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2025 (9) TMI 509
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....earch, is on a different footing. As is evident, the impugned issues arise out of search conducted by the revenue in the case of the assessee group on 26.02.2021. The Ld.AR advanced arguments and supported the case of the assessee with various case laws and furnished various documents containing workings / computations etc. The Ld. CIT-DR also advanced arguments and supported the findings rendered by the AO and likewise, relied on various case laws. Having heard rival submissions and upon perusal of case records, our adjudication would be as under: 3. ITA No.322/Chny/2025, A.Y.: 2014-15: 3.1 First, we take up the appeal for Assessment Year 2014-15, out of an order passed by the Ld. Commissioner of Income-tax (Appeals), Chennai-19 on 26.11.2024, in the matter of an assessment framed by the AO u/s. 153A r.w.s 143(3) of the Act on 31.03.2022. The assessee filed its regular return of income u/s. 139(1) on 30.09.2014 for A.Y.2014-15 by admitting an income of Rs. 1,63,11,670/-. The said return of income was taken up for scrutiny by issue of notice u/s. 143(2) and for verification in the assessment proceedings related to the investments made by M/s.Devanayagam Finance Pvt. Ltd. i....
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....6 by accepting the income returned. While the order of assessment has been passed u/s. 143(3) by the AO based on the directions of the JCIT, the assessment was reopened by issuing a notice u/s. 148 on 25.03.2019 after obtaining the approval of the JCIT. Subsequently, the assessment u/s. 143(3) r.w.s 147 on 19.11.2019, by treating the investment received from M/s.Devanayagam Finance Pvt. Ltd. to be bogus and thus brought to tax as an unexplained credit u/s. 68 of the Act. Though the infusion in the form of share capital received during the year is Rs. 22,23,00,000/-, a wrong value of Rs. 8,83,73,142/- was adopted as addition. This value relates to the ensuing year. Irrespective of the quantum, the crux remains that the share capital received from M/s.Devanayagam Finance Pvt. Ltd.(M/s.DFPL) according to the finding of the AO is an 'Unexplained Credit' and not a genuine transaction. The assessee challenged the treatment by invoking the writ jurisdiction of the Hon'ble High Court at Madras and by the order in W.P.No.34483 of 2019 dated 03.09.2020, the assessment was set aside to be undertaken afresh and such order shall be passed within a stipulated time. Such time limit ended on 31....
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....our of the assessee, the Department has preferred this appeal and fostered the grounds of appeal as detailed below. GROUNDS OF APPEAL 1. The Order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts and in law. 2. The Ld.CIT(A) has erred in deleting addition of Rs. 22,23,00,000/- without adjudicating on the genuineness of transactions by stating that assessment was unabated after six weeks from 18.09.2020 consequent to the Order of the Madras High Court and the assessment u/s. 153A rws 143(3) was completed without any Incriminating material found during the course of search. 3. The Ld.CIT(A) has erred in not considering the fact that as per Notification No.60/2020 dt 13/08/2020 read with the order issued by the Central Board of Direct Taxes in F.No.187/3/2020-ITA-I, after 13/08/2020 all assessment orders (except in cases assigned to central charges, International tax charges) have to be passed by National e-Assessment Centre through the Faceless Assessment Scheme, 2019. 4. The Ld.CIT(A) has erred in not appreciating the fact that since the assessment u/s 143(3) rws had to be completed by NeFAC, and the fact that the searc....
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....ally flawed and passed in contravention of statutory directions. The ld.DR further contends that the ld.CIT(A) erred in not appreciating that the assessment u/s. 143(3) r.w.s.147 ought to have been completed by NeAC, and that given the search conducted on 26.02.2021, the reassessment proceedings initiated u/s. 148 of the Act stood abated. The ld.CIT(A)'s failure to examine this legal position vitiates the appellate order. It is further submitted that the ld.CIT(A) has also failed to accord due weight to the findings uncovered during the course of search proceedings, which clearly demonstrated to introduce unaccounted money into the assessee company in the guise of share capital. The ld.CIT(A) further erred in ignoring the critical fact that M/s.DFPL, the entity alleged to have invested Rs. 22.23 crore in M/s.KAG India Pvt. Ltd., had no financial capacity to make such a substantial investment. The financials of the said company revealed negligible business activity, minimal assets, and no credible or verifiable sources of funds to justify the alleged transactions. Lastly, reliance placed by the ld.CIT(A) on the earlier assessment proceedings in the assessee's case is wholly misplace....
