Rejection of special auditor report without specifying reasons inexplicable

DCIT Vs Natural Food Products (ITAT Chennai)

ITAT Chennai held that in the present case AO himself referred the matter for special audit u/s 142(2A), however, report of special auditor was later rejected without assigning any reasons for the same is in explicable.

Facts- The Appellant is engaged in the business of trading of eggs, dhal, oil and sugar. The main product supplied by the appellant during the period was Egg (hen) which was supplied as per the terms of the contract entered with ICDS and Noon Meal Scheme of Govt. of Tamil Nadu.

A search and seizure, u/s. 132 of the Income Tax Act was conducted on 5-7-2018 in the premises of the appellant. During the course of search on 5-7-2018, a statement u/s. 132(4) is said to have been recorded from Mr.T.Gnanasekaran Accounts Manager.

A notice u/s. 153C of the Act was issued. In response to the said notice, the assessee has filed return of income for Asst. Years 2015-16 to 2018-19 and for Asst. year 2010-11 on 03-08- 2021 and declared total income which has been declared in the return of income filed u/s. 139(1) of the Act for all assessment years. The case was selected for scrutiny. Special audit was directed, however, AO rejected the audit report and made additions towards undisclosed income on account of profit earned from bogus bought note purchase and sales and also made addition towards income generated from transaction with dummy entries.

CIT(A) deleted additions towards bogus purchases through dummy entries, whereas, enhanced the assessment and directed the AO to make additions towards unexplained expenditure u/s. 69C of the Act, as per supplementary special audit report issued by the auditor and quantified unexplained expenditure in respect of unidentified entries in Erandamthall and apportioned to the appellant and three entities and for all assessment years. Being aggrieved, both revenue and assessee has preferred the present appeal.

Conclusion- In our considered view, the AO did not bring any evidence on record in respect of alleged manipulation of supply quantities by making necessary enquiries with the relevant Govt. departments. Therefore, we are of the considered view that these reasons cited by the AO are unfounded. Further, as could be seen from the discussion in the appellate order, the CIT(A) has given detailed factual reasons in support of his finding that the rejection of first special audit report by the AO is not sustainable. The revenue has not disputed even a single fact finding of the CIT(A) given based on analysis and appreciation of the facts and circumstances of the case and the contents of the first special audit report. In view of this, the contention of the revenue that the CIT(A) erred in holding that the rejection of first special audit report by the AO is not sustainable is false, baseless and total non-application of mind by the AO.

Held that having proposed examination of contents of Erandamthall by the special auditor, the AO completely ignored the special auditor’s report dated 15.04.2021 while completing the assessments. The AO did not even mention the fact that a report was called for from the special auditor on this issue in the assessment orders. The AO remained completely silent with regard to the said report and its contents. This is surprising since the AO himself referred the matter for special audit u/s 142(2A) and obtained the report in pursuance thereof. The AO has not made any discussion in the assessment order regarding the reasons for not accepting the said report. In this factual background, the disregarding of the report of the special auditor obtained subsequently without assigning any reasons for the same is inexplicable and the said action of the AO only adds strength to the appellant’s contention regarding the mechanical manner of adopting the quantification of unaccounted expenditure based on entries in Erandamthall made during the course of search, without addressing various objections and contentions of the appellant. The report of the special auditor obtained by invoking the provisions of the Act could not have been ignored and disregarded by the AO, without specifying the reasons for doing so in the assessment orders.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

1. This bunch of Nine cross appeals filed by the assessee and, as well as the Revenue are directed against common order passed by the ld. Commissioner of income tax (Appeals)-19, Chennai, dated 03-09-2022 and pertains to Asst. Year 2010-11, 2015-16 to 2018­19. Since, facts are identical and issues are common, for the sake of convenience, these cross appeals filed by the assessee and the Revenue are being heard and disposed off together, by this consolidated order.

2. The assessee has more or less raised common grounds of appeal for Asst. Years2015-16 to 2018-19. Therefore, for the sake of brevity, grounds of appeal filed in ITA No. 880/Chny/2022 for the Asst. Year 2015-16 are reproduced as under:

1. The order of the learned CIT(A) in so far as it is against the Appellant is contrary to law, erroneous and unsustainable on the facts and in the circumstances of the case.

2. The learned CIT(A) is erred in not appreciating that without reason to believe and without warrant of authorization required to be issued in the case of the appellant, search & seizure and subsequent proceedings including issuance of notice U/s 153C is bad in law.

3. The learned CIT(A) is erred in not appreciating that the illegalities in conducting search and seizure proceedings as against the appellant is bad in law.

4. The leaned CIT (A) ought to have held that issuance of notice u/s 153C of Income Tax, 1961 and subsequent assessment proceedings are without authority and without jurisdiction on any and each of the following grounds;

a. The transfer of file from jurisdiction Namakkal to Central Circle, Chennai is not in accordance with law as laid down u/s 127 of income Tax, 1961.

b. As per section 132(1) r/w 132(9A) of Income Tax, 1961 the materials handed over to the Assistant Commissioner of Income Tax, Central Circle – 2(1) is without jurisdiction. In such a scenario, the materials become nonexistent in the eyes of law before the assessing officer under Section 153A thereby issuance of notice u/s 153C of Income Tax, 1961 is illegal.

c. without prejudice to the legal position taken by the appellant as stated above the material has been handed over to the Assistant Commissioner Income Tax central circle 2(1) beyond the mandatory period of 60 days contemplated u/s 132(9A), thereby the materials are non-existent as per law.

d. Clause 1.3 of the circular F._ No: 286/161/2006-IT (Inv.II) dated 22/12/2006 on the receipt of the material examination note required to be prepared jointly by the range head and the Assessing Officer for issuing the notice u/s 153A or 153C of Income Tax Act, 1961 as the case may be. However, in our case, without preparation of examination note, the notice was issued u/s 153C of Income Tax Act, 1961, thereby the notice and the subsequent proceedings are illegal.

e. When the entire issues are pending before Authority of Advance Ruling, Mumbai, the assessment order has been passed without any jurisdiction and the same is therefore illegal.

5. The learned CIT(A) ought to have held that the entire assessment order is based on the statements of the employees and third parties were recorded during the search proceedings and the same do not carry any evidentiary value and cannot be held against the appellant as the same were retracted within reasonable time on the ground that they were pre-drafted statements obtained under coercion, threat and physical abuse and particulars and facts are contradictory within the statements, hence all such statements relied by the revenue have lost it evidentiary value, thereby the assessment order is illegal.

6. The learned CIT(A) erred in upholding the legality of the assessment order though the assessing officer proceeded to exercise the jurisdiction and pass the assessment order without complying the mandatory provisions of section 124(4) of Income Tax Act, 1961 in response to the objection to his jurisdiction filed by the appellant within the time specified under section 124(3) of Income Tax Act, 1961.

7. The learned CIT(A) ought to have held that the assessment order is null and void in view of Sec 153D on any and each of the following grounds:

a. The approval u/s. 153D of Income Tax Act, 1961 which is contrary to the deviation note endorsed by learned Addl. Commissioner and the approval was given mechanically and without application of mind particularly when the Assessing Officer declined to provide a copy of the deviation note during remand proceedings.

b. The approval has not been accorded as per the procedure laid down under F.No: 286/161/2006-IT (Inv.II) dated 22/12/2006.

c. The learned Addl. Commissioner neither discussed the illegalities raised by the Appellant nor applied his mind that the Assessing Officer also failed to consider independently the illegalities agitated by the Appellant in the draft assessment order while according the approval, thereby the approval and assessment order fails.

d. While giving the approval, the Addl. Commissioner failed to apply his mind that in the draft assessment order, the Assessing Officer has indicted the Appellant based on certain evidence which have not been raised in the Show Cause Notice. This apparent flaw on the part of Addi. Commissioner makes the approval and assessment order illegal.

e. Instead of giving approval u/s 153D of Income Tax Act, 1961, after examining the draft assessment order submitted by the Assessing Officer, as against law, the Addl. Commissioner directed to incorporate certain alleged findings on suo moto basis without any proposal from Assessing Officer or examination of said findings by the Assessing Officer or giving any opportunity to the Appellant. Even assuming the direction was given u/s 144A of Income Tax Act, 1961 any such direction without providing any opportunity to the Appellant is unlawful. Hence the approval and assessment order fail.

f. While giving the approval u/s 153D of Income Tax Act, 1961 the Addl. Commissioner of Income Tax, failed to apply his mind that issuance of notice u/s 153C of Income Tax Act, 1961 is not in accordance with law. Hence the approval and the assessment order fail.

g. When the matter is pending before Authority of Advance Ruling, Mumbai the approval given by the Addl. Commissioner u/s 153D of Income Tax Act, 1961 is against law thereby the approval and the assessment order fails.

h. The Addl. Commissioner failed to apply his mind that the Assessment orders have been proposed for approval is nothing but verbatim of appraisal report in terms of analysis and estimation of undisclosed income. The Addl. commissioner failed to appreciate or consider any piece of explanation submitted by the Appellant. It establishes total non-application of mind while giving approval. Hence the assessment order fails.

i. While giving the approval, the Addl. Commissioner failed to apply his mind that the Assessing -Officer have not provided the entry wise undisclosed income of Rs.2056 Crs as allegedly computed by the employees and confirmed by the Appellant and imposed against the Appellant, thereby the approval and the assessment order fails.

j. While giving the approval, the Addl. Commissioner failed to apply his mind that the Assessing Officer has determined the undisclosed income of Rs. 2056 Crs neither based on mercantile system nor based on cash system, hence the approval fails.

k. While giving the approval, the Addi. Commissioner failed to apply his mind that as against law, without providing the alleged incriminating materials to the Appellant, the Assessing Officer directed to file the return of income, thereby the approval fails.

l. While giving the approval, the Addi. Commissioner failed to apply his mind that the Assessing Officer has rejected the Special audit report without approval of the sanctioning authority who has ordered the Special audit and failed to appreciate reason for rejection is untenable, thereby the approval and the assessment order fails.

m. While giving the approval, the Addl. Commissioner failed to apply his mind that the Assessing Officer has not examined and given any appropriate finding in the draft assessment order (final assessment order) as to who has maintained or made entries in the “Erandaam Thall”, which is instrumental for imposing undisclosed income, in a situation where there are contradicting statements recorded u/s 132(4) of Income Tax Act, 1961, in this regard, as detailed above, thereby the approval fails.

n. While giving the approval, the learned Addl. Commissioner failed to apply his mind that the electronic devices namely “Erandaam Thaal” which have been the instrumental for arriving undisclosed income have not been vouched by the person namely Karthikeyan from whom the said device has been seized, thereby approval fails.

o. While giving the approval by the Addl. Commissioner, there was no application of mind on the part of the Addl. Commissioner in granting approval under sec 153D for each assessment year separately.

p. Approval have been given without application of mind in a situation where assessment have been made based on the disputed statements of third parties and employees as admission of undisclosed income when such statements have not been admitted or concurred by the Appellant.

