TaxTMI 
TaxTMI 
2025 (1) TMI 1719
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....erred in law and in facts in confirming the additions made by the Assessing Officer without any incriminating evidence found at the time of search. 2. The Ld. CIT(A) has erred in law and in facts in confirming the addition of 32,00,000/- on account of additional income offered in the application filed u/s. 245D(1) of the Act before the Honorable Income Tax Settlement Commission. 3. The appellant craves leave to add to, alter, amend and/or delete in all the foregoing grounds of appeal 3. Ground No. 1 & 2 both the grounds raised by the assessee are interrelated and interconnected and relates to challenging the confirmation of additions by the assessee on account of additional income offered in the application filed u/s 254(d) of the Act before the Hon'ble Income Tax Settlement Commission (ITSC) in the absence of any incriminating evidence found at time the of search. Therefore, we have decided to dispose off these grounds through the present consolidated order. 4. The Ld. AR appearing on behalf of the assessee reiterating the same arguments as were raised by him before the revenue authorities and also relied upon the written submissions submitted by him before....
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....f business expenses Further Adhoc disallowance of expenses Total Additional Income 2012-13 32,00,000 --- 32,00,000 2013-14 32,00,000 50,000 32,50,000 2014-15 32,00,000 --- 32,00,000 2015-16 32,00,000 50,000 32,50,000 2016-17 32,00,000 50,000 32,50,000 2017-18 32,00,000 50,000 32,50,000 2018-19 32,00,000 50,000 32,50,000 Total 2,24,00,000 2,50,000 2,26,50,000 5. The AO has erred in law and in facts in not granting set-off of alleged addition of additional income offered before ITSC against additions made on account of alleged unexplained cash credits. 6. The AO has erred in law and in facts in initiating penalty proceedings u/s. 271(1)(c) of the Act. 7. The appellant craves leave to add, amend, modify alter and/or delete any of the above grounds before or during the course of hearing of appeal." 3. Ground of appeal nos. 1 & 2 are general in nature and dealt with other grounds of appeal. 4. In ground of appeal no. 3, the appellant has challenged the action of the assessing officer in making addition without any incriminating material found....
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....und during the course of search. 10. In this regard, reference is invited to the decision of Hon'ble Special Bench of the Mumbai Tribunal in the case of All Cargo Global Logistics Ltd. v. DCIT [137 ITD 287] wherein on the identical issue involved, it was held as under: "58. Thus, question no. 1 before us is answered as under: In assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s. 153A for which assessments shall be made for each of the six assessment years separately; In other cases, in addition to the income that already been assessed, the assessment u/s. 153A will be made on the basis of incriminating material, which in the context of relevant provisions means (i) books of account, other documents found in the course of search, but not produced in the course of original assessment, and (ii) undisclosed income or property discovered in the course of search." 11. This decision is subsequently affirmed by Hon'ble Bombay High Court in CIT v. Continental Warehousing Corpn (Nhava Sheva) Ltd and others [374 ITR 645) wherein it is held as under: 23. We are of the ....
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....ted assessments can be interfered with by the Assessing Officer while making the assessment under s. 153A of the Act 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. 15. As can be seen from the above decisions, it is now a settled law that in cases where assessments are not abated, the provisions of s. 153A can be invoked only in respect of the income which is found to have escaped assessment as a result of incriminating material found during the course of search. In fact, the very scheme of s. 153A of the Act itself suggests that it is an assessment in case of search or requisition. Moreover, the provisions of s. 153A are also operative notwithstanding anything contained in s. 139, 147,149,151 and 153 of the Act. Thus, the assessments in the present case can be completed only based on the evidences found as a result of search and the past assessments completed cannot be disputed or disturbed unless any evidence is found as a result of searc....
