTCG was bogus and as arranged. Such disclosure was later retracted by the appellant.

2. That the learned AO predominantly relied upon the statements of the following entry operators recorded prior to the date of search on appellant.

Entry operator	Date of statement	Pages of learned AO order where referred
Anil Agarwal	12-04-2015	21-30                       .
Raj kumar Kedia	13-06-2014	31-58
Anuj Agarwal	30-03-2015	66
Raksh somani	30-03-2015	66
Ajit gupta	16-10-2014	70

NB: gall statement are prior to the search on appellant

3. That there as general discussion of investigation done by Kolkatta directorate, extract of the report by Kolkatta directorate is made part of the order. The learned AO pointed out that the appellant purchased huge quantity without any market research of the script. It was further pointed out that the share price rise was without any fundamentals of the company.

4. That the learned AO extensively listed the P&L ad balance sheet for the script to imply that since the financial are not sound the share price was rigged by the appellant in connivance with the entry operator.

5. That the learned AO discussed bell shaped pattern in trading to reinforce the conclusion drawn above. The learned AO also listed share price movement of the script

6. That the learned AO referred & extracted a portion of the interim order of SEBI.

7. That the learned AO reproduced the general modus operandi adopted entry operators

8. That the learned AO referred to the extracts of SIT report in pages 61-63 of his order.

14.2 I have carefully perused the order by the Ld. AO and various aspects of the case. I find the Ld. AO has based disallowance of claim u/s 10(38) of the Act on the basis of statement of entry operator & consequent report by the investigation wing and also the confession of appellant made u/s 132(4) of the Act (later retracted).

Statement u/s 131 of the act or u/s 132(4) of the act alone cannot be construed as evidences

15. In the detailed submission made by the assessee it has vehemently argued that the settled position of law is that addition cannot be made simply on the basis of statement of the assessee or the 3^rd person alone. The same has to be substantiated and corroborated either by post search enquiries or by linking the material found in search with the statements relied on.

15.2 I am in agreement with the Ld. A/R that it is a settled law that statement alone cannot be treated as incriminating material for the purposes of making addition for assessment completed u/s 153A/143(3). It has been held in many judgments that mere statement u/s 132(4) or u/s 131 is not sufficient to make an addition. A statement made must be relatable to incriminating material found during the course of search or the statement must be made relatable to material by subsequent inquiry/investigations. Hon’ble High Court of Rajasthan in the case of Mantri Share Brokers Pvt. Ltd. (96 taxmann.com 279) have held as under:

Section 69B of the Income-tax Act, 1961- undisclosed investments (Burden of proof)- whether where except statement of director of assessee-company offering additional income during survey in his premises, there was no other material either in form of cash, bullion, jewellery or document or in any other form to conclude that statement made was supported by some documentary evidence, said sum could not be added in hands of assessee as undisclosed investments – Held, yes [Paras 10-11] 1In favour of assessee]

Para 10 & 11 of the order is as under:

10. Before proceeding with the matter, it will not be out of place to mention that except the statement in the letter, the AO has no other material on record to assess the income of Rs. 1,82,00,000/-.

11. It is settled proposition of law that merely on the statement that too also was taken in view of threat given in question No.36 as narrated by Mr. Gupta and the same sought to have been relied upon, there is no other material either in the form of cash, bullion, jewellery or document in any other form which can come to the conclusion that the statement made was supported by some documentary evidence. We have gone through the record and find that the CIT (A) has rightly observed as stated hereinabove, which was confirmed by the Tribunal.

It would not be out of place to mention that this order of Hon’ble Rajasthan High Court has been confirmed by Hon’ble Supreme Court also.

Further, Hon’ble Delhi High Court in case of Harjeev Agarwal (70 Taxmann.com 95) held thus:

Harjeev Aggarwal [2016] 70 taxmann.com 95 (Delhi)

“…A plain reading of Section 132 (4) of the Act indicates that the authorized officer is empowered to examine on oath any person who is found in possession or control of any books of accounts, documents, money, bullion, jewellery or any other valuable article or thing. The explanation to Section 132 (4), which was inserted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f 1st April, 1989, further clarifies that a person may be examined not only in respect of the books of accounts or other documents found as a result of search but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Act. However, as stated earlier, a statement on oath can only be recorded of a person who is found in possession of books of accounts, documents, assets, etc. Plainly, the intention of the Parliament is to permit such examination only where the books of accounts, documents and assets possessed by a person are relevant for the purposes of the investigation being undertaken. Now, if the provisions of Section 132(4) of the Act are read in the context of Section 158BB (1) read with Section 1588 (b) of the Act, it is at once clear that a statement recorded under Section 132(4) of the Act can be used in evidence for making a block assessment only if the said statement is made in the context of other evidence or material discovered during the search. A statement of a person, which is not relatable to any incriminating document or material found during search and seizure operation cannot, by itself, trigger a block assessment. The undisclosed income of an Assessee has to be computed on the basis of evidence and material found during search. The statement recorded under Section 132(4) of the Act may also be used for making the assessment, but only to the extent it is relatable to the incriminating evidence/material unearthed or found during search. In other words, there must be a nexus between the statement recorded and the evidence/material found during search in order to for an assessment to be based on the statement recorded….”

Though the above principle is laid down in relation to assessment of block period u/s 158 BC of the Act, the same was also applied in respect of assessment u/s 153A by Delhi High Court in case of Best Infrastructure (84 Taxmann.com 287) when it was held thus:

38. Fifthly, statements recorded under Section 132 (4) of the Act of the Act do not by themselves constitute incriminating material as has been explained by this Court in Harjeev Aggarwal (supra).

16. Coming to the statements of various entry operators in the order. I have perused the statements from the Ld. AO’s order & have gone through the entire statements in the order. But nowhere in the statement such persons have given specifically name of the appellant nor has stated specifically that the cash from appellant was given to him or equivalent amount of cash was given which was rotated/routed and given in the form of accommodation entries in the form of LTCG. It may be pointed out that all the statement were recorded prior to search on appellant and subsequently no statement was recorded or any further inquiry done by the Ld. AO.

16.2 In my view the statements were merely a piece of information and does not qualify as evidence to make a disallowance u/s 10(38) of the Act.

16.3 Further even the discussion by the AO about dubious financials of the penny stock company or reference to the report of SIT extracts of which forms part of the assessment order are indicative and are of the nature of information. The AO also has few line about SEBI inquiry but nothing specific has been mentioned. I may add that SEBI report is related to the stock market regulations & its order is not in assistance to the revenue. Thus, statement of entry operator, dubious financial of the penny stock company, observation of Ld. AO about SEBI & SIT are pieces of information and the AO was expected to convert it into evidences by further inquiry which would comprehensively prove that its appellant cash which was routed and came back to appellant in the form of LTCG.

Precedence of documentary evidences over oral evidence

17. The Ld. AO had issue a detailed SCN, which is based on report prepared by Kolkatta directorate. This SCN enclosed various statement of entry operator. This SCN was replied by the appellant by filing all the necessary documentary evidence relating to purchase and consequent payment through bank accounts, the sale of shares and receipt of proceeds in the Bank Account. The following documentary evidences were filed before the Ld. AO:

Details filed	APB pages
Copy of summary sheet detailing purchases and sales of	42
Copies of contract notes	43-68
Copies of ledger account	69-78
Copies of bank account reflecting purchase and sale	79-87
Copy of dmat statement	88-93
Affidavit of Anil Agarwal, retracting statement given before.	94-99

17.2 Before proceedings further, It would not be out of place to discuss the decision of Hon’ble Supreme Court in the case of Pullangode Rubbers Produces CO Ltd (91 ITR 18) as observed as under:

“It is no doubt true that entries in the account books of the assessee amount to an admission that the amount in question was laid out or expended for the cultivation, upkeep or maintenance of immature plants from which no agricultural income was derived during the previous year. An admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect.”

The crux of the aforesaid decision is that a declaration or disclosure made by the person is binding unless it is rebutted by the person by furnishing valid evidences.

17.3 In the present case the main person of the group admitted certain income u/s 132(4) of the Act which was later retracted and reasons for such retraction is filed in the form of documentary evidences, as discussed above. Thus the appellant retracted the statement u/s 132(4) of the Act showing the admission by him was incorrect by filing all the possible documentary evidences.

18. I have carefully considered the relevant facts, arguments advanced and case laws cited. It is clear that AO has based denial of exemption u/s 10(38) of the act on the basis of statement of the appellant, and information received from the investigation wing in the fain’ of statement of entry operators. However in the statement of entry operators no question was ever put to any of the entry operator regarding transactions through the companied, through which alleged cash of appellant was routed.

Thus, on one hand the AO has oral statements made by appellant & entry operators, the appellant has retracted the statement by filing affidavits & documentary evidences listed above.

18.2 It is a settled law that documentary evidences will always carry more weight than the oral statements. After the oral statements were available to the AO the appellant proved the oral statements to be incorrect by filing documentary evidences. Thereafter the AO did not prove the documentary evidence to be untrue/ bogus/ non genuine. The AO never confronted the documentary evidence to the person whose oral statement was recorded in this case the entry operator. Therefore the oral statement losses their evidentiary value in light of the documentary evidence placed by appellant. Even the oral statement is general and does not pin point or mention appellant name anywhere. Nor does it mention anywhere that cash from appellant was received & it was same cash which was routed back to the appellant bank account. Considering the above documentary evidences clearly out weight the oral evidences relied upon. 1

18.3 Further the AO has discussed the abnormal rise I the share price of the penny stock without any under lying fundamentals. Recently Hon’ble ITAT Delhi in the case of Mukta Gupta Vs. ITO, ITA 2766/ DEL/2018 order dated 26-11-2018 have held that Capital gains cannot be treated as bogus solely on the basis that the price of the shares has risen manifold and the reason for astronomical rise is not related to any fundamentals of market. If the transactions are duly proved by trading from stock exchange and the documentation is proper, the gains cannot be assessed as unexplained credit or as unexplained money. It was further observed by the Hon’ble ITAT Jaipur Delhi that nowhere it has been found that assessee was in any manner found to be beneficiary of any accommodation entry under any inquiry or investigation. Once all these transactions are duly proved by trading from stock exchange, then to hold the sale of shares as unexplained credit or as unexplained money cannot be upheld.

Not providing the cross examinations

19. It was also pointed out that for both the A. Yrs only the copy of statement of entry operator was provided with the SCN by the Ld. AO. The Ld. AO also did not allow cross examination despite specific request by the Ld. A/R vide letter dated 27-11-2017.

The Ld. A/R has also taken a specific legal plea that no cross examination of the persons, whose statement was relied upon, was granted despite specific request made to the AO. The aspect of not granting cross examination has specifically been answered by the Hon’ble ITAT Jaipur in the case of Shri Pramod Jain. The relevant extract on the issue is as under:

“As regard the non grant of opportunity to cross examine, the Hon’ble Supreme Court in case of Andaman Timber Industries vs. CCE (supra) while dealing with the issue has held in para 5 to 8 as under:-

“5. We have heard Mr.KavinGulati, learned senior counsel appearing for the assessee, and Mr. K. Radhakrishnana, learned senor counsel who appeared for the revenue.

6.According to us, not allowing the assessee to cross-examine the witness 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. It is to be borne in mind that the order of the Commissioner as based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he as specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which could not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was no for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealer and what extraction the appellant wanted from them.

7. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross — examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and made the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000 , order dated 17.2.2005 was passed remitting the case back the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions.

1. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause Notice.”

19.2 Therefore, the statement of witness cannot be sole basis of the assessment without given an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity. The Mumbai Special of the Tribunal in case of GTC Industries vs. ACIT (Supra) had the occasion to consider the addition made by the AO on the basis of suspicion and surmises and observed in para 46 as under:-

’46.In situations like this case, one may fall into realm of ‘preponderance of probability’ where there are many probable factors, some in favour of the assessee and some may go against the assessee. But the probable factors have to be weighed on material facts so collected. Here in this case the material facts strongly indicate a probability that the wholesale buyers had collected the premium money for spending it on advertisement and other expense and it was their liability as per their mutual understanding with the assessee. Another very strong probable factor is that the entire scheme of ‘twin branding’ and collection of premium was so designed that assessee-company need not incur advertisement expenses and the responsibility for sales promotion and advertisement lies wholly upon wholesale buyers who will borne out these expenses from alleged collection of premium. The probable factors could have gone against the assessee only if there would have been some evidence found from several searches either conducted by DRI of by the department that Assessee-company was beneficiary of any such accounts. At least something would have been unearthed from such global level investigation by two Central Government authorities. In case of certain donations given to a Church, originating through these benami bank accounts on the behest of one of the employees of the assessee company, does not implicate that GTC as a corporate entity was having the control of these bank accounts completely. Without going into the authenticity and veracity of the statements of the witnesses Smt. NirmlalaSundaram, we are of the opinion that this one incident of donation through bank accounts at the direction of one of the employee of the Company does not implicate that the entire premium collected all throughout the country and deposited in Benami bank accounts actually belongs to the assessee-company or the assessee-company had direct control on these bank accounts. Ultimately, the entire case of the revenue hinges upon the presumption that assessee is bound to have some large share in so-called secret money in the form of premium and its circulation. However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by some evidence to establish a link that GTC actually had some kind of a share in such secret money. It is quite a trite law that suspicion howsoever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of ‘preponderance of probability’ is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of facts that might go against assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigation have been carried out, then nothing can be implicated against the assessee.”

Judgment of jurisdictional High Court and Hon’ble ITAT Jaipur

20. From the above it can be noted that the assessee has furnished all the evidences in support of the transaction in the shares of penny stock share on which he earned long term capital gain. The transactions are through banking channel and are supported by the contract note of the broker to whom brokerage is paid. The statement referred in the assessment order has no relevance as there is no name of the assessee. Therefore in the absence of any adverse material to prove the documentary evidences furnished by the appellant otherwise, the income earned by the assessee on sale of these shares can’t be treated as bogus.

Various Courts in situation like this, including Hon’ble High Court of Rajasthan have ruled in favour of assessee. Some of the lead judgments directly on the issue of penny stock and consequent capital gain thereafter are as under:-

• • PCIT v. Pramod Jain & Otheres DB Appeal No. 209/2018 dated 24.07.2018 (Raj)
  • CIT vs. Smt. Pooja Agarwal DBIT Appeal No. 385/2011 dated 11.09.2017 ( Raj HC)
  • CIT Vs. Smt. Sumitra Devi (2014) 102 DTR 0342 (Raj.)
  • MINU GUPTA vs. ITO (2018) 54 CCH 0343 KolTrib ITA No. 731/Ko1/2018 dated 12.12.2018
  • Shri Meghraj Singh Shekhawat vs. DCIT (2017) 443 and 444/JP/2017 dated 07.03.2018
  • Shri Vivek Agarwal vs. ITO (2017) 292/JP/2017 (ITAT Jaipur) dated 06.04.2018
  • Shri Purushotam Sani vs. ITO (2017) 288/JP/2017 (ITAT Jaipur dated 6/4/18
  • Mahesh Kumar Baid vs. ACIT , ITA No. 1236/Kol/2017 dated 18.08.2017 (Cal. Trib.)
  • Ramprasad Aggarwal vs. ITO 2(3)(2), Mumbai (2018) 100 com 172
  • Madhu Killa vs. Asst. CIT (2018) 100 taxmann.com 264
  • Neeraj Gupta vs. ITO (2018) 54 CCH 0238
  • Jignesh Desai vs. ITO (2018) 54 CCH 0045
  • Navneet Agarwal vs. ITO (2018) 97 com 76
  • Arun Kumar and Ors. vs. Asst CIT (2018) 54 CCH 0183
  • Anubhav Jain vs. ITO (2018) 54 CCH 0273
  • DCIT vs. Saurabh Mittal ITA No. 16/JP/2018 dated 29.08.2018
  • Amar Nath Goenka & Ors. vs. Assistant Commissioner of Income Tax & Ors. (2018) 54 CCH 0344
  • UDIT Agarwal vs. Dy. CIT (IT) (2018) 54 CCH 0424.

Summation

To sum up in the present case the appellant as subjected to search and seizure action u/s 132(1) of the Act and during the course of search no incriminating material was found which may indicate that the appellant has taken LTCG on penny stock which is alleged bogus. A statement was recorded u/s 132(4) of the Act which was later retracted by the appellant. 22.1.1 The Ld. AO had information in the fotin of statements recorded during search and survey action on various entry operators. This information inter alia contains statements of entry operators recorded by investigation directorates, mainly Kolkatta. The Ld. AO issued a SCN to the appellant. The Ld. AO did not allow cross examination of the entry operator for the reasons enumerated in his order.

22.1.2 In response to the SCN appellant filed all the documentary evidences in his possession before the Ld. AO which were kept as it is & were not rebutted by virtue of any inquiry/ investigation. In remand proceedings the Ld. AO has reiterated the statements, later retracted, given during the course of search and afterwards. Noticeably the Ld. AO did not have SEBI report which specifically indicted either the appellant or the ‘penny stock’ script.

22.1.3 The Ld. AO proceeded to treat the LTCG as bogus and made an addition. In nutshell the external information & retracted statement was formed whole & sole basis to treat the LTCG claim as bogus. Thus, the crucial question that it was appellant money (unaccounted cash) which came back to appellant in the form LTCG was not evident from the information so received, nor investigated nor is answered by the whole exercise.

22.1.4 All the decision of Hon’ble High Court of Rajasthan and Hon’ble ITAT Jaipur on LTCG earned on Penny stock are in favour of assessee’s. To put it other way round, not a single decision is against assessee’s. Thus these decisions have binding precedence. The decisions are:

1. POT Vs. Pramod lain & Ors (appeal no. 20⁹/₂018 dated 24-07-2018-(Rajasthan High Court)

2. CIT Vs. Pooja Agarwal ( appeal no. 385/2011 dated 11-09-2017 ( Raj High Court )

3. CIT Vs. Sumitra Devi 102 DTR 342 ( Raj High Court )

4. JVS Food Private Limited Vs. DOT 2018(11)TMI 1088

5. Kapil Mittal Vs. ITO 20171(11) TMI 988

6. Om Prakash Modi Vs. DCIT ITA no. 402 & 403 /JP/2017

7. MeghRaj Singh Shekhawat Vs. DOT 443 & 444/ JP/2017

8. DCIT Vs. Saurabh Mittal ITA no. 16/JP/2016

9. Vivek Agarwal Vs. ITO 292/JP/2017 (Jaipur)

10. Purushottam Son! Vs. ITO 288/ JP/2017(Jaipur)

22.1.5 Recently Hon’ble Supreme court in its order dated 21-08-2019 in the case of Odeon Builders Private Limited Vs. CIT-7, New Delhi (civil appeal no. 9604-9605/2019) has held that no addition can be sustained if it is done purely on the basis of information received from Investigation Wing without giving an opportunity of cross examination to the assessee.

The keys observation by the Hon’ble Court reads as under:

“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 fade 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

23. Considering the above I am of the view the appellant case is directly covered by the decision of Hon’ble Rajasthan High Court and various decision of Hon’ble ITAT Jaipur. The Ld. AO action in treating claim u/s 10(38) of the Act as bogus is not tenable. The Ld. AO is directed to allow the claim of LTCG for both the A.Yrs.

Since he LTCG claimed u/s 10(38) of the Act is held genuine the consequent disallowance addition of commission u/s 69C is also directed to be deleted. In short the relief allowed is:

A.Yrs	LTCG claim	Commission
2010-11	Rs 3336321	Rs 200179
2011-12	Rs 119603020	Rs 7176181

13. Before us the ld. AR of the assessee has submitted following written submission in respect of the ground raised by the revenue as well as grounds raised by the assessee:-

“May it please your honours,

Brief facts are that a search action was carried out u/s 132 of the Income Tax Act, 1961 on 22.07.2015 in case of Maverick group to which these all persons assessee belong. In response to notice issued u/s 153A, returns of Income by all the persons declaring same income as declared in the return filed u/s 139(1) of the Act. The assessment was completed u/s 143(3) r.w.s. 153A of the Act wherein various additions were made which include the addition of treating the long term capital gains/ short term capital gains / loss from certain equities by holding the same as bogus.Appeals were field before ld. CIT(A) against such additions, which were decided substantial relief was allowed by ld. CIT(A) in all the cases and the capital gains / loss declared was held as genuine. Against the said orders of ld. CIT(A), all these appeals are filed by the department challenging the deletion of addition made and the assessee preferred cross objections wherein the additions confirmed are challenged by the assessee.

