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TMI Blog2022 (6) TMI 1392X X X X Extracts X X X X X X X X Extracts X X X X ..... r touching upon large number of entities. His grievance is that in this year, the assessee has been possessing real assets which were ultimately procured by transacting with shell companies. There is no trail of those shell companies from where the assessee has raised equity capital for the first time or as to how the assessee has utilized the available funds in making investment in the assets of real value. The Assessing Officer just disbelieved the submissions of the assessee. In assessment year 2008-09, when first time capital was raised, its genuineness was accepted by the Revneue. When over a period of time, capital has been used and an asset was created, then the source of such asset cannot be enquired into because it has already been accepted in the earlier year when capital was raised by the assessee. Apart from the above, AO has also not made reference to any seized material which has been fortified to believe that capital raised by the assessee in assessment year 2008-09, was through transactions with shell companies. AO has failed to establish that the assessee has routed its unexplained money through shell companies. When, the Assessing Officer frames the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ared at Serial no. 12. Thereafter, the Assessing Officer has narrated the activities of Mahendra Sethia Group of companies. The Assessing Officer made an addition of Rs.4,43,07,359/- by observing as under:- 14. It is to be noted that, the assessee who had transactions mainly with shell companies before financial year 2010-11, suddenly is having true assets in its hand being investment in mutual fund and loans and advances to individual and other companies/entities who do not have record of being fake entities. In other words, the assessee company is having assets of real value in exchange of investment of shell company shares. The assessee has totally failed to establish creditworthiness of the source and genuineness of the relevant transaction. In view of this I am satisfied that assessee has failed to discharge its onus to prove that it had genuine source for procurement of the assets. 15. In view of this, total amount of Rs.4,43,07,359/- is added in the hands of the assessee as source of such investment is not satisfactorily explained. An income of Rs. 4,43,07,359/- is added in the hands of the assessee for assessment year 2011-12. 4. Dissatisfied with the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d management of the company has changed hands. After the control and management of the company had changed hands, shares held by the appellant company since the time of its inception, i.e. since FY: 2007-08 were sold during current year and sale proceeds were invested in mutual funds to the extent of Rs.55,99,904/- and loans and advances of Rs.3,87,07,455/- were given to various persons. AO has raised objection on the genuineness of sale of investments during the year. AO is of the opinion that the persons who have purchased the shares sold by the assessee company during the current year were not genuine. Hence, he has made an addition of Rs.4.43,07,359/-. In this background, let's examine the issues raised regarding validity of search on assessee and the issues relating to non-seizure of any incriminating material. Assessee has vehemently emphasized that the entire search proceedings are illegal because search neither took place on any of the assessee's premises nor were its any of the directors or key persons were covered by search. Even the Panchanama was signed by Shri Mahendra Sethia and all the formalities were completed by Shri Mahendra Sethia. There is no doub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 of the assessment order, AO expressed his doubt by saying that the assessee company is now holding real assets when in the previous years its investments portfolio was doubtful. However, there is no basis for the doubts expressed by the AO. It is not even remotely mentioned that the search seizure action have led to the discovery of any incriminating material regarding the non-genuineness of the sale transactions. During assessment proceedings, AO had issued summons u/s. 131 in the assessment proceedings of the company and individuals belonging to the Mahendra Sethia Group and not in appellant's case. Appellant was asked to join the enquiry. The enquiry report submitted by the Inspectors could not locate the parties on the addresses provided. Some of these parties had purchased the shares sold by the assessee company. Hence, AO held these transactions to be illegal. From the above discussion, it is apparent that there was no incriminating material discovered at the time of search, on the basis of which the additions have been made. Enquiries made in the assessment proceedings of third parties, that too just 20 days prior to time barring date, brought some discrepancies in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. Addition (disallowance) has been made on the basis of information available in the Audit Report/Return of Income. The views expressed by the Hon'ble Court in Kabul Chawla case (Supra) and Continental Warehousing Corporation (Supra) has been reiterated by the Jurisdictional High Court in the case of CIT Vs. Veerprabhu Marketing Ltd. 73 taxmann.com and by several other High Courts. Hon'ble ITAT, Kolkata has reiterated these views in several of its decisions, as mentioned in appellant's submissions. Respectfully following judgements / decisions in this regard, it is held that the additions made in proceedings u/s. 153A read with section 143(3) are not valid, as no incriminating material has been found at the time of search. Hence, this ground is allowed. 5. Before us, the ld. D/R relied upon the assessment order. On the other hand, the ld. Counsel for the assessee relied upon the order of the ld. CIT(A). 6. Before embarking upon an enquiry on the facts of the present case, in order to find out as to whether any addition deserves to be made in the hands of the assessee u/s 68 of the Act, we would deem it proper to bear in mind the scope of assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. (vii)Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. 