TaxTMI 
TaxTMI 
2026 (1) TMI 983
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....: - 1.a). That the Ld. CIT(A) has erred in treating the purchases of Rs. 6,60,00,000/- from some parties as bogus and rejecting the contention of the assessee that all such purchases are backed by documentary evidence of bills from respective parties and other evidences and the payment in respect of purchases having been made through banking channels to the parties concerned, which has been confirmed by the respective parties as well and, therefore, treating the said purchases as bogus is against the facts and circumstances of the case. b). That the finding of the Ld. CIT(A) about the alleged bogus purchases of Rs. 6,60,00,000/- is again not sustainable based on the statement recorded at the back of the assessee, for which, no cross-examination has been allowed. c). That the finding of the CIT(A) in holding the purchases to the tune of Rs. 6,60,00,000/- as bogus is not justified on the basis of only whatsapp chat, which is not admissible as evidence as per the recent judgment of Hon'ble Apex Court. d). That the Ld. CIT(A) has also erred in sustaining the addition of Rs. 1,62,88,800/- by applying the G.P. rate of 24.86% on the purchases of Rs.....
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....tory conditions prescribed under section 148 read with Explanation 2 to clause (iv) thereof, particularly by failing to record a valid and proper satisfaction note prior to initiating proceedings based on documents allegedly seized from another premises - such recording being a sine qua non for using such material against the assessee - rendering the assessment order bad in law and liable to be quashed. 2. That the Ld. AO has further erred in relying on documents seized during a search conducted on another person by making additions in the hands of the assessee without obtaining the prior approval of the Principal Commissioner of Income Tax (PCIT) thereby rendering the assessment illegal, void ab initio and without jurisdiction. 3. That the assessment framed u/s 143(3) is bad in law, as it pertains to a year immediately preceding search year where the mandatory approval as prescribed under section 148B of the Income Tax Act, 1961 has not been followed. That in the absence of compliance with the provisions of section 148B read with CBDT issued the manual of office procedure in February 2003, the assessment is vitiated and liable to be annulled. 4. That eve....
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.... contended that as per amended provisions, the assessment should have been framed u/s 148 for which requisite satisfaction of specified authority would be required. In the absence of such a satisfaction, entire assessment proceedings would be bad-in-law. The Ld. AR filed written submissions in support of his arguments. Reliance has been placed on various decision of this Tribunal in support of legal grounds. The Ld. CITDR also advanced arguments and controverted the legal grounds assailing assumption of jurisdiction of Ld. AO. For the same, Ld. CIT-DR placed on record Board Circular mandating compulsory selection of cases for scrutiny in search matters. The Ld. CIT-DR contended that Ld. AO was duty bound to frame the assessment u/s 143(3). The Ld. CIT-DR also contended that the search on assessee-group cover all important persons including ex-employees of the assessee. The purpose of search action would be to collect information. The Ld. CIT-DR also supported the assessment order on merits. Having heard rival submissions, oral as well as written and upon perusal of case records including various judicial decisions as cited before us, our adjudication would be as under. Assessmen....
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.... it was alleged by Ld. AO that the assessee made bogus purchases from various suppliers. The data also indicated cash expenses / cash receipts not recorded in the regular books of the assessee. The Ld. AO referred to statements recorded from ex-employees of the assessee to reach the said conclusion. The various additions as made by Ld. AO were as under. Addition of alleged bogus purchases 2.3 The first addition as made by Ld. AO was on account of profit element in alleged bogus purchases of Rice Husk and Rice Nakku from several parties for which the payments were made through banking channels. These parties include M/s Krishna Agro, M/s Shri Sai Baba Foods, M/s Bharat Trading Co. etc. It was noted that though the payment to these suppliers was made through RTGS, however, cash was allegedly received back from these parties against RTGS so made by the assessee. Such evidences of cash receipt were found from mobile of Shri Rajinder Singh who acted as GM (procurement). The modus operandi was that the assessee would book purchase of raw material like Rice Nakku and Rice Husk which is required for manufacturing of liquor and corresponding payment would be made through banking chann....
