TaxTMI 
TaxTMI 
TaxTMI 
2025 (11) TMI 328
X X X X Extracts X X X X
X X X X Extracts X X X X
....d. CIT(A) erred in deleting the additions in the assessment made under section 153A read with section 143/3) of the Income Tax Act, 1961, as no incriminating material was found or seized during the search proceedings despite the fact that disallowance/addition have been made on the basis of investigation/inquiries conducted during the pre & post search proceedings. 2 On farts and circumstances of the case and in law, the Id. CIT(A) erred in not considering the reliance on the statement recorded during the course of search proceedings, which has direct linkage to the addition made in assessment proceedings. 3 On facts and circumstances of the case and in law, the id. CII(A) erred in not considering the financial statements and regular books of accounts are incriminating in nature despite clear linkage with findings unearthed in statements and subsequent enquiries. 4 On facts and circumstances of the case and in law, the Id. CITIA) erred in not considering the corroborative evidentiary value of statements. 5. On the facts and in the circumstances of the case, the Ld. CITIA) erred in not considering the addition made on account of Disallowance of Lo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... found during the course of search. Accordingly, the legal ground raised by the assessee was allowed, and since the appeal was decided on the legal issue, the merits of the case were not adjudicated upon by the Ld. CIT(A). Being aggrieved by the said order, the revenue has preferred an appeal before us, and the assessee has filed a cross-objection. 4. The Ld. DR argued and stated that the appellate order itself is perverse and without considering the facts, the order was passed. The Ld. DR accepted the fact that the addition was made relying on the Investigation report of Income-tax Department, Mumbai and further analyzing the statement of the drectors of the assessee-company, both the additions related to loss of F&O trading and disallowance of expenditure relating to accommodation entry by way of loss on F&O trading was made by the Ld. AO. The Ld. DR respectfully relied on the order of Hon'ble Supreme Court in Bannalal Jat Constructions (P.) Ltd vs Assistant Commissioner of Income-tax (2019) 106 taxmann.com 128 (SC), where the Hon'ble High Court upheld the addition made by authorities below by relying upon statement made in course of search proceedings of director of a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....so pertained to Shri Hitendra M. Mota, Director of the assessee company, which further established the presence of substantial material directly linking the assessee's claimed loss to the accommodation entry scheme. D. These seized materials formed a direct and material basis for the addition/disallowance made by the AO, demonstrating that the claim of loss was not genuine but part of a structured scheme of bogus transactions. This fact clearly refutes the CIT(A)'s erroneous approach in deleting the addition solely on the ground of absence of incriminating material found during the search. E. Section 153A does not restrict the Assessing Officer to rely solely on material seized during the search, but also contemplates reliance on other relevant material, including statements recorded during search proceedings, DGIT (Investigation) inputs, and third-party confirmations F. The Hon'ble Delhi High Court in Smt. Dayawanti v. Commissioner of Income Tax ((2016) 75 taxmann.com 308 (Delhi)] has held that such statements under oath have undeniable probative value, and form valid basis for additions. Further, the Hon'ble ITAT Patna Bench in Kumar Sum....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a 3.3 to 3.5 on page no.16 in CIT(A) order]. E. Furthermore, Shri Hitendra Manekji Mota, in his statement under section 132(4) recorded on oath (Question No. 84), stated that Shri Pankaj Kantilal Vora would be able to explain why 49,99% shareholding in M/s Akshat Vinimay Pvt. Ltd. (with total assets of Rs. 26,36,04,380 as of 31.03.2010) was purchased for a mere consideration of Rs. 66,37,000/- and admitted that he himself had not seen the financial position of the company prior to investing, having acted on the advice of his father. Shri Kantilal Nandlal Vora. [Page No.19 on CIT(A) order). F. These statements are part of the record and directly linked to the addition made by the AO and are significant corroborative evidence of the non-genuine nature of transactions undertaken by the assessee. 3. On facts and circumstances of the case and in law, the Id. CIT(A) erred in not considering the financial statements and regular hooks of accounts are incriminating in nature despite clear linkage with findings unearthed in statements and subsequent enquiries. On facts and circumstances of the case and in law, the Id. CIT (A) erred in not considering the corroborat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s recorded under section 132(4) during the course of search proceedings. G. These documents were also corroborated by third-party confirmations and Project Falcon report showing coordinated, premeditated manipulative transactions illiquid stock options, designed purely to book bogus losses. H. The statements under oath recorded from Shri Hitendra Manekji Mota Shri Pankaj Kantial Vora, and other relevant persons specifically admitted that they were unaware of the financial health of the company and that the transactions did not reflect genuine business dealings. I. The CIT(A) erred in falling to appreciate the integral link between these financial records and statements recorded during search, as well as the probative value they carry in establishing the non-genuine nature of the clamed F&O trading loss and associated expenses J. It is well-settled that in cases involving search and seizure, the Assessing Officer is not required to prove the existence of incriminating material only in the form of seized documents during search but can validly rely on statements recorded under section 132(4), books of accounts, financials, and corroborative materia....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o 33, which is kept on record. The Ld.AR argued that during the search operation, the statement was recorded from Shri Pankaj Kantilal Vora, director of assessee on dated 15/04/2018 and Shri Hitendra Manekji Mota under section 132(4) of the Act on 15/04/2018. Considering the statements, the addition related to F&O trading has never been asked in the questionnaire. The questionnaires only related to the investments in shares of other companies. He further stated that the entire addition is not related to any incriminating material found during the search. The impugned assessment order is an unabated year and the assessment under section 143(3) was duly completed on 16/12/2016. So Ld. CIT(A), respectfully considering the order of the Hon'ble Apex Court in the case of PCIT vs. Abhisar Buildwell Pvt Ltd. 454 ITR 212 (SC) has deleted the addition. 