8. The CIT(A) failed to appreciate that for application of section 69C the parameters set therein in the provisions have to be satisfied in as much as the appellant incurring the alleged expenditure has not been established for the purpose of making the addition, invoking section 69C was not in accordance with law.

9. The learned CIT(A) has erred in law and in facts in enhancing the addition of Rs.9,15,71,466 u/s 69C of the Income Tax Act 1961.

10. The learned CIT(A) erred in directing the adoption of unexplained expenditure u/s 69C on the basis of the special audit report in respect of the contents of “Erandam Thall” without appreciating that the seized electronic record represented by the “Erandam Thall” is dumb document and it is inadmissible as evidence in view of non­compliance to the mandatory requirement of section 65B of the Evidence Act, 1872 and other mandatory requirements which are also applicable to the proceedings under the Income Tax Act.

11. The learned CIT(A) erred in apportioning the unmatched expenditure as per “Erandam Thall” of Rs. 211.37 crores for AV 2012-13 to 2018-19 arrived at in the special audit report dated 15.04.2021 to the appellant and three other associate concerns, purely on the basis of estimation and without giving a finding based on evidence as to the person who incurred the said expenditure, which is impermissible for making addition u/s 69C of the Income Tax Act 1961 in the assessment made u/s153C of the Income Tax Act 1961.

12. The learned CIT(A) erred in relying on unmatched entries in “Erandam Thall” representing the unmatched expenditure Rs. 211.37 crores for AY 2012-13 to 2018-19 quantified in the special audit report dated 15,04.2021, as the said entries were neither ‘speaking one’ nor supported by corroborative evidences regarding actual incurring of such expenditure and hence were unreliable for making addition u/s 69C of Income Tax Act, 1961.

13. The learned CIT(A) erred in upholding the legal validity of the satisfaction recorded by the assessing officer for assuming the jurisdiction to issue notice u/s 153C ignoring the fact that there is under reporting of income in comparison to the net profit as per seized tally account is not borne out by the facts on record as the returned income is higher than the said net profit as evident from the satisfaction note itself.

14. Each ground is requested to be read independently and without prejudice to each other.

15. The Appellant craves leave to add to, alter, amend or vary the aforesaid grounds of appeal at or before the time of hearing.

16. That the appellant prays leave to adduce such further evidence to substantiate its case as the occasion demands.”

3. The revenue has, more or less raised common grounds of appeal for the Asst. Year 2010-11, 2015-16 to 2018-19. Therefore, for the sake of brevity, grounds of appeal filed in ITA No. 906/Chny/2022 for Asst. Year 2010-11 are reproduced as under:

1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.

2. The Ld.CIT(A) erred in holding that the retraction of statement made by the assessee, his employees and other associated persons as valid and acceptable, though the retractions were filed after reasonable time of 90 days. The CIT(A) ought to have appreciated that the statements recorded during July 2018 were retracted in January 2019, which proves that the retraction was merely an afterthought.

2.1 The Ld.CIT(A) erred in failing to appreciate that the assessee has not proved that the statements were recorded under duress, coercion and other adverse circumstances.

2.2 The Ld.CIT(A) failed to appreciate that the retractions made by the assessee, employees and other persons are without basis and no other credible explanation backed by evidences have been offered with regard to the incriminating material found and seized during the search.

2.3 The Ld.CIT(A) ought to have appreciated that in the case of earlier search assessment of assessee’s own group case (Block assessment 1986-87 to 1996-97) in T.S.Kumarasamy Vs ACIT (98) 65 ITD 188 (Madras), the Hon’ble High Court held that no ground for coercion or duress or any ground for the involuntary statement was made by the assessee in his retraction, following the decision of the Hon’ble Supreme Court of India in the case of Shri.surjeet Singh Chhabra vs UOI (97) 1 SCC 508.

3. The Ld.CIT(A) erred in holding that the notice u/s.153C issued for this assessment year, in violation to fourth proviso to sec.153A(1) r.w.s 153C, is legally unsustainable and annulling the consequent assessment order u/s.143(3) r.w.s.153C.

3.1 The Ld CIT(A) erred in failing to appreciate that the assessee group indulged in generating unaccounted income over the years and incurring unexplained expenditure also as a going concern. The income generated over the years was kept in the form of cash, which was evidenced by the fact that the assessee group has offered 261.29 Crores under PMGKY and IDS Scheme.

3.2 The Ld CIT(A) failed to appreciate that the assessee has kept unaccounted income generated over the years in the form of Cash, which is an asset and further as per the explanation 2 to fourth proviso to Sec.153A, definition of asset is inclusive one.

3.3 The Ld.CIT(A) failed to appreciate that during the course of search total cash of Rs.16 Crores was found &seized in this group which proved that the assessee has generated asset in the form of cash over the years. As such, satisfaction of the conditions mentioned in the fourth proviso to Sec.153A (1) r.ws 153C were recorded before issue of notice u/s.153C.

4. The ld.CIT(A) erred in deleting the addition of Rs.3,10,93,420/- made toward undisclosed income, being the difference of income reported between ITR and total actual income quantified as per tally data seized plus net of bogus purchases and sale through bought notes

4.1 The Ld.CIT(A) erred in failing to appreciate that Smt. R.Anandhi, in her sworn statement u/s.1324) dated 07/07/2018 admitted that the difference between the income as per tally accounts and income reported in ITRs was the unaccounted income generated. The CIT(A) erred in failing to appreciate that the statements were recorded without any coercion or undue influence. The retractions of statements are merely after thought and without any basis.

4.2 The Ld.CIT(A) failed to appreciate that the use of bought notes for inflation of purchases has been confirmed by Smt. R.Anandhi, CA in her sworn statement and it has been further strengthened by statement of Shri.T.Gnasekaran.

4.3 The Ld.CIT(A) erred in accepting the assessee’s contentions in deleting the addition made towards net of bogus purchases and sales. The assessing officer has clearly brought out in the assessment order that same lorry number was used for continuous bogus bought note purchases and for bogus purchases, only a consolidated entry made day-wise in the tally without any supporting documents.

5. The Ld.CIT(A) erred in holding that the rejection of the first special audit report u/s.142(2A) and complete disregarding of the second special audit report by the assessing officer is not legally sustainable.

5.1 The CIT(A) erred in failing to appreciate that the Special Auditor stated to have conducted independent enquiries which were beyond the mandate of the special audit and he had to rely on the information furnished by the assessee himself, which are false and contradictory, considering the ITR opening &Closing stock balances and the tally data that is seized.

5.2 The CIT(A) failed to appreciate that the Special Auditor who is not privy to the confidential findings of the search, could not provide a true & correct picture, as the assessee’s modus operandi of manipulation was not in the domain of knowledge of the Special Auditor.

5.3 The ld.CIT(A) erred in failing to appreciate that the Special Auditor starts with the proposition that the final product as reported by the assessee is a true and correct picture and then proceeds to work out the expenses by applying an estimate of expenses that would have been reasonably incurred to produce that amount of finished product. But it is proved in the findings of search, that the assessee manipulates both qualitative and quantitative part of production and sales.

6. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored.

4. The Brief facts of the case are that, the appellant was a partnership firm registered under the Indian Partnership Act. The appellant’s firm was converted into a Private Limited Company with the same partners as shareholders on 13/07/2021 under the Companies Act, 2013. The Appellant is engaged in the business of trading of eggs, dhal, oil and sugar. The main product supplied by the appellant during the period was Egg (hen) which was supplied as per the terms of the contract entered with ICDS and Noon Meal Scheme of Govt. of Tamil Nadu. The appellant also supplies dhal, palmolin oil and sugar, etc., to Tamil Nadu Civil Supplies Corporation through tenders and also to other buyers. The assessee Company has filed return of income u/s 139(1) of the Income Tax Act, 1961 for all assessment years.

5. A search and seizer, u/s.132 of the Income Tax Act, 1961 was conducted on 5-7-2018 in the premises of the appellant at Chinnaveppanatham Vasanthapuram Post, Namakkal in connection with the case of Mr T.S.Kumarasamy/ K.Nalinasundari. During the course of search on 5-7-2018, a statement u/s 132(4) is said to have been recorded from Mr.T.Gnanasekaran Accounts Manager. Further, the registered office premise of the Appellant situated at Kuttakadu, Rasipuram, Namakkal was searched on 05.07.2018 and a statement u/s 132(4) is said to have been recorded from the same Mr. Gnanasekaran. Subsequently, searches at both the premises were finally concluded on 06.07.2018 as per the panchanama dated 06.07.2018. Based on the Satisfaction note dated 5.07.2019, notices under section u/s.153C of the Act, dated 9.07.2019 for AY: 2015-16 to 2018-19 and dated 27.07.2021 for AY 2010-11 was issued and called upon the Appellant to prepare true and correct return of total income. In response to the said notice issued u/s. 153C of the Act, the assessee has filed return of income on 22-07-2019 for Asst. Years 2015-16 to 2018-19 and for Asst. year 2010-11 on 03-08­2021 and declared total income which has been declared in the return of income filed u/s. 139(1) of the Act for all assessment years. The case has been selected for scrutiny and during the course of assessment proceedings, the Assessing Officer considering the voluminous data found during the course of search and complexity involved in accounts of the assessee, directed the assessee to get its accounts audited u/s. 142(2A) of the Act. The special auditor appointed in terms of section 142(2A) of the Act, has submitted their audit report for all assessment years vide their audit report dated 03-12-2020. A further reference was made to special auditor to verify and submit report on voluminous data found during the course of search, including Erandamthall. The special auditor, vide their audit report dated 15-04-2021 has submitted supplementary audit report and commented upon the correctness and authenticity of documents found during the course of search and has also verified entries recorded in Erandamthall and further, identified unmatched/unidentified entries in Erandamthall and suggested those unidentified entries may be treated as unexplained expenditure. The Assessing Officer, has rejected the special audit report submitted by the auditor in terms of section 142(2A) of the Act, and completed the assessment on the basis of various incriminating documents found during the course of search coupled with statements recorded form the assessee and its employees and made additions towards under reporting of income towards difference between net profit as per seized tally accounts and net profit reported by the assessee in ITR Form filed for the assessment years 2010-11, 2015-16 to 2018­19, on the ground that the assessee has under-reported its income when compared to net profit as per seized tally data. The Assessing Officer had also made additions towards undisclosed income on account of profit earned from bogus bought note purchase and sales for assessment years 2010-11, 2015-16 to 2018-19. Similarly, the AO had also made additions towards income generated from transaction with dummy entities for the assessment years 2017-18 & 2018-19.

6. Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the ld. CIT(A), the assessee has challenged the assessment order passed by the AO u/s. 143(3) r.w.s. 153C of the Act, on various grounds, including legality of search conducted and consequent assessment proceedings, jurisdiction of the AO in assessing the income of the assessee, satisfaction recorded by the AO for issue of notice u/s. 153C of the Act for assessment years 2010-11, 2015-16 to 2018-19. The assessee had also challenged approval granted by the Additional/Joint Commissioner in terms of section 153D of the Act, on the ground that before according approval, the authority did not apply his mind to relevant materials and books of accounts found during the course of search which vitiates the entire assessment proceedings. The assessee had also challenged additions made by the AO towards under reporting of income as per seized tally data and ITR filed for assessment years 2010-11, 2015-16 to 2018-19, additions towards difference between bought notes purchases and bought note sales, for assessment years 2015-16 & 2016-17, and also additions of unaccounted income arising from bogus purchases through dummy entities and sales for assessment years 2017-18 & 2018-19. The Assessing Officer while completing the assessment has proceeded to assess the assessee on the basis of “No Accounts Case”. But, the appellant is a company registered under the Companies Act, 1956 is statutorily required to Audit its books and has been maintaining its Books of Accounts in Tally Software and has also filed the tax audit reports as per section 44AB of the act, while filing the income tax return under section 139 of the act. The appellant complied with relevant provisions of Companies Act, Income Tax Act and other laws before the relevant authorities.

7. The ld. CIT(A), after considering relevant submissions of the assessee and also taken note of various reasons given by the AO to make various additions in the assessment order, partly allowed appeal filed by the assessee, where in respect of assessment for assessment year, 2010-11, the CIT(A) held that assessment order passed by the AO for the assessment year 2010-11 is invalid, void, ab-initio and liable to be quashed, because in order to assess the income for a period beyond six years, there should be an undisclosed income of specified amount in terms of forth proviso to section 153A(1) of the Act. Since, the AO fails to make out a case of undisclosed income beyond specified amount in respect of this assessment year, the conditions prescribed under forth proviso to section 153A(1) of the Act are not satisfied and thus, the notice issued u/s. 153C for assessment year 2010-11, in violation of the provisions of forth proviso to section 153A(1) is bad in law and unsustainable. Consequently, the assessment order passed by the AO for assessment year 2010-11 is annulled. Further, the CIT(A), upheld notice u/s 153C and consequent assessment for Asst. year 2015-16, on the ground that satisfaction recorded by the Assessing Officer for issue of notice is valid, because the Assessing Officer had the benefit of seized tally accounts and as per said seized account, there is difference between net profit as per books and net profit reported in ITR filed for relevant assessment year. But, for 2016-17 to 2018-19, the CIT(A) held that notice issued u/s 153C of the Act, is invalid on the ground that conditions prescribed for issue of notice are not satisfied. Further, the CIT(A), had also deleted additions made by the AO towards under reporting of income, being difference between net profit as per seized tally accounts and income reported in ITR filed for the assessment years 2010-11, 2015-16 to 2018-19, by holding that the assessee could able to reconcile difference between total income reported in ITR filed for the relevant assessment year and net profit as per seized tally data. Similarly, the CIT(A) deleted additions made by the AO towards undisclosed income on account of transaction from bought note purchases and bought note sales for Asst. years 2016-17 and 2017-18 on the ground that undisclosed income computed by the assessee is not based on incriminating material found during the course of search, because the seized bought notes does not belong to the assessee. The CIT(A) had also deleted additions towards bogus purchases through dummy entities for assessment year 2017-18 and 2018-19. But, the ld. CIT(A) has enhanced the assessment and directed the AO to make additions towards unexplained expenditure u/s. 69C of the Act, as per supplementary special audit report issued by the auditor and quantified unexplained expenditure in respect of unidentified entries in Erandamthall and apportioned to the appellant and three entities and for all assessment years. Aggrieved by the order of the Ld.CIT(A), the assessee and the revenue are in appeal before the Tribunal for assessment year 2010-11, 2015-16 to 2018­19.

8. The first issue that came up for consideration from assessee appeal for Asst years 2015-16 to 2018-19 is legality of search conducted u/s 132 of the Act and consequent assessment proceedings in light of jurisdiction of the assessing officer and transfer of case from one assessing officer to another officer in violation of relevant provisions. The assessee had also challenged assessment proceedings and consequent additions made in the assessment on various issues in light of sworn statements recorded from various persons.

9. The ld. Counsel for the assessee submits that the assessment order is vitiated on the ground of lack of jurisdiction u/s 127 of the Act. In this regard, the attention is invited to the Notification No.17/2018-19 dated 29.01.2019 regarding transferring of Jurisdiction of appellant’s case from ACIT, Circle-I, Namakkal to DCIT, Central Circle-2(1), Chennai. The ld. Counsel further referring to sequence of events submits that a proposal was received from Director General Income Tax (Investigation), Chennai an officer of the rank of Chief Commissioners of Income Tax addressed to Chief Commissioner of Income Tax, Trichy for centralization of appellant’s case along with connected cases to facilitate co-ordinated investigation. Although, the appellant raised objections for transfer of case, the objections filed by the Appellant was not considered favorably by PDIT (Investigation), Chennai, who subsequently, vide his communication, dated 18.12.2018 addressed to DGIT (Inv), Chennai requested to centralize the appellant’s case. Thereafter a Notification dated 29.01.2019 was issued by PCIT, Salem, u/s 127 of the Act, transferring appellant’s case. A perusal of the above notification, it is noticed that there was no agreement evidenced in the said notification, as arrived between officers of equal rank for transferring the jurisdiction as mandated under section 127(2)(a) of the Act. In this regard, the counsel submits that the transfer of appellant file is within the jurisdiction of Chief Commissioner of Income Tax, Trichy and DGIT, Chennai, when the transfer of the case has been initiated by DGIT, Chennai by invoking his jurisdiction vide his letter dated 08.10.2018 addressed to CCIT, Trichy, however, the transfer order was passed by PCIT Salem under the direction of DGIT and this proves that no agreement existed between officers of equal rank, which is against law and the transfer is non-exist as per law. Even assuming that PCIT, Salem having the jurisdiction there is no agreement among the equals namely PCIT, Salem and PCIT, Central-2., Chennai. In the absence of explicit understanding/agreement, the transfer of the case is lacking jurisdiction. Further, ACIT Circle-1 Namakkal from whom the case is transferred is subordinate to PCIT Salem. The DCIT Central Circle 2(1), Chennai, to whom the case is transferred, is subordinate to PCIT Central 2, Chennai, and not to PDIT (Inv) Chennai. There is no agreement established between PCIT Salem and PCIT Central-2, Chennai. In this regard, reliance is to be placed on the decision of the Hon’ble Supreme Court in the case of Noorul Islam Educational Trust Vs CIT reported in 97 CCH 368 (SC). Since, the condition for invoking transfer of jurisdiction has not been properly exercised in terms of section 127(2) of the Act, the transfer orders passed vide Notification dated 29.01.2019 by PCIT, Salem is non-est in law and not valid and consequently, the assessment orders is required to be quashed since the orders are passed by the Assessing Officer who has not been vested with valid jurisdiction. Further, the Show Cause Notice issued to appellant regarding transfer of file is without any reasoning for making such transfer except mentioning the circle. However, in the transfer order it has been specified as for the “purpose of coordinated Investigation”. From the above, it clear that there is no legal requirement to transfer the file and reason given are not sustainable and hence the transfer is illegal. The counsel further submits that even at the time of issuance of notice u/s 153C the seized material was not in the possession of the assessing officer. The jurisdictional Assessing Officer in the case of the appellant as per Section 127 of the Act is DCIT, Central Circle 2(1) whereas the person who has recorded the satisfaction and issued the notice u/s153C of the Act is ACIT, Central Circle 2(1). Although, the assessee challenged jurisdiction of the Assessing Officer, but the CIT(A) dismissed grounds taken by the assessee without any valid reasons.

10. The ld. Counsel for the assessee further submits that the appellant challenged jurisdiction within the time line stipulated u/s 124(3)(c) of the Act. But, despite the fact that the jurisdiction of the assessing officer was challenged u/s 124(3) of the Act, no orders were passed u/s 124(2) of the Act, determining the jurisdiction of the Assessing Officer.The issue of determination of jurisdiction of the Assessing Officer in terms of section 124 of the Act, where the Appellant has specifically sought for determination of Jurisdiction was subject matter before the jurisdictional high court in the case of Abdul AzeezHaroonVs DCIT reported in 317 CTR 610 (Mad). The Hon’ble High Court found that when the Appellant has specifically sought for determination of Jurisdiction and the assessing officer has not bothered to refer the matter to the superior officer, the error is patent and it vitiates the assumption of jurisdiction. Since, the very edifice of the assessment order viz., notices u/s 153C of the Act itself is invalid and non-est in law, the consequential orders passed by the assessing officer is required to be quashed since the orders are passed by the Assessing Officer without determining the valid jurisdiction as per the provisions of the law.

11. The ld. CIT-DR, Shri. M. Rajan, on the other hand supporting order of the CIT(A) submits that the assessee has made various allegations on procedure followed in conducting search and seizure operations in light of certain circulars issued by CBDT and argued that search proceedings and consequent assessment orders passed by the Assessing Officer are illegal. But, if you go through counter affidavit filed by the revenue before the Hon’ble High Court of Madras in reply to Writ appeal filed by the assessee, it is very clear that the Department has followed due procedure in conducting search, impounding incriminating documents and recording statements. Further, various lapses pointed out by the assessee are in the nature of procedural mistakes which can be cured. Therefore, for those procedural lapses, it cannot be held that whole search proceedings are invalid and consequent assessment proceedings are null and void. The CIT-DR, further referring to provisions of section 153A of the Act, submits that the Assessing Officer acquires jurisdiction to issue notice u/s 153A/153C of the Act, in pursuant to search action conducted u/s. 132(2) or requisition u/s. 132A of the Act, but issuance of notice is not at all dependent on availability of incriminating material, if any found during the course of search. Therefore, the arguments of the counsel for the assessee that the Assessing Officer has issued notice u/s. 153A/153C of the Act without any application of mind and in absence of incriminating material and appraisal report is devoid of merit. The CIT-DR, further submits that in so far as the arguments of the assessee on the issue of jurisdiction of the Assessing Officer and transfer of case from one Assessing Officer to another Assessing Officer, the Department has followed due procedure provided u/s. 124 and 127 of the Act, which is evident from the fact that the appellant case has been transferred from PCIT, Trichy to DGIT, Central, Chennai by passing a valid order in terms of section 127 of the Act. Therefore, he submits that the arguments of the assessee on this issue also without any merits.

12. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We have also carefully considered affidavits filed by the assessee and his employees and counter affidavits filed by the revenue before Hon’ble High Court of Madras. The appellant had challenged notice issued u/s. 153C of the Act, in light of provisions of section 127 of the Act and argued that the requirements of section 127(2) of the Act, have not been compiled by the Department while transferring jurisdiction of the assessee from CCIT, Trichy-2, to DGIT(Investigation), Chennai. According to the appellant, the invocation of provisions of section 127(2) of the Act, itself is illegal and void and in absence of any positive agreement being arrived at by the authorities of equal rank, transfer of case to jurisdiction of DGIT(Investigation), Chennai is illegal. We have gone through the arguments advanced by the ld. Counsel for the assessee, in light of relevant provisions of the Act and as per section 127 of the Act, the Principal Director General, or the Principal Chief Commissioner, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so and after recording his reasons for doing so, transfer any cases from one or more Assessing Officers subordinate to him to any other Assessing Officer also subordinate to him. On careful examination of provisions of section 127 of the Act, it is very clear that the power to transfer cases from one Assessing Officer to another Assessing Officer is rest with the Principal Director General or Principal Chief Commissioner and thus, in our considered view the assessee cannot call in question the powers vested with the authorities to transfer the cases in a manner convenient to the Department. However, the only requirement is to give an opportunity to the assessee of being heard in the matter, wherever it is possible to do so. In the present case, it is not even the case of the assessee that the procedure laid down u/s. 127 of the Act has not been followed. Therefore, we are of the considered view that there is no merit in objection raised by the assessee on the issue of transfer of cases u/s. 127 of the Act and thus, grounds of appeal filed by the assessee on this issue are dismissed for all assessment years.

13. In so far as, on the issue of validity of notice issued u/s. 153C of the Act, on the ground that the seized materials are not handed over as per section 132(9A) of the Act, we find that, the appellant has challenged the validity of notices issued u/s. 153C of the Act, in light of CBDT instruction no. 286/161/2006-IT(Inv-2), dated 24.07.2007 and argued that the Assessing Officer may issue notices u/s. 153C of the Act, immediately after receiving the appraisal report and seized materials, and ascertaining the cases where notices u/s. 153C of the Act are required to be issued. However, in the present case from the reply of the Assessing Officer, it is evident that the Assessing Officer did not possess any seized material in hand at the time of issue of notice u/s. 153C of the Act and thus, the notice issued u/s. 153C of the Act, can be said to be issued without any application of mind on appraisal report and seized material. We have gone through the contentions of the assessee in light of relevant provisions of section 153C of the Act, and we ourselves do not subscribe to the arguments of the counsel for the assessee for the simple reason that, as per the provision of section 153C of the Act, in the case of the person where a search is initiated u/s. 132 of the Act, the Assessing Officer shall issue notice to such person requiring him to furnish within such period the return of income in respect of each assessment year falling within six assessment years to be filed and also assess or re-assess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted. From the plain reading of provisions of section 153A/153C of the Act, it is very clear that issuance of notice u/s. 153C and assess and re-assess the total income are not dependent on seized documents or materials. The Assessing Officer acquires jurisdiction to issue notice u/s. 153A/153C of the Act, on the basis of initiation of search and is not dependent on provisions of section 139, 147, 148, 152 & 153 of the Act. In the present case, the appellant is making out a case on the basis of reply furnished by the Assessing Officer to the objection filed by the assessee that, the Assessing Officer does not have the benefit of appraisal report and seized materials when the notice was issued u/s. 153C of the Act. But, fact remains that during the course of search, huge incriminating material was found and seized which clearly established necessity of issue of notice u/s.153A and 153C of the Act and thus, we are of the considered view that the arguments of the assessee on this issue is nothing but hypothetical and thus, we reject the grounds taken by the assessee on this issue for all assessment years.

14. In so far as the issue of jurisdiction of assessing officer, the assessee challenged the issue in light of provisions of section 124 of the Income tax Act, 1961. The assessee submits that although the appellant has raised the jurisdiction issue before the Assessing Officer, the Assessing Officer has decided the question of jurisdiction contrary to provisions of section to 124(2) of the Act, which is in violation of section 124 of the Act. We find that, provisions of section 124 deals with jurisdiction of Assessing Officer in terms of any direction or order issued under sub-section (1) or sub-section (2) of section 120 of the Act. As per sub-section (2) of section 124 of the Act, where a question arises under this section as to whether an Assessing Officer has jurisdiction to assess any person, the question shall be determined by the Principal DGIT, or Principal Chief Commissioner of Income-tax, as the case may be, notified by the Board in the official gazette. In this case, the grievance of the assessee was that objection filed in this regard, in terms of sub­section (3) has been decided by the Assessing Officer himself without referring the matter to the DGIT or PCCIT. We have considered the arguments of the counsel for the assessee, in light of reasons given by the CIT(A) to decide the issue and after considering relevant facts, we do not subscribe to the arguments of the counsel for the assessee for the simple reason that, the jurisdiction was assigned to the DCIT, Central Circle-2(1), Chennai vide order u/s. 127 of the Act dated 29.01.2019 and in view of the said order there is no scope for having any doubt or ambiguity with regard to the jurisdiction of the Assessing Officer. Moreover, since the order assigning with jurisdiction of the Assessing Officer has been passed by the PCIT, the procedure for resolution of the dispute regarding the jurisdiction by reference to the higher authorities as laid down in section 124(2) is considered to be inapplicable and thus, ground raised by the assessee on this issue for all the assessment years are dismissed.

15. The next issue that came up for our consideration from assessee and revenue appeal for Asst years 2010-11, 2015-16 to 2018-19 is validity of statement recorded u/s. 131/132(4) of the Act from various employees of the appellant and subsequent retraction and its evidentiary value. The ld. Counsel for the assessee submits that the assessing officer had relied on various statements cited in the assessment order for making the additions and the appellant had questioned the validity of the said statements. The Assessing Officer relied upon the statements of Mr. Gnanasekaran, Mr. Vannakannan, Shri Valeeshwaran, Shri. Harihara Krishnan and Shri. T.S. Kumarasamy to make various additions as basis, but fact remains that the statements from above persons have been obtained contrary to materials available on record which is evident from the fact that Mr. Gnanasekaran in response to question no 9 & 19 stated that he has gone through the electronic device seized during the course of search, but fact remains that said electronic device ANN/VP/ED/S2 was sealed on 07.07.2018 and opened only on 09.09.2020 as evidenced from Mahazarnama. However, the statement was recorded from Mr. Gnanasekaran, as if he has gone through said documents. From the above, it is very clear that the statement recorded from the employee was only under coercion. In so far as statement of Mr. Vannkannan, recorded on 08.07.2018, he has been asked to confirm the statement of Mr. Gnanasekaran in question no 19 and for which he stated that the statement recorded from Mr. Gnanasekaran is confirmed. The counsel for the assessee submits that the statement relied by the Assessing Officer for quantification of undisclosed income fails and the other statements does not have any value, as such statement are in no way related to the quantification of any amount of undisclosed income. Thereby, passing order by placing reliance on those statements is unsustainable.

16. The Counsel for the assessee further submits that the sole basis for the Assessing Officer to make additions towards under reporting of income being difference between net profit as per seized tally accounts and net profit as per ITR filed for relevant assessment year is statement recorded from Mr. Gnanasekaran. But, fact remains that Mr. Gnanasekaran, in his statement stated that he had gone through the contents of the electronic device seized during the course of search and had quantified the alleged undisclosed income for the assessment year 2015-16 to 2018-19 based on the tally data available in the seized device. But, on verification of said devices it is found statement of Mr. Gnanasekaran is obtained under coercion and computation of unaccounted income based on these devices is also invalid. The ld. Counsel for the assessee further submits that the Assessing Officer had taken support from statement of Shri. Vannakannan and stated that he had confirmed quantification of unaccounted income worked out by Mr. Gnanasekaran. Since, the statement recorded from Mr. Gnanasekaran itself is incorrect; confirmation of said statement by Shri Vannakannan does not have any evidentiary value. Similarly, the Assessing Officer had taken support from statement from Shri Harihara Krishnan and Mr. Valeeswaran and the same has been confirmed by Shri T.S. Kumarasamy. However, the persons who gave statements have been subsequently filed their retraction statement with sworn affidavits before the Hon’ble High Court of Madras and from the contents of affidavit, it is very clear that the statements have been obtained under coercion and duress. Further, the quantification of undisclosed income was also proved to be wrong. Although, the CIT(A) accepted statements recorded u/s. 132(4) of the Act, are correct wherever the admission made in the statements is shown to be contrary to other facts available on record, but the partial acceptance of statements not permissible in the eyes of law and thus, additions made by the Assessing Officer on the basis of said statements should be deleted and those statements cannot be taken as evidence.

17. The ld. CIT-DR, Shri. M. Rajan, submits that the ld. CIT(A) erred in holding that the retraction of statement made by the assessee, his employees and other associated persons as valid and acceptable, though the retractions were filed after reasonable time of 90 days. The DR further submits that the CIT(A) ought to have appreciated that the assessee has failed to prove that the statements were recorded under duress, coercion and other adverse circumstances. The ld. DR further referring to counter affidavit filed by the revenue before the Hon’ble High Court of Madras in response to writ petition filed by the assessee submits that the retractions made by the assessee and other associated persons are without basis and not backed by any credible evidences because admission of undisclosed income in the statements is with regard to incriminating material found during the course of search. The ld. DR referring to the decision of Hon’ble High Court of Madras in the case of T.S. Kumarasamy vs ACIT [98] 65 ITD 188 (mad) submits that, when assessee fails to prove coercion or duress or any ground for the involuntary statement then subsequent retraction without any evidence cannot be considered and in this regard relied upon the decision of Hon’ble Supreme Court in the case of Shri. Surjeet Singh Chhabravs. UOI [1997] 1 SCC 508.

18. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. We have given our thoughtful consideration to the arguments of the ld. Counsel of the assessee in light of relevant provisions of the Act and facts brought on record. The Assessing Officer has rejected retraction statement of appellant and his employees on the ground that retraction has been filed after lapse of more than 90 days from the date of recording of such statement. In this regard, it is noticed that the CIT(A) had given categorical finding that the appellant had filed retraction within 90 days from the date of search, which is evident from the fact that, the appellant and their employees have filed affidavits before the Hon’ble High Court of Madras on 31.10.2018 and contended that statement have been recorded under threat, coercion and duress and also they have been compelled to sign the statement without letting them to go through the contents. In our considered view, said affidavits are in the nature of retraction of statements. The retraction filed on 16.01.2019, referred to by the Assessing Officer are the retraction separately filed before the DDIT(Inv). The Assessing Officer has omitted to take the affidavit filed by the appellant and his employees before the Hon’ble High Court on 31.10.2018, into consideration. Therefore, we are of the considered view that the reasons given the Assessing Officer to reject the retraction of the appellant and its employees on the basis subsequent letter filed before DDIT(Inv) is incorrect and untenable.

19. We further noted that, admission in a statement recorded u/s. 132(4) of the Act, is not conclusive evidence, though it is an extremely important piece of evidence. It is open to the person who made the admission to show that the impugned statement has incorrectly being made. There are cases where the assessee on his own motion gives the disclosure of undisclosed income, however later on such an assessee may realize that such a statement was given under mistaken of facts or at times of nervousness, stress and panic and thereby, the statement so tendered does not reflect the true state of affairs. Therefore, it is very important to consider the statement recorded during the course of search u/s. 132(4) of the Act, in light of their contents with reference to incriminating materials unearthed during the course of search. In a case, where the statement recorded u/s. 132(4) of the Act is supported by corroborative evidences like incriminating material, then those statements needs to be considered on face of it, because the assessee may have given admission after analyzing the material found during the course of search. In a case, where the statement recorded u/s. 132(4) of the Act is not supported by corroborative evidences like incriminating material found during the course of search, then the contents of those statements needs to be considered in light of retraction, if any filed by the assessee and reasons given for filing said retractions. At the same time, it has to be kept in mind that merely because a statement is retracted, it cannot become a statement which is involuntarily or unlawfully obtained. For any retraction to be successful in the eyes of law, the assessee needs to show as to how the statement recorded earlier does not states the true facts or that there was coercion, inducement or threat while recording the statements. Therefore, from the above, it is very clear that retraction of a statement should not be rejected merely because the assessee has given admission during the course of search. In our considered view, although admission is an important piece of evidence, but it is not conclusive and it is open to the assessee to show that it is incorrect.

20. At this stage, it is relevant to refer to the decision of Hon’ble Supreme Court, in the case of Pullangode Rubber Produce Co. Ltd vs State of Kerala [1973] 91 ITR 18, where it has been clearly held that admission is an extremely important piece of evidence, but it cannot be said to be conclusive and that the maker can show that it was incorrect. The above judgment was followed by the Hon’ble High Court of Delhi in case of S. Arjun Singh vs CWT [1989] 175 ITR 91. The sum and substance of ratios laid down by various courts, including the Hon’ble Supreme Court is that, the whole atmosphere during the search is of utmost pressure and therefore, there is very little scope for free and fair thinking for the searched person. Therefore, when a person filed a retraction within reasonable time and such retraction is backed by valid reason, then the Assessing Officer cannot reject the retraction filed by the assessee merely for the reason that the assessee has filed retraction after search, on the ground that said retraction has been filed with an afterthought. In this case, the ld. CIT(A) had given categorical finding in their appellate order while dealing with this issue and observed that although there is no direct evidence to prove the claim of the assessee that statements recorded from various persons was under coercion and duress but not voluntary, but the circumstantial evidences brought on record by the assessee clearly proves that the statements from various persons appears to have been taken without any reference to incriminating materials and further, even if there is some incriminating materials but those materials are not properly analyzed before taking statement from the employees. Therefore, we are of the considered view that the findings recorded by the ld. CIT(A) on this issue is well reasoned and does not call for any interference from our side. Thus, we reiterate the legal position that the retraction of the appellant and his employees and other associates persons has to be regarded as valid and acceptable, wherever the admission made in the statement is shown to be contrary to the facts available on record or seized material. Therefore, this principle has been followed while adjudicating other grounds of appeal dealing with various additions made by the Assessing Officer in the assessment order on the basis of the statement recorded during the course of search. Thus, for above reasons we reject ground taken by the assessee and as well as the revenue on this issue for all assessment years.

21. The next issue that came up for our consideration from ground no 7(a) to 7(p) of assessee appeal for assessment year 2015-16 to 2018-19 is approval granted u/s. 153D of the Act, and consequent assessment proceedings are bad in law and void ab initio and is not valid as per law. The ld. Counsel for the assessee submits that granting approval under section 153D of the Act is not a mere formality, but, it is a supervisory act which requires proper application of administrative and judicial skill by the Addl.CIT on the application of mind and this exercise should be discernible in the orders of the approval under section 153D of the Act. The obligation of the approval of the Approving Authority is of two folds; on one hand, he has to apply his mind to secure the Department against any omission or negligence by the A.O. in taxing right income in the hands of right person and in right assessment year and on the other hand, approving authority is equally responsible and duty bound to do justice with the tax payer by granting protection against arbitrary or baseless tax liability on the Appellant. The approving authority under section 153D is required to apply his mind to such material on record before granting his approval, otherwise, it will be invalid and bad in Law.

22. The counsel for the assessee, Shri. D Anand, Advocate, submits that the Ld. Addl. CIT, Central Range-2, Chennai, erred in giving prior approval to the orders u/s. 153C read with Sec.143(3) of the Income Tax Act, 1961, to bring to tax the undisclosed income and unexplained expenditure in a mechanical manner, without application of mind and own reasoning, in complete defiance to the requirements of law or procedure. He, further submits that it is understood that there was no draft assessment order sent to the Addl.CIT, Central Range-2, Chennai for approval, but without such proposal the Addl. CIT, Central Range-2, Chennai, on her won returned to the Deputy CIT Central Circle-2(1), Chennai, on 24.06.2021, with the ‘directions’ to resubmit the draft orders, after incorporating income admitted during search in sworn statements, undisclosed income towards difference between net profit as per seized tally and income declared as per ITR filed for the relevant assessment year. The Addl. CIT while issuing directions to the Assessing Officer to resubmit draft assessment order, stated that she had verified seized materials and matched them with the Income Tax Returns (ITR) and upon verification, there is a difference between net profit as per seized tally and income reported in ITR filed for the relevant assessment years. It shows that there was no substance in the claim of the appellant that the tally represents the true picture and the same represent accounts relied for filing for ITR. The Addl. CIT further stated that while preparing the Special Audit Report, the special auditor has exceeded the terms of reference by conducting independent enquiries. From the above correspondences, it is clear that the Deputy CIT Central Circle-2(1) was not in agreement with findings given in the Appraisal Report. Whenever the assessing officer is not in agreement with the findings given in the Appraisal Report, the Office Procedure Manual has laid down certain procedure. It is pertinent to note that, the observations made in the Appraisal Report relating to examination/investigation as also issues identified in the course of examination of seized material were carefully considered by Addl. CIT, Central Range-2 before endorsing it to the Addl. DIT, Unit-3, Chennai. The counsel for the assessee further submits that even after endorsing and forwarding the deviation note, the Addl. CIT, Central Range-2, as the sanctioning authority, took an altogether different stand by discarding her own judgment in giving directions to the draft assessment orders. Under Sec. 153D, it is the duty of the Addl. CIT to act in accordance with law, to apply mind while granting approval. The duty cast is to examine the record during searches, and, thereafter accord the statutory approval. Therefore, the manner and the material on the basis of which the approval was granted was mechanical and without application of mind.

23. The counsel for the assessee further submits that the primary duty while granting approval under Sec.153D of the Act, is to see that the draft order does not suffer from legal infirmity and that proper investigation has been conducted to unravel the facts. By doing so, not only the interest of the revenue is to be protected but also with the object of not causing undue tax burden and harassment to the appellant. If there was absence of explanation from Appu Direct Pvt. Ltd in respect of excel sheets, then directions cannot be given to make addition as unexplained expenditure in the hands of the appellant without carrying out verification through issuing summons/commissions. Similarly, when the proposal for conducting a Special Audit was under way, the terms of reference should have been properly taken care to include what is now said to be missing. Even the same could have been done while calling a second report on 15.04.2021. By maintaining silence and not raising objections at the appropriate time and later on saying that the Special Auditor has done a perfunctory job cannot be taken as a shelter while giving approval. This could have been carried out even now as the assessments are to become time barred on 30.9.2021. Therefore, the counsel submits that it amounts to giving approval u/s.153D to the Appraisal Report rather than to the proposed assessment orders. This reflects the non-application of mind while giving approval to the draft assessment order proposed by the Deputy CIT Central Circle-2(1).

24. The ld. Counsel for the assessee further submits that, the assessing officer noted in the deviation note that the purchase inflation on the basis of bought notes has been analyzed but was not verified during the course of search and that the findings in the appraisal report are based on non-availability of certain records and admission in the sworn statements which have been subsequently retracted. The AO further observed that no discrepancies have been found in the quantitative figures of purchases, consumption and sales in the special audit. The assessing officer finally expressed his opinion in the deviation note that the undisclosed income estimated in the appraisal report on the aspect of the bought notes is not correct. The opinion of the AO, as reflected in the deviation report, is the outcome of his application of mind on all the materials available before him including the seized material, statements recorded during the search and the submissions of the assessee during the assessment proceedings. The assessee submits that the said deviation note dated 22.04.2021 submitted by the assessing officer was forwarded by the Additional commissioner to the investigation wing on 22.04.2021 along with his endorsement. It is submitted that the assessing officer subsequently withdrew the deviation note on 11.05.2021 presumably at the instance of investigation wing by stating that certain other issues and facts are to be looked into, without specifying the same. The assessee submit that the view adopted by the assessing officer in the assessment order subsequently passed by him is contradictory to the opinion expressed by him in the deviation note and does not reflect his independent application of mind and the order so passed by him is untenable in law. The appellant contended that the stand taken by the AO in the assessment orders, which were passed subsequent to the framing of deviation note by him, is clear evidence of extraneous undue influence brought upon him to change his stand. The assessments so framed by the AO cannot be construed as reflective of independent application of mind by the AO and the said orders are liable to be regarded as legally unsustainable for this reason.