With the above background, submission on the department appeals is as under: Long Term Capital Gain/Short term capital loss alleged as bogus and from  Penny Stock companies and Commission paid thereon:

In the grounds of appeal raised in respect of this issue, department has challenged the order passed by ld.CIT(A) wherein the Long Term capital gain earned/short term capital loss on sharesis held as genuine.The details of addition made in respect of each individual assessee and the respective ground of appeal taken by the department is tabulated as under:

Assessee	A.Y.	Departmental Appeal No.	DGOA No	LTCG/STCG (Rs.)	Commission (Rs.)
MukutBehari Agarwal	2010-11	152/JPR/2020	1 & 2	33,51,007/-	2,01,060/-
MukutBehari Agarwal	2011-12	153/JPR/2020	1, 2& 3	11,89,12,452/-	71,34,747/-
MukutBehari Agarwal	2015-16	155/JPR/2020	1 & 2	21,38,983/-	1,29,933/-
Sunita Agarwal	2011-12	156/JPR/2020	1 & 2	5,79,23,026/-	34,75,382/-
Sunita Agarwal	2014-15	157/JPR/2020	1 & 2	2,49,43,122/-	14,96,587/-
Sunita Agarwal	2015-16	158/JPR/2020	1 & 2	11,77,629/-	70,658/-
Asha Jain	2011-12	159/JPR/2020	1 & 2	5,77,76,606/-	34,66,596/-
SangeetaMantri	2011-12	160/JPR/2020	1 & 2	5,68,18,858/-	34,09,131/-
Mukesh Jain	2010-11	161/JPR/2020	1 & 2	33,35,476/-	2,00,129/-
Mukesh Jain	2011-12	162/JPR/2020	1 & 2	12,03,91,598/-	72,23,496/-
Anshul Jain	2014-15	163/JPR/2020	1 & 2	1,35,94,856/-	8,15,691/-
Ramesh Kumar Mantri	2010-11	164/JPR/2020	1 & 2	33,36,321/-	2,00,179/-
Ramesh Kumar Mantri	2011-12	165/JPR/2020	1 & 2	11,96,03,020/-	71,76,181/-

Before we begin with submission on merits, it is submitted that assessments in respect of all the assessees were completed u/s 153A as a result of search conducted on 22.07.2015. On the date of search, due date of issuing notice u/s 143(2) had expired in respect of A.Y. 2010-11 to 2013-14 and notice could be issued only in respect of A.Y. 2014-15 and onwards. In other words, assessment proceedings upto A.Y. 2013-14 were completed and therefore scope of additions to be made in such assessment years was restricted to incriminating documents only which were found/seized during the course of search. A detailed submission in this regard was made before the ld. CIT(A), who sought remand repost from assessing officer as to whether any incriminating document was found during the course of search in respect of addition made. Ld.AO vide remand report[reproduced in CIT(A) order itself]admitted that no incriminating document was found in this regard. After appreciating such facts, ld.CIT(A) accepted the contention of the assessee and held that no addition could be made as no incriminating material was found with respect to the Long Term capital gain/ Short Term capital loss by alleging the same as non genuine.Details of such appeals, detailed submission furnished in this regard before ld.CIT(A) and relevant page numbers where remand report is reproduced and observations of the ld. CIT(A) in this regard are tabulated hereunder for sake of convenience:

Name of Assessee	Assessment Year	CIT(A) WS APB	CIT(A) page where Remand report is reproduced	CIT(A) decision para and page no.
Ramesh Kumar Mantri	2010-11	74-104	27	Para 12 to 13.4 pages 27-33
	2011-12	108-139
MukutBehari Agrawal	2010-11	91-119	26	10 to 10.5 pages 28-32
	2011-12	172-201
Asha Jain	2011-12	94-124
Mukesh Jain	2010-11	69-99	29	Para 11 to 11.5 pages 30-34
	2011-12	118-149
				Para 11 to 11.5
SangeetaMantri	2011-12	98-128	29	pages 32-36
Sunita Agrawal	2011-12	66-93	29-30	11 to 11.6 pages 32-36

From the perusal of the grounds of appeal taken by the department, it appears that the department has not challenged the findings of ld. CIT(A) given on the legal issue raised that if no incriminating material was found as a result of search, no addition could be made more particularly when no proceedings were pending as on the date of search.

It is thus submitted that on legal aspect department has accepted the order of ld. CIT(A) and accordingly undisputedly when no incriminating material was found suggesting Long Term Capital gain/ Short term capital loss being non genuine, no addition could be made on this account in the orders passed u/s 153Aof the Act.

With regards to appeals for the remaining assessment years, i.e. wherein due date of issuing notice u/s 143(2) had not expired, there also additions were made solely on the basis of confessional statements of directors/assessees recorded u/s 132(4) during the course of search, which were not supported with any other documentary evidences found as a result of search/otherwise. Detailed submission in this regard was submitted before ld.CIT(A), wherein it was explained the statements wherein surrender as obtained from all the persons regarding Long term capital gain/Short term capital loss were not voluntary and rather recorded under undue pressure. Moreover, such statements were retracted by filing affidavits as soon as copy thereof was supplied to assessee. Ld.CIT(A) after considering submission of assessees, allowed relief on legal ground.

From the perusal of the grounds of appeal taken by the department in these appeals also, it appears that the department has not challenged the findings of ld. CIT(A) given on the legal issue raised by the assessee that, no addition could be made solely on the basis of confessional statements recorded during the course of search unless the same are corroborated with documentary evidences/material more particularly when statements were retracted.

It is submitted that very recently Hon’ble Rajasthan High Court in the case of PCIT vs Shri Sanjay Chhabra in Income Tax Appeal No. 22/2021 has held that addition based solely on statement later on retracted, without anything more, could not be justified in law and thus had not admitted the appeal filed by the department.

It is thus submitted that on legal aspect department has accepted the order of ld. CIT(A) and accordingly undisputedly no addition could be made solely on the basis of statements recorded during the course of search when the same are not corroborated with any incriminating material/documents suggesting Long Term Capital gain/ Short term capital loss being non genuine.

Details of such appeals, detailed submission furnished in this regard before ld.CIT(A), relevant page numbers where Retraction affidavits are available and observations of the ld. CIT(A) in this regard are tabulated hereunder for sake of convenience:

Name of Assessee	Assessment Year	CIT(A) WS APB	Retraction Affidavit APB	CIT(A) para no. and page no.
Mukut Behari Agrawal	2015-16	87-109	40-42	para 8.3 page 25
Anshul Jain	2014-15	57-81	25-26	Para 10.2 & 10.3 page 31
Sunita Agrawal	2014-15	129-152	23-24	Para 10.2 page 29
	2015-16	48-71	25-26	Para 17.2 page 42

So far as merits of the case are concerned, it is submitted that the above stated appellants had earned LTCG [claimed as exempt u/s 10(38)]/STCL on the sale of shares, part of which was disallowed on the basis of alleged enquiries/investigation conducted in the case of third parties. Also, it was presumed that all the assessee would have paid commission on such accommodation entries and therefore addition on that account was made u/s 69C of the Act. In this regard, at the outset, it is submitted that all the share transactions were absolutely genuine as:

– Shares were purchased online through recognized stock exchange in all the cases;

– Payment pf purchases consideration towards shares purchased was made through banking channel;

– Shares were got dematerialized soon after they got purchased;

– Shares were sold online through recognized stock exchange; – Sale consideration was received through banking channels.

It would not be out of place to mention here that all the appellants have been engaged in share trading on regular basis and the transactions in respect of which exemption u/s 10(38) is denied/Short term capital loss is added back were not the solitary transactions in shares. At this juncture, total LTCG/STCL earned by them, disallowance made and total portfolioas on the last date of balance sheet is tabulated in Annexure attached with this written submission for the sake of convenience.From the perusal of the chart annexed, it is evident that all the assessees have been regularly dealing in shares and hold shares of various companies other than alleged as penny stock companies also.

Facts leading to the conclusion thatLong Term capital gain/Short term capital loss was non genuine based on the information received by the ld. AO where various searches were conducted by Income Tax department, during which statements were recorded u/s 132(4) of various persons (hereinafter referred to as “entry operators”), who have been alleged to have accepted to be involved in providing accommodation entries in the shape of Long Term Capital Gain/Short Term capital loss/ unsecured loans etc. for commission, through a racket of various paper companies. As per ld. AO the long term capital gain / short term capital loss declared by these appellants also include the transactions from these companies and thus concluded that LTCG/STCL earned by all these assessee on shares of such companies was not genuine.

In this regard, it is submitted that in none of the case, name of any of the assessee as beneficiary of bogus LTCG/STCL was mentioned as alleged by the ld. AO. Thus the modus operandi narrated by the ld.AO based on the statements of various entry operators (third parties) is merely borrowed from the answers given in reply to specific questions put forth in case of some other scripts and not the scripts involved in the case of the assessee. Moreover, apart from the so called information received from Investigation Wing, Kolkatta containing statements of entry operators, there was no material available with the Ld. AO or referred to by him in the assessment order found as a result or gathered during the course of assessment proceedings in support of the impugned additions made by him.

As submitted above, in the statements, such entry operators have merely / generally stated the modus operandi of their so called companies through which they have admitted to be engaged in providing accommodation entries in respect of LTCG. At this juncture attention of your honours is invited to the fact that the assessees of Maverick group had neither made transactions of purchases and nor any transaction of sale of the impugned shares through the companies of such entry operators. On the other hand the assessee had made transaction of purchase (in most cases) and also sale of impugned shares on the on-line portal of BSE through his regular broker MSBPL i.e. the broker with whom he had made all his transactions of purchases and sale of scripts and derivatives in past and in future period. Since transactions of purchase or sale of impugned shares by assessee has not been done through the companies managed by entry operators, therefore their statements for so called manipulation through their companies cannot at all be applied in the case of the assessee.

Moreover, during the course of assessment proceedings a specific request was made for cross examination of such entry operators, however such request was turned down by Ld. AO in summary manner, though before relying upon the same against the assessee opportunity of cross examination should have been allowed in the interest of natural justice.

In fact, oneof the persons named and whose statement was relied upon by the ld.AO is Shri Raj Kumar Kedia. Perusal of the his statement reproduced in the assessment order reveals that at one place Shri Raj Kumar Kedia has accepted to have done pre-arranged booking of LTCG from a number of companies including the names of scripts involved in this case, and immediately in the next para (as appearing in the Assessment order of Sh. MukutBehari Agrawalfor AY 2011-12 page49 last para) he has himself observed as under:

“From the above listed shares of companies like Fact Enterprises ltd, Splash Media Ltd,………………… did not pick up & no LTCG was done through them”

Thus Shri Raj Kumar Kedia has in fact very clearly stated that no bogus LTCG was booked through them in the impugned two scripts involved in all the cases, which further proves the transactions as genuine. Further in the statement, Shri Kedia has given complete list of beneficiaries who had taken accommodation entries through him which does not contain the name of the assessee or the broker through whom the assessee had transacted in these shares. Also all the other names mentioned by Shri Raj Kumar Kedia, who had allegedly assisted him in carrying out the entire transaction has no mention of either any of the assessee or the broking house through which they had transacted the genuine sale of shares. Moreover no any reference of any of the assessee was made in any manner in any of the statements, that any of them has approached him for providing accommodation entry. Further none of the broker had stated the name of the broker M/s MSBPL as allegedly involved in providing bogus LTCG through whom they sold shares. It is a matter of fact that the broking firm MSBPL is never found involved in any such type of activity by any authority like SEBI etc. However, relying upon the uncorroborated statements of third parties, that too recorded in some other case, by some other authority and behind the back of all theseassessees, Ld. AO incorrectly presumed that long term capital gain and Short term loss earned/incurred was merely an accommodation entry (even though none of them has neither purchased nor sold the shares of these companies through broking firm of such third parties.

Apart from the so called information received from Investigation Wing, Kolkatta containing the statements of such third parties, there was no material available with the Ld. AO or referred to by him in the assessment order found as a result or gathered during the course of assessment proceedings in support of the impugned addition made by him. The Ld. AO further relied upon the conclusion drawn by SEBI in respect of these transactions where the SEBI had made enquiries in respect of unexpected fluctuations / gains in the price of shares of few companies. The ld.AO has also referred to the interim order of SEBI. Firstly it submitted that this order is passed in the case of M/s First Financial Services Ltd which has no relation with any of the assessee. Secondly this report says that the Comfort group/ Comfort Securities had played role for providing accommodation entries of LTCG. It is pertinent to note here that such order has no bearing in the present cases, as purchase and sale was not done through the Comfort group/ Comfort Securities.

After considering the facts as narrated above and detailed submission made in this regard, ld.CIT(A) deleted the additions made on merits also, primarily on following grounds:

– Addition was made solely on the basis of statements recorded of during search and surveys on various entry operators,

– The Ld. AO did not allow cross examination of the entry operators;

– appellant filed all the documentary evidences in his possession before the Ld. AO which were not rebutted by virtue of any inquiry/investigation;

– In remand proceedings the Ld. AO has reiterated the statements, later retracted, given during the course of search and afterwards;

– Ld. AO did not have SEBI report which specifically indicted either the appellants or the ‘penny stock’ script;

– Thus, external information & retracted statement was formed whole & sole basis to treat the LTCG/STCL claim as bogus;

– That, documentary evidences carry more weight than oral statements;

– Thus, it was not evident from the information so received, nor investigated nor is answered by the whole exercise as to how was unaccounted cash routed through such entries;

– All the decision of Hon’ble High Court of Rajasthan and Hon’ble ITAT Jaipur on LTCG earned on Penny stock are in favour of assessee’s;

– The judgment given in the case of Suma Poddar423 ITR 480, has already been distinguish by hon’ble Delhi high court in the case of PCT Vs. Krishna Devi in ITA No. 125/2020 by the hon’ble Delhi court itself and the same decision is followed by the hon’ble bench in case of ACIT Vs. SarojPorwal in ITA No. 753/JP/2019 vide orders dt. 24.02.2021.

In view of above, it is prayed that transactions of assessee in shares are completely genuine, therefore CIT(A) has rightly deleted the addition so made, which order may please be upheld.

Addition on account of Interest paid from undisclosed sources:

Name of Assessee	A.Y.	CO No.	CO GOA	Amount (Rs.)
MukutBehari Agarwal	2010-11	08/JPR/2020	1 to 1.2	30,247/-
	2011-12	09/JPR/2020	1 to 1.2	2,42,926/-
Sunita Agarwal	2011-12	10/JPR/2020	1 to 1.2	1,20,855/-
Asha Jain	2011-12	11/JPR/2020	1 to 1.2	34,060/-
SangeetaMantri	2011-12	12/JPR/2020	1 to 1.2	13,940/-
Mukesh Jain	2010-11	13/JPR/2020	1 to 1.2	46,751/-
	2011-12	14/JPR/2020	1 to 1.2	13,611/-
Ramesh Kumar Mantri	2010-11	15/JPR/2020	1 to 1.2	1,58,269/-
	2011-12	16/JPR/2020	1 to 1.2	2,86,948/-

In grounds of Cross Objections pertaining to this issue, assessee has challenged the action of ld. CIT(A) in upholding the addition made by ld.AO by alleging the same as interest payment out of undisclosed sources of income, on the basis of excel sheets in a pen drive which was found and seized from the possession of Shri Kailash Chand Khandelwal, one of the employee of Maverick Group.

Brief facts of the case are that during the search operation carried out in the case of Maverick group, to which the abovementioned assessees belong, a pen drive was found and seized from possession of Shri Kailash Chand Khandelwal, one of the employees of Maverick Share Broker P. Ltd. (but not employee of assessee companies) containing some files in excel software having entries pertaining to details of loans taken and interest paid after deduction of TDS by various persons and entities of the Maverick group including assessee, along with many other individuals and entities (who are not at all related with assessee). These excel sheets contained details of amount borrowed, interest paid, Tax deducted, amount of loan returned with dates of assessee, as also contained the last column which had further sub columns which had details regarding some calculation of amount with title “Adjustment”. Ld. AO considered this amount appearing against the name of assessee in the last column as the interest paid over and above the interest paid through payees account cheque and recorded in the books of accounts and accordingly held the same as being interest paid by the assessee from its undisclosed sources and made the impugned addition.

In this regard it is humbly submitted that during the course of assessment proceedings, first the ld. AO proposed to make addition of the entire amount found noted in the said sheets against the name of assessee as his undisclosed income in the form of advances given out of undisclosed sources. In response to it, detailed reply was given explaining the nature of entries contained in all the files found in the pen-drive seized during search operation. Printouts of excel sheets and replies filed before ld.AO are enclosed in respective paper books as under:

Name of Assessee	Assessment Year	Excel Sheet APB	Reply APB
Ramesh Kumar Mantri	2010-11	72-73	66-71
	2011-12	106-107	100-105
Mukut Behari Agrawal	2010-11	89-90	83-88
	2011-12	202-203	166-171
Asha Jain	2011-12	93	87-92
Mukesh Jain	2010-11	68	62-67
	2011-12	117	111-116
Sangeeta Mantri	2011-12	97	91-96
Sunita Agrawal	2011-12	94-95	–

Thereafter, ld.AO changed his stand and took the view to treat the entries as ‘Interest paid’ instead of earlier allegation as interest received and alleged that the amount appearing under the last column is the amount of interest paid by assessee out of his undisclosed sources and not recorded in the books of accounts as over and above the interest amount mentioned in other column and paid through cheque. The explanation given in this regard before the ld.AO is summarized as under:

(i) That the sheets contained information about amounts borrowed by various individuals and entities of the Maverick Group along with many other individuals and entities, which were unrelated and unknown to the assessee as also the entire Maverick group;

(ii) That excel sheets contained details of loan taken, interest paid, Tax deducted, amount repaid, along with dates thereof which are made through cheques;

(iii) That there were repetition of details in the various files found in the pen-drive, which were duly demonstrated to ld. AO and also appreciated and accepted by him;

(iv) That the details appearing in all the columns other than those appearing under the adjustment column were duly recorded in books of respective individuals and entities, as far as it pertained to the Maverick group and were got verified by ld. AO;

(v) That the excel sheet was mailed to Shri KailashKhandelwal who is in accounts department by the finance broker through whom the amounts were borrowed, asking for further payment of interest @2.4% in addition to the interest already paid and thus this amount is separately mentioned in the last column, but the said payment was never made by assessee or other group members of the group.

However, the ld. AO alleged the same to be additional interest paid by assessee not recorded in books, and treated the same to have been paid out of undisclosed sources of the assessee without bringing any adverse material on record.

It is humbly submitted that the assessee had elaborately demonstrated the fact that the said pen-drive was not prepared by the assessee or even by Shri Kailash Khandelwal from whose possession it was found during search and ld.AO has not raised any doubt on the explanation tendered by the assessee. Thus the presumption embedded u/s 132 (4A) does not apply in this case. No statements whatsoever were recorded of Shri Kailash Khandelwal in this regard from whose possession the said Pen Drive was found during the course of search. The assessee has fully explained the entries as appearing in the books of the assessee other than the ones appearing under the last column for which it was categorically stated that those entries were not made by assessee or his employee. This is further evident from the fact that assessee has deducted due tax on the amount of interest actually paid by him and the same is appearing as such in the excel sheets. The entries appearing in the ‘adjustment’ column was the additional interest asked by the lender, which was never paid by the assessee, as is evident from the fact that no TDS was deducted thereon nor any payment was made. Further no incriminating document was found during the course of search corroborating the allegation of ld. AO nor was anything brought on record by making independent enquiry during the post search or assessment proceedings to support the allegation that assessee had paid anything more than what was recorded in the books of the assessee. It is also a matter of fact that during the course of assessment proceedings, assessee had filed copies of confirmation from the concerned parties along with the PAN and complete address, duly confirming the amount borrowed with the amount of Interest paid and Tax deducted by the assessee which stood accepted by ld.AO without raising any doubts. Thus the assessee has duly dischargedthe burden of explaining the entries in the pen-drive found in possession of an employee of the assessee, so far as it pertained to the assessee.

Ld. AO, except the so called entries, has failed to bring on record any evidence / material whatsoever by making independent enquiries to support the allegation that the said amount was paid by assessee over and above the amount of interest paid and recorded in the books of accounts. The additions have been made on presumptions and assumptions for which there is no scope in the scheme of assessment of search case as envisaged in chapter XIV of the Income Tax Act, 1961.

In the circumstances, it is humbly prayed that the additions so made merely on suspicion without any corroborative evidence on record deserves to be deleted and the assessee prays accordingly.”

14. Au contraire, the ld. DR submitted that the observations of the CIT(A) in the impugned order that there was no incriminating material “in respect of the LTCG” but a statement of the assessee recorded during the proceeding u/s. 132(4) is piece of evidence recorded at the time of search although the same has been retracted will not make the fact corrected that there was no incriminating material, therefore, the addition was justified and supported the order of the ld. AO on this issue and as regards the addition challenged by the assessee in his cross objection he has reiterated the findings of the ld. CIT(A). As regards the contention of the ld. AR of the assessee that the report of the Investigation wing of Kolkatta were sent to all directorate and in that AO being the central charges not possible to have the copy he may have missed while reporting in the remand proceedings.