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....re, the question of treating these genuine bank entries as alleged 'bogus purchases raw materials' is factually incorrect. These are payments towards broken 'Rice Nakku' and 'Rice Husk' purchases made through banking channels. We are attaching sample invoices and weigh slips which are being produced for your kind consideration. As stated earlier, the person who has entered the transactions in this tally has prepared the same on old basis under which bank transactions are entered on both sides debit and credit side of combined cash / bank book, whereas in our regular books of accounts, these transactions are entered correctly. As such, these are not cash transactions but regular banking transactions for purchase of raw material, for which, complete documents are available. Thus, no addition of Rs. 26,44,57,209/- is called for. Following documents are attached for your reference: i. ledger of suppliers mentioned above is attached ii. Sample purchase invoice, Weightment slips are attached iii. Bank statement extract containing payments mentioned in Annexure a) Further, Sr No. 1.9 and 1.10, your good self has drawn a total presumption about the adjus....
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....of the suppliers, copy of purchase bills, vouchers, e-way bills and transportation receipts. The evidences of payment through banking channels were also furnished. The assessee also provided inward register maintained at its registered premises with date, name of supplier, GST number, taxable value, GST, weigh bridge receipt indicating inward time when the goods were taken in factory, signature of transporters, vehicle numbers, confirmation from sellers of goods etc. On these facts, pleadings were made that the purchases were genuine and duly substantiated by documents and therefore, the same could not be held to be bogus purchases. 2.5 However, the above contentions could not find favour with Ld. AO. The contentions of the assessee were rejected. Finally, in the light of seized material from Shri Prem Singh and their respective statements, Ld. AO rejected the plea of the assessee to accept the purchases as genuine purchases. The Ld. AO also referred to the statement of Shri Pawan Bansal (Chief Administrative Officer of the assessee) to support its allegation. The alleged bogus purchases were thus quantified at Rs. 103.79 Crores. 2.6 In the background of these facts, Ld. AO a....
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....on legal grounds as well as on merits by way of elaborate written submissions which have already been extracted in the impugned order. It was stated that the assessee had a distillery located at Zira, District Ferozepur. The assessee-company was engaged in manufacturing of Grain based ENA, Ethanol and Country Liquor. The unit was carrying on the said manufacturing activity since 2007 and during the initial years, only ENA and Country Liquor was being produced and the manufacturing of Ethanol was started subsequently by linking to the old plant in the year 2021. Subsequently, entirely a new plant was commissioned for manufacturing of Ethanol in the month of February, 2022. However, the entire unit had to be closed down due to farmers' agitation and subsequently, the Government of Punjab ordered for closure of the plant in whole in December, 2022. 3.2 The assessee further pointed out that it was maintaining day-to-day stock register and all the production was being carried out under the strict supervision of State Excise Officials who were stationed at the manufacturing unit of the assessee day and night. The manufacturing as well as sales was carried out under the supervision of ....
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.... which would be duly authenticated by Excise Officials. These records recorded day-to-day production and dispatch of the finished products by the assessee. Thus, the assessee assailed the allegation of alleged bogus purchases as made by Ld. AO on the basis of incomplete and unauthenticated data. 3.4 On further merits, the assessee pointed out that Ld. AO referred to Whatsapp Chat of ex-employee Shri Rajinder Singh. The same was used along with Tally data which was recovered form the residential premises of Shri Prem Singh at Zira, Punjab. The Ld. AO relied upon certain data for FYs 2013-14 to 2016-17 to reach such a conclusion. The Ld. AO merely assumed that during this year, the assessee made alleged bogus purchases of Rs. 103.79 Crores. However, no incriminating material was found for this year which would corroborate the receipt of cash from suppliers by the assessee. There was no evidence of payment being received back by the assessee. Thus, Ld. AO only assumed that since in the past, such practice was there and therefore, he had assumed such facts during this year also. Reference was made to the decision of Hon'ble Apex Court in the case of Dhakeshwari Cotton Mills Ltd. (26....
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....ch team from directors or existing employees of the assessee. Under these circumstances, the authenticity of Tally Data could not be ascertained. Similar arguments were advanced on estimated addition of gross profit of Rs. 1084.62 Lacs. The Ld. CIT(A), after due consideration of assessment record as well as assessee's detailed submissions, rendered its adjudication from para-5 onwards of the impugned order. 3.6 On the issue of addition of alleged bogus purchases, it was observed by Ld. CIT(A) that Ld. AO did not made addition of entire bogus purchases but only added profit element embedded therein. During proceedings, the assessee furnished all the documents which related to the payments of Rs. 103.79 Crores of all the parties and all the payments were through banking channels only. The Tally Data include substantial purchases made from FCI (a Govt. Agency) and there could not be any bogus purchases from a Government Organization. The contention that there would be equal amount of debit and credit in double entry system had merits and such entries could not be the basis for treating the purchases as bogus. There was no evidence with respect to the amount of Rs. 103.79 Crores ent....