25. The Counsel for the assessee further submits that the forced withdrawal of the deviation note amounted to investigation wing directing the AO to frame the assessment in a manner that would protect the revenue’s interest. The appellant placed reliance on the decision of Hon’ble Delhi High Court in the case of Agson Global (P.) Ltd [2022] 134 taxmann.com 256 (Delhi), wherein it was held that the assessing officer shifted his position in the assessment order vis-à-vis the deviation note and that the revenue cannot dictate the manner in which the AO frames the assessment order since the assessing officer discharges quasi-judicial function in passing the assessment order. The assessee submits that the act of the Additional Commissioner endorsing the deviation note dated 22.04.2021 submitted by the assessing officer by forwarding the same to the investigation wing on 22.04.2021 and the very same authority granting approval on the contrary view taken by the assessing officer in the assessment order shows that approval under section 153D have been granted in a most mechanical manner without going through the seized material and other material on record and without application of mind. The assessee submits that such approval is contrary to the intent of section 153D and is invalid and void ab-initio and as such entire assessment orders are illegal and bad in Law and liable to be quashed.

26. The ld. Counsel for the assessee further submits that the Assessing Officer, after incorporating the directions given in the letter dated 24.06.2021, final draft assessment orders were sent for approval on 05.08.2021. While seeking approval, the Deputy CIT Central Circle-2(1), categorically stated that “the additions has been made as stated in the appraisal report”. There should be no iota of doubt that the draft assessment orders have been passed at the instance of the Investigation wing. The approval sought for the draft assessment order is in fact seeking approval of the Appraisal Report. Even the ‘directions’ given in letter dated 24.06.2021 appears to be in the form of directions u/s 144A of the Act. The Addl. CIT, Central Range-2 has been forced to grant approval u/s. 153D to the assessment orders despite her clear disagreement as per the deviation note of the Deputy CIT Central Circle-2(1). Hence the approval was given in a mechanical manner, without application of mind and own reasoning, in complete defiance to the requirements of law or procedure. Therefore, he submits that entire handing over file may be called for by your good office, from the file of the AO, to verify, whenever the files had been handed over to the Addl. CIT, Central Range-2, which enlightened the truth. Therefore, he submits that the entire search and assessment proceedings are illegal and invalid in limine when search has not resulted in identification of any unaccounted assets and the seizure of documents is admissible. Thus, the assessment orders not in conformity with section 153D of the Act, is illegal and unsustainable under law.

27. The ld. CIT-DR, Shri. M. Rajan, on the other hand supporting the order of the CIT(A) submits that provisions of section 153D of the Act, deals with prior approval of the Joint Commissioner/Additional Commissioner before passing the assessment order and in this case, there is no dispute with regard to the fact that the assessment order has been passed with prior approval from the Range head in terms of section 153D of the Act. Further, the Counsel for the assessee claims that there is no proper approval as required u/s. 153D of the Act and such argument has been placed on the basis of correspondence between the Assessing Officer and the Addl. CIT, Range Head. From the arguments of the assessee, it appears that there was lot of deliberations on draft assessment order passed by the Assessing Officer, in light of various incriminating material found during the course of search and appraisal report submitted by the DDIT-(Inv.) on various issues including additions to be made towards undisclosed income on account of difference in net profit as per seized tally and net profit as per ITR filed for relevant assessment year and also additions towards unexplained expenditure u/s. 69C of the Act on the basis of seized Erandamthall. In the note submitted to the Assessing Officer, the Addl. CIT categorically observed that on verification of seized material with ITR filed by the assessee there is a difference in income reported for various assessment years. Likewise, the Addl. CIT had also discussed other issues and gave directions to the Assessing Officer. Therefore, it cannot be said that approval granted u/s. 153D of the Act is mechanical and without any application of mind.

28. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. The provisions of section 153D of the Act, deals with prior approval necessary for assessment in cases of search u/s 132 or requisition u/s 132A of the Act. As per said section, no order of assessment or reassessment shall be passed by the Assessing Officer below the rank of Joint Commissioner in respect of each assessment year referred to in section 153A(1)(b) of the Act without prior approval of Addl. CIT/Joint. CIT u/s 153D of the Act. In the present case, there is no dispute with regard to the fact that the assessment order has been passed with prior approval from the Range head in terms of section 153D of the Act. Further, from the arguments of the assessee itself, it appears that there was lot of deliberations on draft assessment order passed by the Assessing Officer, in light of various incriminating material found during the course of search and appraisal report submitted by the DDIT-(Inv.) on various issues including additions to be made towards undisclosed income on account of difference in net profit as per seized tally and net profit as per ITR filed for relevant assessment year and also additions towards undisclosed income arising out of bogus bought note purchases and sales and undisclosed income arising from bogus purchases through dummy entities. In the note submitted to the Assessing Officer, the Addl. CIT categorically observed that on verification of seized material with ITR filed by the assessee there is a difference in income reported for various assessment years. Likewise, the Addl. CIT had also discussed the issue and gave directions to the Assessing Officer to resubmit the draft assessment order. Therefore, it cannot be said that approval granted u/s. 153D of the Act, is mechanical and without application of mind. Further, the assessee rest his arguments solely on the basis of deviation note stated to have been submitted by the Assessing Officer proposing to make modifications to the unaccounted income suggested in the appraisal report and the endorsement by the Addl. Commissioner on said deviation note before forwarding the same to the Investigation Wing for their comments. But, fact remains that the assessee could not produce so called deviation note submitted by the Assessing Officer, to the Range head to prove their claim. Further, during appellate proceedings, the CIT(A) called for remand report on the issue and in response, the Assessing Officer submitted that deviation note being extended part of the appraisal report, is confidential in nature and thus, same cannot be shared with the assessee or any appellate authority. In our considered view, internal correspondence between the Assessing Officer and the investigation officer is confidential and extended part of appraisal report, which cannot be shared with the assessee. The CIT(A), after considering relevant facts and also taken note of provisions of section 153D of the Act, came to the conclusions that in absence of availability of any documentary evidence, in respect of claim of the appellant with regard to deviation note, the arguments of the assessee can be said to be unsubstantiated. In our considered view, the findings of the facts recorded by the Ld. CIT(A) on appraisal of relevant facts is in accordance with law, because from the materials available on record, and also on the basis of arguments of the assessee, it is abundantly clear that there is enough proof to conclude that the Addl. CIT has given approval u/s. 153D of the Act after great deliberations with draft assessment order passed by the Assessing Officer in light of seized material and appraisal report submitted by DDIT(Inv) and thus, in our considered view the arguments of the assessee on this issue for all assessment years is fails. Thus, we reject grounds of appeal of the assessee on this issue for all the assessment years.

29. The next issue that came up for our consideration from Ground no 3 to 3.3 of Revenue appeal for Asst. Year 2010-11 is issuance of notice u/s 153C of Income Tax Act, 1961, for AY 2010­11, in violation of 4^th proviso to section 153A(1) of the Income Tax Act, 1961.

30. The ld. CIT-DR, Shri. M Rajan, submits that the ld. CIT(A) erred in holding that the notice u/s. 153C issued for the assessment year 2010-11, is in violation of forth proviso to section 153A(1) of the Act, without appreciating the fact that the assessee indulged in generating unaccounted income over the years and incurring expenditure also as ongoing concern. The income generated over the years was kept in the form of cash, which was declared as income amounting to Rs. 124.79 crores under PMGKY and IDS Scheme. Further, during the course of search, total cash of Rs. 16 crores was found and seized. All these evidence goes to prove an undoubted fact that there is an undisclosed income in the form of cash which was rotated in the business even for assessment year 2010-11 and this constitutes asset in terms of forth proviso to section 153A(1) of the Act. The CIT(A), without appreciating relevant facts simply annulled assessment order passed by the Assessing Officer for this assessment years, by holding that conditions precedent for invoking forth proviso to section 153A(1) are not satisfied.

31. The Counsel for the assessee, Shri. D Anand, Advocate on the other hand supporting order of the ld. CIT(A) submits that in order to invoke provisions of fourth proviso to section 153A(1) of the Act, the first and foremost condition is undisclosed income in excess of prescribed limit, which is absent in the present case. Further, the CIT(A) negated observations of the Assessing Officer with regard to conditions for imposing fourth proviso to section 153A(1) of the Act, and held that income declared under PMGKY and IDS scheme cannot be construed as asset and further cash seized during search pertains to assessment year in which date of search falls, but same cannot be extrapolated to previous assessment years. The Counsel for the assessee further submits that apart from issuing notices u/s 153C for six AYs immediately preceding the AY relevant to the previous year in which search was conducted, the AO issued notices u/s 153C for AY 2010-11 which is beyond the said 6 AY and completed the assessment for assessment year 2010-11 u/s 153C r.w.s 143(3) and made addition towards underreporting of income without there being any evidence with the Assessing Officer to prove that the income represented in the form asset is escaped assessment for the assessment years. The legality of assumption of jurisdiction and issue of notices u/s 153C for AY2010-11 was challenged by the appellant before the CIT(A) as the satisfaction of the conditions prescribed in the 4th proviso to sec 153A (1) is the sine qua non for such assumption of jurisdiction for “relevant assessment year or years”. The CIT(A) after considering relevant facts and also on appraisal of provisions of fourth proviso to section 153A(1) of the Act, held that issuance of notice in the case of the appellant for AY 2010-11, in violation of the provisions the fourth proviso to section 153A (1) are bad in law and legally unsustainable. Accordingly, the CIT(A) held that the assessment made u/s 153C r.w.s 143(3) for the assessment year 2010-11 is legally invalid and the same is, therefore, annulled. Therefore, he submits that the order of the CIT(A) should be upheld.

32. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The jurisdiction to issue notice u/s 153C of the Act, for the relevant assessment year or years, being the assessment years which falls beyond six assessment years, but not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted, is vested with the AO only on fulfillment of conditions laid down in the fourth proviso to section 153A(1) of the Act, which was inserted in the Act with effect from 01.04.2017 by the Finance Act 2017. This becomes very clear when the language employed in the fourth proviso is taken into consideration. The said proviso starts with the phrase that “no notice for assessment or reassessment shall be issued by the Assessing Officer for the relevant assessment years or year unless” followed by the enumeration of the specific conditions which need to be fulfilled. Unless the conditions laid down in clauses (a), (b) and (c) specified in the said proviso are fulfilled, the AO does not get the jurisdiction to issue notice u/s 153C for the relevant assessment year or years”.