The ld. DR raised challenged the various finding of the ld. CIT(A). He has submitted that even though the SLP is admitted in the Supreme Court challenged by the department in the case of Continental Warehousing, Best Infrastructure. He has further relied on the recent decision of Calcutta High Court in the case of PCIT Vs. Swati Bajaj where in the issue is decided in favour of the revenue. He has reiterated the findings recorded by the ld. AO in his order and the investigation carried out by the Investigation Wing of the department. He has read the statement of the persons whose statements are relied upon. He has stated that the fact that the SEBI and Investigation Wing of the department has given so much of the material on the issue of bogus long term capital gain including the report of the SIT report he had relied upon. He has heavily relied on the statement recorded u/s. 132(4) of the Act wherein the assessee has accepted the amount as not genuine transactions and therefore, the same may be viewed in accordance with the confession made by the assessee. The statement is recorded before in the presence of the two witness and based on the confession the investigation was stopped and now the assessee cannot say that the statement is not correct. The ld. CIT(A) has not discussed the merits of the case and decided the appeal of the assessee merely on the technical ground. Even the ld. AO while reporting to the ld. CIT(A) in remand has ignored the report of the Investigation Wing available with him but AO may not knowing to mention that in the remand report. In addition, the ld. DR also filed a written submission in respect of the grounds raised by the revenue:

A Search and seizure action under section 132 (1) of the Income Tax Act was carried out by the Income Tax Department on the persons/ members of the Maverick group, Jaipur on 22nd July 2015. In this group, in some cases department as well is assessee’s are in appeal against the order of CIT (A). The main grounds of appeals have been briefly mentioned in the table above.

The CIT (A) has deleted the addition on the ground that additions are not based on incriminating evidences seized during the search. Without verifying the facts, Ld. CIT appeal has deleted additions on legal ground based on various judgements.

It is to be noted here that during the search, assesses have accepted that they have taken accommodation entries by way of bogus entries share transactions through penny stocks and claiming long term capital gain through various brokers on payment of commission. In some cases assessee routed unsecured loan in it’s books through jamakharchi companies who’s creditworthiness, identity and transactions are not genuine. The assessing officer has discussed the issues in great length in the assessment order. I hereby rely on the reasons mentioned an assessment order for such additions. Further, I would like to submit following as under:

1.1 The language of section 153A makes it very clear that there is no explicit or intended requirement of seizure of any incriminating material during the search under section 132(1) before issuing the notice under section 153A. The jurisdiction of section 153A is automatic from the moment a search is initiated.

There is no requirement of examination of seized material or recording any satisfaction with respect to availability of seized material before issue of notice under section 153A. The intention of legislature in allowing so could be that the initiation of search itself is subject to recording of satisfaction under section 132(1) by the PDIT(Inv.) on grounds that:

(i) upon issue of summons under section 131(1) the assessee has failed to produce or would not produce the books of accounts or other documents so requisitioned or

(ii) the assessee is in possession of money, bullion, jewellery, article or thing which represents wholly or partly income has not been or would not be disclosed for the purpose of the act.

Hence a conjoint reading of section 153A and 132(1) would clearly imply that a satisfaction to issue notice under section 153A is already deemed to be imported from the satisfaction recorded by PDIT(Inv) at the time of issuing warrants under section 132(1). The existence of satisfaction recorded by PDIT(Inv) is liable to be challenged before courts. Hence, until such satisfaction for issue of warrants under section 132(1) are held invalid by any court, the satisfaction recorded by PDIT(Inv) continued to hold the fort for purpose of 153A also and it is for this reason there is no further requirement of recording any belief of satisfaction by AO for issue of notice under section 153A.

As may be noted from the conditions of recording the satisfaction of PDIT(Inv), one of the conditions is regarding books or other documents which were not produced or would not have been produced on issue of summons. Thereby implying that post search, while the AO is making assessment, it has to examine the correctness of income disclosed not only based on what material has been gathered during search but also based on these books or documents which in the opinion of PDIT(Inv) would not have been produced upon issue of summons, whether or not such books of accounts or documents have been actually found during search. In fact, there are numerous instances when even the books of accounts as per already filed audit reports are not found at any of the premises during search, more so when the searched entities represent only the shell companies. Similarly, there is a requirement of satisfaction by PDIT(Inv) in respect of income being fully or partly not disclosed for the purposes of the Act. Hence, even if some income/ entry is disclosed in books or audited accounts, the AO is mandated to examine whether such income / entry was disclosed fully or partly and/ or represents its real nature and source for the purposes of the Act. This inter alia would mean that even the entries disclosed in accounts which might represent income fully or partly would in itself be an incriminating material for which a search was initiated. When the non-production of books or other documents can give rise to a belief for initiating search u/s 132(1), then it may be counterproductive to conclude that the power of AO is restricted to assessment based only on incriminating material found in search, irrespective of any other item of income which might have remained fully or partly undisclosed for the purposes of the Act, based upon the entries already appearing in such books, if any.

1.2 It is the ‘assessment of total income’ which is required to be made under section 153A. The total income is defined under section 2(45) would be the total income computed as per section 5 of the act. The word ‘assessment’ cannot have a different meaning for different purposes under the same act unless restricted by specific provisions. The process of assessment for the purposes of the act is wide enough to include every kind of enquiry/ examination for discovery, quantification and assessment of the income wholly or partly for the purposes of the act. Hence, the process of’ assessment of total income’ u/s 153A can neither be restrictive nor have a different connotation for assessment under section 153Avisa-vis143(3) or 147. As per the scheme under the Act, the satisfaction recorded u/s132(1) and the results of search are intended to be brought to a logical conclusion by initiating the proceedings u/s153A without any further act of the AO. Hence it is in the scheme of the Act that after issuance of notice u/s153A, the next action of the AO must follow the examination of all aspects for which a search has been initiated. Hence, it cannot be said that the AO u/s 153A cannot proceed to examine the books of accounts or documents, entries which were produced before him subsequently, wherein might also represent income wholly or partly, which has not been disclosed for the purposes of the Act. Hence, it may be contrary to the scheme of the provisions of 132(1) r/w 153A, if it were to be held that power of AO is restricted only to make assessment the evidence found during search. The provisions of 153A not only require assessment of undisclosed income but total income also. The expression ‘total income’ would include the income emanating from disclosed items, income emanating from partly or wrongly disclosed items as well as income emanating from undisclosed items. U/s153A, no distinction is made for assessment of total income in the cases which were earlier completed u/s 143(1), the cases which were earlier completed u/s 143(3)/147 or the cases where no return was filed prior to search. Thus, in all the three categories, it is as per the scheme of the Act that the total income of the assessee as defined u/s2(45) needs to be assessed for all the 6AYs for which the AO is mandated to issue notice u/s153A.

1.3 Further u/s153A, there is a provision for abatement of pending assessments whether or not any evidences were found for that year. There can also be a situation where neither any regular assessments were made earlier nor any proceedings were pending, which could be abated. The section also envisages the issue of notice u/s153Awhether or not any evidences were found for that year. It is also implicit that u/s 153A, the items of total income which could be assessed u/s153A in abated proceedings cannot be different for the cases which could not be abated such as:

i) where no proceedings were pending; or

ii)where earlier assessments were completed u/s 143(3)/147; or

iii) where earlier assessments were not made at all.

The only caveat could be that before making any addition to the total income, the AO must bring on the record how such items are falling in to the category of total income for the purposes of the Act. Thus, if it were to be held that no addition can be made without any incriminating material in respect of the years covered by section 153A, then it would lead to an absurd consequence whereby the powers granted to issue notices u/s 153A would be rendered otiose in cases which got abated for any particular AY. In the absence of any seized material, AO may not be able to proceed to make any assessment of any other item of total income implying that the process of making assessment of total income as envisaged in section153A fails in abated cases. However, a statute can never be interpreted in a manner to make it redundant.

1.4 Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of search, or on the basis of any other post-search material or information available with the AO though such assessment cannot be arbitrary. The provisions of section 147 and section 153A, though have different conditions to assume jurisdiction but both operate to make the assessment of total income only. The Memorandum explaining the provisions of Finance(No.2) Bill of 2009 while inserting explanation 3 to section 147 reads as under:

“Some courts have held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which the reasons have been recorded for reopening the assessment. He is not empowered to touch upon any other issue for which no reasons have been recorded. The above interpretation is contrary to the legislative intent.

Therefore to articulate the legislative intent clearly, explanation 3 has been inserted in section 147 to provide that assessing officer may examine, assess or reassess any issue relevant to income which comes to his notice subsequently in the course of proceedings under this section, notwithstanding that the reasons for such issue has not been included in the reasons recorded under subsection(2)ofsection148”.

Hence, even in absence of any explanation u/s 153A also similar to the explanation 3 u/s 147, the intention of the legislature and the scheme of the Act for making assessment u/s 153A where search u/s 132 is initiated, is same i.e. in order to make assessment of total income, after having assumed the jurisdiction to assess total income, the powers of AO shall not remain restricted to mere those material which were seized during search but shall also include the assessment of income based on any entry already recorded prior to search or any claim/relief allowed prior to search, which has been found to be erroneous during the proceedings u/s 153A.

1.5 There is divergence of judicial opinion on the question of whether assessment u/s153A can be restricted to only the incriminating material seized during the search or whether the AO can also take a view based on something which might be noticed otherwise during the course of assessment proceedings u/s 153A? Some of the conflicting opinions expressed in judicial verdicts are as under:

(a) Allahabad High Court in Raj Kumar Arora 367 ITR 517 has held that there is no requirement of incriminating material for invoking provisions of 153A.

(b) The Delhi High Court in Kabul Chawla 380 ITR 573(Del) held that assessment u/s 153A on an issue could not have been made unless backed by some incriminating material found during the search. The department has not accepted the decision in case of Kabul Chawla and the SLP was filed was subsequently withdrawn due to low tax effect.

(c) However, the same Delhi High Court in case of Dayawanti Gupta Vs CIT 390 ITR 496(Del) in para16 has observed that:

“Section 153A, which provides for an assessment in case of search, and was introduced by the Finance Act, 2003 with effect from 1-6-2003, does not provide that a search assessment has to be made strictly on the basis of evidence found as a result of search or other documents and such other materials or information as are available with the Assessing Officer and relatable to the evidence found. The earlier section 158BB which is not applicable in case of a search conducted after 31-5-2003, provided that the computation of the undisclosed income can only be on the basis of the evidence found as a result of search or other documents and materials or information as are available with the Assessing Officer, provided they are related to the materials found. Section 153A(1)(b) requires assessment or reassessment of total income of the six assessment years immediately preceding the assessment year relevant to the previous year in which the search took place. This, however, does not mean that the assessment under section153A can be arbitrary or made without any relevance or nexus with the seized material    ”.

Whether during assessment under section153A, additions need not be restricted or limited to incriminating material found during course of search and, hence, argument of assessee that addition under section115JB was not justified in order under section 153A as no incriminating material was found concerning said addition had to be rejected -Held, yes.

Sunny Jacob jewellers and wedding center Vs DCIT3 62 ITR 664(Ker)

Whether there is no requirement under provisions of Act requiring department to collect information and evidence for each and every year for six previous years in order to initiate proceedings under section 153A–Held, yes.

CIT Vs Anil Kumar Bhatia 352 ITR 493(Delhi)

Whether even if assessment order had already been passed in respect of all or any of those six assessment years, either under section143(1)(a) or section143(3) prior to initiation of search/ requisition, still Assessing Officer is empowered to reopen those proceedings under section 153A without any fetters and reassess total income taking note of undisclosed income, if any, unearthed during search- Held, yes

CIT-II Vs continental warehousing corporation 235 Taxman 568(SC)

The High Court by impugned order held that no addition can be made in respect of assessments which have become final if no incriminating material is found during search or during 153A proceeding – Whether Special Leave Petition filed against impugned order was to be granted- Held, yes

Principal Commissioner of Income-tax, Delhi-2 v. Best Infrastructure (India) (P.) Ltd. 256 Taxman 63(SC)

High Court by impugned order held that where during search proceeding one of directors of assessee-company surrendered a certain sum as undisclosed income only for assessment year in question and not for each of six assessment years preceding year of search, said submission could not be said to be incriminating material qua each of preceding assessment years and, consequently, assumption of jurisdiction under section 153A and consequent additions made by Assessing Officer on said basis were not justified-Whether SLP against said impugned order was to be allowed- Held, yes.

The dismissal of SLP by supreme court in case of PCIT vs Meeta Gutgutia wherein also the same views were expressed as in Kabul Chawla, would also not lead to conclusion that the question decided by Delhi High court against the revenue in Meeta Gutgutia is settled because the SLP has already been admitted by SC for hearing on the same question in several other cases such as Continental warehousing, Best Infrastructure(supra).

Further, Supreme Court in Sinhgad Tech Edu Society 397 ITR 344(SC) held that no notice u/s 153C could be invoked unless there was incriminating material is also of no consequence as the provisions of section 153C has been amended w.e.f 1/4/2005 and that the decision of Sinhgad Tech Edu society was for period prior to1/4/2005.

1.6 The sum and substance of all the decisions above could only indicate that the question of whether the AO has powers u/s 153A to assess total income as defined u/s2(45) dehors the incriminating material also, has not at all become final and the same is yet pending final adjudication before the SC in SLPs admitted.

2. Incriminating material:

(i) The incriminating material for the purpose of making an assessment of total income u/s153A?

(ii) Whether the mere fact that an entry has been considered in any earlier proceedings or that the entry/ income is recorded in accounts in the manner which is later found to be different from its true nature and source could take away its character of being incriminating for the purpose of making an assessment u/s153A?

2.1 The ‘incriminating material’ can be in any form such as evidence in the nature of

i) a document, content of any document;

ii)an entry in books of account;

iii) an asset;

iv) a statement given on oath;

v) absence of any fact claimed earlier but coming to notice during search;

vi) absence of books being found during search; or

vii) absence of the office /business premises as claimed during returns filed or any other documents, etc.

In short, any fact/ evidence which could suggest that the documents/ transactions claimed or submitted in any earlier proceedings were not genuine, being only a device/ make belief based on non-existent facts or suppressed /mis represented facts, would constitute an incriminating material sufficient to make assessment for the purposes of the Act. A mere statement u/s 132(4) is an evidence for making an assessment as also held by apex court in B Kishore Kumar Vs DCIT 234 Taxman 771(SC) as under:

High Court by impugned order held that since assessee him self had stated in sworn statement during search and seizure about his undisclosed income, tax was to be levied on basis of admission without scrutinizing documents -Whether Special Leave Petition filed against impugned order was to be dismissed-Held, yes

Hence even a statement u/s 132(4) shall also constitute incriminating material to dislodge any earlier finding for the purpose of making an assessment u/s153A.

2.2 Since the proceedings under the Act are civil in nature, even the circumstantial evidences based on preponderance of probability will constitute incriminating material enough to make an assessment of income and fasten the tax liability as held by in Sumati Dayal Vs CIT 214 ITR 801(SC). It will therefore include any circumstantial material also, which directly or indirectly ,proves that the earlier evidence submitted was only a make belief and such new material has a bearing on the assessment of total income of any assessee, even if such income was earlier admitted as correct in absence of any such adverse facts available at the time of earlier assessment.

The requirement of incriminating material is not specifically mentioned in the Act. However, w.e.f. 1/4/2005 the provisions of section 153C have been amended so as to allow the invocation of proceedings u/s153C if any document, an entry or an asset is found in relation or pertaining to a person other than the searched person, which has a bearing on the assessment of total income as per the provisions of the I T Act. Hence the word “incriminating”, as used by the courts in context of section 153C, needs to be applied in the context of section 153A also which has to be seen as something which can have a bearing on the assessment of correct total income u/s2(45) as per provisions of the Act.

2.3 The expression ‘have a bearing on determination’ as used u/s 153C also has a wide connotation which implies that the nexus of the seized documents/ assets to income should only be a logical nexus to the ultimate process of determination of total income and that such evidence need not be in the nature of direct hard evidence. Applying the same principles, the incriminating material for the purposes of section 153A also has to be necessarily construed to be in the nature of a prima facie evidence only (including a circumstantial evidence) and not a hard evidence. The use of the expression ‘books of accounts’ u/s 153C again suggests that even the entries recorded in the books of accounts, which have not been correctly recorded or camouflaged would also par take the character of incriminating material, if the same has a bearing on the determination of income which has not been already disclosed in the return filed, if any. Hence, the entries in the regular books of accounts would also trigger the assessment u/s 153A /C, if there is some prima-facie evidence that the entry recorded there in is camouflaged, or incorrect, wholly or partially, and such entries have a bearing on determination of total income of such person. The definition under clause(ii)of 271AAB(c) also defines undisclosed income as “any income based on entry in books of accounts wholly or partly false and would not have been found to be so, had the search not been conducted”. This clearly implies that any entry even recorded in the books, which is found to be wholly or partly false along with having a bearing on determination of income based on evidence gathered during search, would also be in the nature of incriminating material. Further, recently introduced section 270A, which is also applicable to search assessments for AYs other than specified years, mandates to levy penalty even in cases where the expenses had been claimed in the books without any evidence or where the entries recorded in the books were found to be false. This also supports the contention that mere recording of an entry in the books of accounts does not take away its incriminating character, if such entry was without evidence or had been falsely recorded in the books of accounts. The same principle will also hold good for the documents submitted earlier in relation to entries recorded in the books but later found that the documents were not genuine or manipulated or camouflaged. Supreme Court in Sinhgad Tech Edu Society or Delhi High Court in Kabul Chawla never considered the implication of section 270A and 271AAB as explained above while considering as to what material would constitute incriminating for the purposes of assessment of total income under section153A /C.

2.4 The provisions of section 153A/153C are not the normal assessment provisions like 143(3); rather they are curative provisions to plug the mischief of evasion of taxable income based on evidences found in pursuance to search. Hence, if on account of search, the facts and circumstances suggest that any entry already appearing in books or accepted in earlier assessments based on documents submitted at that point of time, are camouflaged or manipulated or reflected to be in the nature or from a source which is different from the real nature or source as appearing from the evidences found during a subsequent search, then such material/ facts coming to fore now will definitely constitute an incriminating material. In consequence of the same the earlier recorded entries /earlier admitted documents and evidence shall have no force as genuine evidence. If it were held not to be so, then the purpose of 153A would be defeated as it would fail to prevent the mischief, which it sought to prevent just because the entries were already recoded in the books or some documents had already been accepted. Hence applying the Hayden’s rule of mischief, the mere fact that such entries are recorded in the books of accounts or some fabricated or colourful documents have already been accepted as correct, will not prevent such material or entry from being incriminating, if the circumstances suggest other wise. The Hayden’s rule of mischief has been judicially accepted and applied by Calcutta High Court in Reckitt Colman of India Ltd. vs. ACIT (2001) 252 ITR 550(Cal).

The incriminating material can be from the search or even from subsequent surveys or any other enquiries. Recently in CIT Chennai vs Aji S Kumar 93 Taxman.com 294(SC), the court in the context of section158BB has upheld the use of information collected in a survey in case of connected person carried along with search in other person for the purpose of making assessment u/s158BB. Provisions of 158BB are Pari Materia to section153A.

The Delhi High court in PCIT Vs Kabul Chawla in para37(iv)observed as under:

“iv. 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 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.”

The Delhi High court has thus explained the underlying principle that though the assessment may not be based on seized evidence only but the addition cannot be arbitrary. There can be no dispute on this proposition. It has to be based on evidences found during search, or post search or information available with the AO which can be related to the evidence found. Thus, any entry already recorded in the books which is not true in its nature or source and any information even coming to the AO post search shall constitute incriminating material for the purpose of making an assessment u/s153A.

3. Even if it is accepted that the AO does has powers to consider other aspects which were not directly emanating from seized material or that the AO had some basis to disturb earlier findings, it would still be necessary to seek answers to the following questions:

(i) Whether the change of opinion based on material is permissible while making assessment?

(ii)What are the conditions and to what extent the AO can dislodge the claims already accepted/ claimed / allowed, etc in earlier proceedings?

(iii) Whether u/s 153A, the AO can disturb the findings arrived on an issue, whether explicitly or otherwise, in earlier assessments concluded u/s 147/143(3) when it is found that the AO has been misled by placing evidences due to suppression or misrepresentation of facts, which were subsequently found to be doubtful based on evidences gathered?