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.... 21. It is submitted that the appellant had disclosed information in its settlement application before Hon'ble Income Tax Settlement Commission. The settlement application came to be rejected vide order dated 06.01.2020 u/s. 245D(1) of the Act. All information submitted in the said settlement application is confidential in nature. This information cannot be used by any other authority for using it against the appellant. 22. Further, no incriminating material has been found relating to earning of aforesaid income. The additional income offered during the year was only to buy peace of mind and avoid ruinous litigation. The appellant has offered 32,00,000/- as adhoc disallowance of Business Expenditure for the year. The appellant had stated in their application before Hon'ble Settlement Commission that these expenses are genuine in nature and backed with evidences. It was only to cover up any deficiency and/or omission in total income and to buy peace of mind that such expenditure was disallowed. Moreover, in the present case, the application before Hon'ble Settlement Commission was not admitted at initial stage by virtue of order u/s 245D(1) of the Act dat....
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.... accepted as the same has no substance. Considering sub-section (2) of section 32L of the Act, in a case where an order is passed by the Settlement Commission under sub-section (1) of section 32L and thereafter adjudicating authority is required to adjudicate the case, the Central Excise Officer shall be entitled to use all the materials and other information produced by the assessee before the Settlement Commission or the result of inquiry held or evidence recorded by the Settlement Commission in the course of the proceedings before it as if such materials, information, inquiry and evidence have been produced before such Central Excise Officer or held or recorded by him in the course of the proceedings before him on fair reading of sub-section (2) of Section 32L of the Act whatever is admitted by the assessee while submitting the application before the Settlement Commission submitted under Section 32E(1) of the Act straightway cannot be said to be admission on behalf of the assessing accepting the liability. Whatever the material is produced alongwith the application and/or any material and/or other information produced by the assessee before the Settlement Commission or the resul....
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....he disclosure made under section 245D(1) of the Act even if constructed as if no order under section 245D(4) has been passed it will not give a license to the AO to use the confidential information disclosed in an annexure to the application of the Settlement Commission. If the application is treated as not admitted under 245D(1) of the Act, then the provisions are clear that confidential information can never be passed on to the AO nor can it be used in evidence against the assessee. Section 245D(4) has clearly held that admission of assessee's application under section 245(1) was incorrect. We find that any confidential information disclosed in annexure to the settlement application before Income Tax Settlement Commission can never be the basis to make the addition. We find that in the instant case, the AO has reopened the assessment under section 147. Thereafter, AO has not brought any evidence or made any inquiry that assessee has earned additional income of Rs. 5 lakhs as brokerage income. In the instant case, after reopening the assessment order, the AO had not made any inquiry and not examined the material which was before him that how this income was declared by the ass....
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....ll the materials and other information produced by the assessee before the Settlement Commission in the course of the proceedings before it as if such materials, information, inquiry and evidence had been produced before such Central Excise Officer or held or recorded by him in the course of the proceedings before him." 15. We find that section 245HA(1) of the income Tax Act lists several circumstances in which the case before the Settlement Commission would abate; whereas in section 32L(1) non cooperation of the petitioner is the only ground. The Central Excise Officer derives its power its power to assess such abated proceeding vide section 32L(2) of the Central Excise Act. This is identical to powers vested with an AO under section 245HA(2) and 245HA(3) under the Income Tax Act. It is therefore very clear that the provisions of Central Excise Settlement Commission and that for Income Tax settlement Commission are identical. Therefore, the judgment of Hon'ble Gujarat High Court in the case of Maruti Fabrics although pertaining to Central Excise should be applied to cases abated under section 245HA of the Income Tax Act also. 16. Therefore, we are of the view....
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....ind from the above proposition of law by Hon'ble Gujarat High Court and Tribunal that simply relying upon the declaration made before the Settlement Commission no addition can be made. In this group case, the search was conducted in the business premises of Lodha Group and subsequent to search action assessee company along with other companies of Lodha Group filed a petition under section 245C(1) of the Act before Settlement Commission. The assessee has offered additional income of Rs. 5 lakhs towards the land brokerage income. This offer was made for maintainability of petition before Settlement Commission as stated in clause (i) and clause (ia) of section 245C(1) of the Act. We are of the view that after reopening of the assessment order no addition can be made on the basis of income offered by the assessee before Settlement Commission. We find that no incriminating material was found during the course of search action substantiating that assessee has actually earned undisclosed income. Therefore, just because assessee has offered additional income before Settlement Commission, no addition can be made without basis. Hence, the addition made by the AO and Ld. CIT (A) is delete....