8. ITAT Delhi Bench in the case of DIT Vs. Smt. Shivali Mahajan and others, rendered in ITA No.5585/Del/2015 has considered this aspect in its decision. Thereafter, the Tribunal has specifically held that serial no.(iv) of the above proposition, the Hon'ble Delhi High Court has specifically held that assessment under section 153 A of the Act has to be specifically made on the basis of seized material. ITAT Delhi Bench was considering an aspect whether the evidence in the shape of books of accounts, money, bullion, jewellery found during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 153(A) of the Act, in the absence of any incriminating material found during the search on the premises of the Assessee was not sustainable in law. Reliance was placed on the decision of this Court in Commissioner of Income Tax v. Kabul Chawla, [2016] 380 ITR 573. 7. A question was posed to the learned counsel for the Revenue whether in the present case anything incriminating has been found when the premises of the Assessee was searched. The answer was in the negative. The entire case against the Assessee was based on what was found during the search of the premises of the AEZ Group. It is thus apparent on the face of it, that the notice to the Assessee under Section 153A of the Act was misconceived since the so- called incriminating material was not found during the search of the Assessee's premises. The Revenue could have proceeded against the Assessee on the basis of the documents discovered under any other provision of law, but certainly, not wider Section 153A. This goes to the root of the matter. 9. Hon'ble Court has specifically observed for the purpose of section 153A that only seized material is required. However, if there is any other incri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve relation to the search or requisition. In other words, the assessment should be connected with something found during the search or requisition, viz., incriminating material which reveals undisclosed income. Thus, while in view of the mandate of sub-section (1) of section 153A of the Act, in every case where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish returns of income for the six years preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made, any addition or disallowance can be made only on the basis of material collected during the search or requisition. In case no incriminating material is found, as held by the Rajasthan High Court in the case of Jai Steel (India) (supra), the earlier assessment would have to be reiterated. In case where pending assessments have abated, the Assessing Officer can pass assessment orders for each of the six years determining the total income of the assessee which would include income declared in the returns, if any, furnished by the assessee as well as undisclosed income, if any, unearthed during the search or requisition. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the present case seeking to make the proposed addition of Rs.11,05,51,000/- on the basis of the material which was not found during the course of search, but on the basis of a statement of another person. In the opinion of this court, in a case like the present one, where an assessment has been framed earlier and no assessment or reassessment was pending on the date of initiation of search under section 132 or making of requisition under section 132A, while computing the total income of the assessee under section 153A of the Act, additions or disallowances can be made only on the basis of the incriminating material found during the search or requisition. In the present case, it is an admitted position that no incriminating material was found during the course of search, however, it is on the basis of some material collected by the Assessing Officer much subsequent to the search, that the impugned additions came to be made. 19. On behalf of the appellant, it has been contended that if any incriminating material is found, notwithstanding that in relation to the year under consideration, no incriminating material is found, it would be permissible to make additions and disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of law in other decisions referred by the assessee is identical; particularly we have considered the judgment of Hon ble High Court in the case of PCIT vs. Salasar Stock Broking Pvt. Ltd. (supra). 13. For buttressing our above conclusion, we further fortify ourselves with the following judgments:- Sl.No. Particulars 1. PCIT vs.- Kurele Paper Mills (P) Ltd. [2017] 81 taxmann.com 82 (Delhi) 2. PCIT vs.- Rashmi Infrastructure Pvt. Ltd. ITAT 99 of 2019, GA No. 1211 of 2019 (Calcutta HC) 3. CIT vs.- Veerprabhu Marketing Ltd. [2016] 73 taxmann.com 149 (Calcutta) 4. PCIT vs.- Salasar Stock Broking Ltd. ITAT No. 264 of 2016, GA No. 1929 of 2016 (Calcutta HC) 5. M/s. Mani Square Ltd. vs.- ACIT [IT(SS)A Nos. 58/KOL/2019 others 6. ACIT vs.- Majestic Commercial (P) Ltd. [2020] 116 taxmann.com 412 (Kolkata Trib.) 7. PCIT vs.- Anand Kumar Jain Others[ITA 23/2021 others (Delhi High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has utilized this capital in making investment in other corporate entities and ultimately in the mutual funds. Thus, according to the assessee, the capital in its hands was accepted. The Assessing Officer in Assessment Year 2011-12, when its utilization was examined, cannot doubt the availability of the funds for making investments in real assets. 17. On an analysis of the above details it is revealed that the Assessing Officer did not make any analytical investigation or recorded any specific findings. He has acted vaguely and recorded a general finding in a superficial manner touching upon large number of entities. His grievance is that in this year, the assessee has been possessing real assets which were ultimately procured by transacting with shell companies. There is no trail of those shell companies from where the assessee has raised equity capital for the first time or as to how the assessee has utilized the available funds in making investment in the assets of real value. The Assessing Officer just disbelieved the submissions of the assessee. On the one hand, in assessment year 2008-09, when first time capital was raised, its genuineness was accepted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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