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.... but the unit was closed down to farmers' agitation and finally the government ordered for the closure of the whole plant in December, 2022. The assessee-group was subjected to search action on 18-05- 2023 when the plant had already been closed down. Pertinently, no documents or incriminating material has been found from business premises of the assessee. However, an ex-employee of the assessee Shri Prem Singh was subjected to an independent search by the department on the same date wherein certain loose sheets, Tally data etc. has been found which form the whole basis of impugned assessment on the assessee. A separate Panchnama has been drawn with respect to search on Shri Prem Singh. Going by this material as well as statement of Shri Prem Singh, Ld. AO made allegation of bogus purchases by the assessee. Post search, another ex-employee Shri Rajinder Singh was called by the investigation team and his statement was also recorded which has been used to corroborate the findings in the assessment order. The data extracted from his mobile phone has also been used by Ld. AO to support the impugned additions. 5. We find that the return of income for this year was already been filed b....
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....ec.148. This Explanation provide that, in case where material belonging to or pertaining to the assessee is found during a search on another person, the AO is mandatorily required to record proper satisfaction that such material pertains to the assessee and accordingly, required to obtain prior approval of Ld. Pr. CIT / CIT to initiate any action against the assessee. To support the same, reference has been made to various decisions of this Tribunal taking the same view. The Ld. AR stated that memorandum explaining the provision of Finance Bill, 2021 categorically provide that for search operations conducted on or after 01-04-2021, a new assessment procedure is to be followed particularly under the provisions introduced through Sec.148 and Sec. 148B read with amended Scheme of reassessment under Finance Act, 2021. In the present case, search has bene conducted on 18-05-2023 which is after 01-04-2021 and therefore, as per amended law, the assessment or reassessment for the years failing within period immediately preceding the search year must be initiated and completed through the new assessment procedure only. As against this, Ld. AO has framed the assessment u/s 143(3) which is no....
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.... make the assessment were not forwarded to him. This being so, the assessment would be liable to be quashed. 8. The Ld. AR also advanced arguments on merits and stated that the basic raw material for the assessee was Rice Nakku since the assessee was engaged in grain-based distillery. The assessee had maintained complete day-to-day stock register and the production activity was carried on under direct supervision of State Excise officials stationed at the manufacturing unit of the assessee day and night. Entire procurement, production and sale was carried under the strict supervision of State Excise officials. The sales were made on the basis of permit issued by the State Excise department which was forwarded to Excise personnel deputed at the factory premises and only then country liquor and Ethanol was dispatched to the customers. The assessee has maintained all the relevant records viz. purchase invoices, lorry receipts, weighment receipts for procurement of Rice Nakku. The receipt of raw material was entered in 'Grain procurement register' which was authenticated by the Excise Officials. The same contained day-to-day opening balance, grain purchased and consumed during the y....
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....oval as required u/s 148B has not been obtained from the competent authority even though the impugned AY was immediately preceding the search assessment year. Another line of argument is that approval as obtained by Ld. AO from Addl. CIT before passing the assessment order was invalid one since the approval ought to have been obtained u/s 148B of the Act which was not done in the present case. Further, whatever approval was taken, the same was mechanical and without application of mind. All these legal issues, as rightly been pointed out by Ld. AR, has adequately been dealt with by co-ordinate bench of Chandigarh Tribunal in the case of M/s Homelife Buildcon Pvt. Ltd. (ITA No.880/Chd/2024 & ors. dated 17-07-2024). We find that on identical facts, the coordinate bench held as under: - 22. The core question before the Bench is whether, in the facts and circumstances of the case, the assessment ought to have been framed under section 143(3) or under section 147 of the Income-tax Act, 1961. From the plain reading of the statutory provisions and in light of Explanation 2 to section 148, it becomes abundantly clear that the legislature has widened the scope of reassessment, part....
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....assessee and obtaining prior approval from the PCIT-is followed. 25. In the present case, where the AO has admittedly relied upon material seized during searches conducted on other persons, i.e., Sh. Ravi Kapoor and Sh. Ajay Kumar Prabhakar, it was mandatory for the AO to invoke the provisions of section 147 and not to bypass the statutory framework by proceeding under section 143(3). Granting such unfettered powers to the AO to rely on third-party material without adhering to the safeguards under section 147 would defeat the very purpose of the amendment and open the floodgates to arbitrary assessments. 26. The relevant extract Memorandum explaining the finance bill is reproduced as under:- '(ii) Assessments or reassessments or in re-computation in cases where search is initiated under section 132 or requisition is made under 132A, after 31st March 2021, shall be under the new procedure. (vi) Further, in search, survey or requisition cases initiated or made or conducted, on or after 1st April, 2021, it shall be deemed that the Assessing officer has information which suggests that the income chargeable to tax has escaped assessment in the case of....