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....(3) r.w.s. 144A proceedings. In light of the above arguments the ld.AR prayed for confirming the order of the ld.CIT(A). 3.4 We have heard the rival contention perused the materials available on record and gone through the order of the lower authorities along with the paper book filed by the assessee and case laws relied on. On the first aspect, the revenue attempts to emphasize that consequent to the order of the Hon'ble Madras High Court dated 08.09.2020, the original assessment u/s. 147 of the Act was set aside and while the assessment was due for completion, the action u/s. 132 of the Act was undertaken and hence, the assessment is an abated assessment and therefore the decision of the Hon'ble Supreme Court in the case of Abhisar Buildwell (supra.) would not apply. On the contrary, the ld.AR, stated that the assessment ought to have been passed on being set aside by the High Court, by the AO within six months from 18.09.2020 and having failed to pass the order, the original assessment becomes unabated and therefore the ld.CIT(A) was right in bringing the case within the scope of the decision of Abhisar Buildwell (supra). Therefore, on the aspect of procedural infirmity....
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....urces which would have been the foundation on which AO would have formed his belief that income chargeable to tax has escaped assessment. In the absence of fresh tangible material, the AO couldn't have resorted the reopening as held by the Hon'ble Supreme Court in the case of CIT v. Kelvinator of India Ltd [320 ITR 561]" The case of the assessee stands on a similar footing and the source of fresh tangible information has not been cited in the reassessment order dated 19.11.2019, which goes to prove that the reassessment proceedings is by itself bad in law. When the reassessment order dated 19.11.2019 is proven to be invalid, the order that assumes significance as on the date of search is the original order u/s. 143(3) dated 31.12.2016. Further, we also note that not passing reassessment order within a stipulated time as directed by the Hon'ble Jurisdictional High Court, we take adverse inference against the AO, which further proves that the department did not have any tangible material beyond the evidence produced during the assessment proceedings u/s. 143(3) of the Act. Therefore, when there was no valid assessment proceedings pending as on the date of search, the as....
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....that M/s.DFPL is not a shell company. In view of our above discussion and reasoning, the grounds of appeal of the Revenue are dismissed. As a result, the order of the ld.CIT(A) which is directed to delete the addition of Rs. 22.23 Crores made u/s. 68 of the Act in the Order u/s. 143(3) r.w.s 153A dated 31.03.2022 is hereby upheld. 4. ITA No.323/Chny/2025, A.Y.: 2015-16: 4.1 For the year under consideration, the original assessment order was passed u/s. 143(3) on 30.11.2017 accepting the income returned of Rs. 2,71,83,770/-. Unlike that of A.Y.2014-15, the assessment for the year was not reopened u/s. 147 of the Act. However, consequent to the action u/s. 132 of the Act, the assessment was reopened for the first time by issue of notice u/s. 153A of the Act. Subsequently, the order u/s. 143(3) r.w.s 153A was passed arriving at a taxable income of Rs. 11,55,56,912/- after making an addition u/s. 68 of Rs. 8,83,73,142/-. The addition related to the Share Capital infused by M/s.DFPL and similar to that of A.Y.2014-15, the same was treated as a sham transaction and the corresponding credit was treated as unexplained. In the order u/s. 250 of the Act passed by the ld.CIT(A) dated....
