TaxTMI 
TaxTMI 
2024 (4) TMI 386
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....he case, the Ld. CIT(A) has erred in holding that the statement recorded u/s. 132(4) does not constitute incriminating material even though the statement is based on the substantial evidence of transactions appearing in the books of account of assessee duly corroborated by the statements of various persons. 2 "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in not considering the decision of Hon'ble Supreme Court in the case of P.R. Metrani v. CIT[2006] 287 ITR 209/157 Taxman 325 (SC) wherein the Hon'ble Supreme Court held that the books of account, documents, money, bullion, jewellery or other valuable article or thing and any statements recorded of the persons searched may be used as evidence for any proceedings under the Act." 3 "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that the ledger account and other documents found during the search proceedings do not constitute incriminating material." 3. Since the facts and issues are involved in both the years are exactly same including the finding of the ld. AO and ld. CIT (A), therefore, both these appeals are taken simultaneously. In ....
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....yers the investment had come and then he examined the source of investment in WEPL in the hands of the assessee and he noted that assessee has received funds from Kolkata based companies in A.Y. 2013-14 and 2014-15 in the following manner:- 2013-14 Sr. No. Name Nature Amount(in Rs. ) 1 Marina Commercial Pvt. Ltd. Share Capital 37,55,00,000 2 Rashidhan Infrastructure Pvt. Ltd. Share Capital 2,54,00,000 Total 39,79,50,000 2014-15 Sr. No. Name Nature Amount(in Rs. ) 1 Marina Commercial Pvt. Ltd. Share Capital 5,83,00,000 Total 5,83,00,000 7. The ld. AO has also analysed various percentage of shareholding in M/s. WEPL by various companies and different layers of subsidiaries and investor companies. Thereafter, in his order he has referred to certain enquiries on the premises of Kolkata based company, the details of such companies have been elaborated at page 8 which included the above two companies, that is, Marina Commercial Pvt. Ltd. and Rashidhan Infrastructure Pvt. Ltd, from whom assessee has received share capital. In the ....
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....dded Rs. 39,79,500/- in A.Y. 2013-14 and Rs. 5,83,000/- in A.Y. 2014-15. 8. Before the ld. CIT (A), assessee raised legal issue that the ld. AO has passed assessment order u/s. 153A and has made addition in absence of any incriminating material found in the course of search. Further during the course of search which continued for four days, no incriminating material whatsoever was found on the share application money or any documents that assessee has taken any accommodation entry. The entire assessment has been passed on the basis of pre-search information and post-search enquiry which was unconnected with the assessee company. Before the ld. CIT (A) assessee has also summarized various findings of the ld. AO wherein certain statements and field enquiries and inspector reports etc. have been referred which was conducted before the search and post search and nothing was connected with share application received by the assessee was found during the course of the search. The same has been tabulated in the following manner:- Sr No. Nature of finding Remarks 1. Inspector report dated 25.08.2017 Post search enquiries conducted by investigation wing without any....
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....st the search action conducted at the premises of the assessee. d. Reliance on the report of the inspector conducted post search action on the assessee. 9. In the entire assessment order, not a single reference of any incriminating material found at the premises of the assessee has been made. Even in the statement recorded, as referred by the ld. AO, was made much prior to the date of commencement of the search in the case of the assessee. In so far as the statement of promoter and employees at the premises of the assessee there is no whisper or any admission regarding the receipt of any accommodation entry and no co-relation with any material found during the search. Even in the statement of Shri Vineet Mittal, Promoter of the group recorded u/s. 132(4), nowhere, he has admitted or stated about any cash credit received in the books of the assessee company as bogus or non-genuine. The entire submissions of the assessee including on merits have been incorporated in the appellate order right from pages 5-77 of the appellate order. 10. The assessee's submissions were forwarded to the ld. AO specifically to rebut the submissions, whether there was any incriminating material found....
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....rt, AO has contended that during the search proceedings various incriminating material in the form of documents, statements and information were found/ recorded which revealed that the assessee has received accommodation entries based on which addition has been made. The findings of the AO in the assessment order and remand report based on which the addition has been made can be summarized as under 1 Reliance on statement of promoter and employees of the appellant group. 2 Reliance on statement of third parties recorded at the DDIT office prior to the search action on the appellant. 3. Reliance on the statement of third parties recorded at the DDIT office during and post the search action conducted at the premises of the appellant 4. Reliance on the report of the inspector conducted post search action on the appellant 5. Reliance on the documents seized during the search proceedings 9.7 Before coming to the findings of the AO, it is necessary to consider as to what constitutes an incriminating material. Though the said term has not been defined in the Act, incriminating material may also comprise of document or evidence found in....
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....n corroborate each other and indicate suppression of income, suppression of information about the character of a receipts /suppression of tax by a person, whether searched or not. Loosely, these items ant known as "incriminating material /evidence being information which was earlier not known prior to the search action and having come to light during the search action, has the potential of affecting determination of income tax of the persons affected by information. If the information pertains to searched person, he is assessed under section 153A and if the information is in respect of a party not covered by search his case is covered under section 153G of the Act 9.8 It is seen that the AO has heavily relied on the statements recorded during the course of the search of various persons and categorized these statements an incriminating material However, what is important here to see is that whether these statements are suitably corroborated by supporting evidence and material found during the course of the search as the Hon'ble Courts have held in a number of decisions that statements recorded us 132(4) could be treated as incriminating material only when supported by c....
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....is for a block assessment only if such statement relates to any incriminating evidence of undisclosed income unearthed during search and cannot be the sole basis for making a block assessment. 24. If the Revenue's contention that the block assessment can be framed only on the basis of a statement recorded under Section 132(4) is accepted, if would result in ignoring an important check on the power of the AO and would expose assessee is arbitrary assessments based only on the statements, which we are conscious are sometimes extracted by exerting undue influence or by coercion Sometimes statements are recorded by officers in circumstances which can most charitably be described as oppressive and in most such cases, are subsequently retracted Therefore, it is necessary to ensure that such statements, which are retracted subsequently, do not form the sole basis for computing undisclosed income of an assessee. 9.9 The appellant has on the other hand vigorously argued that since no corroborative material was found in its case during the course of the search, the statements relied upon by the AO could not be considered as incriminating material. 9.10 As alrea....
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....t Mittal, promoter of the assessee company, was also recorded u/s 132(4) of the Act wherein there is no acceptance regarding the non-genuineness of the transaction In fact, on being specifically asked regarding the share application money in Q No. 8 on 03. 07.2017, he stated that he shall submit his response in the due course of 20 days. Accordingly the assessee has duly filed its reply in response to summon dated 27.07.2017 wherein all the documents/evidences related to share application money have been submitted The copy of the said reply has been submitted by the assessee. Further Mr. Mittal in his statement has categorically stated that the employees were appointed as directors based on the Merits. No doubt whatsoever has been raised by the AO on the documents submitted by the assessee. 9.16 Accordingly. I find that no incriminating fact has been brought out from the statements recorded by the promoter and employees of the assessee group during the course of search which is corroborated by other incriminating material/evidence gathered during the course of the search Moreover, it is also seen that only the statement of the promoter has been recorded u/s 132(4), while t....
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....estion of relevance of such statement in the assessee case doesn't arise 9.19 Further AO has relied upon the statement recorded u/s 132(4) of the Act of Mr. SG Mehta, CA who was earlier a lax consultant in one of the companies namely M/s Luxury Vinimay Pvt Ltd. In the said statement, when Mr. Mehta was asked about share premium received from Mis Luxury Vinimay Pvt. Ltd, he said that there is no rational behind charging premium and that he had been informed by Mr. Satish Sharma that it was an accommodation entry 9.19.1 In this regard, I find that Mr. Mehta has expressed his opinion that premium charged by the said company was on the higher side and he had been informed by Mr. Satish Sharma that it was an accommodation entry Here it is important to note that on being enquired with respect to the persons/ operators who would have arranged such transaction, he responded that he was not aware of the same and simply claimed that Mr. Satish Sharma and Amod Despandhe knew the facts. On perusal of such statement, it is inferred that Mr. Mehta had no concrete knowledge as to whether the company had received any accommodation entry his statement was merely on basis of wo....
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....ssly restricts the computation of undisclosed income to the evidence found during search, the statement recorded under Section 132(4) of the Act can form a basis for a block assessment only if such statement relates to any incriminating evidence of undisclosed income unearthed during search and cannot be the sole basis for making a block assessment 24 If the Revenue's contention that the block assessment can be framed only on the basis of a statement recorded under Section 132(4) is accepted, it would result in ignoring an important check on the power of the AO and would expose assessees to arbitrary assessments based only on the statements, which we are conscious are sometimes extracted by exerting undue influence or by coercion. Sometimes statements are recorded by officers in circumstances which can most charitably be described as oppressive and in most such cases, are subsequently retracted therefore, it is necessary to ensure that such statements, which are retracted subsequently to not form the sole basis for computing undisclosed income of an assessee. 9.20.2 Similar decision has been rendered by Delhi High Court in the case of PCIT Vs Best Infrastructu....
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....tted the requisite details in respect of the merged companies before the investigation wing as well as AO. Therefore, the inspector's reports themselves cannot be termed as incriminating in nature 9.22 Lastly, the AO has also claimed that during the search proceedings certain seized material were found from the assessee premises in form of ledger accounts of the parties whose share application were received, which were incriminating in nature. The copies of the ledgers forming part of the seized material have been submitted vide letter dated 26 07 2022. In its rejoinder that the assessee has submitted that the documents relied upon by the AO, are part of the accounted books in the form of ledger accounts share application forms, bank statements, etc Page wise explanation for the same has been submitted by the assessee in the rejoinder 9.22.1 I have gone through the copies of the ledgers, share application forms and bank statements forming part of the seized material which have been provided by the AO and explanation for the same furnished by the appellant. It is noted that the relevant seized maternal are only supporting documents pertaining to the accounted t....
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.... was routed from the assessee company or that any cash was deposited by the assessee company 9.23 In view of the above discussion I find that the additions made by the AO are not based on any incriminating material which has been found during the course of search. Since the assessment for the relevant assessment year was unabated, as per the decision of the Hon'ble Special Bench of Mumbai ITAT in the case of All Cargo Global Logistics Ltd. [2012] 23 taxmann.com 103 (Mum.) (SB) as also the Hon'ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. [2015] 58 taxmann.com 78 and also the Hon'ble Supreme Court in the case of Abhisar Buildwell P Ltd [2023] 149 taxmann.com 399, completed assessment cannot be interfered while making an assessment u/s 153A of the Act unless such interference is on the basis of incriminating material gathered during the course of the search, which is not the case here. Thus, Ground No. 2 is allowed and the addition made is directed to be deleted. 12. We have heard both the parties at length, perused the relevant finding given in the impugned orders as well as materials referred to before us includi....
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....ding accommodation entries through various entities. It is also alleged that such entities have provided accommodation entries to the shareholders companies of the assessee company from whom share capital has been received by the assessee. * Statements were recorded much prior to search action and have no link with the assessee. There is no mention of the assessee company's name or its shareholders. Therefore, such independent statement cannot be termed as incriminating material unearthed from the search on the assessee company. Statements themselves cannot treated as incriminating material. 3 Statement of Rajcsh Bhuthoria u/s 131 dated 14.11.2014 at ADlTdnv.) office, Kolkata Pre search enquiries conducted by investigation wing, Kolkata, on certain entry providers. These entry operators were engaged in providing accommodation entries through various entities. It is also alleged that such entities have provided accommodation entries to the shareholders companies of the assessee company from whom share capital has been received by the assessee. Statements were recorded much prior to search action and have no link with the assessee. There is no mention of the assess....
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.... AO also have nowhere been confronted to Mr. Mittal during the search. 6 Ledger account pertaining to share application found at the search. In the assessment order and remand report, AO has termed the ledger accounts as incriminating material The relevant documents referred by AO are the supporting evidences for the receipt of share application money such as share application forms, bank receipt voucher, bank statements, etc. Said documents were already filed with AO in original assessment proceedings. Therefore, such documents can never be considered as incriminating material unearthed durinj^1, 'lie search which can create a doubt on the veracity of the share capital received. Important to note that the seized documents should be such which should clearly cast a doubt on the transaction, without a second guess. Otherwise, department was free to reopen the case with the findings which it already had prior to search. Enquiries during the course of search at third parties 7 Statement of Shri S.G. Mehta u/s 132(4) dated 30.06.2017 at his own office premises Mr. Mehta in his statement stated that he did not find any rational behind charging high prem....
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....#39;. The inspector in its report stated that Shri Vishal Agarwal and Shri Subhradeep Chhaterjee was not found at the address available in records. The said findings are not arising out of the findings of the search conducted at the premises of the search. The said findings are not corroborated with evidences unearthed during search. In case of Mr. Vishal Agarwal, the enquiries reveal that the person found at the address was residing on behalf of Mr. Vishal Agarwal and used to collect mail for him. The premises belonged to Mr. Vishal Agarwal only. Further, with respect to Mr. Chaterjee, the premises was found to be locked and it was not the case of non-existence. Also, the said shareholder companies had already merged and therefore, it was possible that said exdirectors had changed addresses. Post Search Inquiries 10 Inspector report dated 25.08.2017 relating to shareholder companies The enquiries were made by the Inspector at the Kolkata address of the shareholder companies. The Inspector report states that the companies were not existing at the given address/premises. These Companies had been merged much prior to the search action and therefore, their existen....
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....uiries during the course of search in the premises of the assessee there is a reference to the statement of an employee and statement of Shri Vineet Mittal, but from bare reading of these statements nowhere there is any acceptance or admission about the non-genuineness of the transaction of the share capital. He has only stated that he would file all the relevant supporting documents within 20 days which was in fact he did submitted before the Investigation Wing. Even in his statement there is no such incriminating material or any pre-search enquiry information has been confronted to him, based on which he has given any statement which can be inferred remotely as incriminating leading to some kind of inference that the credits which had come up in the form of share application money are bogus or non-genuine. Thus statement also does not lead to inference of any incriminating material. 14.1 One very important fact which has also been highlighted by the ld. DR and also by the ld. AO in his remand report that there was a ledger account pertaining to share application which was found at the time of search which can been treated as incriminating material. First of all this, is the pa....
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....tained finality before the date of search and are not abated assessments in terms of proviso to Section 153A, the ld. AO can acquire jurisdiction to make the assessment or addition if there is any incriminating material found during the course of search. It is axiomatic that the ld. AO can assume jurisdiction to assess or re-asses total income only when any incriminating material is found / unearthed during search and then he can take into account those incriminating material unearthed during the course of search and other material available with the ld. AO including the income declared in the return of income. Thus, existence of incriminating material which is found in the course of search is a very foundation of acquiring jurisdiction u/s 153A in the case of unabated / completed assessment. This principle laid down by the Hon'ble Bombay High Court and Hon'ble Delhi High Court and various other High Courts have been reaffirmed by the Hon'ble Supreme Court in the case of Abhisar Buildwell Pvt.ltd reported in 454 ITR 212 wherein Lordships have concluded and stated as under:- "13. For the reasons stated hereinabove, we are in complete agreement with the view taken by the Del....
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....reopened the assessment after exercising the powers u/s. 147 / 148 subject to the fulfillment of the conditions and limitations provided u/s. 147/ 148 and these powers are specifically saved u/s. 153. Instead of resorting to action u/s. 147 / 148, ld. AO has proceeded to use pre-search enquiry and information within the scope of Section 153A which cannot be referred as incriminating material found in the course of search. As stated above in the course of search, in so far as statement of the promoter also there is nothing incriminating and the only material which has been found with the ledger account of certain share application money which cannot be held to be incriminating and this has been held so by the Hon'ble Delhi High Court in the case of Param Dairy Ltd. in ITA No.37 of 2021 dated 15/02/2021, wherein it has been held that audit report, cash book, ledger book, bank book and the books of accounts maintained regularly by the assessee if it has been seized and found during the course of search cannot be treated as incriminating material because regular books of accounts by no stretch of imagination could be treated as incriminating material form basis of framing assessment u/....
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....s filed the return of income from Kolkata and field inquiry was carried out in respect of the above company on the address, 51/4, Strand Road, Kolkata of the said company that the premises was an old building and no company in the name of M/s. Integral Distributors Pvt. Ltd. was existing at the above premises. Further, he noted that this company had very meager turn over. Thus, it was inferred that, this company did not carry out any substantial business. He further, noted that the shareholder of these companies was M/s. Olive Vincom Pvt. Ltd. and M/s. Doyen Vintrade Pvt.Ltd. and both these companies were filing return of income from the same addresses at Kolkata i.e. 51/4, Strand Road, Kolkata and these two shareholders were also non-existing. He further observed that assessee did not furnish any response to show-cause notice and accordingly, assessee has failed to establish the creditworthiness of assessee M/s. Integral Distributors LLP for advancing such a huge loan. Accordingly, he upheld the addition u/s. 68 for Rs. 28 Crores. 24. During the course of the appellate proceedings, the assessee filed detailed submissions as well as additional evidences running into 296 pages wh....
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....does not show any details of the transfer of unquoted shares. Further, the documents in support of the compliances of the Companies Act, with respect to transfer of shares have not been submitted. c. The assessee has also submitted documents such as ITR, financials and bank account statements of these 10 companies to show the source of the lender M/s Integral Distributors LLP 4.4 The entity wise details, as given in page 76 of the paper book submitted, were studied and it was found that these companies have inter-related directorships making some of them related parties. For example- Sanjib K Shaw is director in Helpful Commodities Pvt. Ltd., Moonstar Commodities Pvt. Ltd., Overtop Tradelink Pvt. Ltd., Everrise Commotrade Pvt.Ltd. and Bhumilaxmi Distributors Pvt. Ltd. Some of the entities mentioned in the table have also been struck off as per the data available on MCA website 4.5 The other evidence provided by the assessee is the bank account statement and financial statement of the above-mentioned entities. The bank statements clearly show that the funds were received from other parties and then transferred through banking channel to the lender. Certain....
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....assessee to file the additional evidences and accordingly, same were admitted by him. On merits, ld.CIT(A) after analyzing the documents and material furnished during the course of appellate proceedings which was also forwarded to the ld. AO, and after considering the the remand report of the ld. AO and rejoinder submissions had observed and held as under:- 14.20 Now coming to the facts of the case, it is observed that the appellant has submitted the confirmation, ITR, financials, bank statement of the lender to support the transaction. It is observed that the identity is proved by the ITR and the fact that the said party was assessed by the same AO. It is also noted that the assessment was also completed in the case of the lender u/s 143(3) and no addition for any unexplained cash credits has been made. Further, the genuineness of the transaction can also be safely concluded since the entire transaction has been done through the banking channels, duly recorded in the books of accounts of the assessee and duly reflected in the financial statements of the assessee. Also, the assessee has also explained that the said loan has been taken for the commercial purpose of investme....
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....any evidence to support the said contention. 14.24 Further, in the appellate proceedings, the assessee has also attempted to prove the source of the source in respect of the lender to show that the source in the hands of the lender is also genuine. In the said submission, the assessee has submitted that the immediate source in the hands of the lender is funds received from sale of unquoted shares to various parties. In support of the same, the assessee has submitted the ITR, financials, bank statement and confirmation of the parties who have paid consideration to the lender for purchase of unquoted shares. 14.25 In the remand report, AO has alleged that the assessee has not been able to substantiate the source of the source. The various contentions of the AO have already been mentioned in above paras. The assessee has explained that the allegations of the AO are unfounded and incorrect and the judicial precedents make it clear that the assessee is not required in the first place to substantiate the "source of the source" in the case of the loan transaction for the relevant assessment year. However, according to the assessee, while not being legally bound to do so,....
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....d by the assessee cannot be said to be not genuine and so the addition of Rs. 28 crore made u/s 68 of the Act is directed to be deleted. Accordingly, grounds no. 1 and 2 are allowed. 25. Before us, ld. Counsel for the assessee submitted that this company, M/s. Integral Distributors LLP was assessed with the same Assessing Officer who has passed assessment order and he has also filed copy of the assessment order before us for the A.Y. 2018-19, passed by the same Assessing officer on the same date. Further, he submitted that the assessee had furnished confirmation, ITR, Financials, bank statement of the lender to support the transaction. Another important fact was that in the case of the lender, assessment u/s. 143(3) was made for A.Y. 2016-17 and no addition has been made or any adverse inference has been drawn in the case of the lender company. Once the transaction has been done through banking channels which is incorporated in the books of accounts, and all the documents has been furnished including the source of funds in the hands of the lender company and also accepted u/s 143(3), then no addition should be made. 26. On the other hand, ld. DR relying upon the observation o....
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....order on 31/12/2019 i.e. the same date of order which has been passed in the case of the assessee. Thus, ld. AO was very well aware that this company's address has been changed and therefore, stating that this company was not found in Kolkata at the time of enquiry has no relevance. Then how did he pass the assessment in case of this company without drawing any adverse inference in that case. Apart from that, even in the earlier years, notices u/s. 143(2) and other statutory invoices for the purpose of assessment u/s. 143(3) was issued and served u/s. 143(3) was issued and served on the same address earlier then how can it be inferred that this company was non-existing. 28. We further find that ld. CIT (A) has also examined the immediate source of funds in the hands of the lender company which was received from sale of unquoted shares of various companies and in support of which, ITR, financial statements and bank statements and confirmation of the parties were submitted, including consideration paid by the lender company for the purchase of unquoted shares and sale were also filed before the ld. AO during the remand proceedings which has been duly examined by the ld. CIT(A). No....
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....ion, the assessee has contended that it has not received any dividend income during the year. I observe on going through the financials that no dividend income has been reported by the assessee. Also, I find that the amount of dividend income of Rs. 73,77,315/- as mentioned by the AO in the assessment order is identical to the figure mentioned in the assessment order for AY 2016-17. Accordingly, AO is directed to verify the amount of the dividend income actually earned during the year, which according to the appellant is NIL, and restrict the disallowance to the correct dividend income earned by the assessee as per the financials." 32. The ld. CIT(A) after relying upon the judgment of the Hon'ble Bombay High Court in the case of M/s. Nirved Traders Pvt. Ltd. (ITA No.149 of 2017), that once there is no exempt income earned, no disallowance u/s. 14A can be made. Apart from that ld. CIT (A) has referred to various judgments of the High Courts and held that ld. AO cannot make disallowance u/s. 14A when there is no exempt income. Thus, once it is an admitted fact that there is no exempt income earned by the assessee, then no disallowance u/s. 14A can be made. This issue stands covere....