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....r dated 30- 11-2007 under section 245D(4) of the Act, the Settlement Commission has clearly held that the assessee for assessment year 2005-06 does not satisfy the criteria of offering income on which at least an income-tax payable should exceed Rs. 1 lakh. The Settlement Commission has further held that when admitting the petition of the assessee for assessment year 2005-06, this aspect was overlooked and that they are rectifying the apparent error by excluding assessment year 2005-06 of the assessee from the process of settlement. Thus, the case of the assessee for assessment year 2005-06 cannot be considered to have been admitted for the process of settlement under section 245D(1) of the Act. Consequently, the confidential information disclosed in the Annexure to the Settlement application could not have been used by the Assessing Officer against the assessee to make the impugned addition. Therefore, the addition to the income made by the Assessing Officer in assessment year 2005-06 which is based only on the disclosure made in the Annexure to the Settlement Commission is not valid in law. Consequently, the imposition of penalty on the basis of such invalid addition cannot be su....
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....d." 30. Reliance is also placed on the decision of Hon'ble Mumbai Tribunal in the case of Lodha Estate India Limited v. DCIT [ITA No. 5466/Mum/2016] dated 27.02.2018. The relevant extract of the decision is reproduced as below: "4.6 We have given a careful consideration to the rival submissions and perused the materials available on record, we note that assessee has filed petition before the ITSC and offered an income of Rs. 10,00,000/- being alleged land brokerage income by the assessee Rs. 5,33,334/- on account of disallowance u/s 37 and Rs. 16,18,395/- being disallowance of expenditure u/s 40(a) of the Act, aggregating Rs. 31,51,729/-. The assessee submitted that the above amount has been offered as income before the ITSC for the sake of meeting the threshold limit of maintainability of the petition before the ITSC in spite of the fact that the assessee has neither earned such income nor any income belonged to him. Thus, in the absence of any material proving that the assessee has really earned any undisclosed income, it is not justifiable to make addition to the returned income of the assessee solely relying on the petition of the assessee filed before the....
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....sed. 35. Your Honour may grant any other relief as deem fit." 5. It was also submitted by Ld. AR that the additional income was offered by the assessee before the Hon'ble ITSC in order to buy peace of mind and to avoid ruinous litigation, more particularly when no incriminating material was found with respect to the additional income so offered by the assessee. Therefore, it was submitted that no addition with respect to additional income offered before the Hon'ble ITSC could have been made to the income of the assessee. 6. On the contrary, the Ld. DR relied upon the orders passed by the revenue authorities and also submitted that since assessee has admitted the additional income suo-moto, therefore, this additional income was assessee's concealed income. It was also submitted that Sec. 254HA(3) clearly mentions that AO is entitled to use all the materials filed by the assessee in front of Hon'ble ITSC for the purpose of completing the assessment. Therefore, even without the incriminating material addition to the income of the assessee could be made. It was argued that the grounds raised by the assessee are without any merits and thus deserves dismissal. 7. We hav....
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....provision. 12. As per Sec. 153A of the Act, any assessment or reassessment pending on the date of initiating of search shall abate and merge into the assessment proceedings initiation u/s 153A of the Act, and in respect of non-abated assessment year, the assessment can be made only on the basis of incriminating material found in the course of search. Admittedly in the present case no incriminating material was found during the course of search, and thus it is a settled law that in case of non-abated assessment the addition can be made only on the basis of incriminating material found during the course of search. Since the present year i.e A.Y 2012-13 is a non-abated assessment year as the assessment was already completed vide assessment order u/s 143(3) of the Act dated 23.03.2015 as on date of initiation of search. Therefore addition could have only be made with respect to 'incriminating material found' at the time of search. 13. Since under the facts of the present case, the AO had made additions during the year under consideration on account of 'mere disclosure' before the Hon'ble ITSC of Rs. 32,00,000/-, whereas, it was specifically submitted that in the application filed....