3.1 There is a distinction between a mere change of opinion and a change of opinion based on fresh facts. The later would imply that the earlier conclusions of the AO were misled by placing evidence on suppression or misrepresentation of material facts. An order passed by the AO relying upon such make belief documents, suppressed or misrepresented facts, which were later found to be not true, shall become void or voidable, as the case may be. Under such circumstances, the acceptance of any claim, relief etc in any earlier order shall also have no binding force in any subsequent proceedings and the change of opinion would be permissible. The Courts have accepted the principle that any fraud practice is always a ground for vacating the judgment, as where the court is deceived or misled as to material circumstances, or its process is abused, resulting in the rendition of a judgment, which would not have been given if the whole conduct of the case had been fair”.

The Madras High Court in case of L. Mohanamvs Mohamed Idris on 24 June,2011 in O.S.A.No.310 of 2010 has observed as under:

19. In support of his contention, the learned senior counsel for the appellant /plaintiff relied on the decision of the Hon’ble Supreme Court in Hamza Haji V. State of Kerala and another reported in (2006) 7S CC 416, wherein it has been observed that a decision obtained by playing a fraud on Court is liable to be setaside on the basic principle that the party who secured such a decision by fraud cannot be allowed to enjoy its fruits. The learned senior counsel also relied on the observation of the Hon’ble Supreme Court in State of Andhra Pradesh and another Vs. T.Suryachandra Rao reported in (2005) 6 SCC 149 to the effect that the fraud vitiates every solemn Act and fraud and justice never dwell together. In A.V.Papayya Sastry and Others Vs. Govt.Of Andhra Pradesh and others reported in (2007) 4 Supreme CourtCases 221 also, the Hon’ble Supreme Court has observed that fraud vitiates all judicial acts whether in rem or in personam and that a judgment, decree or order obtained by fraud has to be treated as non-estand nullity, whether by the Court of first instance or by the final Court and that the same can be challenged in any Court, at any time, in appeal, revision, writ or even in collateral proceedings. In North Eastern Railway Administration, Gorakhpur Vs. Bhagwan Das (dead) ByLrs reported in (2008) 8 Supreme Court Cases 511, the Hon’ble Supreme Court has again reiterated the point that a judgment or decree obtained by fraud either in the first court or in the highest Court, is anullity in the eye of law.

Section 44 of the Evidence Act also enables a party other wise bound by a previous adjudication to show that it was not final or binding because it is vitiated by fraud. The provision therefore gives jurisdiction and authority to a Court to consider and decide the question whether a prior adjudication is vitiated by fraud.

Thus, the above propositions of law abundantly make clear that the AO also being a quasi-judicial authority, while functioning under the Act, shall also be bound by similar principles of jurisprudence. Hence, for the purposes of assessment of total income u/s 153A also, any findings given in respect of any claim /relief in earlier proceedings shall stand vacated by operation of legal principles (as held byth eApex court above), where it is found that in earlier proceedings the AO has been misled by suppression or misrepresentation of material factsor by producing only make belief documents, which were not found to be genuine subsequently based on emergence of new facts during enquiries. Hence the view that the AO cannot rescind from accepting the documents admitted earlier is not a gospel truth which can be applied in each and every circumstance.

3.2 Further the Apex court in ITO Vs. Techspan India (P.) Ltd. 92 taxmann.com 361(SC) observed as under:

Whether before interfering with proposed re-opening of assessment on ground that same is based only on a change of opinion, Court ought to verify whether assessment earlier made has either expressly or by necessary implication expressed an opinion no matter which is basis of alleged escapement of income that was taxable; if assessment order is non-speaking, cryptic or perfunctory in nature, it may be difficult to attribute to Assessing Officer any opinion on questions that are raised in proposed re-assessment proceedings-Held, yes

-Whether every attempt to bring to tax income that has escaped assessment, cannot be absorbed by judicial intervention on an assumed change of opinion even in cases where order of assessment does not address itself to a given aspect sought to be examined in re-assessment proceedings- Held, yes

In view of the above, applying the same principle in the present context also, it can be safely concluded that in the absence of any categorical finding on the genuineness of a claim in an earlier assessment having being accepted on make belief documents/ evidences only, it cannot be said that the A.O. has expressed any opinion on the correctness or otherwise of the items/ entries disclosed in the return of income already filed prior to the search. The judicial view is very clear where in it has been held that the mere submission of some documents proving identity or bank account, affidavits in contrast to the other evidences suggesting the transaction to be suspicious cannot be accepted to have established the genuineness of transaction. Hence, if any earlier finding has been found to be vitiated or incorrect based on material found subsequently, the AO shall have powers to review such findings based on any tangible material coming to his notice, while exercising power of assessment of total income u/s153A.

In view of the above, I is clear that if there is some material noticed subsequently whether found during search or otherwise, the findings of earlier assessments can be dislodged, irrespective of whether such earlier assessmentwasunder143(1)or143(3)/147.

4. It is worthwhile to mention here that in the case of Suman Poddar Vs ITO in ITA No. 841/2019 vide judgement dated 17.09.2019, it has been held by the Hon’ble High Court of Delhi that:

“7. Thus, the Tribunal has in depth analyzed the balance sheets and the profit and loss accounts of Cressanda Solutions Ltd. which shows that the astronomical increase in the share price of the said company which led to returns of 491% for the Appellant, was completely unjustified. Pertinently, the EPS of the said company was Rs. 0.01/- as in March 2016, it was Rs. – 0.01/- as in March 2015 and -0.48/- as in March 2014. Similarly, the other financials parameters of the said company cannot justify the price in excess of Rs. 500/- at which the Appellant claims to have sold the said shares to obtain the Long Terms Capital Gains. It is not explained as to why anyone would purchase the said shares at such high price. The Tribunal goes on to observe in the impugned order as follows:

“10. With such financials and affairs of business, the purchase of share of face value Rs. 10/- at the rate of Rs.491/- by any person and the assessee’s contention that such transaction is genuine and credible and arguing to accept such contention would only make the decision of the judicial authorities a fallacy.

11. The evidences put forth by the Revenue regarding the entry operation fairly leads to a conclusion that the assessee is one of the beneficiaries of the accommodation entry receipts in the form of long-term capital gains. The assessee has failed to prove that the share transactions are genuine and could not furnish evidences regarding the sale of shares except the copies of the contract notes, cheques received against the overwhelming evidences collected by the Revenue regarding the operation of the entire affairs of the assessee. This cannot be a case of intelligent investment or a simple and straight case of tax planning to gain benefit of long-term capital gains. The earnings @ 491% over a period of 5 months is beyond human probability and defies business logic of any business enterprise dealing with share transactions. The net worth of the company is not known to the assessee. Even the brokers who coordinated the transactions were also unknown to the assessee. All these facts give credence to the unreliability of the entire transaction of shares giving rise to such capital gains. The ratio laid down by the Hon’ble Supreme Court in the case of SumatiDayal vs. CIT, 214 ITR 801 is squarely applicable to the case. Though the assessee has received the amounts by way of account payee cheques, the transactions cannot be treated as genume in the presence of the overwhelming evidences put forward by the Revenue. The fact that in spite of earning such steep profits, the assessee never ventured to involve himself in any other transaction with the broker cannot be a mere coincidence of lack of interest. Reliance is placed on the judgment in the case of Nipun Builders and Developers Pvt. Ltd. (supra), where it was held that it is the duty of the Tribunal to scratch the surface and probe the documentary evidence in depth, in the light of the conduct of assessee and other surrounding circumstances in order to see whether the assessee is liable to the provisions of section 68 or not. In the case of NR Portfolio, it was held that the genuineness and credibility are deeper and obtrusive. Similarly, the bank statements provided by the assessee to prove the genuineness of the transactions cannot be considered in view of the judgment of Hon’ble court in the case of Pratham Telecom India Pvt. Ltd., wherein, it was stated that bank statement is not sufficient enough to discharge the burden. Regarding the failure to accord the opportunity of cross examination, we rely on the judgment of Prem Castings Pvt. Ltd. Similarly, the Tribunal in the case of Udit Kalra, ITA No. 6717/Del/2017 for the assessment year 2014-15 has categorically held that when there was specific confirmation with the Revenue that the assessee has indulged in non-genuine and bogus capital gains obtained from the transactions of purchase and sale of shares, it can be a good reason to treat the transactions as bogus. The differences of the case of Udit kalra attempted by the Ld. AR does not add any credence to justify the transactions. The Investigation Wing has also conducted enquiries which proved that the assessee is also one of the beneficiaries of the transactions entered by the Companies through multiple layering of transactions and entries provided. Even the BSE listed this company as being used for generating bogus LTCG. On the facts of the case and judicial pronouncements will give rise to only conclusion that the entire activities of the assesseeis a colourable device to obtain bogus capital gains. The Hon’ble High Court of Delhi in the case of Udit Kalra, ITA No. 220/2009 held that the company had meager resources and astronomical growth of the value of the company’s shares only excited the suspicion of the Revenue and hence, treated the receipts of the sale of shares to be bogus. Hon’ble High Court has also dealt with the arguments of the assessee that he was denied the right of cross examination of the individuals whose statements led to the enquiry. The ld. AR argument that no question of law has been framed in the case of Udit Kalra also does not make any tangible difference to the decision of this case. Since the additions have been confirmed based on the enquiries by the Revenue, taking into consideration ratio laid down by the various High Courts and Hon’ble Supreme Court, our decision is equally applicable to the receipts obtained from all the three entities. Further, reliance is also placed on the orders of various Courts and Tribunals listed below.

 MK. Rajeshwari vs. ITO in ITA No.17231Bangl2018, order dated 12.10.2018.

 Abhimanyu Soin vs. ACIT in ITA No. 9511Chdl2016, order dated 18.04.2018.

 Sanjay Bimalchand Jain vs. ITO 89 taxmann.com 196.

 Dinesh Kumar Khandelwal, HUF vs. ITO in ITA No. 58 & 591Nagl2015, order dated 24.08.2016.

 Ratnakar M Pujari vs. ITO in IT A No. 9951Muml2012, order dated 03.08.2016.

 Disha N. Lalwani vs. ITO in ITA No. 6398 I Mum I 2012, order dated 22.03.2017.

 ITO vs. Shamim. M Bharwoni [20 16] 69 taxmann.com 65.

 Usha Chandresh Shah Vs ITO in ITA No. 6858 I Mum I 2011, order dated 26.09.2014.

 CIT vs. Smt. Jasvinder Kaur 357 ITR 638.

12. The facts as well as rationale given by the Hon ‘ble High Court are squarely applicable to the case before us. Hence, keeping in view the overall facts and circumstances of the case that the profits earned by the assessee are a part of major scheme of the accommodation entries and keeping in view the ratio of the judgments quoted above, we, hereby decline to interfere in the order of the Ld. CIT(A).”

8. From the above extract, it would be seen that the Cressanda Solutions Ltd. was in fact identified by the Bombay Stock Exchange as a penny stock being used for obtaining bogus Long Term Capital Gain. No evidence of actual sale except the contract notes issued by the share broker were produced by the assessee. No question of law, therefore arises in the present case and the consistent finding of fact returned against the Appellant are based on evidence on record.

9. In the aforesaid facts and circumstances, we do not find any merit in the present appeal and the same is dismissed.”

It may be mentioned that in the above referred case, the Hon’ble High Court has given due cognizance to the circumstantial evidences and the human probability over the evidences filed by the assesee.

It is further submitted that the SLP filed by the assessee in the above case was dismissed by the Hon’ble Apex Court vide its order dated 22.11.2019 SLP (C) No. 26864/2019.

5. Evidentiary value of admission of statement recorded u/s. 132(4):

The Hon’ble Rajasthan High Court in the case of CIT vs Ravi Mathur held that the statement recorded u/s. 132(4) of the Act have great evidentiary value and it can not be discarded in a summary and cryptic manner, by simply observing that the assessee retracted from his statement. In the case of Bannalal Jat Construction (P.) Ltd vs ACIT (2019) 106 Taxmann.com 128 (SC) where high court upheld addition made by authorities below relying uppn statement made in course of search proceedings by director of assessee company, since assessee failed to discharge its burdon that admission made by director in his statement was wrong and said statement was recorded under duress and coercion, SLP filed against of High Court was to be dismissed.

In the present group cases admission made by assessee’s under 132(4) of the Act are squarely covered with the judgement.

6. In the appellant cases the penny stock script for accommodation entry traded was “SPLASH MEDIA” MIDLAND POLYMERS LIMITED, SULABH ENGINEERING, FIRST FINANCIAL SERVICES LIMITED, EINS EDUTEC LIMITED FACT ENTERPRISE for LTCG is the main script which has been identified as penny stock by the Investigation Report prepared by Directorate of Investigation, Kolkata dated 27.4.2015. In the recent judgement of Kolkata High Court in the case of PCIT vs. Swati Bajaj & others, Hon’ble High Court has accepted the Investigation report and based on which the bogus LTCG claimed by various persons have been rejected and judgement made in favour of Revenue. In appeals of the Mevrick group cases main penny stock where accommodation entries were through brokers obtained was “Splash Media”. These assessees have claimed bogus LTCG in the same script where Kolkata High Court has treated the script as penny stock on the basis of Investigation report. During search assessees has also accepted in their statement recorded u/s.132(4) of Act that they earned bogus LTCG by accommodation entry in script “Splash Media “. The copy of Kolkata High Court judgment and “Investigation report” is submitted for kind consideration.”

15. Since, ld. DR has cited the recent judgment in the case of Ms. Swati Bajaj case which was in favour of revenue. The ld. AR has filed a note showing as to why the said judgment is not relevant in the present set of cases. The same is reiterated here in below :

Distinguishing Note

The reliance on the judgment of Hon’ble Calcutta High Court in the case of Swati Bajaj is misplaced for the following legal and factual reasons:

1. That in the case of Swati Bajaj, the Hon’ble Calcutta High Court in para 47 which starts from page 86 in last line of page 87 has distinguished the decision of Hon’ble Supreme Court in the case of Odeon Builders by observing that when the information was confronted with the assessee, the department has prima-facie discharged his burden. However, in the present case as is admitted by the ld. AO himself in the remand report that no report whatsoever was available with him at the time of making the assessment, thus there is no question of supplying the copy of report now relied upon by the department of Investigation Wing, Calcutta which has been made the vary basis for holding the transaction of sale and purchases of shares by the assessee as bogus. The Hon’ble SC in the case of Odeon Builders Pvt. Ltd. has clearly stated that not providing the copy of the third party information to the assessee who has prima-facie discharged the initial burden of substantiating the purchases through various documents is a serious error and entire addition was deleted. As in the present case, no such report was supplied, therefore, the judgment of Hon’ble Calcutta High Court in the case of Swati Bajaj is not applicable to the case of assessee.

2. The assessee is based in Rajasthan. All the Courts/Tribunals within the jurisdiction of Hon’ble Rajasthan High Court are bound by the decision of Hon’ble Rajasthan High Court.

3. Hon’ble Rajasthan High Court in the case of PCIT vs Sanjay Chhabra D.B. ITA No. 22/2021 noted that prejudice is caused to the assessee when material used against him is not provided and opportunity of cross examination is not provided:

It was submitted before the Hon’ble Court that the Tribunal erred in holding that the information and statements recorded by Investigation Wing could not be taken into consideration while making assessment as such material was not disclosed nor an opportunity was accorded for cross-examination of the assessee. It was submitted before the Hon’ble Court that Tribunal did not examine the case on touchstone of human  probability. However, Hon’ble High Court upheld the order of the Tribunal. It was considered that prejudice was caused to the assessee as he should have been allowed an opportunity of being heard and of rebutting the evidences against him. It was also impliedly held that direct evidences weigh more than circumstantial evidences and human probabilities. The relevant extract of order is as under:

“..The Tribunal by impugned order has categorically held that the material information received by the Assessing Officer from the investigation wing alongwith certain statements recorded by DBIT Investigation, Calcutta could not be taken into consideration as that material was not disclosed nor an opportunity was accorded for cross-examination of the Assessee. This finding recorded by the Tribunal cannot be said to be perverse or suffering from any patent illegality. Learned counsel for the Revenue could not satisfy us with reference to any judgment on this aspect that even without disclosing any material to the Assessee and without allowing him proper cross-examination, such undisclosed and unverified material could be taken into consideration for the purposes of addition…” …

“..Learned counsel for the Revenue relying upon the judgment passed by the Supreme Court in the case of Sumati Dayal Versus Commissioner of Income Tax, Bangalore reported in AIR 1995 SC 2109 would submit that the Tribunal has not examined the case on the touchstone of human probability…”

“..In view of the above consideration, we are of the view that this appeal does not involve any substantial question of law and is, therefore, dismissed…”

4. Hon’ble Rajasthan High Court in the following cases held that proof of transactions being evidences have to be given weightage over presumptions

4.1 Pooja Agarwal, ITA 385/2011,

In the said case it was held that no addition can be made if the following conditions are satisfied:

There is no trail which could substantiate that the cash has flown back to the assessee.

The transactions is supported by documents appear to be genuine transaction.

The statements recorded do not have a clear and a distinct remark about the assessee so as to challenge the genuineness of the transaction.

4.2 PCIT vs Pramod Jain, DB ITA No. 209/2018

The decision in case of Pooja Agarwal was followed

4.3 CIT vs Sumitra Devi [2014] 49 taxmann.com 37 (Rajasthan)

Hon’ble Rajasthan High Court has held that in the said there were several suspicious circumstances as indicated by AO, however, the findings of AO were more on presumption rather than on cogent proof. Further, AO failed to show that documents placed on record by the assessee were false, fabricated or fictitious.

4.4 CIT vs Pushpa Malpani [2012] 20 taxmann.com 597 (Rajasthan)

“…3. Upon hearing learned counsel for Revenue and perusing impugned order, we find that whether or not sale of shares and receipt of consideration thereof on appreciated value is essentially a question of fact. CIT(A) and Tribunal have both given reasons in support of their findings and have found that at the time of transactions, the broker in question was not banned by SEBI at the time of transaction and that assessee had produced copies of purchase bills, contract number share certificate, application for transfer of share certificate to demat account along with copies of holding statement in demat account, balance sheet as on 31st March, 2003, sale bill, bank account, demat account and official report and quotations of Calcutta Stock Exchange Association Ltd. on 23rd July, 2003. In our view, present appeal does not raise any question of law, much less any substantial question of law…”

5. Hon’ble Calcutta High Court has mainly decided the case against the assessees for the reason that factual position in any of the 89 appeals forming part of the bunch was not discussed by the Hon’ble ITAT (para 40, Page 80). In the instant case it is submitted that assessee’s case was not part of any bunch of cases and, therefore, there cannot be any situation that facts were not properly discussed and appreciated by the appellate authority.

6. Hon’ble Calcutta High Court has not held that the report of Investigation Wing can be conclusive for making additions in any assessment proceedings. Hon’ble Calcutta High Court has simply held that such report of Investigation Wing can be a starting point for probing the matter further. Hon’ble Calcutta High Court has not at all held that the evidences submitted by the assessee need to be totally ignored.

7. In respect of right of Cross Examination, Hon’ble Calcutta High Court has simply held that if the persons have not deposed specifically against a particular assessee then the said assessee has no vested right of Cross Examination (Para 61 page 100). Reliance is placed on the following decisions of Hon’ble Supreme Court wherein it has been observed that prejudice is caused to the assessee when the documents relied upon are not confronted and the assessee is not provided opportunity of Cross Examination:

7.1 Hon’ble Supreme Court in the case of PCIT vs Parasben Kasturchand Kochar [2021] 130 taxmann.com 177 (SC) dismissed the SLP filed against the decision of Hon’ble Gujarat High Court in the case of PCIT vs Parasben Kasturchand Kochar [2021] 130 taxmann.com 176 (Gujarat). Hon’ble Gujarat High Court held that there was no substantial question of law and upheld the finding of the Tribunal (in Para 4). Hon’ble Tribunal held that in a case where assessee produced all the evidences and addition was made on the basis of statements recorded by Investigation Wing, which were  neither confronted nor the assessee was  allowed opportunity to cross examine, such addition could not be  sustained  (Para 2):

“9. In our considered opinion, in such case assessee cannot be held that he earned Long Term Capital gain through bogus company when he has discharged his onus by placing all the relevant details and some of the shares also remained in the account of the appellant after earning of the long term capital gain.

10. Learned A.R. contention is that no statement of the Investigation Wing was given to the assessee which has any reference against the assessee.

11. In support of its contention, learned A.R. also cited an order of Coordinate Bench in ITA No. 62/Ahd/2018 in the matter of Mohan Polyfab (P.) Ltd. v. ITO wherein ITAT has held that A.O. should have granted an opportunity to cross examine the person on whose statement notice was issued to the assessee for bogus long term capital gain. But in this case, neither statement was supplying to the assessee nor cross examination was allowed by the learned A.O. Therefore, in our considered opinion, assessee has discharged his onus and no addition can be sustained in the hands of the assessee.”