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.... The relevant provision of section 148B reads as under: Prior approval for assessment, reassessment or recompilation in certain cases. 148B. No order of assessment or reassessment or recompilation under this Act shall be passed by an Assessing Officer below the rank of Joint Commissioner, in respect of an assessment year to which clause (i) or clause (ii) or clause (iti) or clause (iv) of Explanation 2 to section 148 apply except with the prior approval of the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director. 30. A comparison of the requirement of approval under section 153D and section 148B is drawn, from which it is evident that approval under section 153D was earlier required only in cases where assessments were completed under section 153A/153C and also for search year. However, under the amended provisions, approval under section 148B is now required in all cases where proceedings are initiated pursuant to a search, requisition, or survey, or where asset/material/documents found during such search pertain to or relate to another person. In such cases, the Assessing Officer must take the approval under section 148B from ....
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.... found from the third party prior to framing the assessment. The complete failure to comply with the mandatory provisions of section 148B renders the reassessment not only. procedurally defective but also without jurisdiction. 33. Even we find while framing the assessment under section 143(3), the Assessing Officer (AO) has, on the last page of the assessment order, referred to an approval obtained from the supervisory authority. However, a bare perusal of this approval shows that it was obtained in reference to F. No. 299/36/2020/1DAR/INV3(3)/577 dated 15.07.2022, i.e., in accordance with the CBDT Circular dated 15th July 2022, and not under the mandatory provisions of section 148B of the Income-tax Act, 1961. At the outset, it is important to note that the approval so obtained does not mention or consider any of the seized materials sourced from the third party. searches conducted on Sh. Ajay Kumar Prabhakar and Sh. Ravi Kapoor, despite the AO having heavily. relied on those materials in framing the additions. The approval merely states that the appraisal report was considered, without any reference to the original documents seized or to the statutory procedure ....
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....ime u/s 147 of the Income-tax Act, 1961. This new regime was introduced through significant amendments to Sec.147 and Sec.148, along with the insertion of Explanations-1 and 2 and the concept of "information suggesting escapement of income" was explicitly defined. From the reading of Explanation-2 to Section 147, it would be evident that in cases where a search is initiated on or after 01-04-2021, AO shall be deemed to have information, which suggests that income chargeable to tax has escaped assessment for three assessment years immediately preceding the assessment year relevant to the previous year, in which, the search is initiated, provided that books of account, documents, assets, bullion, jewellery, or other valuable articles are seized or requisitioned in the course of the search. This deeming provision is not limited only to the person searched, but also extends to "other persons", provided that due procedure under the law specifically, the recording of satisfaction that such seized material belongs to the assessee and obtaining prior approval from the PCIT is followed otherwise the assessment would be bad-in-law. It was further observed by the bench that AO relied upon mat....
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....ecomputation under this Act shall be passed by an Assessing Officer below the rank of Joint Commissioner, in respect of an assessment year to which clause (i) or clause (ii) or clause (iii) or clause (iv) of Explanation-2 to Sec.148 apply except with the prior approval of the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director. The bench further observed that under the amended provisions, approval u/s 148B would be required in all cases where proceedings were initiated pursuant to a search, requisition, or survey, or where asset / material / documents found during such search pertain to or relate to another person. In such cases, the Assessing Officer must take the approval u/s 148B from the specified higher authority. This requirement was explicitly discussed in the Explanatory Memorandum to the Finance Bill, 2022, which emphasizes the need to protect taxpayer rights by ensuring that no reassessment is carried out without proper sanction and due process. The Joint Commissioner was not even supplied with seized material as relied upon by Ld. AO. There exists a prescribed procedure under which such seized material (including material found from thi....
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.... there was no mention or consideration of the seized material sourced from the third party though both the lower authorities heavily relied upon such seized material. The approval merely states that the appraisal report has been considered but without any reference to any documents seized from third parties. Finally, on the given facts, the bench quashed the assessment order. We find that similar facts exist in the present appeal before us. No change in facts could be demonstrated by revenue. 10. We further find that the above decision has subsequently been followed and a similar view has been taken by another co-ordinate bench in Jamna Dass Nikkamal Jain Saraf Private Ltd. (ITA No.403/Chd/2025 & ors.). Faced with similar facts / situation, the bench observed that the impugned AY being one of the three preceding years would fall under Explanation 2(iv) to Sec.148. The Explanation provide that if a search is initiated then the AO shall be deemed to have information suggesting escapement of income for the three AYs immediately preceding the AY relevant to the previous year in which the search is initiated. Therefore, the only permissible statutory course was to issue notice u/s 14....