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....in a generic manner. Therefore, all other factors which had determined the course of adjudication in A.Y.2014-15 is squarely applicable in the instant year and guided by the findings in the order passed for the A.Y. 2014-15 (supra). Further, we find that the grounds raised by the revenue for the instant assessment year under consideration which is akin to that of A.Y.2014-15 and hence following the order for the A.Y.2014-15(supra) we affirm of the ld.CIT(A) which directed to delete the addition of Rs. 8,83,73,142/- made u/s. 68 of the Act in the Order u/s. 143(3) r.w.s 153A dated 26.11.2024. Therefore, the grounds of appeal of the Revenue are dismissed. 5. ITA No.324/Chny/2025, A.Y.: 2017-18: 5.1 Now, we take up the appeals for Assessment Year 2017-18, out of an order passed by the Ld.CIT(A) on 27.11.2024, in the matter of an assessment framed by the AO u/s. 153A r.w.s 143(3) of the Act on 25.03.2022. The grounds raised by the revenue are as under: 1. The order of the learned Commissioner of IT (Appeals) is erroneous on facts and in law. 2. The Ld. CIT(A) erred in deleting the addition of Rs. 7,46,97,580/- made towards the suppression of the sales on the ....
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.... restored. 5.2 The assessee company incorporated in the year 2009 filed the Return of Income for A.Y.2017-18 u/s. 139(1) of the Act admitting a total income of Rs. 5,93,66,040/-. The return of income was taken up for scrutiny and the order u/s. 143(3) was passed accepting the income returned on 27.06.2019. 5.3 Assessment Proceedings under Section 153A An action u/s. 132 of the Act was undertaken in the assessee group of cases on 26.02.2021 and subsequent to the centralization, notice u/s. 153A of the Act was issued on 03.09.2021. In response to the same, the assessee filed the ROI on 28.09.2021 without any modification in the quantum of total income. Subsequently, notices u/s. 142(1) of the Actr were issued and the order of assessment u/s. 143(3) r.w.s 153A of the Act was passed on 25.03.2022 by the AO arriving at a total income of Rs. 23,31,14,952/-. The additions to total income included the undisclosed income on account of undisclosed sales determined based on an estimate of Rs. 7,46,97,580/- and share capital received from M/s.Bholenath Merchants Pvt. Ltd., added u/s. 68 of the Act of Rs. 9,90,00,000/- on it being treated as an unexplained credit. Minor additions u/....
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....8-19 1,55,96,17,183 30,37,25,010 6,98,56,752 3. 2017-18 1,66,76,93,177 32,47,72,087 7,46,97,580 When the above proposition was appraised to the assessee in the SCN dated 10.12.2021 and 23.02.2022, the assessee objected, expressing that it is a settled legal proposition that a confession needs corroboration with evidence. Therefore, in the absence of any incriminating material, the confession cannot be taken as the sole basis for making the addition and relied on the decision of the Hon'ble Supreme Court in the case of M/s.Pullangode Rubber Produce Co. Ltd. v. State of Kerala (1973) 91 ITR 18. Furthermore, it was contended that in the absence of incriminating evidence found in any seized record to support the addition made, the addition is not sustainable and various decisions were relied upon rendered by the Hon'ble High Courts which were precursors to the decision of the Hon'ble Supreme Court in the case of M/s.Abhisar Buildwell (supra). However, the contention of the assessee was not acceptable to the AO as according to the AO, any admission made based on the findings during the course of search constitutes valid evidence and that there is no prov....
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....e sheets and WhatsApp messages indicating suppression of sales and unaccounted cash sales, the same are confined to one particular period only and not for the year under consideration. The loose sheets were unsigned and undated and therefore cannot be classified to possess credible corroborative evidence. The ld.CIT(A) also appreciated the fact that the AO is not empowered to estimate the taxable income, without rejection of books of accounts and having undertaken in contravention to the law laid down by the Hon'ble Jurisdictional High Court in the case of PCIT v. M/s. Marg Limited (2017) 7 TMI 1150 - Mad HC, the addition made on an estimated basis without rejection of the books of accounts is arbitrary. Finally, based on a finding that incriminating evidence pertaining to this addition is absent and thus placing reliance on the decision of the Hon'ble Apex Court in the case of M/s.Abhisar Buildwell (supra), the addition made of Rs. 7,46,97,580/- computed on an estimated basis applying the principle of extrapolation, was directed to be deleted. On the issue of the unexplained credit u/s. 68 of the Act relating to the share capital received from M/s.BMPL, appreciating the f....