7.2 CIT vs Odeon Builders (P.) Ltd [2019] 110 taxmann.com 64 (SC)

Hon’ble Supreme Court held that if the addition was based on third party information gathered by Investigation wing then addition cannot be made  unless such information is provided to the assessee and opportunity of  cross examination is provided moreso when assessee placed on record all the evidences. The relevant findings are as under:

Headnote: Section 37(1) of the Income-tax Act, 1961 – Business expenditure – Allowability of (Bogus purchase) – Certain portion of purchases made by assessee was disallowed – Commissioner (Appeals) found that entire disallowance was based on third party information gathered by Investigation Wing of Department, which had not been independently subjected to further verification by Assessing Officer and he had not provided copy of such statements to appellant, thus, denying opportunity of cross examination to appellant, who on other hand, had prima facie discharged initial burden of substantiating purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and fact of payment through cheques, VAT Registration of sellers and their Income-tax Return – He held that purchases made by appellant was acceptable and disallowance was to be deleted – Tribunal dismissed revenue’s appeal – High Court affirmed judgments of Commissioner (Appeals) and Tribunal being concurrent factual findings – Whether no substantial question of law arose from impugned order of Tribunal – Held, yes [Para 4] [In favour of assessee]

7.3 Sunita Dhadda, order dated 28.03.2018, SPECIAL LEAVE PETITION (403 ITR 183)

The ratio laid down by Hon’ble Rajasthan High Court and also Hon’ble ITAT, Jaipur Bench as below was upheld:

“Their Lordships ADARSH KUMAR GOEL and ROHINTON FALL NARIMAN Ji.- dismissed the Department’s special leave petition against judgment dated July 31, 2017, of the Jaipur Bench of the Rajasthan High Court in D.-B,L_TA. No. 197 of 2012 whereby the High Court held that the Tribunal was justified in deleting the addition of Rs. 4,07,00,000 of “on money” said to have been received with respect to subject land of the assessee holding that the question what was the price of the land at the relevant time, was a pure question of fact and that unless it was established on record by the Department, that as a matter of fact, the consideration did pass to the seller from the purchaser, the Department had no right to make any additions, especially since none of the witnesses were examined before the Assessing Officer, and the assessee did not have any opportunity to cross-examine them” [Emphasis Supplied]

7.4 Andaman Timber Industries (CIVIL APPEAL NO. 4228 OF 2006)

“…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”

8. It is submitted that the court cannot turn blind eye to the evidences unless proved wrong and decide on the basis of assumptions and presumptions. Reliance is placed on the decision of Hon’ble Supreme Court in case of PCIT vs Krishna Devi [2022] 138 taxmann.com 150 (SC) wherein SLP filed against the decision of Hon’ble Delhi High Court in the case of PCIT vs Krishna Devi [2021] 126 taxmann.com 80 (Delhi) was dismissed. Hon’ble Delhi High Court categorically noted that the Court has to decide the issue on the basis of evidence and proof and not suspicion alone. The  theory of human behavior and preponderance of probabilities cannot be  cited as a basis to turn a blind eye to the evidence produced by the  assessee.  If the revenue has failed to bring evidence on record that money changed hands and there was agreement to convert unaccounted money mere reliance on the report of investigation without further corroboration does not justify the conclusion that the assessee obtained an accommodation entry. Relevant extract is as under:

“11. ……………. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income-tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent’s unaccounted money, but he did not dig deeper. Notices issued under sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that “There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels.” The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained.

12. Mr. Hossain’s submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar case (supra) and Sumati Dayal case (supra) is of no assistance. Upon examining the judgment of Suman Poddar case (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumati Dayal (supra) too turns on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue.

13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order…” [Emphasis Supplied]

9. Attention is drawn towards para 65 page 103 of the order of Hon’ble Calcutta High Court wherein following observation was made by the Hon’ble Calcutta High Court:

“…Nothing prevented the assessee from mentioning that unless and until the report is furnished and the statements are provided, they would not in a position to take part in the enquiry which is being conducted by the assessing officer in scrutiny assessment under Section 143(3) of the Act..”

In the instant case specific request was made for copy of report as well as copies of statements recorded of different persons.

10. In respect of the circumstantial evidences the Hon’ble Calcutta High Court has not disturbed the settled position of law that circumstantial evidences can be looked into only when direct evidences are not available (Para 69 page 108). In the instant case direct irrefutable evidences were made available to the ld. AO and, therefore, ignoring the direct evidences and jumping to circumstantial evidences is not justified even in reference to the decision of Hon’ble Calcutta High Court.

16. The ld. AR of the assessee in addition to the written submission submitted that the revenue has not challenged the findings of the ld. CIT(A) on technical ground and now therefore, they cannot challenge that finding of the ld. CIT(A) at this forum. The ld. CIT(A) in the proceeding before him given a fair chance to revenue substantiate their case. The remand report specifically called for before deciding the appeal on technical ground asking the AO confirm whether any incriminating material found or not? Even he has not mentioned the fact that the report of the Investigation Wing of Kolkatta is available before him or not. The ld. AO vide letter dated 10.08.2018 confirmed the fact that there is no incriminating material and the ld. CIT(A) has after recording the detailed findings and following binding decisions allowed the appeal of the assessee on the issue of LTCG claimed by the assessee as exempt. The ld. AR of the assessee submitted that based on the retraction affidavit the confession u/s. 132(4) cannot be binding since the same was under pressure. The ld. AR of the assessee submitted that the surrender made in the statement recorded u/s. 132(4) was not voluntary and it was under tremendous pressure. The search was carried out at the early morning when the assessee intends to start the business 8.45 AM the officers did not allow to do the business where he is associated. The assessee and its group company has suffered huge financial loss and reputation loss and even the SEBI has taken action against for such failure.

17. We have considered the rival contentions, perused the material available on record and also gone through the findings of the lower authorities recorded in their respective orders. We have also gone through the various judicial ruling placed before us by both the parties to drive home to their contentions. The ld. AO observed that the assessee has claimed Long Term Capital Gain (LTCG) u/s. 10(38) of the Act. The details of the same is under:

Name of scrip	Quantity	Date of Purchase	Cost of purchase	Date of sale	Sale proceeds	Long term capital gain
SPLASH MEDIA	10,70,000	15.04.2009	15,75,945/-	11.02.2011	12,11,7-8,965/-	11,96,03,020/-

In support the above long-term capital gain the ld. AR demonstrated that all the proof related to the said income is placed on record and the ld. AO has not commented a single line that these records are not correct and not reliable. The ld. AO found that the entire sale proceeds that have been claimed as exempt were received from sale of one scrip namely M/s. SPLASH MEDIA & INFRA LIMITED [SCRIP CODE 512048]. Undisputedly, the assessment for assessment year 2011-12 was not pending on the date of search on 22.07.2015. The assessment was completed under section143(3) of the Income Tax Act, 1961. Thus, the assessment for the assessment year 2011-12 cannot be considered as abated by virtue of search conducted under section 132 on 22.07.2015. The assessing officer would reassess the total income of the assessee as per the provisions of section 153A in respect of assessment year 2014-15. As the assessee objected to the proposed addition on the ground that during the search no incriminating material indicating any undisclosed income for the year under consideration was found, which is also apparently clear from the assessment order itself and from the order of the ld. CIT(A) when he called for the remand report before deciding the appeal of the assessee. Thus, the revenue cannot take a plea that they have not received fair change to represent their verdict before CIT(A). The ld. AO in the remand report categorically confirmed that in this case there is no incriminating material found in the course of search [ order of CIT(A) page 27 para 11.2 ]. Based on this non disputed fact the ld. AR of the assessee contended that since there is no incriminating material found during the course of search and seizure action, the ld. AO is not empowered to make any addition in the total income of the assessee. It is a settled position of law that there cannot be a review under the garb of reassessment proceeding under section 153A of the Act. Therefore, the proposed reassessment proceedings are absolutely in abuse of process of law, illegal and bad in law. The provisions of section 153A cannot be applied in respect of assessment which has already been completed unless some incriminating material/information comes into the possession/knowledge of the AO during the course of search proceedings. Since the assessment for the assessment year 2011­12 was not pending as on the date of search and there is no incriminating material found or seized during the course of search, then the AO is bound to reassess the total income as it was assessed on the original return of income. Though the AO is legally bound to assess or reassess the total income of six years immediately preceding to the year of search, however, the assessments which are pending on the date of search gets abated and the assessments which were not pending on the date of search had attained the finality. Therefore, the addition over and above the assessed income cannot be made de hors the incriminating material found at the time of search while completing the assessment under section 153A of the Act. If there is no incriminating material then the original assessment made can be reiterated and no further addition is called for and an addition can only be made on the basis of undisclosed income derived from material/documents seized as a result of search. The completed assessment can be interfered or disturbed by the AO while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search and requisition of income disclosing undisclosed income not already disclosed or made known in the course of original assessment. Therefore, in the absence of any incriminating material found or seized during the course of search and seizure proceedings, the additions made by the AO during the course of reassessment under section 153A of the Act are without jurisdiction and liable to be deleted and it is nothing but a review by the same rank of officer and the same is not permitted under the law. After appreciating such facts, ld. CIT(A) accepted the contentions of the assessee and held that no addition could be made as no incriminating material was found with respect to the Long Term Capital Gain by alleging the same as non-genuine. We have gone through the grounds of appeal raised by the revenue and it appears that the revenue has not challenged the findings of the ld. CIT(A) on the very legal ground decided by ld. CIT(A) against the revenue. Thus, it is clear that this legal aspect of the decision is not challenged by the revenue before us. Thus, it is undisputed that when there is no incriminating material no addition could be made in the order passed u/s. 153A of the r.w.s. 143(3) of the Act.

18. So far as merits of the case are concerned, it is submitted that the assessee had earned LTCG [claimed as exempt u/s 10(38)]/STCL on the sale of shares, part of which was disallowed on the basis of alleged enquiries/investigation conducted in the case of third parties. Also, it was presumed that the assessee would have paid commission on such accommodation entries and therefore addition on that account was made u/s 69C of the Act. In this regard, at the outset, it is submitted that all the share transactions were absolutely genuine and assessee has filed following documents to support their contentions:

• Shares were purchased online through recognized stock exchange in all the cases;
• Payment of purchases consideration towards shares purchased was made through banking channel;
• Shares were got dematerialized soon after they got purchased;
• Shares were sold online through recognized stock exchange;
• Sale consideration was received through banking channels.

19. The ld. AR of the assessee demonstrated before us that the assessee engaged in share trading on regular basis and the transactions in respect of which exemption u/s 10(38) is denied/Short term capital loss is added back were not the solitary transactions in shares. At this juncture, total LTCG/STCL earned by them, disallowance made and total portfolio as on the last date of balance sheet is tabulated in Annexure and filed in the paper book. We have persuaded those contentions raised. From the perusal of the chart annexed, it is evident that the assessees have been regularly dealing in shares and hold shares of various companies other than the company alleged as penny stock companies also.

20. The ld. AR of the assessee also argued before us that apart from the so-called information received from Investigation Wing, Kolkatta containing statements of entry operators, there was no material available and placed before the assessee in the assessment proceedings in support of the contentions raised by the AO. The ld. AR of the assessee submitted that there was specific request was made for cross examination of such entry operators, however such request was turned down in summary manner. The ld. AR of the assessee in his written submission dealt with the most of the allegation made by the ld. AO.

21. The revenue is arguing that the ld. CIT(A) has not considered the fact that there was a confession of the assessee u/s. 132(4) in a statement recorded during the course of the search and based on that aspect the ld CIT(A) should have decided the appeal on merits of the case. We have gone through the contention of the statement and the contention of the retraction affidavit (APB32-34) under what peculiar circumstance assessee accepted the confession and the circumstance as explained in the affidavit the reasons behind retraction of that confession made. The assessee is a director in the Marvick Share Brokers Limited and their terminal and office were not allowed to operated for whole and next day without giving confession in a statement. Based on the wisdom of the assessee, he thought if the same situation pursuit he will be in a loss of finance not only for them but to their client and that the loss is of permanent impression. For this default of not operating on a day search even the SEBI has subsequently levied the penalty against that company where in the assessee is a director. The affidavit of the assessee has explained in detailed the circumstance under which they have surrendered the income in a statement u/s. 132(4) of the Act. The ld. AR of the assessee has also relied upon the recent judgement of the Hon’ble Jurisdictional Rajasthan High Court in the case of PCIT Vs. Shri Sanjay Chhabra in Income Tax Appeal No. 22/2021 held that the addition based solely on statement later retracted, without anything more, could not be justified in law and thus had not admitted the appeal of the revenue on this aspect and the revenue not produce any contrary binding decision so as to substantiate their plea. The relevant finding of the Jurisdictional Rajasthan High Court is as under:

The argument advanced on the basis of the principle propounded by the Supreme Court in the case of Sumati Dayal (supra), does not apply to the facts of the present case at all. The Tribunal’s findings are based on material placed on record. The aspect of human probability, in the present case, only goes against the Revenue because in the present case, a raid was conducted and in that process, statement is said to have been recorded under Section 132(4) of the I.T. Act, which was, later on, retracted by the Assessee. In a situation like this, where the office premises are sealed for many days and during that period, a statement is said to have been recorded under Section 132 (4) of the I.T. Act, the Tribunal’s view that only the basis of such retracted statement, addition could not be justified without any other material admissible in evidence, warrants no interference as it is not a substantial question of law.

In the case of Commissioner of Income Tax Versus Harjeev Aggarwal reported in (2016) 290 CTR (Del) 263 and Kailashben Manharlal Chokshi Versus Commissioner of Income Tax reported in (2010) 328 ITR 411 (Guj) various High Courts have held that addition based solely on statement later on retracted, without anything more, could not be justified in law. Thus, the view taken by the Tribunal cannot be faulted.

In view of the above consideration, we are of the view that this appeal does not involve any substantial question of law and is, therefore, dismissed.

Considering the above finding of the jurisdictional high court ruling the argument of the ld. AR that the statement recorded u/s. 132(4) cannot be considered as incriminating material and thus, the arguments of the revenue is not maintainable in view of the above decision of the jurisdictional high court.

22. The ld. AR of the assessee submitted that the provisions of section 132 read with section 153A of the Act stipulate two types of situations – one where the assessment of any assessment year falling within six assessment years is pending on the date of initiation of search under section 132 or making of requisition under section 132A of the Act. Therefore, the assessment under section 153A in respect of those assessment years which stand abated due to the reason of pending on the date of initiation of search or requisition shall be the original/first assessment. In the second category where the assessment or reassessment has already been completed on the date of initiation of search or making of requisition as the case may be, the assessment under section 153A would be in the nature of reassessment. The Hon’ble Delhi High Court in the case of CIT vs. Kabul Chawla while analyzing the provisions of section 153A read with section 132 of the Act has observed in para 37 and 38 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:

i. Once a search takes place under Section 132 of the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYS immediately preceding the previous year relevant to the AY in which the search takes place.

ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYS will have to be computed by the AOS as a fresh exercise.

iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the ‘total income’ of the aforementioned six years in separate assessment orders for each of the six years. I other words there will be only one assessment order in respect of each of the six AYS “in which both the disclosed and the undisclosed income would be brought to tax”.

iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material.”

v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word ‘assess’ in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word ‘reassess’ to completed assessment proceedings.

vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made. separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.

vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.

Conclusion

38. The present appeals concern AYS, 2002-03, 2005-06 and 2006-07.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.”

23. Thus, the Hon’ble High Court has held that in the absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The Hon’ble High Court has also referred the term used in section 153A as “assess” which is relatable to abated proceedings and the word “reassess” related to completed assessment proceedings. Therefore, the completed assessments can be interfered with by the AO while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of document 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. The Hon’ble Delhi High Court has reiterated its view in case of Principal CIT vs. Kurele Paper Mills (supra) in para 1 to 3 as under:

“1. The Revenue has filed the appeal against an order dated 14.11.2014 passed by the Income Tax Appellate Tribunal (ITAT) in 3761/Del/2011 pertaining to the Assessment Year 2002-03. The question was whether the learned CIT (Appeals) had erred in law and on the facts in deleting the addition of Rs. 89 lacs made by the Assessing Officer under Section 68 of the Income Tax Act, 1961 (‘ACT) on bogus share capital. But, the issae was whether there was any Incriminating material whatsoever found during the search to justify initiation of proceedings under Section 153A of the Act.

2. The Court finds that the order of the CIT(Appeals) reveals that there is a factual finding that “no incriminating evidence related to share capital issued was found during the course of search as is manifest from the order of the AO.” Consequently, it was held that the AO was not justified in invoking Section 68 of the Act for the purposes of making additions on account of share capital.

3. As far as the above facts are concerned, there is nothing shown to the court to persuade and hold that the above factual determination is perverse. Consequently, after considering all the facts and circumstances of the case, the Court is of the opinion that no substantial question of law arises in the impugned order of the ITAT which requires examination.”

The SLP filed by the revenue against the said decision of Hon’ble Delhi High Court was dismissed by the Hon’ble Supreme Court vide order dated 7th December, 2015. In a subsequent decision, the Hon’ble Delhi High Court in the case of Principal CIT vs. Meeta Gutgutia has again analyzed this issue in para 55 to 71 as under :

“55. On the legal aspect of invocation of Section 153A in relation to AYS 2000 01 to 2003-04, the central plank of the Revenue’s submission is the decision of this Court in Smt. Dayawanti Gupta (supra). Before beginning to examine the said decision, it is necessary to revisit the legal landscape in light of the elaborate arguments advanced by the Revenue.

56. Section 153A of the Act is titled “Assessment in case of search or requisition”. It is connected to Section 132 which deals with ‘search and seizure’. Both these provisions, therefore, have to be read together. Section 153A is indeed an extremely potent power which enables the Revenue to re open at least six years of assessments earlier to the year of search. It is not to be exercised lightly. It is only if during the course of search under Section 132 incriminating material justifying the re-opening of the assessments for six previous years is found that the invocation of Section 153A qua each of the AYS would be justified.

57. The question whether unearthing of incriminating material relating to any one of the AYS could justify the re-opening of the assessment for all the earlier AYS was considered both in Anil Kumar Bhatia (supra) and Chetan Das Lachman Das (supra). Incidentally, both these decisions were discussed threadbare in the decision of this Court in Kabul Chawla supra). As far as Anil Kumar Bhatia (supra) was concerned, the Court in paragraph 24 of that decision noted that “we are not concerned with a case where no incriminating material was found during the search conducted under Section 132 of the Act. We therefore express no opinion as to whether Section 153A can be invoked even under such situation”. That question was, therefore, left open. As far as Chetan Das Lachman Das (supra) is concerned, in para 11 of the decision it was observed:

“11. Section 153A (1) (b) provides for the assessment or reassessment of the total income of the six assessment years immediately preceding the assessment year relevant to the previous year in which the search took place. To repeat, there is no condition in this Section 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 Assessing Officer which can be related to the evidence found. This, however, does not mean that the assessment under Section 153A 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.”

58. In Kabul Chawla (supra), the Court discussed the decision in Filatex India Ltd. (supra) as well as the above two decisions and observed as under:

“31. What distinguishes the decisions both in CITV. Chetan Das Lachman Das (supra), and Filatex India Ltd. v. CIT-IV (supra) in their application to the present case is that in both the said cases there was some material unearthed during the search, whereas in the present case there admittedly was none. Secondly, it is plain from a careful reading of the said two. decisions that they do not hold that additions can be validly made to income forming the subject matter of completed assessments prior to the search even if no incriminating material whatsoever was unearthed during the search.

32. Recently by its order dated 6th July 2015 in ITA No. 369 of 2015 (Pr. Commissioner of Income Tax v. Kurele Paper Mills P. Ltd.), this Court declined to frame a question of law in a case where, in the absence of any incriminating materia being found during the search under Section 132 of the Act, the Revenue sought to justify initiation of proceedings under Section 153A of the Act and make an addition under Section 68 of the Act on bogus share capital gain. The order of the CIT (A), affirmed by the ITAT, deleting the addition, was not interfered with.”

59. In Kabul Chawla (supra), the Court referred to the decision of the Rajasthan High Court in Jai Steel (India) v. Asstt. CIT[2013] 36 taxmann.com 523/219 Taxman 223. The said part of the decision in Kabul Chawla (supra) in paras 33 and 34 reads as under:

’33. The decision of the Rajasthan High Court in Jai Steel (India), Jodhpurv. ACIT (supra) involved a case where certain books of accounts and other documents that had not been produced in the course of original assessment were found in the course of search. It was held where undisclosed income or undisclosed property has been found as a consequence of the search, the same would also be taken into consideration while computing the total income under Section 153A of the Act. The Court then explained as under:

“22. In the firm opinion of this Court from a plain reading of the provision along with the purpose and purport of the said provision, which is intricately linked with search and requisition under Sections 132 and 132A of the Act, it is apparent that:

(a) the assessments or reassessments, which stand abated in terms of II proviso to Section 153A of the Act, the AO acts under his original jurisdiction, for which, assessments have to be made;

(b) regarding other cases, the addition to the income that has already been assessed, the assessment will be made on the basis of incriminating material; and

(c) in absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made.”

