Documents found during the course of first search cannot be utilized for Assessment consequent to 2nd Search

By Ajit Sharma Income Tax Judiciary September 30, 2021

TaxGuru Citation: 2021 taxguru.in 2410
Case Name: ACIT Vs Prakash Industries Ltd. (ITAT Delhi)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Related Assessment Year: 2007-08, 2008-09, 2009-10, 2010-11, 2011-12
Courts: All ITAT, ITAT Delhi

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ACIT Vs Prakash Industries Ltd. (ITAT Delhi)

Any incriminating material or documents found during the course of first search cannot be utilized while framing the assessments in pursuance of the second search in case of no assessment order passed consequence of first search

Here in this case, in the letter dated 10.03.2021 filed by the ld. DR which has also been incorporated above, the Assessing Officer himself admitted that notice under section 153A was issued on 27.06.2014 in terms of 1st search conducted on 30.10.2012, however no assessment was completed for all assessment years prior to the date of second search. The only assessment orders which have been passed for six assessment years was in relation to second search conducted on 31.03.2014 and in pursuance of notice under section 153A issued on 14.08.2014 for the Assessment Years 2008-09 to 2013-14. The Assessing Officer has failed to carry out the statutory requirement for framing/completing assessment or reassessment of total income for six assessment years in respect of the first search dated 31.10.2012. In such a situation, all the assessments which were required to be completed in terms of Section 153A qua the first search stands obliterated and return of income and the assessed income right from the Assessment Years 2007-08 to 2012-13 have attained finality.

The second core issue involved before us is, whether any incriminating material or document found during the course of first search can be utilized by framing the assessment in pursuance of second search. Admittedly, here in this case while framing the assessment, Ld. AO has referred to the documents seized during the course of first search i.e., 30.10.2012 and nothing incriminating whatsoever was found during the course of second search carried on 31.03.2014. This is clear and admitted position not only from the impugned orders but also from the material placed on record, as discussed in the foregoing paragraphs. Once, the Ld. Assessing Officer has not fulfilled his statutory duty for framing the assessment under section 153A as was mandatorily required based on incriminating seized material, then entire seized material and document and any inference drawn on basis of such seized material for computing the total income of six assessment years prior to the year of search gets perished and is fait-accompli, because of the conscious decision of the Ld. Assessing Officer not to frame the assessment order under section 153A as provided in the statute. The the seized or incriminating documents found could have only used for the purpose of assessment and reassessment u/s 153A for the stipulated 6 assessment years; and if not then its fate end there.

FULL TEXT OF THE ORDER OF ITAT DELHI

O R D E R

PER AMIT SHUKLA, JM:

The captioned appeals have been filed by the above named assessee and the revenue against seperate orders of Ld. Commissioner of Income-tax (Appeals)-30 for assessment made under section 153A/143(3) for the Assessment Years 2007-08 to AY 20 14- 15. Since common issues are permeating through all the appeals arising out of identical set of facts pertaining to the same search, therefore, same were heard together and are being disposed off by way of this consolidated order.

2. Both the parties had stated that if appeal for the Assessment Year 2010-11 is taken into consideration, i.e., in ITA No. 4066/Del/2017 and 4042/Del/2017, the same will cover most of the issues in all the appeals. For the sake of ready reference, the grounds of appeal for various years are reproduced hereunder:

2.1 Grounds of appeal raised by the revenue are reproduced as under:

ITA No.4039/Del/2017

2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in directing the A.O. to delete the addition of Rs. 8,18,311/- as unexplained expenditure on account of brokerage.

3. On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts by relying on the decision in the case of Sh. Kabul Chawla by the jurisdictional High Court which has not been accepted by the department and SLP against the same has been filed before Hon’ble Supreme Court.

4. On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts in arriving at the conclusion that the words ‘total income’ as used in Section 153A would only mean undisclosed income discovered from seized / incriminating material.

5. On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts in adopting a restrictive and pedantic interpretation of the scope of assessment u/s 1 53A of the

6. On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts in arriving at the conclusion that the words ‘total income’ as used in section 153A would only mean income unearthed during search when the decision of the Hon’ble High Court of Karnataka in the case of Canara Housing Development Company Vs. DCIT dated 09.08.2014 has held that total income includes income unearthed during search and any other income.

7. That the grounds of appeal are without prejudice to each other.

8. That the appellant craves leave to add, amend, alter or forgo any ground(s) of appeal either before or at the time of hearing of the appeal.”

ITA No.4040/Del/201 7

2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in directing the A.O. to delete the addition of Rs. 10,18,310/- as unexplained expenditure on account of brokerage.