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....ing the retraction of these statements by the assessee without any cogent, credible, or legally acceptable basis. The retraction was not substantiated by any evidence, documentation, or plausible explanation, rendering it unreliable and self-serving. Further the ld.DR submitted that the ld.CIT(A) failed to consider the binding legal principle laid down by the Hon'ble Supreme Court in Surjeet Singh Chhabra v. Union of India [AIR 1997 SC 2560], wherein it was held that a confession, even if retracted, continues to be an admission in law and binds the maker unless proven to be extracted through coercion or duress. No such claim was established in the present case. The ld.DR also submitted that ld.CIT(A) failed to consider the crucial fact that unaccounted cash was found and seized during the search, which further corroborates the suppression of sales. This physical evidence lends further credibility to the admission made by the assessee and its employees. In relation to the other ground, the ld.DR contended that the ld.CIT(A) had erred in deleting the addition of Rs. 9,90,00,000/- made u/s. 68 of the Act. This addition pertained to share capital allegedly received from M/s.Bholenat....
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....r based on broken period information. However the AO is strictly prohibited to extrapolate it for other period covered in the block. Further the ld.AR stated that no details of unaccounted sales for the year under consideration was found. It is a settled legal position that the confession needs corroboration with evidence. The ld.AR stated that though the admission is an important piece of evidence, but it is not conclusive. It is sine qua non that some incriminating material must have been found during the search to correlate with the undisclosed income. In support of his arguments the ld.AR relied upon the following decisions: - M/s.Pullangode Rubber Produce Co. Ltd.v.State of Kerala(1973)91ITR18. - CIT Vs. Kabul Chawla [2016] 380 ITR 573 (Delhi HC) - PCIT Vs.Soumya constructions pvt. Ltd. (Guj HC) - CIT Vs.Jayaben Ratilal Sorathia [2014] 222 taxman 622 (Guj HC) The ld.AR further contended that the original assessment u/s. 143(3) had already been completed on 27.06.2016 and the search took place in February 2021, which clearly reflects that no assessment was pending on the date of search operations and no proceedings have abated on the da....
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....s relied on. On examining the contents of the assessment record, it remains undisputed that despite lack of incriminating evidence relating to the issue under consideration, the addition has been determined based on an estimate applying the concept of 'extrapolation' and also that evidence of having suppressed sales supported by incriminating evidence is available for assessment years 2020-21 and 2021-22. - Firstly, even in the absence of any incriminating evidence, whether the confession made u/s. 132(4) is sufficient to make the addition and can the retraction made subsequently be ignored by the AO. - Secondly, further intrigue in the case under consideration is whether the principle of determining the taxable income based on an estimate by applying the principle of extrapolation from the statistics of the subsequent years is untenable under the provisions of the Income-tax law or otherwise. It is undeniable that from the statements of employees at various branches of the assessee company and affirmed by the MD, that the assessee was engaged in suppression of sales and the profits earned had got translated into cash found and seized at the time of search. How....
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.... on later year evidence, unless there is a clear nexus between the seized material and the earlier year and the seized material covers that period or shows continuity. We find that in the case under consideration, these factors are absent and furthermore, the incriminating evidence relevant for the year under consideration is grossly missing. The facts are similar to that of the decision of the Hon'ble High Court of Gujarat in the case of Principal Commissioner of Income-tax vs. Shri Pushkar Construction Co. [2023] 154 taxmann.com 22 (Gujarat) wherein it upheld the decision of the Tribunal as under: "No clinching evidence of receipt of on-money on the entire sales made by the appellant is found in the absence of which extrapolation of income simply based on few flimsy instances is not sustainable." Further we note that the cash found at the time of search have been disclosed and offered to tax in the ROI filed in response to the notice u/s. 153A for A.Y. 2021-22 sourced out of profits on unaccounted sales for that year and therefore the existence of unaccounted cash found at the time of search has no bearing on the addition made on an estimated basis during the year und....