34. The argument of the Revenue that the AO was free to disturb income de hors the incriminating material while making assessment under Section 153A of the Act was specifically rejected by the Court on the ground that it was “not borne out from the scheme of the said provision” which was in the context of search and/or requisition. The Court also explained the purport of the words “assess” and “reassess”, which have been found at more than one place in Section 153A of the Act as under:

“26. The plea raised on behalf of the assessee that as the first proviso provides for assessment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context of the entire section. The words ‘assess’ or ‘reassess’-have been used at more than one place in the Section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word assess has been used in the context of an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents,”’

60. In Kabul Chawla (supra), the Court also took note of the decision of the Bombay High Court in CITV. Continental Warehousing Corpn (Nhava Sheva) Ltd. [2015] 58 taxmann.com 78/232 Taxman 270/374 ITR 645 (Bom.) which accepted the plea that if no incriminating material was found during the course of search in respect of an issue, then no additions in respect of any issue can be made to the assessment under Section 153A and 153C of the Act. The legal position was thereafter summarized in Kabul Chawla (supra) 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:

i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYS immediately preceding the previous year relevant to the AY in which the search takes place.

ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYS will have to be computed by the AOS as a fresh exercise.

iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the ‘total income’ of the. aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYS “in which both the disclosed and the undisclosed income would be brought to tax”.

iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material.”

v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word ‘assess’ in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word ‘reassess’ to completed assessment proceedings. ¥

vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.

vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.”

61. It appears that a number of High Courts have concurred with the decision of this Court in Kabul Chawla (supra) beginning with the Gujarat High Court in Saumya Construction (P.) Ltd. (supra). There, a search and seizure operation was carried out on 7th October, 2009 and an assessment came to be framed under Section 143(3) read with Section 153A(1)(b) in determining the total income of the Assessee of Rs. 14.5 crores against declared income of Rs. 3.44 crores. The ITAT deleted the additions on the ground that it was not based on any incriminating material found during the course of the search in respect of AYS under consideration i.e., AY 2006-07. The Gujarat High Court referred to the decision in Kabul Chawla (supra), of the Rajasthan High Court in Jai Steel (India) (supra) and one earlier decision of the Gujarat High Court itself. It explained in para 15 and 16 as under:

’15. On a plain reading of section 153A of the Act, it is evident that the trigger point for exercise of powers thereunder is a search under section 132 or a requisition under section 132A of the Act. Once a search or requisition is made, a mandate is cast upon the Assessing Officer to issue notice under section 153A of the Act to the person, requiring him to furnish the return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and assess or reassess the same. Since the assessment under section 153A of the Act is linked with search and requisition under sections 132 and 132A of the Act, it is evident that the object of the section is to bring to tax the undisclosed income which is found during the course of or pursuant to the search or requisition. However, instead of the earlier regime of block assessment whereby, it was only the undisclosed income of the block period that was assessed, section 153A of the Act seeks to assess the total income for the assessment year, which is clear from the first proviso thereto which provides that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years. The second proviso makes the intention of the Legislature clear as the same provides that assessment or reassessment, if any, relating to the six assessment years referred to in the sub-section pending on the date of initiation of search under section 132 or requisition under section 132A, as the case may be, shall abate. Sub-section (2) of section 153A of the Act provides that if any proceeding or any order of assessment or reassessment made under sub-section (1) is annulled in appeal or any other legal provision, then the assessment or reassessment relating to any assessment year which had abated under the second proviso would stand revived. The proviso thereto says that such revival shall cease to have effect if such order of annulment is set aside. Thus, any proceeding of assessment or reassessment falling within the six assessment years prior to the search or requisition stands abated and the total income of the assessee is required to be determined under section 153A of the Act. Similarly, sub-section (2) provides for revival of any assessment or reassessment which stood abated, if any proceeding or any order of assessment or reassessment made under section 153A of the Act is annulled in appeal or any other proceeding.

16. Section 153A bears the heading “Assessment in case of search or requisition”. It is “well settled as held by the Supreme Court in a catena of decisions that the heading or the Section Can be regarded as a key to the interpretation of the operative portion of the section and if there is no ambiguity in the language or if it is plain and clear, then the heading used in the section strengthens that meaning. From the heading of section 153. the intention of the Legislature is clear, viz., to provide for assessment in case of search and requisition. When the very purpose of the provision is to make assessment In case of search or requisition, it goes without saying that the assessment has to have relation to the search or requisition, in other words, the assessment should connected With something round during the search or requisition viz., incriminating material which reveals undisclosed income. Thus, while in view of the mandate of sub-section (1) of section 153A of the Act, in every czea where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish returns of income for the six years preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made, any addition’ or disallowance can be made only on the basis of material collected during the search or requisition, in case no incriminating material is found, as held by the Rajasthan High Court in the case of Jal Steel (India) v. Asst. CIT(supra), the earlier assessment would have to be reiterated, in case where pending assessments have abated, the Assessing Officer can pass assessment orders for each of the six years determining the total income of the assessee which would include income declared in the returns, if any, furnished by the assessee as well as undisclosed income, if any, unearthed during the search or requisition. In case where a pending reassessment under section 147 of the Act has abated, needless to state that the scope and ambit of the assessment would include any order which the Assessing Officer could have passed under section 147 of the Act as well as under section 153A of the Act.

**                                **

19. On behalf of the appellant, it has been contended that if any incriminating material is found, notwithstanding that in relation to the year under consideration, no incriminating material is found, it would be permissible to make additions and disallowance in respect of an the six assessment years. In the opinion of this court, the said contention does not merit acceptance, inasmuch as. the assessment in respect of each of the six assessment years is a separate and distinct assessment. Under section 153A of the Act, assessment has to be made in relation to the search or requisition, namely, in relation to material disclosed during the search or requisition. If in relation to any assessment year, no incriminating material is found, no addition or disallowance can be made in relation to that assessment year in exercise of powers under section 153A of the Act and the earlier assessment shall have to be reiterated. In this regard, this court is in complete agreement with the view adopted by the Rajasthan High Court in the case of Jai Steel (India) v. Asst. CIT (supra). Besides, as rightly pointed out by the learned counsel for the respondent, the controversy involved in the present case stands concluded by the decision of this court In the case of CITV. Jayaben Ratilal Sorathia (supra) wherein it has been held that while it cannot be disputed that considering section 153A of the Act, the Assessing Officer can reopen and/or assess the return with respect to six preceding years; however, there must be some incriminating material available with the Assessing Officer with respect to the sale transactions in the particular assessment year.’

62. Subsequently, in Devangi alias Rupa (supra), another Bench of the Gujarat High Court reiterated the above legal position following its earlier decision in Saumya Construction (P.) Ltd. (supra) and of this Court in Kabul Chawla supra). As far as Karnataka High Court is concerned, it has in IBC Knowledge Park (P.) Ltd. (supra) followed the decision of this Court in Kabul Chawla (supra) and held that there had to be incriminating material qua each of the AYS in which additions were sought to be made pursuant to search and seizure operation. The Calcutta High Court in Salasar Stock Broking Ltd. (supra), too, followed the decision of this Court in Kabul Chawla (supra). In Gurinder Singh Bawa(supra), the Bombay High Court held that:

“6. . . . . . once an assessment has attained finality for a particular year, i.e., it is not pending then the same cannot be subject to tax in proceedings under section 153A of the Act. This of course would not apply if incriminating materials are gathered in the course of search or during proceedings under section 153A of the Act which are contrary to and/or not disclosed during the regular assessment proceedings.”

63. Even this Court has in Mahesh Kumar Gupta (supra) and Ram Avtar Verma (supra) followed the decision in Kabul Chawla (supra). The decision of this Court in Kurele Paper Mills (P.) Ltd. (supra) which was referred to in Kabul Chawla (supra) has been affirmed by the Supreme Court by the dismissal of the Revenue’s SLP on 7th December, 2015.

The decision in Dayawanti Gupta

64. That brings us to the decision in Smt. Dayawanti Gupta (supra). As rightly pointed out by Mr. Kaushik, learned counsel appearing for the Respondent, that there are several distinguishing features in that case which makes its ratio inapplicable to the facts of the present case. the first place, the Assessees there were engaged in the business of Pan Masala and Gutkha etc. The answers given to questions posed to the Assessee in the course of search and survey proceedings in that case bring out the points of distinction. In the first place, it was stated that the statement recorded was under Section 132(4) and not under Section 133A. It was a statement by the Assessee himself. In response to question no. 7 whether all the purchases made by the family firms, were entered in the regular books of account, the answer was:

“We and our family firms namely M/s. Assam Supari Traders and M/s. Balaji Perfumes generally try to record the transactions made in respect of purchase, manufacturing and sales in our regular books of accounts but it is also fact that some time due to some factors like inability of accountant, our busy schedule and some family problems, various purchases and sales of Supari, Gutka and other items dealt by our firms is not entered and shown in the regular books of accounts maintained by our firms.”

65. Therefore, there was a clear admission by the Assessees in Smt. Dayawanti Gupta (supra) there that they were not maintaining regular books of accounts and the transactions were not recorded therein.

66. Further, in answer to Question No. 11, the Assessee in Smt. Dayawanti Gupta (supra) was confronted with certain documents seized during the search. The answer was categorical and reads thus:

“Ans:- I hereby admit that these papers also contend details of various transactions include purchase/sales/manufacturing trading of Gutkha, Supari made in cash outside Books of accounts and these are actually unaccounted transactions made by our two firms namely M/s. Asom Trading and M/s. Balaji Perfumes.”

67. By contrast, there is no such statement in the present case which can be said to constitute an admission by the Assessee of a failure to record any transaction in the accounts of the Assessee for the AYS in question. On the contrary, the Assessee herein stated that, he is regularly maintaining the books of accounts. The disclosure made in the sum of Rs. 1.10 crores was only for the year of search and not for the earlier years. As already noticed, the books of accounts maintained by the Assessee in the present case have been accepted by the AO. In response to question No. 16 posed to Mr. Pawan Gadia, he stated that there was no possibility of manipulation of the accounts. In Smt. Dayawanti Gupta(supra), by contrast, there was a chart prepared confirming that there had been a year-wise non-recording of transactions.

In Smt. Dayawanti Gupta (supra), on the basis of material recovered during search, the additions which were made for all the years whereas additions in the present case were made by the AO only for AY 2004-05 and not any of the other years. Even the additions made for AYS 2004-05 were subsequently deleted by the CIT (A), which order was affirmed by the ITAT. Even the Revenue has challenged only two of such deletions in ITA No. 306/2017.

68. In para 23 of the decision in Smt. Dayawanti Gupta (supra), it was observed as under:

“23. This court is of opinion that the ITAT’s findings do not reveal any fundamental error, calling for correction. The inferences drawn in respect of undeclared income were premised on the materials found as well as the statements recorded by the assessees. These additions therefore were not baseless. Given that the assessing authorities in such cases have to draw inferences, because of the nature of the materials since they could be scanty (as one habitually concealing income or indulging in clandestine operations can hardly be expected to maintain meticulous books or records for long and in all probability be anxious to do away with such evidence at the shortest possibility) the element of guess work is to have some reasonable nexus with the statements recorded and documents seized. In tills case, the differences of opinion between the CIT (A) on the one hand and the AO and ITAT on the other cannot be the sole basis for disagreeing with what is essentially a factual surmise that is logical and plausible. These findings do not call for interference. The second question of law is answered again in favour of the revenue and against the assessee.”

69. What weighed with the Court in the above decision was the “habitual concealing of income and indulging in clandestine operations” and that a person indulging in such activities “can hardly be accepted to maintain meticulous books or records for long.” These factors are absent in the present case. There was no justification at all for the AO to proceed on surmises and estimates without there being any incriminating material qua the AY for which he sought to make additions of franchisee commission.

70. The above distinguishing factors in Smt. Dayawanti Gupta (supra), therefore, do not detract from the settled legal position in Kabul Chawla (supra) which has been followed not only by this Court in its subsequent decisions but also by several other High Courts.

71. For all of the aforementioned reasons, the Court is of the view that the ITAT was justified in holding that the invocation of Section 153A by the Revenue for the AYS 2000-01 to 2003-04 was without any legal basis as there was no incriminating material qua each of those AYS.”

24. The Hon’ble Delhi High Court has concurred with the view as taken in case of Kabul Chawla (supra) as well as the decision of Hon’ble Jurisdictional High Court in the case of M/s. Jai Steel India Ltd. vs. ACIT (supra). Even on the issue of addition made by the AO in the proceedings under section 153A in respect of the assessment year which was already completed on the date of search, the Hon’ble High Court has held that in the absence of any material which was subsequently unearthed during the search and was not already available to the AO, the additions made by the AO on account of security deposits were rightly deleted by the Id. CIT (A). The relevant observations of the Hon’ble High Court in case of Principal CIT vs. Meeta Gutgutia (supra) are in para 53 as under :

“53. At this stage, it is also to be noticed that an elaborate argument was made by Mr. Manchanda on the aspect of the security deposits accepted by the Assessee. These were of two kinds one was of refundable security deposits and the other for non-refundable security deposits. As far as the refundable security deposits were concerned, the AO himself in his remand report accepted them as having been disclosed. This has been noticed by the CIT (A) in para 7.2.1 of his order for AY 2004-05. As regards non-refundable security deposit, the CIT (A) accepted the AO’s findings that treating the sum as ‘goodwill written off on deferred basis’ was not correct, hence the addition of Rs. 5,09,343 was held to be justified and correct. It was duly accounted for under ‘liabilities’ and transferred to income in a phased manner. This was not done by manipulating the account books of the Assessee as alleged by the Revenue. This would have been evident had the return been picked up for scrutiny under Section 143(3) of the Act. This, therefore, was not material which was subsequently unearthed during the search which was not already available to the AO. Consequently, the additions sought to be made by the AO on account of security deposits were rightly deleted by the CIT (A).”

25. Thus, the essential corollary of these decisions is that no addition can be made in the proceedings under section 153A in respect of the assessments which were completed prior to the date of search except based on some incriminating material unearthed during the search which was not already available to the AO. It is pertinent to note that the SLP filed by the revenue against the decision of Hon’ble Delhi High Court in case of Principal CIT vs. Meeta Gutgutia was dismissed vide order dated 2nd July, 2018. There are series of decisions on this issue including the decision of Hon’ble Jurisdictional High Court in case of M/s. Jal Steel India vs. ACIT (supra) wherein the Hon’ble High Court has held in para 23 to 30 as under :

“23. The reliance placed by the counsel for the appellant on the case of Anil Kumar Bhatia (supra) also does not help the case of the assessee. The relevant extract of the said judgment reads as under:

“19. Under the provisions of Section 153A, as we have already noticed, the Assessing Officer is bound to issue notice to the assessee to furnish returns for each assessment year falling within the six assessment years immediately preceding the assessment year relevant to the previous year in which the search or requisition was made. Another significant feature this Section is that the Assessing Officer is empowered to assess or reassess the “total income” of the aforesaid years. This is significant departure from the earlier block assessment scheme in which the block assessment roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments. Under Section 153A, however, the Assessing Officer has been given the power to assess or reassess the ‘total income’ of the six assessment years in question in separate assessment orders. This means that there can be only one assessment order in respect of each of the six assessment years, in which both the disclosed and the undisclosed income would be brought to tax.

20. A question may arise as to how this is sought to be achieved where an assessment order had already been passed in respect of all or any of those six assessment years, either under Section 143(1)(a) or Section 143(3) of the Act. If such an order is already in existence, having obviously been passed prior to the initiation of the search/requisition, the Assessing Officer is empowered to reopen those proceedings and reassess the total income, taking note to the undisclosed income, if any, unearthed during the search. For this purpose, the fetters imposed upon the Assessing Officer by the strict procedure to assume jurisdiction to reopen the assessment under Sections 147 and 148, have been removed by the non obstante clause with which sub-section (1) of Section 153A opens. The time-limit within which the notice under Section 148 can be issued, as provided in Section 149 has also been made inapplicable by the non obstante clause. Section 151 which requires sanction to be obtained by the Assessing Officer by issue of notice to reopen the assessment under Section 148 has also been excluded in a case covered by Section 153A. The time-limit prescribed for completion of an assessment or reassessment by Section 153 has also been done away with in a case covered by Section 153A. With all the stops having been pulled out, the Assessing Officer under Section 153A has been entrusted with the duty of bringing to tax the total income of an assessee whose case is covered by Section 153A, by even making reassessments without any fetters, if need be.

21. Now there can be cases where at the time when the search is initiated or requisition is made, the assessment or reassessment proceedings relating to any assessment year falling within the period of the six assessment years mentioned above, may be pending. In such a case, the second proviso to sub-section (1) of Section 153A says that such proceedings “shall abate”. The reason is not far to seek. Under Section 153A, there is no room for multiple assessment orders in respect of any of the six assessment years under consideration. That is because the Assessing Officer has to determine not merely the undisclosed income of the assessee, but also the ‘total income’ of the assessee in whose case a search or requisition has been initiated. Obviously there cannot be several orders for the same assessment year determining the total income of the assessee. In order to ensure this state of affairs namely, that in respect of the six assessment years preceding the assessment year relevant to the year in which the search took place there is only one determination of the total income, it has been provided in the second proviso of sub-Section (1) of Section 153A that any proceedings for assessment or reassessment of the assessee which are pending on the date of initiation of the search or making requisition “shall abate”. Once those proceedings abate, the decks are cleared, for the Assessing Officer to pass assessment orders for each of hose six years determining the total income of the assessee which would include both the income declared in the returns, if any, furnished by the assessee as well as the undisclosed income, if any, unearthed during the search or requisition. The position thus emerging is that the search is initiated or requisition is made, they will abate making way for the Assessing Officer to determine the total income of the assessee in which the undisclosed income would also be included, but in case where the assessment or reassessment proceedings have already been completed and assessment orders have been passed determining the assessee’s total Income and such orders subsistig at the time when the search or the requisition is made, there is no question of any abatement since no proceedings are pending. In this latter situation, the Assessing Officer will reopen the assessments or reassessments already made (without having the need to follow the strict provisions or complying with the strict conditions of Sections 147, 148 and 151) and determine the total income of the assessee. Such determination in the orders passed under Section 153A would be similar to the orders passed in any reassessment, where the total income determined in the original assessment order and the income that escaped assessment are clubbed together and assessed as the total income. In such a case, to reiterate, there is no question of any abatement of the earlier proceedings for the simple reason that no proceedings for assessment or reassessment were pending since they had already culminated in assessment or reassessment orders when the search was initiated or the requisition was made.”

24. The said judgment also in no uncertain terms holds that the reassessment of the total income of the completed assessments have to be made taking note of the undisclosed income, if any, unearthed during the search and the income that escaped assessments are required to be clubbed together with the total income determined in the original assessment and assessed as the total income. The observations made in the judgment contrasting the provisions of determination of undisclosed income under Chapter XIVB with determination of total income under Sections 153A to 153C of the Act have to be read in the context of second proviso only, which deals with the pending assessment/reassessment proceedings. The further observations made in the context of de novo assessment proceedings also have to be read in context that irrespective of the fact whether any incriminating material is found during the course of search, the notice and consequential assessment under Section 153A have to be undertaken.

25. The argument of the learned counsel that the AO is also free to disturb income, expenditure or deduction de hors the incriminating. material, while making assessment under Section 153A of the Act is also not borne out from the scheme of the said provision which as noticed above is essentially in context of search and/or requisition. The provisions of Sections 153A to 153C cannot be interpreted to be a further innings for the AO and/or assessee beyond provisions of Sections 139 (return of income), 139(5) (revised return of income), 147 (income escaping assessment) and 263 (revision of orders) of the Act.

26. The plea raised on behalf of the assessee that as the first proviso provides for assessment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context of the entire section. The words ‘assess’ or ‘reassess’ have been used at more than one place in the Section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word ‘assess’ has been used in the context of an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents.

27. The Allahabad High Court in Smt. Shaila Agarwal’s (supra) has held as under:

“19. The second proviso to Section 153A of the Act, refers to abatement of the pending assessment or re-assessment proceedings. The word ‘pending’ does not operate any such interpretation, that wherever the appeal against such assessment or reassessment is pending, the same along with assessment or reassessment proceedings is liable to be abated. The principles of interpretation of taxing statutes do not permit the Court to interpret the Second Proviso to Section 153A in a manner that where the assessment or reassessment proceedings are complete, and the matter is pending in appeal in the Tribunal, the entire proceedings will abate.