3. On the facts and in the circumstances of the case, the Ld, CIT(A) has erred in law and on facts in directing the A.O. to restrict the addition of Rs. 1,28,70,018/- for unaccounted profit @ 1% of the total purchases of scrap to Rs. 96,52,514/- which is 0.75% of the total purchases of scrap.

4. On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts by relying on the decision in the case of Sh. Kabul Chawla by the jurisdictional High Court which has not been accepted by the department and SLP against the same has been filed before Hon’ble Supreme Court.

5. On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts in arriving at the conclusion that the words ‘total income’ as used in Section 153A would only mean undisclosed income discovered from seized / incriminating material.

6. On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts in adopting a restrictive and pedantic interpretation of the scope of assessment u/s 1 53A of the Act.

7. On the facts and in the circumstances of the case, the Ld. CIT(A) had erred in law and on facts in arriving at the conclusion that the words ‘total income’ as used in section 153A would only mean income unearthed during search when the decision of the Hon’ble High Court of Karnataka in the case of Canara Housing Development Company Vs. DCIT dated 09.08.2014 has held that total income includes income unearthed during search and any other income.

8. That the grounds of appeal are without prejudice to each other.

9. That the appellant craves leave to add, amend, alter or forgo any ground(s) of appeal either before or at the time of hearing of the appeal.

ITA No.4041/Del/201 7

1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in directing the A.O to delete the addition made u/s 68 of the I.T. Act on account of unexplained cash credits amounting to Rs 22,82,10,000/- on protective basis and Rs. 77,85,000/- on substantive basis.

2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in directing the A.O. to delete the addition of Rs. 11,79,975/- as unexplained expenditure on account of brokerage.

7. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in directing the A.O. to restrict the addition of Rs. 2,27,06,450/- for unaccounted profit @ 1% of the total purchases of scrap to Rs. 1,70,29,838/- which is 0.75% of the total purchases of scrap.

8. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in directing the-A.O. to restrict the addition of Rs. 49,02,650/- for unaccounted income on purchase of bazaar/ kabad @ 1% to Rs. 36,76,987/- which is @ 0.75%.

9. That the grounds of appeal are without prejudice to each other. That the appellant craves leave to add, amend, alter or forgo any ground(s) of appeal either before or at the time of hearing of the appeal.

ITA No.4042/Del/2017

1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts indirecting the A.O. to delete the addition made u/s 68 of the I.T. Act on account of unexplained cash credits amounting to Rs. 21,17,69,200/- on protective basis and Rs. 20,40,70,800/- on substantive basis without appreciating the facts brought on record by the A.O.

2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in directing the A O. to delete the addition of Rs. 20,79,200/- as unexplained expenditure on account of brokerage without appreciating the facts brought on record by the A.O.

3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in directing the A.O. to delete the addition of Rs. 23,99,260/- made on the basis of electronic data seized during the search relating to purchase of land.

4. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in directing the A.O. to delete the addition of Rs. 76,35,72,743/- made on account of shifting of taxable profit from steel division to exempted profit of power division by charging higher rates of power generated.

5. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in directing the A.O. to restrict the addition of Rs. 1,39,28,065/- for unaccounted profit @ 1% of the total purchases of scrap to Rs. 1,04,46,052/- which is 0.75% of the total purchases of scrap.

6. That the grounds of appeal are without prejudice to each other.

7. That the appellant craves leave to add, amend, alter or forgo any ground(s) of appeal either before or at the time of hearing of the appeal.

ITA No.4043/Del/2017”

1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in directing the A.O. to delete the addition made u/s 68 of the I.T. Act on account of unexplained oasn credits amounting to Rs. 1 5,81,65,000/- without appreciating the facts brought on record by the A.O.

2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in directing the A.O. to delete the addition of Rs. 7,90,825/- as unexplained expenditure on account of brokerage without appreciating the facts brought on record by the Assessing Officer.

3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in directing the A.O. to delete the addition of Rs. 4,46,600/- made on the basis of electronic data seized during the search relating to purchase of land.

4. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in directing the A.O. to delete the addition of Rs. 52,80,20,878/- made on account of shifting of taxable profit from steel division to exempted profit of power division by charging higher rates of power generated.

5. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in directing the A.O to restrict the addition of Rs. 41,68,654/- for unaccounted profit @ 1% of the total purchases of scrap to Rs. 3 1,26,490/- which is 0.75% of the total purchases of scrap.

6. That the grounds of appeal are without prejudice to each other.

7. That the appellant craves leave to add, amend, alter or forgo any ground(s) of appeal either before or at the time of hearing of the appeal.”