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....], wherein it was held that once the assessee discharges the initial burden by establishing identity, creditworthiness, and genuineness of the transaction, the onus shifts to the Department to make further investigation into the source of funds with the investor. In the present case, we are of the view that the revenue has failed to discharge the shifted burden. No concrete evidence has been brought on record to demonstrate that the share subscription received from M/s.BMPL was not genuine or that the funds were from unexplained sources. The AO's conclusion branding M/s.BMPL as a shell company is not supported by any cogent evidence. On the contrary, the ld.CIT(A), after evaluating the cash flow statements, ledger accounts of current assets for the period 01.04.2016 to 31.07.2016, and the pattern of investments during the relevant period, found that M/s.BMPL was engaged in actual financial activity, thereby negating the shell company allegation. The ld.CIT(A) has also placed reliance on the decision of the Mumbai Bench of the ITAT in ITO v. Sringeri Technologies Pvt. Ltd. [ITA No. 3924/Mum/2014, A.Y. 2010-11], wherein it was held that when an investor company is active on the....
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....e of such incriminating material, and in view of the principle laid down by the Hon'ble Supreme Court in Abhisar Buildwell Pvt. Ltd. (supra), the impugned addition u/s. 68 of the Act must necessarily fail on legal grounds as well. 5.9 In view of the above reasoning and findings we dismiss the ground Nos.3, 3.1 to 3.4 of appeal of the revenue. 6. ITA No.325/Chny/2025, A.Y.: 2018-19: For the year under consideration, the assessee had filed Return of income u/s. 139(1) of the Act admitting a total income of Rs. 4,42,15,740/-. Consequent to the action u/s. 132 of the Act, the assessment was reopened for the first time by issue of notice u/s. 153A of the Act. Subsequently, the order u/s. 143(3) r.w.s 153A of the Act was passed arriving at a taxable income of Rs. 11,40,72,492/- after making an addition of Rs. 6,98,56,752/-. The search action revealed that there were suppression in sales which resulted in undisclosed profits. Initially, based on the deposition of the employees, the MD of the assessee company had disclosed an additional income of Rs. 5.00 crores for the year but the same was later retracted since the same was not backed by any evidence unearthed as a result of ....
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....of appeal and statement of facts. After examining the issues raised by the assessee against the order of assessment, the ld.CIT(A) found favour with the assessee and granted substantial relief, deleting all the additions made in the said assessment order, implementing the exact finding on the identical issue in the order passed u/s. 250(6) for A.Y. 2017-18. 6.2 Aggrieved by the relief granted in favour of the assessee, the Revenue preferred an appeal before us with the following grounds of appeal: 1. The order of the learned Commissioner of IT (Appeals) is erroneous on facts and in law. 2. The Ld. CIT(A) erred in deleting the addition of Rs. 6,98,56,572/- made towards the suppression of the sales on the ground that the AO wrongly extrapolated the date for a period to make addition for A.Y. 2018-19. 2.1 The Ld. CIT(A) erred in not appreciating the fact that the Managing Director and employees of assessee had admitted that suppression of sales was a regular practice and not restricted to two years. 2.2 The Ld. CIT(A) erred in holding the retraction of statement as valid although the retraction was not based on any proven reason. 2.3 The....
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....g the component of unaccounted sales as percentage of the total sales in A.Y.2020-21, and the gross profit for that year, estimated the unaccounted sales for these three assessment years. In A.Y.2020-21, the total accounted sale was Rs. 165.00 crores and the unaccounted sales was Rs. 32.00 crores. By extending the same proportion on the accounted sales for these three assessment years and the GP for A.Y.2020-21, the estimated gross profit on the estimated unaccounted sales was determined as per the tabulation below: Sl. No. AY Total accounted sales as per books Estimated unaccounted sales Estimated GP on unaccounted sales to the total sales (23% on unaccounted sales) 1. 2019-20 1,73,80,88,113 33,84,81,030 7,78,50,637 2. 2018-19 1,55,96,17,183 30,37,25,010 6,98,56,752 3. 2017-18 1,66,76,93,177 32,47,72,087 7,46,97,580 When the above proposition was appraised to the assessee in the SCN, the assessee objected, expressing that it is a settled legal proposition that a confession needs corroboration with evidence. Therefore, in the absence of any incriminating material, the confession cannot be taken as the sole basis for mak....