20. There is another aspect to the matter, namely that the abatement of any proceedings has serious causes and effect in as much as the abatement of the proceedings, takes away all the consequences that arise thereafter. In the present case after deducting bogus gifts in the regular assessment proceedings, the proceedings for penalty were drawn under Section 271(1)(c) of the Act. The material found in the search may be a ground for notice and assessment under Section 153A of the Act but that would not efface or terminate all the consequence, which has arisen out of the regular assessment or reassessment resulting into the demand or proceedings of penalty.” (Emphasis supplied)

The said judgment which essentially deals with second proviso to Section 153A of the Act also supports the conclusion, which we have reached hereinbefore.

28. It has been observed by the Hon’ble Supreme Court in K.P. Varghese v. ITO [1981] 131 ITR 597/7 Taxman 13 that “it is well recognized rule of construction that a statutory provision must be so construed, if possible that absurdity and mischief may be avoided.”

29. The argument of the counsel for the appellant if taken to its logical end would mean that even in cases where the appeal arising out of the completed assessment has been decided by the CIT(A), ITAT and the High Court, on a notice issued under Section 153A of the Act, the AO would have power to undo what has been concluded up to the High Court. Any interpretation which leads to such conclusion has to be repelled and/or avoided as held by the Hon’ble Supreme Court in the case of K.P. Varghese (supra).

30. Consequently, it is held that it is not open for the assessee to seek deduction or claim expenditure which has not been claimed in the original assessment, which assessment already stands completed, only because a assessment under Section 153A of the Act in pursuance of search or requisition is required to be made.”

26. As it is evidently clear that not only in the assessment order there is no mention, reference or finding that the additions have been made by the AO on the basis of any incriminating material found during the course of search and seizure in the case of the assessee but in the remand proceeding the ld. CIT(A) has specifically raised the issue in remand proceeding based on the submission of the assessee at para 11 of the order of CIT(A) and the ld. CIT(A) extracted the remand report of the AO at para 11.2 where in the AO categorically confirmed that “No Such  material found or impounded”.

27. Whereas the ld. DR in his submission submitted that it is the ‘assessment of total income’ which is required to be made under section 153A. The total income is defined under section 2(45) would be the total income computed as per section 5 of the act. The word ‘assessment’ cannot have a different meaning for different purposes under the same act unless restricted by specific provisions. The process of assessment for the purposes of the act is wide enough to include every kind of enquiry/ examination for discovery, quantification and assessment of the income wholly or partly for the purposes of the act. Hence, the process of’ assessment of total income’ u/s 153A can neither be restrictive nor have a different connotation for assessment under section 153A vis-a-vis143(3) or 147. As per the scheme under the Act, the satisfaction recorded u/s132(1) and the results of search are intended to be brought to a logical conclusion by initiating the proceedings u/s153A without any further act of the AO. Hence it is in the scheme of the Act that after issuance of notice u/s153A, the next action of the AO must follow the examination of all aspects for which a search has been initiated. Hence, it cannot be said that the AO u/s 153A cannot proceed to examine the books of accounts or documents, entries which were produced before him subsequently, wherein might also represent income wholly or partly, which has not been disclosed for the purposes of the Act. Hence, it may be contrary to the scheme of the provisions of 132(1) r.w.s. 153A, if it were to be held that power of AO is restricted only to make assessment the evidence found during search. The provisions of 153A not only require assessment of undisclosed income but total income also. The expression ‘total income’ would include the income emanating from disclosed items, income emanating from partly or wrongly disclosed items as well as income emanating from undisclosed items. U/s153A, no distinction is made for assessment of total income in the cases which were earlier completed u/s 143(1), the cases which were earlier completed u/s 143(3)/147 or the cases where no return was filed prior to search. Thus, in all the three categories, it is as per the scheme of the Act that the total income of the assessee as defined u/s 2(45) needs to be assessed for all the 6 AYs for which the AO is mandated to issue notice u/s153A. However, to support of the said view the ld. AO did not bring any binding decision of the view that he advanced before us. The ld. DR has also relied upon the judgments which cited in his written submissions are also considered by us but at the same time are not applicable to the facts and circumstances of the present case. The ld. DR has cited the recent judgment in the favour of revenue in the case of Swati Bajaj wherein the Calcutta High Court has confirmed the addition of LTCG. Against this we have considered the detailed note of the ld. AR of the assessee who has distinguished the fact of that case also. The ld. DR has admitted that there are divergence of judicial opinion on the question of whether assessment u/s. 153A can be restricted to only the incriminating material seized during the search or whether the AO can also take a view based on something which might be noticed otherwise. The ld. DR submitted that the department has not accepted the decision of Kabul Chawla and the SLP was dismissed due to low tax effect. The DR also submitted that the dismissal of SLP in case of PCIT Vs. Meeta Gutgulia wherein also the same views were expressed as in Kabul Chawla, would also not lead to conclusion that the question decided by Delhi High Court against the revenue in Meeta Gutgutia is settled law because the SLP has already been admitted by SC for hearing on the same question in several other cases such as Continental Warehousing & Best Infrastructure. Thus, the sum and substance of arguments of the ld. DR is that the question whether the AO has powers u/s. 153A to assessee total income as defined u/s. 2(45) dehors the incriminating material also, has not at all becomes final and the same is yet pending final adjudication before the SC in SLPs admitted. In this regard, we are of the view that no final orders have been passed so far by the Hon’ble Supreme Court in the judgments cited by the Id. DR. Therefore, the principle of ” ratio descendi ” are not applicable with regard to the aforementioned cases. Therefore, we are of the view that in the absence of any order by Hon’ble Supreme Court, the decision of Hon’ble Jurisdictional High Court in the case of Jai Steel Ltd. vs. ACIT, 88 DTR 1 (Raj.), PCIT vs. Smt. Daksha Jain, DB IT No. 125/2017 are binding on us. Further, we are also fortified with the decision in the case of CIT vs. Continental Warehousing Corporation (2015) 64 taxmann.com 34 (SC), PCIT vs. Devi Dass Garg (2020) 114 taxmann.com. 552 (SC). Accordingly, in the facts and circumstances of the case and in view of the binding precedents on this issue and SLP filed by the revenue is not decided by Hon’ble Supreme Court. We based on the binding nature of judgment hold that the additions made by the AO while passing the assessment order under section 153A for the assessment year 2011-12 are not sustainable.

We found force in the arguments of the ld. AR of the assessee and also convince with the findings of the ld. CIT(A) who has after considering the facts on record taken a considered view that the looking to the facts of the case on technical ground, he has considered the appeal of the assessee and before giving his findings he has called for the remand report also and the equal chance were given to revenue to place their case and in that case the ld. AO has categorically submitted that in this case there is no incriminating material found. The ld. DR appearing on the behalf of the revenue has merely relied on the investigation done by the Investigation Wing in the case of various searched conducted by the department and the statement of the various persons recorded at the time. The ld. AO heavily relied upon on the statement of Shri Anil Agarwal who he has retracted from his statement and even the statement recorded in this case of the assessee was also retracted. In all these processes we have not seen any reasons as to why and how the order of the ld. CIT(A) is not correct. As the ld. CIT(A) has after considering the detailed arguments of both the parties clearly taken a view that there is no incrementing material, no addition can be made for the assessment years which are already completed after making the proper enquiries by the AO, and those assessment cannot be allowed to again reframed merely based on the search and that too without any fresh evidence or any fresh material unearthed during search no fresh addition can be made on the issue which are already settled. Even, the ld. CIT(A) has based on the arguments of the assessee followed the jurisdictional High Court decision and Tribunals orders and even this co­ordinate bench decision is also binding on us in the absence of any contrary judgement.

28. Now the question is that whether section 153A of the Income-tax Act, 1961 (“the Act”) mandates the existence of incriminating material in respect of the assessments that have concluded/are not pending on the date of search in order to assess or re-assess them and also whether the addition to income in respect of the said years, if any, will be restricted to the income emanating out of incriminating material/documents unearthed during the course of search as it is held by ld. CIT(A) is correct or not? Whereas revenue before us pleaded the view of the Department that as per section 153A, all the assessments consequent to search u/s 132(1) of the Act, has to be made de novo regardless of any incriminating material found during the course of search and thus, the findings of the ld. CIT(A) is not correct and required to be reversed. In our considered view the said issue is no longer res integra as the same has already been decided by a Division Bench of the Hon’ble Supreme Court in the case of CIT v. Sinhgad Technical Education Society [2017] 84 taxmann.com 290/250 Taxman 225/397 ITR 344. The relevant extract from the said judgement is extracted here in below :

A. Whether the additional ground raised for the first time before the Hon’ble Income-tax Appellate Tribunal (“ITAT”) questioning the validity of the notice u/s 153C of the Act (in the case of a person other than that searched) on the ground that satisfaction was not properly recorded and also that the said notice was time barred in respect of AYs 2000-01 to 2003- 04, could be permitted or not?

B. Whether as per the provisions of section 153C of the Act, the incriminating material which was seized had to pertain to the assessment years (i.e. completed assessments for the AYs 2000-01 to 2003-04) in question and the same constituted a jurisdictional requirement which is essential for assessment under the provisions of section 153C of the Act?

In respect of the first question, the Hon’ble Supreme Court at para-19 of their order concluded that the ITAT had correctly permitted the additional ground to be raised and correctly dealt with the same on merits as well. The said Para 19 of the order is reproduced below :-

“19. We, thus, find that the ITAT rightly permitted this additional ground to be raised and correctly dealt with the same ground on merits as well. Order of the High Court affirming this view of the Tribunal is, therefore, without any blemish. Before us, it was argued by the respondent that notice in respect of the Assessment Years 2000-01 and 2001-02 was time barred. However, in view of our aforementioned findings, it is not necessary to enter into this controversy.”

As regards the second question, the Hon’ble Supreme Court held, inter alia, that the existence of incriminating material for interfering with completed assessments on the date of search was a jurisdictional fact failing which, no assessment was possible for those years u/s 153C of the Act. It was further affirmed that the incriminating material had to pertain to the four assessment years in question i.e. A.Ys 2000-01 to 2003-04 and since the finding of the facts at para-9 of the order of ITAT revealed that the material as per the satisfaction note belonged to A.Y. 2004-05 or thereafter which were not the four assessment years in question, no addition could be made in respect of the said assessment years. The ratio decidendi of the Hon’ble Supreme Court’s judgement appears at para-18 of their order and the same is reproduced as under :-

“18. The Income-tax Appellate Tribunal (ITAT) permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the Income-tax Appellate Tribunal (ITAT) that as per the provisions of section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four Assessment Years. Since this requirement under section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of section 153C of the Act. Para 9 of the order of the ITAT reveals that the Income-tax Appellate Tribunal (ITAT) had scanned through the satisfaction note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred.”

29. Even the assessment as per Section 153C provides for assessment/ reassessment to be made as per section 153A of the Act. The requirement of the existence of incriminating material to interfere and assess or reassess the income of the assessment years that stand completed/are not pending on the date of search, is a mandatory requirement as per the provisions of section 153A of the Act and this mandatory requirement comes into play under section 153C of the Act due to the provision of sub-section (1) of section 153C according to which once the initial requirements for the invocation of section 153C have been complied with, the assessment u/s 153C shall be made in accordance with the provisions of section 153A of the Act. For ease of reference, the relevant provisions of sections 153C and 153A are reproduced as under:-

Assessment of income of any other person.

“153C (1)Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion,jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A :]… “

Assessment in case of search or requisition.

“153A. Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall—

(a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139;

(b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made :

Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years:

Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate.” (Emphasis supplied)

30. Thus, even for assessing as per provision of section 153C drawing of a satisfaction note by the Assessing Officer of the person searched by listing and describing the documents belonging to the other person is a pre­condition for initiation of the proceedings u/s 153C of the Act. After having recorded the satisfaction, as per the requirement of section 153C(1) of the Act, the books of account or documents or assets seized shall be handed over to the Assessing Officer having jurisdiction over the other person and the said officer shall issue notice and assess or re-assess the income of the other person in accordance with the provisions of section 153A of the Act. It will thus be seen that once the requirement of satisfaction wherein the Assessing Officer of the searched person records that documents belong to the other person is met, the assessment or re­assessment of the income of the other person shall have to take place in accordance with section 153A of the Act. Assessment of concluded/ not pending assessment on the date of search to be based on incriminating material. Section 153A of the Act was the subject matter of interpretation by the Hon’ble Delhi High Court in the case of Kabul Chawla (supra) and several other High Courts across the country which uniformly held that the existence of incriminating material, in respect of the assessment years whose assessments stood concluded on the date of search, is a mandatory requirement to assess or reassess those years. Some of the other judgments are cited as under :

i. CIT v. Vikas Telecom Ltd. [2022] 135 taxmann.com 362/286 Taxman 238 (Delhi HC)

ii. CIT v. Allied Perfumers (P.) Ltd. [2021] 124 taxmann.com 358/279 Taxman 185/431 ITR 237 (Delhi HC)

iii. CIT v. RRJ Securities Ltd. [2015] 62 com 391/[2016] 380 ITR 612 (Delhi HC)

iv. CIT v. v. Meeta Gutgutia [2017] 82 taxmann.com 287/248 Taxman 384/395 ITR 526 (Delhi HC)

v. CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd. [2015] 58 com 78/232 Taxman 270/374 ITR 645 (Bombay HC)

vi. Smrutisudha Nayak v. Union of India [2022] 136 taxmann.com 162/286 Taxman 119/[2021] 439 ITR 193 (OrissaHC)

vii. Jami Nirmala v. Pr. CIT [2022] 284 Taxman 141/[2021] 437 ITR 573 (Orissa HC)

viii. CIT v. Delhi International Airport (P.) Ltd. [2022] 140 taxmann.com 440/443 ITR 382 (Karnataka HC)

ix. CIT v. Dipak Jashvantlal Panchal [2017] 88 taxmann.com 611/397 ITR 153 (Gujarat HC)

x. CIT v. Saumya Construction (P.) Ltd. [2017] 81 taxmann.com 292/387 ITR 529 (Gujarat HC)

xi. CIT v. IBC Knowledge Park (P.) Ltd. [2016] 69 com 108/385 ITR 346 (Karnataka HC)

xii. CIT v. Devangi [2017] 88 taxmann.com 610/394 ITR 184 (Gujarat HC)

31. The only High Courts which gave the contrary judgments were the Hon’ble Allahabad High Court in the case of CIT v. Raj Kumar Arora [2014] 52 taxmann.com 172/367 ITR 517 and the Hon’ble Kerala High Court in the cases of E.N. Gopakumar v. CIT (Central) [2016] 75 taxmann.com 215/[2017] 244 Taxman 21/390 ITR 131/293 CTR 450 and DR. A. V. Sreekumar v. CIT [2018] 90 taxmann.com 355/253 Taxman 428/404 ITR 642. The ratio decidendi in the case of Kabul Chawla (supra) was that “the completed assessments can be interfered with by the Assessing Officer while making assessment under section 153A of the Act only on the basis of some incriminating material unearthed during course of search which was not produced or not already disclosed or made known in course of original assessment.” The ratio of Kabul Chawla applied in Sinhgad (Supra) for making assessment u/s 153C read with section 153A of the Act. The ratio in the judgment of Kabul Chawla (supra) was applied by the Hon’ble Supreme Court in the case of Sinhgad (supra) to conclude that even in assessments u/s 153C of the Act, the assessment or reassessments of the persons other than that searched shall have to be made in accordance with section 153A of the Act and since the said section mandates the existence of incriminating material in respect of each assessment year which is not pending or has concluded on the date of search, the four assessment years before them will not entail any addition to income since, admittedly, no incriminating material was found in respect of the assessment year under consideration as duly confirmed by the ld.AO in his remand proceedings and duly incorporated in the order of the CIT(A) which the revenue did not challenge before us and it is not ground before us. In the case of the apex court decision in the case of Sinhgad (Supra) approved para 9 and para 10 of the co ordinate bench of ITAT order which specifically talks of section 153A. It may further be seen that the Hon’ble Supreme Court at para-18 of their order, relied upon and affirmed the paras 9 and 10 of the order of the Hon’ble ITAT. It is trite law that when the Hon’ble Supreme Court decides an issue, the orders of the authorities below merge with the order of the Supreme Court as has been held in the following judgments :

i. M Salgaocar & Bros (P) Ltd v. CIT (2000) 110 Taxman 67/243 ITR 383 (SC)

ii. . Tej Kumari v. CIT (2001) 114 Taxman 404/247 ITR 210 (Patna) (FB)

iii. A.V. Papayya Sastry v. Government Of A.P. (2007) 4 SCC 211

iv. CIT v. Tejaji Farasram [1953] 23 ITR 412/AIR 1954 Bom 93(Bombay HC)

v. CIT v. Amritlal Bhogila & Co [1958] 34 ITR 130/1958 AIR 868, 713(SC)

vi. Shankar Ramchandra Abhyankar v. Krishnaji Dattatreya Bapat AIR 1970 SC 1 (SC)

vii. Kunhayammed v. State Of Kerala [2000] 113 Taxman 470/245 ITR 360/(2000) 6 SC 659 (SC)

viii. Haryana Financial Corporation & … v. Jagdamba Oil Mills (2002) 1 JT 482 (SC)

ix. Aditya Pharmaceuticals (P.) Ltd. v. A.P. State Financial Corpn. [2004] 50 SCL 322/AIR 2003 AP 413 (Andhra Pradesh HC)

x. Pernod Ricard India (P.) Ltd. v. State of Goa [W.P.C.A. 3598 of 2021]

xi. Gojer Bros. (P.) Ltd v. Ratan Lal Singh 1974 AIR 1380 (SC)

32. In the case of Sinhgad (supra), paras 9 and 10 of the order of the ITAT have been specifically approved by the Hon’ble Supreme Court at para-18 of their judgement and therefore, the said paras need to be examined. For ease of reference, paras 9 and 10 of the ITAT order are reproduced below :-

“9. From the above, it is demonstrated by the learned counsel that the items at serial Nos. 1 to 5 above belongs to the asst. yr. 2004-05 or thereafter. Referring to the rest of the items at serial Nos. 6 to 9 above, the counsel mentioned the said documents seized are either recorded in the books of account or involves cheque transactions. Thus, he summed up stating that the documents in question are neither the incriminating ones nor unaccounted transactions of the assessee nor they relate to the impugned four assessment years. In such circumstances, the AO not only assumed jurisdiction invalidly but also erred in disturbing the settled and completed assessments. Accordingly, AO should not assume jurisdiction in respect of such assessment years in the absence of any incriminating information or transactions specific to any of the impugned four assessment years i.e. 2000-01 to 2003-04. The contrary argument from the side of the Revenue is that the overall approach in matters of concealment by the group assessees and all the discoveries of the search on Mr. Navale and it concerns, have to be taken into account while forming the satisfaction within the meaning of s. 153C of the Act. Considering the divergent views of the parties, we have examined the said satisfaction note very closely and found that the impugned reasons mentioned by the AO are silent insofar as any assessment year-specific incriminating- information (ASII) or others i.e. unaccounted or undisclosed or hidden information to the Revenue by the assessee. In our opinion, the impugned satisfaction note is very general one for six years. It is surprising to note that the AO has narrated some information against the Mr. Navale HUF, which is not relevant for the present assessee. In the process, the AO totally missed the requirements of the law i.e. only the assessment year with the pending assessments and the assessment year with the assessment year specific incriminating documents/transactions or seized asset should only be reopened under the provisions of the first proviso to s. 153A of the Act and not otherwise.

10. In this regard, we have perused various legal propositions. First, we have perused the decision of this Tribunal in the case of Kumar & Co. case (supra) and para 26 of Kumar & Co’s. case (supra) for the asst. yr. 2000-01 and the same reads as follows :

“25. Thus, we find that the seized documents belong to the assessee by way of limited ownership and they are not dumb documents as advocated by the learned counsel for the reason mentioned above. However, they are not found to be incriminating documents for the asst. yr. 2000-01. The document may not be a dumb document and therefore a speaking one, but they must be the document with prima facie incriminating information too. Such incriminating nature of the seized document is an essential factor for switching on the proceeding under s. 153C. In other words, the document seized must not only be a ‘speaking one’ but also be prima facie ‘incriminating one’ for igniting the proceedings under s. 153C. Unlike other assessment years, there is nothing made out by the AO what is called incriminating for the current assessment year under consideration.When the impugned documents merely contains the notings of entries, which are already found place in the books of account or subjected to scrutiny of the AO in the past in regular assessment under s. 143(3) of the Act, such document cannot be said to be containing the incriminating information. What is the point in disturbing the settled assessment when the Revenue does not have incriminating information for an assessment year and the information what is available is only routine one and when the AO merely makes an addition in the assessment under s. 153C based on change of opinion and when such additions are likely to be deleted in view of the settled nature of the issues ? Income-tax provisions are not merely for the issue of notice under s. 153C but it is essentially for taxing the income of the person. What is the point in issuing notice under s. 153C on flimsy grounds and finally tax nothing ? Such proceedings only create avoidable nuisance both to the overburdened taxman and the much hazzled taxpayers. In the instant case, provisions of s. 153C are invoked merely to apply the provisions of s. 45(4) in this year, the issue which was already examined and concluded as inapplicable to the facts of the case. Such issue of notice is unwarranted and such reopening of the assessment for the asst. yr. 2000-01 is uncalled for.