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....s, therefore, well placed. ............ ............ 37. We do not see as to how while allowing the appeal of the assessee and setting aside the order of the Commissioner under section 263 could the judgment be said to be laying down a proposition and as canvassed by Mr. Pinto. True it is that the assessment which has to be made in pursuance of the notice is in relation to the six years. An order will have to be made in that regard. While making the order the income or the return of income filed for all these assessment years is to be taken into account. A reference will have to be made to the income disclosed therein. However, the scope of enquiry, though not confined as held by the High Court of Karnataka, it essentially revolves around the search or the requisition under section 132A as the case may be. We do not find anything in these observations and reproduced above which would enable us to conclude that the Division Bench judgment of this Court in the case of Murli Agro requires reconsideration or does not lay down a correct principle of law. We cannot, therefore, accede to the submissions of Mr. Pinto and revisit any of the conclusions rendered by....
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....made by the assessee before the settlement proceedings were used as 'only basis' to make additions in assessment proceedings in this regard, we have already taken into consideration that during scrutiny assessment no additions were made in the case of the assessee and the return of income was accepted. However the additions were made on the basis of declaration made by the assessee before the Hon'ble ITSC. As we have already discussed in the submissions of the assessee in the earlier part of our order, but for the sake of brevity we once again analyzes the statement of facts forming part of the application filed before the Hon'ble ITSC, which is reproduced as below: 38. In the course of business carried on by the applicant, several expenses are incurred and claimed the deduction in the returns filed for various years. Although, all the expenses are genuine and that no evidences have been found as a result of search, with a view to buy peace of mind and to cover any possible deficiency and/or omission in any of these evidences with respect to these expenses incurred, the applicant has quantified the disallowance of business expenses for A.Y. 2012-13 to A.Y. 2018-19 on estim....
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....nt Commission in the course of the proceedings before it can be used by the adjudicating authority as if such materials, information, inquiry and evidence has been produced before such Central Excise Officer, while adjudicating the show cause notice and the proceedings. If the contention on behalf of the appellant is accepted, in that case, there is no question of further adjudication by the Central Excise Officer with respect to the amount admitted by the assessee while submitting the application before the Settlement Commission submitted under Section 32E(1) of the Act. Once the application or proceedings before the Settlement Commission fails, the Central Excise Officer is required to adjudicate the entire proceedings and show cause notice. Under the circumstances, so far as proposed question of law No.1 is concerned, the present Tax Appeals deserve to be dismissed and are, accordingly, dismissed by answering the proposed question of law No.1 against the Revenue." 24. Based on this decision of the Hon'ble Gujarat High Court, the Hon'ble Tribunals in various decisions have held that the section of 32L(2) of the Central Excise Act is parallel to section 245HA(2) and 245....
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....tion made in the application before the Settlement Commission under section 245D. The AO was in possession of the paper relating to the income but in absence of any material no addition can be made. The Hon'ble Gujarat High Court in the case of Maruti Fabrics (supra) has held that whatever material is produced along with application by the assessee before Settlement Commission or result of inquiry held or evidence recorded by the Settlement Commission in course of proceedings before it can be used by the adjudicating authority as if same had been produced before such Central Excise Officer. Once application or proceedings before Settlement Commission fails, Central Excise Officer is required to adjudicate entire proceedings and show cause notice and Hon'ble Gujarat High Court has held as under: 14. Respectfully following the same, we hold that Hon'ble Gujarat High Court's judgment in the case of Maruti Fabrics (supra) pertains to Central Excise but if we compare central excise under section 32E of the Central Excise Act this section is parallel to section 245C of the Income Tax Act. One primary condition mentioned in section 32E for filing central excise se....