2.2 Grounds of appeal raised by the assessee are reproduced as under:

ITA No.4064/Del/2017

1. That on the facts and in the circumstances of the appellant’s case, the Ld. CIT (A) has erred both on facts and in law in confirming addition of Rs 3,11,000/- u/s 69C merely on the basis certain documents seized during the course of search at third party by holding content of seized documents, Annexure, A-2 and A-6, as true, which were lack of reliability since these were unsigned / undated without bringing any material on record in support of his contention.

2. That on the facts and in the circumstances of the appellant’s case, the Ld. CIT(A) has erred both on facts and in law in confirming addition of Rs 2,46,82,226/- being average of seven days scrap purchases u/s 69C by holding the opinion of the AO as justified, whereas he himself accepted that the addition were made on estimated basis only.

3. That on the facts and in the circumstancesof the appellant’s case, the Ld. CIT(A) has erred both on facts and in law in confirming addition to the extent of Rs 96,52,514/- by estimating 75% unrecorded profit on scrap purchase as against 1% estimated by the AO without there being any basis for their estimation.

4. That onthefacts andin the circumstancesof the appellant’scase, theLd. CIT(A) has erred in law in confirming addition of Rs 2,46,82,226/- u/s 69C and Rs. 96,52,514/- being 0.75% unrecorded profit on scarp purchased on estimation basis in search case u/s 132 of the Act, even without bringing any cogent material on record.

5. Thatonthefacts andin the circumstancesof the appellant’scase, theLd. CIT(A) has erred both on facts and in law in confirming estimated addition of Rs 2,46,82,226/- u/s 69C and Rs. 96,52,514/- being 0.75% unrecorded profit on scarp purchased even though he himself accepted.

(a) that copies of statements, seized documents and enquiry report received from Investigation Wing of Income tax deptt. relied upon by the AO, were never confronted and cross-examination of the deponent were also not provided.”

ITA No.4065/Del/2017

1. That on the facts and in the circumstances of the appellant’s case, the Ld. CIT (A) has erred both on facts and in law in confirming addition of Rs 4,19,250/- u/s 69C merely on the basis certain documents seized during the course of search at third party by holding content of seized documents, Annexure, A-2 and A-6, as true, which were lack of reliability since these were unsigned / undated without bringing any material on record in support of his

2. That on the facts and in the circumstances of the appellant’s case, the Ld. CIT (A) has erred both on facts and in law in confirming addition of Rs 1,88,64,391/- being average of seven days scrap purchases u/s 69C by holding the opinion of the AO as justified, whereas he himself accepted that the addition were made on estimated basis only.

3. That on the facts and in the circumstances of the appellant’s case, the Ld. CIT(A) has erred both on facts and in law in confirming addition to the extent of Rs 1,70,29,838/- by estimating 0.75% unrecorded profit on scrap purchase as against 1% estimated by the AO without there being any basis for their estimation.

4. That on the facts and in the circumstances of the appellant’s case, the Ld. CIT (A) has erred both on facts and in law in confirming addition to the extent of Rs 36,76,987/- by estimating 75% unaccounted income on alleged investment in bazar/kabad scrap as against 1 % estimated by the AO without there being any basis for their estimation.

5. That on the facts and in the circumstances of the appellant’s case, the Ld. CIT(A) has erred in law in confirming addition of Rs 1,88,64,391/- u/s 69C and Rs. 1,70,29,838/- and Rs. 36,76,987/- being 0.75% unrecorded profit on scarp purchased and bazar/kabad scrap on estimation basis in search case u/s 132 of the Act, even without bringing any cogent material on record.

6. That on the facts and in the circumstances of the appellant’s case, the Ld. CIT (A) has erred both on facts and in law in confirming estimated addition of Rs 1,88,64,391/- u/s 69C and Rs. 1,70,29,838/- and Rs. 36,76,987/- being 0.75% unrecorded profit on scarp purchased and bazar/kabad scrap even though he himself accepted –

(a) that copies of statements, seized documents and enquiry report received from Investigation Wing of Income tax deptt. relied upon by the AO, were never confronted and cross-examination of the deponent were also not provided.

(b) that unregistered dealers of scrap, transporters, truck owners, suppliers have retracted from their earlier statements relied upon by AO during cross- examination before the Excise department.

ITA No.4066/Del/2017

1. That on the facts and in the circumstances of the appellant’s case, the Ld. CIT (A) has erred both on facts and in law in confirming addition of Rs 11,78,500/- u/s 69C merely on the basis certain documents seized during the course of search at third party by holding content of seized documents, Annexure, A-2 and A-6, as true, which were lack of reliability since these were unsigned / undated without bringing any material on record in support of his

2. That on the facts and in the circumstances of the appellant’s case, the Ld. CIT (A) has erred both on facts and in law in confirming addition to the extent of Rs 1,04,46,052/- by estimating 75% unrecorded profit on scrap purchase as against 1% estimated by the AO without there being any basis for their estimation.