26. Therefore, the proceedings initiated under s. 153C is not valid in view of the decision in the case of LMJ International (supra). Under these circumstances, we are of the opinion, the AO has invalidly issued the notice under s. 153C for the asst. yr. 2000-01 on the wrong presumption that AO can assume jurisdiction in respect all the six assessment years automatically even without any incriminating documents in respect of the concluded issues too. Accordingly, the relevant grounds of the assessee are allowed.”

33. On perusal of the para-9, it may be seen that the Hon’ble ITAT has given a finding of fact that the satisfaction note as required under section 153C, after being examined very closely, did not reveal any assessment year specific incriminating information or other information i.e. unaccounted or undisclosed income or hidden information to the Revenue in respect of the four assessment years. It may be seen that theco ordinate bench of ITAT explicitly stated that only assessments that are pending on the date of search and those assessment years where specific incriminating documents/transactions or asset seized exist, can be re-opened under the first proviso to section 153A of the Act and not otherwise. Being consistent with the finding of clearly holding that for the purpose of making the assessment of concluded assessments u/s 153C of the Act, the requirement of the existence of incriminating material is a sine qua non.

34. The Hon’ble Supreme Court while deciding the issue arising in section 153C of the Act have applied their mind by referring to and approving the specific portion dealing with section 153A of the Act by the Hon’ble ITAT and have explicitly held that the assessment or reassessment which has to be made in accordance with the provisions u/s 153A of the Act once the satisfaction note is drawn u/s 153C, has to be based on the incriminating material relating to each of the assessment year which is not pending on the date of search. It is therefore our considered view that in view of the judgement in the case of Sinhgad (supra) that has upheld the requirement of the existence of incriminating material for assessing/reassessing concluded assessments, the issue is no longer res integra.

35. The fact remains that the Revenue itself is not disputing that in respect of the LTCG no incriminating documents were found in the search proceedings and the finding of the ld. CIT(A) is not challenged before us in any of the grounds raised by the revenue. Our attention has been drawn to the decision of the Supreme Court in CIT v. Singhad Technical Education Society (2017) 397 ITR 344 (SC) where in the context of Section 153C of the Act it was held that the incriminating material which was seized had to pertain to the AY in question. It is further held that documents seized had to establish a corelation documents wise with the assessment years for which the addition was sought to be made.

36. The requirement that the incriminating material to have the co-relation to the particular addition sought to be made is a logic that will hold good not only for Section 153 C of the Act but in relation to Section 153A of the Act as well. Consequently, in our considered view we do not find any error having been committed by the ld. CIT(A) in accepting the plea of the Assessee that there is no incriminating document which was seized in the course of search relating to the addition sought to be made on account of the long term capital gain reflected in the return of income filed by the assessee. Therefore, the jurisdictional requirement of Section 153 A of the Act was not satisfied.

37. Even the new provisions relating to assessments consequent to search, warrant existence of incriminating material to re-open assessments relating to certain assessment years. Another very important aspect is being adverted to for consideration. Vide the Finance Act, 2021, the Parliament has done away with the existing legal framework for assessment in case of search or requisition forming part of Chapter XIV of the Income Tax Act, 1961- Procedure for Assessment i.e. sections 153A to 153D of the Income Tax Act, 1961 in respect of search or requisition conducted on or after 1st April 2021. For the searches conducted u/s 132(1) of the Act on or after 1st April 2021, the assessments shall now be framed under section 147 read with section 148, 148A, 149,151 of the Income-tax Act, 1961 as substituted by the Finance Act, 2021. Under the new legal framework of search assessments u/s 147 of the Act, the assessments beyond 3 years can be reopened only when the Assessing Officer has in his possession books of accounts or other documents or evidence which reveal that the income chargeable to tax, represented in the form of an asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more for that year. Hence, the Legislature in their wisdom has now agreed with the various earlier decisions starting with Kabul Chawla (supra) and have introduced new provisions to actually mean that for assessing or re-assessing any year beyond 3 years, consequent to search on or after 1st April, 2021, the requirement of incriminating material is mandatory. Hence, in view of the said amendment applicable to search on or after 1st April, 2021, this support the view that the intention of the Legislature even in the past was that concluded assessments should not be disturbed unless incriminating material was found in respect of the same. Disturbing concluded assessments without any incriminating material tantamount to review of the same. It is a settled law that the Assessing Officer cannot review his decision in respect of the concluded assessments on the date of search; this is based on the presumption that the Assessing Officer has already applied his mind and has approved the returns of income filed by the assessee. Besides it will tantamount to relooking the entire return of income for an assessment year once again inspite of there being no incriminating material merely because a search has taken place. Hon’ble Supreme Court, in several decisions including the decision in the case of CIT v. Kelvinator of India Ltd. [2010] 187 Taxman 312/320 ITR 561, while interpreting the term “reasons to believe” and expressing its views on the power of the Assessing Officer to re-open the assessment under the erstwhile provisions of section 147 r.w.s 148 of the Act as existed prior to 01.04.2021, has given a very clear finding that “One must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess, but the reassessment has to be based on fulfilment of certain pre-conditions and if the concept of ‘change of opinion’ is removed as contended on behalf of the department, then in the garb of reopening the assessment, review would take place.

38. In view of the above and for the reasons stated above and considering the binding decisions of various High Courts and findings of the apex court on the decision cited here in above, we see no reason to interfere with the impugned judgment and order passed by the learned CIT(A). In terms of these observations appeal of the revenue on both the grounds not maintainable and both the grounds are dismissed on technical ground and thus, we did not deal with the grounds on merits.

39. In the result the appeal of the revenue in ITA NO. 165/JPR/2020 is dismissed.

40. Now, we take up the cross objection filed by the assessee effectively there are three grounds which are inextricably interlinked or in fact interwoven and thus, the same is decided together.

40.1 During the course of search a PEN drive was found and seized from the possession of Shri Kailsh Chand Khandelwal, who is one of the employee of the Marvick Group. The PEN drive so seized contained some files in excel format/software. The excel sheet contains adjustment entries in the last column with remarks 2.4 %. The adjustment entries pertaining to the assessee works out for Rs. 2,86,948/- for the year under consideration. Based on this fact a show cause notice was issued to the assessee asking so as to why the same amount should not be added to total income as interest paid from undisclosed sources. The assessee replied that the amount represents the additional interest asked by the finance broker which was not paid by the assessee. Finding not favour with the reply of the assessee the ld. AO added the said sum as interest paid from undisclosed sources. The assessee has disputed the said addition before the ld. CIT(A) and submitted the fact that the additional interest which is in dispute were not paid and whatever interest paid is duly accounted in the books. But ld. CIT(A) confirmed the addition and aggrieved assessee has challenged the said addition before us.

40.2 On this issue the explanation rendered by the assessee before the lower authority is briefly narrated here in below:

The explanation given in this regard before the ld.AO is summarized as under:

(i) That the sheets contained information about amounts borrowed by various individuals and entities of the Maverick Group along with many other individuals and entities, which were unrelated and unknown to the assessee as also the entire Maverick group;

(ii) That excel sheets contained details of loan taken, interest paid, Tax deducted, amount repaid, along with dates thereof which are made through cheques;

(iii) That there were repetition of details in the various files found in the pen-drive, which were duly demonstrated to ld. AO and also appreciated and accepted by him;

(iv) That the details appearing in all the columns other than those appearing under the adjustment column were duly recorded in books of respective individuals and entities, as far as it pertained to the Maverick group and were got verified by ld. AO;

(v) That the excel sheet was mailed to Shri Kailash Khandelwal who is in accounts department by the finance broker through whom the amounts were borrowed, asking for further payment of interest @2.4% in addition to the interest already paid and thus this amount is separately mentioned in the last column, but the said payment was never made by assessee or other group members of the group.

However, the ld. AO alleged the same to be additional interest paid by assessee not recorded in books, and treated the same to have been paid out of undisclosed sources of the assessee without bringing any adverse material on record.

It is humbly submitted that the assessee had elaborately demonstrated the fact that the said pen-drive was not prepared by the assessee or even by Shri Kailash Khandelwal from whose possession it was found during search and ld.AO has not raised any doubt on the explanation tendered by the assessee. Thus the presumption embedded u/s 132 (4A) does not apply in this case. No statements whatsoever were recorded of Shri Kailash Khandelwal in this regard from whose possession the said Pen Drive was found during the course of search. The assessee has fully explained the entries as appearing in the books of the assessee other than the ones appearing under the last column for which it was categorically stated that those entries were not made by assessee or his employee. This is further evident from the fact that assessee has deducted due tax on the amount of interest actually paid by him and the same is appearing as such in the excel sheets. The entries appearing in the ‘adjustment’ column was the additional interest asked by the lender, which was never paid by the assessee, as is evident from the fact that no TDS was deducted thereon nor any payment was made. Further no incriminating document was found during the course of search corroborating the allegation of ld. AO nor was anything brought on record by making independent enquiry during the post search or assessment proceedings to support the allegation that assessee had paid anything more than what was recorded in the books of the assessee. It is also a matter of fact that during the course of assessment proceedings, assessee had filed copies of confirmation from the concerned parties along with the PAN and complete address, duly confirming the amount borrowed with the amount of Interest paid and Tax deducted by the assessee which stood accepted by ld.AO without raising any doubts. Thus the assessee has duly discharged the burden of explaining the entries in the pen-drive found in possession of an employee of the assessee, so far as it pertained to the assessee.

Ld. AO, except the so called entries, has failed to bring on record any evidence / material whatsoever by making independent enquiries to support the allegation that the said amount was paid by assessee over and above the amount of interest paid and recorded in the books of accounts. The additions have been made on presumptions and assumptions for which there is no scope in the scheme of assessment of search case as envisaged in chapter XIV of the Income Tax Act, 1961.

In the circumstances, it is humbly prayed that the additions so made merely on suspicion without any corroborative evidence on record deserves to be deleted and the assessee prays accordingly.

40.3 The ld. AR of the assessee relying on the written submission further submitted that the person from whom the pen drive is found is not at all relied upon at the time of search. It is also confirmed by both the parties at bar that the person Shri Kailash Chand Khandelwal under whose possession the pen drive found has not made any statement. The search party has not considered this PEN drive and that is why his statement is also not recorded during the search proceeding or at the time of assessment proceedings. The ld. AR of the assessee submitted that in this PEN drive details of the loan, TDS deducted and the name of the parties are written. There are duplication entries which were explained and reconciled with the books during the assessment proceedings. The ld. AR of the assessee in his Paper book filed the print out of these excel sheets. The ld. AR of the assessee also filed the reconciliation of these entries with the books in his paper and the same was filed before the lower authorities. The excel sheet may be related to the finance broker and the same is not disputed. The only issue is for an amount claimed as additional interest demanded which has neither been paid nor in the seized material found to have been paid. Thus, the addition cannot be made without checking the veracity / reliability of the data recorded in the pen drive. Based on that confirmation the ld. AR of the assessee demonstrated that the assessee and its group concerned have recorded and accounted the interest which is recorded in the Excel Sheet of the PEN Drive found. There are no further consideration flows in addition to what has been recorded in the books of accounts. The ld. AR of the assessee submitted that it is respective parties who were demanding, further interest @ 2.4% in addition to what has been recorded in the books. The additional interest which the assessee or its group concern never paid and there is no evidence of any such further sums paid and found as paid in the course of search. Since the issue is revolving about the PEN Drive found, the bench asked both the parties whether any finding of any person recorded and/or the statement of the person under whose possession this PEN drive found is recorded or not? In response it has been confirmed that there is no finding about the veracity of this PEN drive in the orders of the lower authorities. Therefore, working recorded in this PEN drive is merely an information recorded by that person and whatever financial transaction related to that information is recorded in the books and are already explained before the lower authorities and there is not dispute on this aspect. The revenue has made this addition in the hands of the assessee as protective addition only based on working made in this PEN drive. Therefore, the bench has directed revenue to call the factual information from the AO during the hearing of these appeals. The ld. AO categorically confirmed that the against that protective addition no substantive addition is made. The relevant report of AO vide letter No. ITO/Wd-1(2)/JPR/2022-23/92 dated 02.05.2022, submitted his report and same is extracted here in below :

“Respected Sir,

Sub: Supplying of documents/information in the case of M/s Maverick Group Cases-reg.

*****

Kindly refer to your letter No 50 dated 27.04.2922 on the abovementioned

subject.

In this connection, the requisite information is reads as under:

i. No further appeals before Hon’ble ITAT were recommended in all the four assessment years.

ii. On perusal of the assessment records, it is noticed that the AO in assessment order has mentioned that a pen drive was found and seized from the possession of Shri Kailash Chand Khandelwal, one of trusted employee of the assessee. The pen drive so seized contained some files in excel software. The excel sheets contains adjustment entries in the last column with remarks of 2.4%. From the details, it was noted that out of the total interest after considering the duplicate/repeated entries noted in adjustment account, total of such entries comes to Rs. 75.27,847/- out of which it was claimed that an amount of Rs. 35,15,548 pertained to various individual /concerns related to Maverick group and balance Rs 40,12,299/- related to other persons. Necessary action has been taken in the case of Persons/concerns related to the Maverick group where the addition on substantive basis has already been proposed in their respective assessment. The total mount pertains to other persons is Rs. 40,12,299, out of which an amount of Rs 69,449/- pertains for A.Y. 2010-11, Rs. 85,361/- pertains to A.Y. 2011-12, Rs. 27,912/ pertains to A.Y. 2012-13 and Rs. 37,32,344/-pertains to A.Y. 2013-14. Since the pen drive was found and seized from the possession of Shri Kailash Chand Khandelwal one of trusted employee of the assessee. It was mandatory for the assessee to explain the contents of the details/account found from the pen drive which was in the possession of the assessee. During the post search enquiries and assessment proceedings, the assessee could not produce any corroborative evidences in sport of their support. Thus, adjustment entries to the other than assessee’s group persons amounting to Rs. 69,499/- in the A.Y. 2010-11. Rs. 85,361/- in the A.Y. 2011-12 Re 27,912-in the A.Y. 2012-13 and Rs. 37,32,344 in the A.Y. 2013-14 were added to the total income of the assessee on protective basis. However, nothing on assessment record has been found which provide the details of the persons in which the substantive addition were made.

iii. During the course of appellate proceedings, the assessee has contended that the pen drive found from the premises of one of the employee, Sh. Kailash Chand Khandelwal does not relates to the appellant in particular or the persons of the assessee group. However, the Ld. CIT(A) rejected the contention of the assessee and stated that the pen drive found from the premises of Sh. Kailash Chand Khandelwal belongs to the assessee group and some of the appellant specifically mentioned in column No. 2 of spread sheet. The seized material is lying with the office of ACIT, Central Circle-4, Jaipur. If any further clarification is needed on this issue, the same may be obtained from that office.

Case records for A.Ys. 2010-11, 2011-12, 201-13 and 2013-14 (One volume each) are enclosed herewith.”

40.4 Based on the stated facts, the ld. AR of the assessee vehemently argued when in the report substantive addition is not made based on the findings of the ld. Assessing Officer how the protective addition can survive and therefore, he has submitted that the protective addition made in these cases are required to be deleted.

40.5 Similar issue we have decided in the ITA No. 41/JP/2020 where in the arguments, facts are similar in group search case and the bench noticed that the issues raised by the assessee in this cross objection are equally similar on set of facts and grounds. Therefore, it is not imperative to repeat the facts and various contentions raised by both the parties. Hence, the bench feels that the decision taken by us in ITA No. 41/JP/2020 shall apply mutatis mutandis in this case also. The relevant finding in 41/JP/2020 is extracted here in below

15. We have heard the rival contentions, submission made and relied upon relevant judicial decisions by both the party. The bench has noted that when the PEN drive find during the search proceeding no questions are raised to the parties not only that the employee from this PEN drive found, his statement is not recorded. Thus, merely from that PEN when the veracity about that evidence is not recorded no addition either protective or substantive can be made. Not only that even on the merits the addition cannot be made on two counts, one is that there is no substantiative addition in those persons who claimed to have additional interest as duly confirmed before us by the AO and secondly when the substantive addition is not made protective addition cannot survive. The amount in dispute is nothing but the amount of the additional interest demanded and not paid by the assessee. Based on the decision relied upon by the ld. AR and on careful consideration of the facts in this case we hold that the ld. AO before completing the assessments on protective basis, the AO is supposed to point out the name of the assessee who may be the owner of such income. It is common ground that in the present case, till this date, the authorities below did not bring on record any material to show that the declared income in question really belongs to some other assessee. The ld. DR honestly conceded that till this date no proceedings in respect of the disputed income have been made against any other assessee and the same is also confirmed by the AO in the report presented before us.

16. It is not disputed the findings of the ld. AO that there is no addition on substantive basis. Thus, the protective addition cannot be survived as AR of the assessee explicitly proved that whatever interest that they have paid in the group cases is duly recorded in the books of accounts and wherever applicable TDS is also deducted. As an additional interest as allegedly demanded by the parties is not paid by the assessee, even those parties are not questioned on that 2.4% found recorded in the Excel-Sheet and same were also not taxed on substantive basis. There cannot be any protective addition without making the substantive addition and Revenue did not controvert the argument of the AR of the assessee and has also not supported by any judicial decision so as to confirm the order of the lower authorities. Thus, the interest which is actually paid is duly recorded in the books of accounts and there is no other material which is found even the person under whom possession the PAN Drive is found his statement is not recorded. This action itself shows that department find this evidence as dump documents and is not evidence relied upon. The statement of the person from whom the evidence his found is also not checked on its correctness and veracity. Therefore, based on the finding that the revenue has not made any substantive addition in the persons in whose name the interest as alleged addition income is not added and the ld. AR of the assessee categorically proved that there is no incriminating other document found recording the payment of the additional interest. Based on these observations we vacate the disallowance made for an amount of Rs. 37,32,344/- made on protective basis.

40.6 Based on the above observations the cross objection No.16/JPR/2020 is allowed.

41. The issues as raised by the Department in its appeal for the assessment year 2011-12 in the case of Ramesh Kumar Mantri are similar to the issues for the assessment years 2010-11 in assessee’s own case, in the case of Shri Mukut Bihari Agarwal for A. Y. 2010-11 & 2011-12, in the case of Smt. Asha Jain, Assessment Year 2011-12, in the case of Shri Mukesh Jain, Assessment Year 2010-11 & 2011-12 in the case of Smt. Sangeeta Mantri and Assessment Year 2011-12 in the case of Smt. Sunita Agarwal for assessment year 2011-12 also wherein the order of the ld. CIT(A) has been sustained. Therefore, the decision taken by this Bench in the appeal of the Department for the assessment year 2011-12 in the case of Ramesh Kumar Mantri shall apply mutatis mutandis to the appeal of the Department in the case of Shri Ramesh Kumar Mantri for Assessment Year 2010-11, in the case of Shri Mukut Bihari Agarwal for A. Y. 2010-11 & 2011-12, in the case of Smt. Asha Jain, Assessment Year 2011-12, in the case of Shri Mukesh Jain, Assessment Year 2010-11 & 2011-12 in the case of Smt. Sangeeta Mantri and Assessment Year 2011-12 in the case of Smt. Sunita Agarwal for assessment year 2011-12 also. However, the assessee Shri Ramesh Kumar Mantri has also raised C.O. No. 16/JP/2020 against ITA No. 165/JP/2020, the decision of C.O. taken by us shall also apply mutatis mutandis in the C.O. of 15/JPR/2020 of Shri Ramesh Kumar Mantri, C.O. No. 8/JPR/2020 & 9/JPR/2020 of Shri Mukut Bihari Agarwal, C.O. No. 11/JPR/2020 of Asha Jain, C.O. No. 13/JPR/2020 & 14/JPR/2020 of Shri Mukesh Jain, C.O. No. 12/JPR/2020 of Smt. Sangeeta Mantri and C.O. No. 10/JPR/2020 of Smt. Sunita Agrwal (supra).

In the result appeals of the revenue are dismissed and the cross objections of the assessee are allowed.

Order pronounced in the open court on 26/09/2022.