6. The Ld.AR further stated that the remand report was called for and in appellate order on page 23, the Ld. CIT(A) at paragraph 3.7 observed that - "3.7. In view of the same, the AO has carried post search investigation during the assessment proceedings via departmental database with regards to this and has verified the loss c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....okers were also recorded. A perusal of the statement of Brokers i.e. Shri Sanjay Kumar Periwal and Shri Harshvardhan Kayan, it shows that various clients trade in illiquid options with the sole motive of generating losses by letting the option Expire rather than engaging in Reversal of Trade. In reply to Q-26 of his swoma Shri Sanjay Kumar Periwal has stated that "These transactions are either expired or rever the same day within few seconds to few hours". Similarly, Shri Harshvardhan Kayan has in his sworn statement that "These trades would expire on weekly options or reversed within few seconds to match the trades with each other" 7. The Ld.AR further respectfully relied on the impugned appellate order paragraphs 14 to 21 on pages 31-34, which are extracted as below :- "14. As can be seen from the above, the disallowance made by the AO is on the basis of Project Falcon report received by DGIT Mumbai. The investigation was carried out by the investigation unit Mumbai regarding the claim of fictitious losses through coordinated and premeditated trading in illiquid stock options. During the assessment proceedings the AO found that the assessee has shown F&O losses on acc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ort filed by the assessee along with the report, cash book, ledger, bank book etc. were mentioned; that the respondent assessee was maintaining books on TALLY Accounting Software which was seized during the search and was being treated as incriminating material; however, regular books of account of the assessee, by no stretch of imagination, could be treated as incriminating material to form basis of framing assessment under Section 153A read with Section 143(3) of the Act. ...... " 19. Further, the Hon'ble jurisdictional Bench of the Mumbai ITAT, in the case of Micro Ankur Developers Vs DCIT (ITA No. 1046/Mum/2019), after following the aforesaid decision of the Hon'ble Delhi High Court in Param Dairy (supra), held that the regular books of accounts maintained by the assessee in tally software to justify the additions made therein did not constitute incriminating material unearthed during the search. The relevant extract of the said decision is reproduced as under: "15. The only material now being referred to by the lower authorities in their submissions dated 21-06-2022 was the regular books of accounts maintained in the Tally Accounting Software. We find....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... follows :- "5. We have considered the aforesaid contentions and are of the view that no substantial question of law arises, as the matter is squarely covered by Kabul Chawla supra, which has been correctly applied to the facts of the case by the ITAT. The ITAT, in the impugned order has held that in the audited report filed by the assessee along with the report, cash book, ledger, bank book etc. were mentioned; that the respondent assessee was maintaining books on TALLY Accounting Software which was seized during the search and was being treated as incriminating material; however, regular books of account of the assessee, by no stretch of imagination, could be treated as incriminating material to form basis of framing assessment under Section 153A read with Section 143(3) of the Act. It was further held that assessment for the Assessment Years 2008-2009 and 2009-2010 were completed under Section 143(3) vide orders dated 28th July, 2010 and 31" May, 2011 respectively and audited books of account were thoroughly examined and details of purchase of milk must have been scrutinized as it was part of audited financial statement of accounts; as per Kabul Chawla supra, completed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd report, the ld. CIT(A) was of the opinion that the AO has not discussed any findings of the searched or incriminating material found during the course of search. The ld. CIT(A) further observed that there is nothing adverse in the statement recorded during the course of search which can be considered as an incriminating material. The ld. CIT(A) concluded by holding that the additions made u/s 56(2)(vii) of the Act is not based on any search findings and in respect of other additions, the ld. CIT(A) took a similar view that the additions made by the AO are not based on any incriminating material found during the course of search conducted on the assessee. The ld. CIT(A) further observed that the assessment orders are not passed u/s 153C of the Act or u/s 148 of the Act. As per the observation of the ld. CIT(A) at para 21 of his order, it is clear that the impugned assessment orders framed u/s 153A of the Act are devoid of any incriminating material found/seized during the course of search conducted in the assessee's own case. Drawing support from various judicial decisions, the ld. CIT(A) concluded by holding that the revenue has to follow the procedure laid down under the pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... found or seized during the search. The additions were made purely on the basis of the Project Falcon report and post- search investigations conducted by the Investigation Wing, Mumbai. The statements recorded under section 132(4) from the directors of the assessee also did not contain any admission or reference to F&O trading transactions. The financial statements and regular books of account of the assessee, which were already part of the records of the original assessment proceedings, cannot be treated as incriminating material. This view finds support from the decisions of the Hon'ble Delhi High Court in Param Dairy Ltd. (supra) and the jurisdictional ITAT, Mumbai in Micro Ankur Developers (supra), wherein it has been held that regular books of accounts or audited statements, even if found during search, do not constitute incriminating material for the purpose of section 153A of the Act. Further, the reliance placed by the Ld. DR on the decisions in Bannalal Jat Constructions (P) Ltd. (SC) and Smt. Dayawanti (Delhi HC) are misplaced, since those decisions were rendered in the context of cases where specific incriminating material or unexplained assets were found during sear....