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....ication before the Hon'ble ITSC and said application was rejected vide order dated 06.01.2020 u/s 245(1) of the Act and all the information submitted in the said settlement application was confidential in nature and further no incriminating material had been found relating to earning of aforesaid income. It was also reiterated that the additional income was offered only to buy peace of mind and avoid ruinous litigation and the said amount was offered as ad-hoc disallowance of business expenditure. 28. More over, Ld. AR also submitted that the issue in question is squarely covered and relied upon and drawn our attention to the decision of Coordinate Bench of ITAT in assessee's group case for the same assessment years in the case of Sangeetkumar Sawarmal Hisaria in ITA Nos. 785, 870, 509, 508, 869, 786 & 1029/Mum/2021, wherein, identical issue pertaining to the same search and similar were discussed and were decided and the relevant portion of the decision is reproduced herein below: 32. The next issue contested by the assessee relates to the addition of Rs. 25.50 lakhs made by the AO relying on the application filed before Income tax Settlement Commission. We notice that....
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....e section 32L(2) of the Central Excise Act. This is identical to powers vested with an AO under section 245HA(2) and 245HA(3) under the Income Tax Act. It is therefore very clear that the provisions of Central Excise Settlement Commission and that for Income Tax settlement Commission are identical. Therefore, the judgment of Hon'ble Gujarat High Court in the case of Maruti Fabrics although pertaining to Central Excise should be applied to cases abated under section 245HA of the Income Tax Act also. 16. Therefore, we are of the view that the judgment of Hon'ble Gujarat High Court is applicable to the facts of the assessee's case. We find that Hon'ble Gujarat High Court has held that if the petition filed before the Settlement Commission wherein assessee has made declaration but proves that assessee has neither earned such income nor any incriminating material was found during the search relating to undisclosed income then no addition can be made. 17. We have also gone through the judgment of ITAT, Mumbai in the case of Dolat Investment vs. Dy. Commissioner of Income Tax wherein the ITAT has specifically held in para 22 which reads as under: "22. The first ....
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.... the 1st day of June, 2007 has been rejected under sub-section (1) of section 245D; (ii) an application made under section 245C has not been allowed to be proceeded with under sub-section (2A) or further proceeded with under sub-section (2D) of section 245D; (iii) an application made under section 245C has been declared as invalid under sub-section (2C) of section 245D; (iv) in respect of any other application made under section 245C, an order under sub-section (4) of section 245D has not been passed within the time or period specified under sub- section (4A) of section 245D, the proceedings before the Settlement Commission shall abate on the specified date. Specified date would be (i) in respect of an application referred to in sub-section (2A) or sub-section (2D), on or before the 31st day of March, 2008; (ii) in respect of an application made on or after 1st day of June, 2007 within nine months from the end of the month in which the application was made. (2) Where a proceeding before the Settlement Commission abates, the Assessing Officer or as the case may be any other income-tax authority before whom the proceeding at the time of ma....
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....use assessee has offered additional income before Settlement Commission, no addition can be made without basis. Hence, the addition made by the AO and Ld. CIT(A) is deleted." 9. Respectfully following the above said decision, we are inclined to delete the additions made by the Assessing Officer by solely relying on the information submitted before ITSC without there being any material in support of proposed addition. Accordingly, ground No. 1 and 2 are allowed." 29. After having gone through the entire facts, circumstances and the legal proposition put forth before us, we found that the identical issue has already been examined by the Coordinate Bench in the assessee's group case Sangeetkumar Sawarmal Hisaria in ITA Nos. 785, 870, 509, 508, 869, 786 & 1029/Mum/2021 (supra), wherein also subsequent to the search action, assessee had disclosed the additional income before Hon'ble ITSC and the said declaration was made the only basis for making the additions. Since as per record the assessee in that case had agreed for ad-hoc disallowance relating to business expenses but the said additions were deleted by following the decision of catena of cases as mentioned in the order....