33. In light of above legal position, if you examine the facts of the present case, we find that, the assessing officer reiterated the discussion made in the satisfaction note regarding the fulfillment of the conditions spelt out in the fourth proviso in the assessment order. On careful examination of the satisfaction note, it is noticed that the assessing officer has relied on certain factual observations found during search to come to the conclusion that the books of accounts or other documents or evidence found during the search have revealed that income represented in the form of asset exceeding Rs 50 lakhs has escaped assessment for the relevant assessment years. On careful examination of reasons given by the Assessing Officer to assume jurisdiction for Asst. year 2010-11, we find that as per the “ErandamThall” found during the search, the assessee has been making undisclosed/inadmissible expenditure over the years regularly and there has been generation of undisclosed income through bogus bought note and dummy entities. The unaccounted cash has been kept in the business of the assessee, which is a going concern and its group as working capital which is an investment/ asset. Therefore, the Assessing Officer opined that the threshold limit of Rs 50 lakhs is met for the assessment year or in the assessment years.

34. As regards the reference made to the “Erandamthall” which was seized during the search, it is noticed that the same contained details of unexplained expenditure as per the assessing officer’s own remarks and admittedly, there is no information/ details in “Erandamthall” regarding undisclosed investment in any asset. Though, the assessing officer stated that the unaccounted cash has been kept in the business of the assessee as working capital, which is an investment/ asset, it is noticed that the assessing officer failed to specify the entries in the seized “Erandamthall” which go to demonstrate that unaccounted cash has been retained in the business as working capital. The unexplained expenditure cannot be equated with the holding of unaccounted cash as working capital. Such inference drawn by the assessing officer defies logic. As regards reference to generation of undisclosed income through bought notes and dummy entities, which in turn was utilised for making unexplained expenditure as found noted in “ErandamThall”, there is no such issue of generation of undisclosed income through bought notes and dummy entities in the assessment orders passed for assessment year 2010-11 u/s 153C r.w.s 143(3) of the Act. Thus, it is seen that the said factual observation of the assessing officer in the satisfaction note is factually incorrect and not relevant to the issue of income escaping assessment for AY 2010-11. The third observation of the Assessing Officer with regard to cash found during the course of search, we find that the cash found/seized during a search is liable to be treated as income of the assessment year relevant to the previous year in which the search is conducted, in the event of failure of the assessee to satisfactorily explain the sources of such cash. The assessment year in which the taxability or otherwise of the seized cash is required to be considered in the case of the assessee is AY 2019-20 as the search was conducted on 05.07.2018. Thus, it is clear that the fact of cash seizure during the search is no-way related to the detection of undisclosed income, represented by an asset, for the assessment year 2010-11. From the above, it is very clear that the observation of the Assessing Officer with regard to satisfaction of conditions prescribed in fourth proviso to section 153A(1) of the Act, is incorrect and opposed to law.

35. Further, it has been clearly laid down in clause (b) of fourth proviso to section 153C of the Act, that the income should have escaped assessment for the relevant assessment year or years only. It goes without saying that the cash seized during the search conducted in FY 2018-19 cannot be construed by any reasoning or logic to be representing income escaping assessment for AY 2010­11. Similarly, the declaration made under PMGKY is not in relation to any specific assessment year or years and there was no such requirement also under PMGKY. As regards the declaration made under IDS, it is noticed that the same was made for AY 2015-16 alone. Moreover, it has been clearly laid down in section 199-1 of Chapter IX-A of The Taxation Law (Second Amendment) Act, 2016 dealing with the tax and investment regime under PMGKY that the amount of undisclosed income declared under PMGKY shall not be included in the total income of the declarant for any assessment year under the Income Tax Act, 1961. In view of the said specific statutory prohibition, the action of the assessing officer in relying on the declaration made by the appellant under PMGKY to draw inference regarding income escaping assessment for assessment year 2010-11 is in violation of the specific provisions of PMGKY and the same is not legally sustainable.

36. We further noted that in the satisfaction note recorded by the assessing officer prior to issue notice u/s 153C for AY 2010-11, he does not bring out the fulfillment of the conditions laid down in the fourth proviso to section 153A(1) of the Act. The mandatory conditions that the seized material and other documents and evidences in the possession of the assessing officer should reveal that income, represented by an asset, has escaped the assessment for the relevant assessment year or years and such income escaping assessment should be in excess of Rs 50 lakhs have not been satisfied in the appellant’s case. The discussion made in the preceding paragraphs has brought out the fact that no undisclosed asset has been found in the case of the appellant which represents the income escaping assessment for the relevant assessment years. It is interesting to note that no undisclosed asset has been brought to tax by the assessing officer even in the assessment order passed u/s 153C r.w.s 143(3) of the Act, for AY 2010-11. The CIT(A) after considering relevant facts rightly held that the reasons recorded by the AO in the satisfaction note do not bring out satisfaction of the mandatory conditions prescribed in the 4th proviso to sec 153A(1) which necessitate issue of notice for assessment years beyond six assessment years and thus, annulled the assessment orders passed by the Assessing Officer for AY 2010-11. Therefore, we are of the considered view that, there is no error in the reasons given by the ld. CIT(A) to annulled the assessment for Asst. years 2010-11 and thus, we reject grounds of appeal filed by the revenue and uphold the order of the CIT(A) for Asst. year 2010-11.

37. The next issue that came up for our consideration from ground no. 13 of appeal filed by the assessee for assessment year 2015-16 & ground no. 3 to 3.2 of appeal filed by the revenue for assessment year 2016-17 to 2018-19 is validity of notice u/s. 153C of the Act, in light of satisfaction note recorded by the Assessing Officer.

38. The Ld. CIT-DR, Shri. M. Rajan, submits that the ld. CIT(A) erred in holding that the notice u/s. 153C of the Act, issued for assessment year 2015-16 to 2018-19 is invalid and annulling the assessment order passed u/s. 143(3) r.w.s. 153C of the Act for the reason that there is no difference in income reported in ITR and income as per seized tally account without appreciating fact that the electronic device sized vide ANN/VP/ED/S2 contains consolidated entries in respect of bought note purchases and sales. In the assessment also, the additions towards undisclosed income was made on the basis of net of bogus purchases and sales. Therefore, from the above it is very clear that incriminating material seized have bearing on the determination of undisclosed income for assessment year 2015-16 to 2018-19 and thus, notice issued u/s. 153C is on sound footing. Further, the Assessing Officer has recorded satisfaction in light of incriminating material found during the course of search which includes ErandamThall, which clearly established undisclosed income belongs to the assessee. Further, there is enough material in the possession of the Assessing Officer including the ErandamThall which contains unaccounted expenditure of appellant and other group companies, which is having a bearing on undisclosed income of the appellant for these assessment years. From the above, it is very clear that the Assessing Officer has rightly recorded satisfaction note which is supported by incriminating material found during the course of search and thus, the CIT(A) erred in annulled the assessment orders. The CIT-DR, further submits that the statement recorded from employees of the appellant which are based on incriminating material found during the course of search clearly established undisclosed income on account of bogus purchases through dummy entities and said undisclosed income has been quantified during search itself. Although, there is live nexus between satisfaction note recorded by the Assessing Officer and incriminating material found during the course of search for these assessment years, but the CIT(A) without appreciating relevant facts quashed the assessment order.

39. The ld. Counsel for the assessee, Shri. D. Anand, Advocate submits that the satisfaction note recorded by the Assessing Officer on the basis of seized electronic devices ANN/VP/ED/S2, ANN/VP/ED/S16 and ANN/KRR/CFI/CO/B&D/S is incorrect and without any basis and consequent issue of notice u/s. 153C of the Act is without any jurisdiction and bad in law. The ld. Counsel for the assessee further submits that the electronic device seized ANN/VP/ED/S2, contains tally accounts of the appellant for assessment year 2013-14 to 2015-16, apart from the tally accounts of other group entities. It was further submitted that the Assessing Officer does not have the opportunity to examine the contents of seized electronic device, because it was seized on 07.07.2018 and was opened subsequently only on 09.09.2020. He further submits that as regards the seized electronic device ANN/VP/ED/S16, the device does not contain any tally accounts of the appellant for any assessment year. The said device is a hard disk containing the imaged data pertaining to 10 electronic devices seized from the residence of Shri. P. Karthikeyan. The said hard disk contains the ErandumThall among other things, but does not contain tally accounts either of the appellant or any other group entity. Therefore, the findings of the Assessing Officer in the satisfaction note that there is a difference between net profit as per seized tally data and income reported in ITR is totally incorrect. The ld. Counsel for the assessee further submits that the findings of the Assessing Officer in satisfaction note regarding unaccounted income arising on account of bought note purchase and sales, it was noticed that the documents seized vide annexure ANN/KRR/CFI/CO/B&D/S contains the bought note of M/s Christy Friedgram Industry only but not belongs to the assessee. From the above, it is very clear that the Assessing Officer could not have examined and verified the bought notes. Therefore, he submits that the legal sustainability of the satisfaction note is required to be determined on the basis of actual contents of the satisfaction note recorded by the Assessing Officer. In this case, if you go through satisfaction note recorded by the Assessing Officer in light of incriminating material referred to in the said satisfaction note, it is abundantly clear that the Assessing Officer does not verified the incriminating material to arrive at a satisfaction that there is undisclosed income for these assessment years. The ld. CIT(A) after considering relevant facts in their order clearly held that there is no incriminating material in the possession of the Assessing Officer to arrive at a satisfaction that there is undisclosed income for these assessment years to issue notice u/s. 153C of the Act and thus, rightly held that notice u/s. 153C of the Act is invalid and consequent Assessment order passed u/s. 143(3) r.w.s. 153C of the Act are void ab initio and liable to be quashed. Thus, the order of the CIT(A) should be upheld.

40. In so far as assessment year 2015-16, the CIT(A) upheld validity of notice u/s. 153C and consequent assessment order on the ground that the seized electronic device ANN/VP/ED/S2 has been imaged into the hard disk VP/ED/S8 and from the above it is evident that working copies have been prepared from the imaged disk. The handing over of the seized electronic device, ANN/VP/ED/S2 by the Assessing Officer of the searched person to the Assessing Officer of the appellant has to been seen in the said context and such handing over has to be construed as handing over of the working copy of the imaged data of the original seized electronic device and thus, observed that the Assessing Officer has examined and verified the contents of the seized device and hence, there is nexus between incriminating material and satisfaction recorded for issuance of notice. But, fact remains that the observation of the CIT(A) is on presumption basis only but not supported by any evidence in the satisfaction note because the Assessing Officer has not mentioned anything about such a working copy anywhere in his satisfaction note. The ld. Counsel for the assessee further submits that even assuming without admitting that the Assessing Officer had arrived at the satisfaction note based on the working copy, but there is no under reporting of income being the difference between the net profit as per the seized tally in the working copy and income as per the ITR. Therefore, on this very count itself it could be held that notice u/s. 153C for assessment year 2015-16 is without jurisdiction.

41. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. We have also carefully considered reasons given by the ld. CIT(A) to quash assessment orders for the Asst. years 2016-17 to 2018-19, in light of averments of ld. Counsel for the assessee and ld. DR present for the revenue. After, considering relevant submissions, we find that the seized electronic device vide annexure ANN/VP/ED/S-2 contains tally accounts of the appellant and other group companies for AYs 2013-14 to 2015-16. The said electronic device was seized 07.07.2018 at the office premises of M/s CFI at Tiruchengode during the course of search in the case of Shri.T.S.Kumrasamay., as evidenced by the relevant seizure annexure enclosed to Panchnama dated 09.07.2018 in respect of the said premises. On perusal of the seizure annexure ANN/VP/ED/S, it is noticed that the contents of the electronic device seized at Sl.No.2 of ANN/VP/ED/S have been imaged, along with the contents of electronic device seized at Sl.No.1 and 3 of the said annexure, into a hard disk and the said hard disk have been seized and shown at Sl.No.8 of the same seizure annexure. Once the data available in electronic device is imaged, working copies are prepared for the purpose of accessing the data in the course of recording the statements, it is evident that working copies have been prepared from the imaged disk. The handing over of the seized electronic device ANN/VP/ED/S-2 by the assessing officer of the searched person to the assessing officer of the appellant has to be seen in the said context and such handing over has to be construed as handing over of the working copy of the imaged data of the original seized electronic device. In view of this, we are not inclined to agree with the contention of the appellant that the assessing officer could not have examined and verified the seized electronic device ANN/VP/ED/S-2 as it was seized on 07.07.2018 and was opened subsequently only on 09.09.2020. It has to be construed that the assessing officer has examined and verified the contents of the said seized device by going through the contents of the working copy of the same. We, therefore, reject the contentions of the assessee.

42. Be that as it may, but fact remains that the so called tally data available in electronic device and under reporting of income computed by the Assessing Officer for assessment year 2015-16 is appears to be not based on any evidence in the said electronic device, because the assessee has made out a case that there is no difference between net profit as per seized tally from electronic device and net profit reported in ITR filed for the relevant assessment year which is evident from the fact that the net profit as per seized electronic device was at Rs. 1,67,37,040/- and income as per ITR was at Rs. 1,67,37,040/-. The reason for difference computed by the Assessing Officer is on account of considering incorrect amount from ITR filed for relevant assessment year at Rs. 11,90,330/-, instead of Rs. 1,67,37,040/- which is evident from copy of ITR filed by the assessee which is available in paper book. Therefore, from the above it is clear that the Assessing Officer has adopted incorrect figure to arrive at a conclusion that there is a under reporting of income for assessment year 2015-16 which necessitate issue of notice u/s. 153C of the Act. Since, there is no difference between net profit as per seized tally from electronic device ANN/VP/ED/S2 and income as per ITR, in our considered view the satisfaction recorded by the Assessing Officer for issue of notice u/s. 153C of the Act is not based on any evidences and thus, on the very count itself, it could be seen that notice u/s. 153C of the Act for assessment year 2015-16 is without jurisdiction and thus, we are of the considered view that notice u/s. 153C and consequent assessment order passed by the Assessing Officer is invalid in law and liable to be quashed. Hence, we quash notice u/s. 153C of the Act and consequent assessment order for assessment year 2015-16.

43. As regards to AYs 2016-17 to 2018-19, the learned CIT(A) held that the satisfaction recorded by the assessing officer in respect of AYs 2016-17 to 2018-19 is not a bona-fide satisfaction, since the seized material ANN/VP/ED/S-16 did not contain tally accounts of the appellant for AY 2016-17 to 2018-19 and the seized material vide ANN/KRR/CFI/CO/B&D/S-1-13 did not contain the bought notes of the appellant for the said AYs or any other AYs. The counsel for the assessee took us to paper book and explained that in seized electronic device, tally accounts and bought notes belongs to assessee was not found. From the above, it is clear that it was not possible for the assessing officer to examine the tally accounts for AY 2016-17 to 2018-19 and bought notes for the above period for arriving at the satisfaction for the purpose of underreporting of income between the returns filed for the said assessment years in comparison to the net profit reflected in the corresponding tally accounts. Further, the assessing officer while recording satisfaction has not referred to any evidence contained in the seized material received by him from the assessing officer regarding booking of bogus purchases and sales by the appellant through dummy entities as listed in the satisfaction note. Therefore, we are of the considered view that the satisfaction note recorded by the Assessing Officer does not have any reference to incriminating materials found during search and thus, in our considered view there is no valid satisfaction as required u/s 153C to issue notice. Thus, the findings of the ld. CIT(A) in as much as annulling the assessments for assessment year 2016-17 to 2018-19 is on sound footing and does not call for any interference from our end.

44. As this stage, it is relevant to consider reliance placed on the decision of the Jurisdictional High Court in the case of CIT Vs Late J.Chandrasekaran 338 ITR 61, wherein it was held that the assumption of jurisdiction for issue of notice u/s 153C is not valid in the absence of availability of seized material with the assessing officer at the time of issuing the notice. Further, it is also relevant to refer to the decision of Hon’ble supreme court in the case of CIT vs. Sinhgad Technical Educational Society [2017] 397 ITR 344 (SC), wherein it was held that the seized material should have co-relation with the assessment years for which the notices u/s 153C were issued and that the notices are not legally sustainable for the assessment years for which there is no such co-relation. This legal position is further strengthened by the decision of Hon’ble Supreme Court in the case of PCIT vs. Abhisar Buildwell Pvt. Ltd(2023)149 Taxmann.com 399(SC). In our considered view, the above mentioned decisions are squarely applicable to the facts of the appellant’s case with regard to the satisfaction notes for AYs 2016­17 to 2018-19. Since, the seized material available with the assessing officer did not contain any evidence in support of the satisfaction recorded for the said AYs, the satisfaction so recorded is without any basis and legally unsustainable. Since satisfaction regarding the existence of any seized material on the determination of total income of the appellant is the very basis for deriving the jurisdiction to issue notices u/s 153C, the lack of a valid satisfaction to the said effect results in a jurisdictional defect. The CIT(A) after considering relevant facts has rightly held that notice issued u/s 153C for Asst. Years 2016-17 to 2018-19 is invalid and legally not sustainable and consequently, annulled the assessments for Asst. Years 2016-17 to 2018-19.

45. The Hon’ble Delhi High Court in the case of PCIT vs. N. S. SOFTWARE (FIRM), 403 ITR 0259 (Delhi), it was held that the satisfaction note has been prepared in a standard mechanical format and it does not provide any details about the books of accounts which allegedly belong to the Assessee Firm. The AO’s note nowhere reflects whether any document seized, on application of his mind, disclosed that it belonged to the assessee, and if so, its prima facie nature. Therefore, it was held that, the failure of the AO to record a specific satisfaction as to how the recovered material belonged to the assessee in the note that preceded the notice issued under it, vitiates the assessments.

46. The Hon’ble Delhi High Court in PEPSI FOODS PVT. LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX (90 CCH 0059) (Del HC), while quashing the notice under section 153C held that Section 132(4A)(i) clearly stipulates that when inter alia any document is found in the possession or control of any person in the course of a search it may be presumed that such document belongs to such person. It is similarly provided in Section 292C(1)(i), whenever a document is found from a person who is being searched the normal presumption is that the said document belongs to that person. It is for the Assessing Officer to rebut said presumption and come to a conclusion or “satisfaction” that the document in fact belongs to somebody else. There must be some cogent material available with the Assessing Officer before he/she arrives at the satisfaction that the seized document does not belong to the searched person but to somebody else. Surmise and conjecture cannot take the place of “satisfaction”.

47. Further, it is evident from the satisfaction note that apart from saying that the documents belonged to the petitioner and that the Assessing Officer is satisfied that it is a fit case for issuance of a notice under Section 153C, there is nothing which would indicate as to how the presumptions which are to be normally raised as indicated above, have been rebutted by the Assessing Officer. Mere use or mention of the word “satisfaction” or the words “I am satisfied” in the order or the note would not meet the requirement of the concept of satisfaction as used in Section 153C of the said Act. In this regard, reference is made to the Departmental Circular No.24/2015 dated 31.12.2015 in which CBDT has given direction that pending litigation with regard to recording of satisfaction note under section 158BD/153C should be withdrawn/not pressed if it does not meet the guidelines laid down by the Apex Court in M/s Calcutta Knitwears.

48. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that the satisfaction note recorded by the Assessing Officer does not have any reference to incriminating materials found during search and thus, in our considered view there is no valid satisfaction as required u/s 153C to issue notice. Thus, the findings of the ld. CIT(A) in as much as annulling the assessments for AY 2016-17 to 2018-19 is on sound footing and does not call for any interference from us. Thus, we are inclined to uphold the findings of the ld. CIT(A) and dismiss grounds taken by the revenue for Asst. years 2016-17 to2018-19. Similarly, we quash notice u/s. 153C of the Act for assessment year 2015-16 and annulled consequent assessment order passed by the Assessing Officer for assessment year 2015-16. Accordingly, we allow the grounds of the assessee.

49. The next issue that came up for our consideration from ground no. 4 to 4.3 of revenue appeal for assessment year 2010-11 & ground no. 3 to 3.3 of revenue appeal for assessment year 2015-16 to 2018-19 is deletion of additions towards under reporting of income being difference between net profit as per seized tally data and ITR filed for assessment year 2010-11, 2015-16 to 2018-19 and addition on account of net of bogus bought note purchases and bought note sales for assessment year 2015-16 & 2016-17 and also addition on account of net of bogus purchases and sales from dummy entities for assessment year 2017-18 & 2018-19.

50. The brief facts with regard to the impugned dispute are that the AO has made additions towards difference in profit as shown in the return of income filed by the appellant and income as per seized tally account on the ground that the assessee has under stated net profit for assessment years 2010-11, 2015-16 to 2018-19. The details of difference computed by the Assessing Officer are as follows: