TaxTMI 
TaxTMI 
TaxTMI 
2025 (3) TMI 1523
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the assessee. 2.2. The AY 2014-15, being a year falling under "relevant assessment year", the assessee is also contesting the validity of reopening of assessment of AY 2014-15. 3. The facts relating to the case are stated in brief. The assessee herein belongs to "Span Group" and it is a leading builder and developer. This group is engaged in the business of construction and sale of residential and commercial buildings in Mira and Bhayander areas in the District of Thane. The Revenue carried out the search and seizure action u/s. 132 of the Income Tax Act, 1961 ("the Act") on 12-01-2021 in the business as well as the residential premises of the group. Consequent thereto, the assessments of assessment years 2014-15 to 2020-21 were completed by the AO u/s. 143(3) r.w.s 153A of the Act. The assessment of AY 2021-22 was completed u/s 143(3) of the Act. 4. It is pertinent to note that the AY. 2014-15 is the 7th year from the year in which the search has taken place. The AO has reopened the assessments of AY 2014-15 to 2020-21 under the provisions of section 153A of the Act consequent to the search conducted on 12.01.2021. As per the provisions of section 153A of the Act, the AO is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ngly, the AO took the view that the embedded profit in the "on money receipts" should be estimated @ 15%. The details of on-money receipts and profit estimated by the AO are tabulated below: AY. On-money receipts (Rs.) Profit estimated @ 15% (Rs.) 2015-16 1,65,00,000 24,75,000 2016-17 1,36,00,000 20,40,000 2017-18 1,21,00,000 18,15,000 2018-19 3,34,00,000 50,10,000 2019-20 2,34,00,000 35,10,000 2020-21 1,05,00,000 15,75,000 2021-22 1,34,00,000 20,10,000 Accordingly, the AO added the respective amount of profit so estimated by him @ 15% of on money receipts in AY 2015-16 to 2021-22. The Ld.CIT (A) also confirmed the same. 6. The Ld.AR submitted that the assessee is engaged in the business of developing residential projects for lower middle class and middle class people. The carpet area of flats promoted by the assessee in these years was in the range of 445.73 sq.ft. to 597.70 sq.ft. only, in the project named, Annapurna Heights. The carpet area of another project named, Span Signature was in the range of 343.90 sq.ft. to 553.08 sq.ft. only. Further, both the projects are developed in Bhayander area of Thane District, which is far away from the Mumbai r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e that, in the instant case, the AO did not take into account the peculiar facts prevailing, viz., that it is promoting the real estate projects in Bhayander area, which is far away from Mumbai region; that the projects are targeted for middle class and lower middle class people; that the carpet area is very less. It is in the common knowledge of everyone that the cost of construction of a smaller area will be more than the cost of construction of a larger area due to involvement of fixed costs. Further the construction of larger area would enable efficient utilization of all resources. Hence the cost of construction of smaller size flats is always higher than the large sized flats. Consequently, the profit on sale of smaller size flats is expected to be lower. Accordingly, we are of the view that there is merit in the contentions of the assessee that the profit from those projects will be lower. 8.1. We notice that the contention of the assessee with regard to the rate of profit is supported by its books of accounts, wherein the average rate of profit declared by the assessee works out to 7.21% only. We also noticed earlier that the AO did not bring any material or comparable cas....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessee as its income. In response thereto, the assessee contended that the loans taken by it are genuine loans. In the alternative, the assessee submitted that, if at all the AO proposes to assess loans as income of the assessee, then telescopic benefit should be given to the amount of loan repaid by it and also to the profit estimated on the on-money receipts. The AO accepted the alternative contentions of the assessee and accordingly he prepared a cash flow statement by treating (a) the loan received by the assessee as "cash outflow" (b) loan repaid by the assessee as "cash inflow". (c) income estimated by the AO on the alleged on-money receipts as "cash inflow". The cash flow statement was prepared by the AO, is extracted below:- 9.2. The above said workings made by the AO revealed that there was negative peak balance of Rs. 46,74,164/- in the financial year relevant to AY. 2014-15 and Rs. 1,64,20,877/- in the year relevant to AY. 2015- 16, meaning thereby, there was cash outflow in the above said two years to the extent mentioned above. The AO treated the excess cash outflow as unaccounted income of the assessee and assessed the above said amounts in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ect of accommodation loans shall constitute "other material" which could be used by the AO in the unabated assessment year 2015-16. Accordingly, he contended that the addition made by the AO u/s 68 of the Act was justified. 9.5. On the contrary, the Ld.AR submitted that the interpretation given by the Ld D.R is not in accordance with the ratio laid down by Hon'ble Supreme Court in the case of Abhisar Buildwell P Ltd (supra). He submitted that the ratio of the decision rendered by Hon'ble Supreme Court should be understood by reading entire order. He submitted that a careful reading of entire order passed by the Hon'ble Supreme Court in the above said case would show that the Hon'ble Apex Court has completely agreed with the decisions rendered by Hon'ble Delhi High Court in the case of Kabul Chawla and by Hon'ble Gujarat High Court in the case of Saumya Construction, wherein it has been clearly held that the addition in the case of unabated assessment should be based on incriminating material found during the course of search conducted in the hands of the assessee. Further, the Hon'ble Supreme Court has also held that the foundation for making assessment u/s 153A can be said to be ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me" shall be assessed for the block period, while the assessment of regular income shall be carried out separately in the normal course. Hence, under the erstwhile scheme, there were two parallel assessments, viz., one regular assessment for assessing regular income of each of the year and second one for assessing the "undisclosed income" for the block period. This distinction between old scheme and new scheme was elaborately brought out by Hon'ble Supreme Court in the above said case as under:- "9.1 That prior to insertion of Section 153A in the statute, the relevant provision for block assessment was under section 158BA of the Act, 1961. The erstwhile scheme of block assessment under section 158BA envisaged assessment of 'undisclosed income' for two reasons, firstly that there were two parallel assessments envisaged under the erstwhile regime, i.e., (i) block assessment under section 158BA to assess the 'undisclosed income' and (ii) regular assessment in accordance with the provisions of the Act to make assessment qua income other than undisclosed income. Secondly, that the 'undisclosed income' was chargeable to tax at a special rate of 60% under section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reass....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the earlier regime of block assessment whereby; it was only the undisclosed income of the block period that was assessed, section 153A of the Act seeks to assess the total income for the assessment year, which is clear from the first proviso thereto which provides that the Assessing Officer shall assess or reassess the total income in respect of each assessment year, falling within such six assessment years. The second proviso makes the intention of the Legislature clear as the same provides that assessment or reassessment, if any, relating to the six assessment years referred to in the sub-section pending on the date of initiation of search under section 132 or requisition under section 132A, as the case may be, shall abate. Subsection (2) of section 153A of the Act provides that if any proceeding or any order of assessment or reassessment made under sub-section (1) is annulled in appeal or any other legal provision, then the assessment or reassessment relating to any assessment year which had abated under the second proviso would stand revived. The proviso thereto says, that such revival shall cease to have effect if such order of annulment is set aside. Thus, any proceeding ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pending reassessment under section 147 of the Act has abated, needless to state that the scope and ambit of the assessment would include any order which the Assessing Officer could have passed under section 147 of the Act as well as under section 153A of the Act." 8. For the reasons stated hereinbelow, we are in complete agreement with the view taken by the Delhi High Court in the case of Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra), taking the view that no addition can be made in respect of completed assessment in absence of any incriminating material. (** 36 taxmann.com 523) The above said decisions rendered by the Hon'ble Delhi High Court and Hon'ble Gujarat High Court bring out the proposition of law that the completed assessments (unabated assessments) can be interfered with 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. The Hon'ble Supreme Court has approved the above said interpretation g....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment, the AO would have the jurisdiction to assess or reassess the 'total income' taking into consideration the incriminating material collected during the search and other material which would include income declared in the returns, if any, furnished by the assessee as well as the undisclosed income. However, in case during the search no incriminating material is found, in case of completed/unabated assessment, the only remedy available to the Revenue would be to initiate the reassessment proceedings under sections 147/48 of the Act, subject to fulfilment of the conditions mentioned in sections 147/148, as in such a situation, the Revenue cannot be left with no remedy. Therefore, even in case of block assessment under section 153A and in case of unabated/completed assessment and in case no incriminating material is found during the search, the power of the Revenue to have the reassessment under sections 147/148 of the Act has to be saved, otherwise the Revenue would be left without remedy. 12. If the submission on behalf of the Revenue that in case of search even where no incriminating material is found during the course of search, even in case of unabated/completed ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ccommodation entries and the same would constitute "incriminating information". According to Ld D.R, the said incriminating information could be used by the AO while computing total income of unabated assessment year, viz., AY 2015-16, since the revenue has unearthed incriminating material relating to on-money receipts during the course of search conducted in the hands of the assessee. The Ld.DR also furnished a copy of report received from the assessing officer. However, on a perusal of the same, we notice that the AO has furnished following details:- (a) A brief note about M/s Span Group (b) Details of entities under M/s Span Group (c) Details of projects undertaken by M/s Span Group (d) Details of Unsecured loans taken by M/s Span Group and it is titled as "Accommodation entries in the form of Unsecured loans received by M/s Span Group". (e) Copy of seized materials relating to on-money receipts. We notice that the incriminating materials, which were found during the course of search, were related to the on-money receipts only. We notice that the search team did not find any material to support the case of the revenue that the loans taken by the assessee were in the n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ds of the assessee. Accordingly, we set aside the order passed by Ld.CIT (A) on this issue and direct the AO to delete this addition. 10. We shall now take up the appeal filed by the assessee for Asst. Year 2014-15. We noticed earlier that the AY. 2014-15 falls under the category of "relevant assessment year", i.e., it is a year falling beyond initial period of six assessment years. For the sake of convenience, we may extract below the provisions of sec. 153A of the Act:- "153A. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003 but on or before the 31st day of March, 2021, the Assessing Officer shall- (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years and for the relevant assessment year or years referred to in clause (b), in the prescribed form and verified in the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant assessment year" shall mean an assessment year preceding the assessment year relevant to the previous year in which search is conducted or requisition is made 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 or requisition is made. Explanation 2.-For the purposes of the fourth proviso, "asset" shall include immovable property being land or building or both, shares and securities, loans and advances, deposits in bank account. (2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to subsection (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Principal Commissioner or Commissioner: Provided that such revival shall cease to have effect, if such order of annulment is set aside. Explanation.-For the removal of doubts....
X X X X Extracts X X X X
X X X X Extracts X X X X
....place. The fourth proviso to sec. 153A makes it clear that the assessment of relevant assessment years can be reopened only if the following three conditions are cumulatively satisfied:- (a) the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income has escaped assessment. (b) the income so escaped assessment is represented in the form of asset. (c) the income so escaped assessment amounts to or is likely to amount to fifty lakh rupees or more in the relevant assessment year or in aggregate in the relevant assessment years It is not the case of the AO that he is in possession of any books of accounts or other documents or evidence, which would show that there was escapement of income. We noticed earlier that the AO has only entertained presumption that the loans taken by the assessee were in the nature of accommodation entries and said presumption was entertained on the basis of some information found during the course of search conducted in the hands of the lenders, i.e., no material was found during the course of search conducted in the hands of the assessee that the loans taken by the assessee are only accom....