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....ssment. Therefore, AO must act u/s 148 (which now performs the role formerly assigned to Sec. 153A) rather than continuing with a pending Sec.143(3) proceeding. The legislative intent was to prevent multiplicity of proceedings and ensure that only one comprehensive order is passed, factoring in both the pre-search and post search materials. This rationale is further reinforced by the well-settled principle of generalia specialibus non derogant i.e., the special provision overrides the general provisions of the Act. Therefore, the special provisions of Sec.148 must prevail over general provisions of Sec.143. Allowing the AO to continue and conclude proceedings u/s 143(3) after a search would defeat this legislative scheme and render the safeguards, such as prior approval of the specified authority, redundant. The bench also observed that the statutory approval was sought by Ld. AO on 31- 03-2024 and the same was granted by Addl. CIT on the same date on which the draft assessment order was forwarded by AO. The revenue could not demonstrate that the voluminous seized material was actually forwarded to the approving authority, nor was it shown that the Ld. Addl. CIT made any independen....
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....ice of notice u/s 143(2) / 142(1) of the act by the jurisdictional AO. The same is thus merely administrative in nature and prescribe a procedure to be followed in search cases which have been conducted after 01-04-2021. The same do not address the various legal issues as raised by Ld. AR before us and which have been enumerated in preceding paragraphs. Therefore, this circular does not render any assistance to the case of the revenue. 12. Finally, considering the entirety of facts and circumstances of the case, we would hold that the assessment ought to have been framed under special provisions of Sec.148. To undertake the same, approval of specified authority as envisaged u/s 148B was required to be taken which is not shown to have been taken. Further, the approval of appropriate authority stood vitiated for application of mind. The procedure as required under the provisions of Sec.148 is not shown to have been fulfilled in the present case. The approval as sought by Ld. AO of the order u/s 143(3) is non-est / bad in law and the granting of the approval of the order u/s 143(3) by the Addl. CIT is null and void and thus, assessment as framed u/s 143(3) vide order dated 26-03-20....
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....d be recorded on both sides of the cashbook, although, it would not affect the cash balance. Thus, a valid explanation was furnished by the assessee with respect to different vouchers as referred to by Ld. AO. Further, in support of its purchases, the assessee furnished plethora of documents viz. ledgers of the suppliers, purchase invoices, e-way bills, weightment slips, transportation receipts and bank statement evidencing payments through banking channels. The assessee purchases 'Rice Nakku' and 'Rice Husk' for Rs. 181.38 Crores out of which substantial purchases to the extent of Rs. 103.79 Crores has been held to be alleged bogus purchases. On consumption of raw material, the assessee has produced ENA / Ethanol which has been sold to oil marketing companies for Rs. 171.10 Crores. The sales of liquor have been shown to be Rs. 70.09 Crores. The sales turnover has been accepted by Ld. AO. It is quite logical that without purchases there could not be any sales. The purchase includes purchases of Rice Nakku for Rs. 42.86 Crores from government undertaking FCI which could not be held to be bogus. The assessee also furnished Godown inward register containing complete details of supplie....
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....rroboration of the data as relied upon by Ld. AO, no such addition could be made in the hands of the assessee. The assessee has not been afforded any opportunity of cross-examination of Shri Prem Singh which violates guiding principles as laid down by Hon'ble Apex Court in the case of Andaman Timber Industries vs. CCE (281 CTR 0241) holding that not allowing assessee to cross-examine witnesses by adjudicating authority though statements of those witnesses were made as basis of impugned order, amount to serious flaw which make impugned order nullity as it amounts to violation of principles of natural justice. In the present case, we find that such an opportunity of cross-examination has never been provided by Ld. AO to the assessee which would make the impugned addition nullity. Hence, on the given facts, this addition could not be sustained in law. We order so. The corresponding grounds of appeal stand allowed. 15. The addition of Rs. 10.84 Crores, being gross-profit on alleged out-of- books sales has been deleted by Ld. CIT(A) on the observation that the same was based on rough Trial Balance, the authenticity of which could not be established. The assessee reflected much higher....