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....Supreme Court observed that a confession, even if retracted, is an admission and it binds the maker. 2.4 The Ld. CIT(A) erred in not appreciating the fact that Unaccounted Cash had also been found and seized during the search further corroborating the above findings. 3. For these grounds and any other ground including amendment of grounds that may be raised during the course of appeal proceedings, the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer may be restored. 7.3 On careful consideration of the facts of the case, it is evident that the issue under consideration, is exactly similar to that of A.Y.2017-18. In A.Y.2017-18, the same concept of determination of income on an estimated basis applying the principle of extrapolation was adopted by the AO, which has been subsequently deleted by the ld.CIT(A). Therefore, all other factors which had determined the course of adjudication in A.Y.2017-18 are squarely prevalent for the year under consideration and guided by the findings in the order passed for that year. Hence, the order of ld.CIT(A) which directed to delete the addition of Rs. 7,78,50,637/- made u/s. 68 of the Act in the order....
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....e places. 6. The Ld. CIT(A) erred in not observing that the findings in the case was arrived at was on account of search proceedings & ratio of the decision of the Hon'ble Madras High Court in the case of Lalitha Jewellery Mart P Ltd. v. DCIT in TCA nos.435 & 436 of 2023 dated 11.08.2017 is not applicable in the case of the assessee. 7. For these grounds and any other ground including amendment of grounds that may be raised during the course of appeal proceedings, the order of the Ld.CIT(A) may be set aside and that of the Assessing Officer may be restored. The assessee company was covered by a search action u/s. 132 of the Act and the return of income u/s. 139(4) was filed on 02.03.2022 admitting a total income of Rs. 25,28,73,334/-. The return of income was taken up for scrutiny and the order u/s. 143(3) of the Act was passed on 25.03.2022 arriving at a taxable income of Rs. 40,25,38,328/-. An action u/s. 132 of the Act was undertaken in the assessee group of cases on 26.02.2021 and subsequent to the centralization, the Return of Income filed on 02.03.2022 was taken up for compulsory scrutiny. Subsequently, notices u/s. 142(1) were issued and the order of ....
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....ng the details made to classify the transactions to be sham in the order of assessment passed for A.Y.2017-18, by exactly reproducing the content of that order, the quantum of capital infused during the year of Rs. 5,58,00,000/- was brought to tax by treating the same as unexplained credit u/s. 68 r.w.s 115BBE of the Act. 8.2 The ld.CIT(A) found that the assessee was in possession of accounted cash balance as per book as on the date of search of Rs. 1,37,30,612/- and provided credit towards the same, the quantum to such extent was classified as 'explained' and excluded the same from the purview of taxation u/s. 69A of the Act. In respect of the balance sum of Rs. 7,24,92,128/- the ld.CIT(A) appreciated the fact that the additional income offered for the year being a sum of Rs. 9,17,07,058/- stands higher and including that of the disclosure made for A.Y.2020-21 of Rs. 7,09,63,792/-, it stands even higher and therefore the source of cash found at the time of search is explained for the purpose of Income-tax and therefore directed the AO to delete the addition of Rs. 8,62,22,740/-. Further, on the issue of estimating the profit on unaccounted sales by applying the margin of ....
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....or affirming the findings of the ld.CIT(A). 8.5 We have heard the rival contentions perused the material available on record and gone through the orders of lower authorities along with the paper books and case laws relied on. With regard to the treatment of cash found and seized of Rs. 8,62,22,740/-, it is an undisputed fact that the quantum of undisclosed income offered as a result of search for A.Y.2020-21 and 2021-22 that corresponds to the profit earned on unaccounted sales is exceeds the quantum of cash found. Therefore, the benefit of telescoping of income has to be provided and by doing so, when such income is already offered to tax, the necessity to tax the application of such income represented in the form of cash found and seized, does not arise. The said argument of the ld.AR is judicially accepted in the case of Anantharam Veerasinghaiah & Co. v. CIT (1980) 123 ITR 457 (SC), is in effect, a theory of probability or inference which is applied in order to avoid taxing the same income twice - once on earning and then on utilizing / expending it. The theory of telescoping is applied keeping in view the well-established canon of taxation that the same income cannot be tax....