3. That on the facts and in the circumstances of the appellant’s case, the Ld. CIT (A) has erred in law in confirming addition of Rs. 1,04,46,052/- being 0.75% unrecorded profit on scarp purchased on estimation basis in search case u/s 132 of the Act, even without bringing any cogent material on record.

4. That on the facts and in the circumstances of the appellant’s case, the Ld. CIT (A) has erred both on facts and in law in confirming estimated addition of Rs. 1,04,46,052/- being 0.75% unrecorded profit on scarp purchased even though he himself accepted –

(b) that unregistered dealers of scrap, transporters, truck owners, suppliers have retracted from their earlier statements relied upon by AO during cross- examination before the Excise department.”

ITA No.4067/Del/201 7

1. That on the facts and in the circumstances of the appellant’s case, the Ld. CIT (A) has erred both on facts and in law in confirming addition to the extent of Rs 3 1,26,490/- by estimating 75% unrecorded profit on scrap purchase as against 1% estimated by the AO without there being any basis for their estimation.

2. That on the facts and in the circumstances of the appellant’s case, the Ld. CIT (A) has erred in law in confirming addition of Rs. 3 1,26,490/- being 0.75% unrecorded profit on scarp purchased on estimation basis in search case u/s 132 of the Act, even without bringing any cogent material on record.

3. That on the facts and in the circumstances of the appellant’s case, the Ld. CIT (A) has erred both on facts and in law in confirming estimated addition of Rs. 3 1,26,490/- being 0.75% unrecorded profit on scarp purchased even though he himself accepted –

That the appellant craves leave to add, amend or alter any of the grounds of appeal.”

ITA No.4068/Del/2017

1. That on the facts and in the circumstances of the appellant’s case, the Ld. CIT (A) has erred both on facts and in law in confirming addition to the extent of Rs 1 5,22,408/- by estimating 75% unrecorded profit on scrap purchase as against 1% estimated by the AO without there being any basis for their estimation.

2. That on the facts and in the circumstances of the appellant’s case, the Ld. CIT (A) has erred in law in confirming addition of Rs. 1 5,22,408/- being 0.75% unrecorded profit on scarp purchased on estimation basis in search case u/s 132 of the Act, even without bringing any cogent material on record.

3. That on the facts and in the circumstances of the appellant’s case, the Ld. CIT (A) has erred both on facts and in law in confirming estimated addition of Rs. 15,22,408/- being 0.75% unrecorded profit on scarp purchased even though he himself accepted –

That the appellant craves leave to add, amend or alter any of the grounds of appeal.”

ITA No.4069/Del/2017

1. That on the facts and in the circumstances of the appellant’s case, the Ld. CIT (A) has erred both on facts and in law in confirming addition to the extent of Rs 19,87,987/- by estimating 75% unrecorded profit on scrap purchase as against 1 % estimated by the AO without there being any basis for their estimation.

2. That on the factsand in the circumstances of the appellant’s case, the Ld. CIT(A) has erred in law in confirming addition of Rs. 19,87,987/- being 0.75% unrecorded profit on scarp purchased on estimation basis in search case u/s. 132 of the Act, even without bringing any cogent material on record.

3. That on the facts and in the circumstances of the appellant’s case, the Ld. CIT (A) has erred both on facts and in law in confirming estimated addition of Rs. 19,87,987/- being 0.75% unrecorded profit on scarp purchased even though he himself accepted –

That the appellant craves leave to add, amend or alter any of the grounds of appeal.”

ITA No. 4070/Del/2017

1. That on the facts and in the circumstances of the appellant’s case,the Ld.CIT(A) has erred both on facts and in law in confirming addition to the extent of Rs 7,41,523/- by estimating 75% unrecorded profit on scrap purchase as against 1 % estimated by the AO without there being any basis for their estimation.

2. That on the facts and in the circumstances of the appellant’s case, the Ld. CIT(A) has erred in law in confirming addition of Rs. 7,41,523/- being 0.75% unrecorded profit on scarp purchased on estimation basis in search case u/s 132 of the Act, even without bringing any cogent material on record.

3. That on the facts and in the circumstances of the appellant’s case, the Ld. CIT(A) has erred both on facts and in law in confirming estimated addition of Rs. 7,41,523/- being 0.75% unrecorded profit on scarp purchased even though he himself accepted –

That the appellant craves leave to add, amend or alter any of the grounds of appeal.”

3. For the sake of ready reference and convenience year-wise additions are summarized as under: