TaxTMI 
TaxTMI 
2025 (2) TMI 1337
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....) erred on facts and in law in not allowing the claim of additional deduction of expenditure of Rs. 1,51,61,443/- as evidenced by the entries of cash outflows in the names of the employees found in the seized material against the gross unaccounted cash receipts from sale of spent solvents and scrap of Rs. 1,77,82,220/- for arriving at the real income thereon. 3. In the facts and circumstances of the case and in law, the Ld. CIT(A) erred in failing to consider the notarized affidavits of the employees and labour contractors furnished as additional evidence which substantiate the additional claim of expenditure towards labour payments by corroborating and supplementing the entries of cash outflows in the names of the employees found in the seized material. 4. In the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the deduction of expenditure to the extent of Rs. 17,78,222/- only on estimate basis at 10% of the gross unaccounted cash receipts from sale of spent solvents and scrap. 5. The LD.CIT(A) crossly erred in law in holding that A.Y. 2011-12 falls under the scope of "relevant Assessment Year or Years" as defined in Expla....
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....ment year in question falls beyond the 'relevant assessment year or years' and therefore, notice issued u/s 153A and consequent assessment order passed by the Assessing Officer is bad-in-law and is liable to be quashed. The assessee further challenged the legal validity of assumption of jurisdiction by the Assessing Officer for issuance of notice u/s 153A of the Act. The LD.CIT(A), for the reasons stated in the appellate order dated 20.08.2024, partly allowed the appeal filed by the assessee wherein the LD.CIT(A) has allowed the deduction of expenditure to the extent of Rs. 17,78,222/- only on estimate basis at 10% of the expenditure incurred against unaccounted receipts from sale of spent solvent / scrap. 4. Aggrieved by the order of LD.CIT(A), the assessee is now in appeal before the Tribunal. 4.1. GROUND NO.5 OF ASSESSEE'S APPEAL FOR A.Y. 2011-12 "5. The LD.CIT(A) crossly erred in law in holding that A.Y. 2011-12 falls under the scope of "relevant Assessment Year or Years" as defined in Explanation-1 to section 153A of the Act, though the said assessment year is later than 10 assessment years from the end of the assessment year relevant to the previous year in whi....
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.... the assessee is devoid of merit and needs to be rejected. 9. We have heard the rival submissions, perused the material on record and gone through the orders of the authorities below. Provisions of Section 153A(1) deals with assessment of search cases, where the Assessing Officer shall have power to assess or reassess total income of the assessee, in respect of each assessment year falls within six assessment years and for the relevant assessment year or years referred to in clause (b). For the sake of better understanding, provisions of Section 153A(1) and the Explanation - 1 are reproduced as under : "Assessment in case of search or requisition. 153A. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003 (but on or before the 31st day of March, 2021), the Assessing Officer shall- (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the re....
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....assessment for such year or years; and (c) the search under section 132 is initiated or requisition under section 132A is made on or after the 1st day of April, 2017. Explanation 1 For the purposes of this sub-section, the expression "relevant assessment year" shall mean an assessment year preceding the assessment year relevant to the previous year in which search is conducted or requisition is made which falls beyond six assessment years but not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made." 10. As could be seen from the provisions of Section 153A of the Act, the Assessing Officer is required to issue notice u/s 153A in respect of each assessment year falling within six assessment years and for the relevant assessment year or years in the case of a person, who has been searched u/s 132 of the Act or requisition is made u/s 132A of the Act. The six assessment years referred to in Section 153A(1) of the Act, for which notice is required to be issued, and assessment is required to be made, is further specified in Section 153A(1)(b) of the Act to mean the six a....
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.... assessment year "as per the definition in Explanation - 1 to Section 153A(1) of the Act. If we consider the terminal date of such A.Y. 2021-22 is 31.03.2022, the assessment year which fall beyond six assessment years but not later than ten assessment years from the end of A.Y. 2021-22 are A.Ys. 2012-13 to 2015-16. Since the terminal date i.e., 31.03.2022, being the end of A.Y. 2021-22, the first year considered backwards from the said terminal date is A.Y. 2021-22 and the tenth year is A.Y. 2012-13, but not A.Y. 2011-12, as considered by the Assessing Officer. This legal position has been explained by the Hon'ble Madras High Court in the case of A.R. Safiullah Vs. ACIT (supra) wherein the Hon'ble High Court after considering the relevant provisions of Section 153A(1) and Explanation - 1 provided therein has held that while the 'six assessment years' as per Section 153A(1)(b) are the six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted, thereby excluding the search assessment year, the starting point for the purpose of computing the ten assessment years as per Explanation - 1 to Section 153A(1) of the Act ....
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....mputation of the ten assessment years. It clearly and firmly fixes the starting point. It is the end of the assessment year relevant to the previous year in which search is conducted or requisition is made. There cannot be any doubt that since search was made in this case on 10.04.2018, the assessment year is 2019-20. The end of the assessment year 2019-20 is 31.03.2020. The computation of ten years has to run backwards from the said date i.e., 31.03.2020. The first year will of course be the search assessment year itself. In that event, the ten assessment years will be as follows: 1^st year 2019-20 2^nd year 2018-19 3^rd year 2017-18 4^th year 2016-17 5^th year 2015-16 6^th year 2014-15 7^th year 2013-14 8^th year 2012-13 9^th year 2011-12 10^th year 2010-11 The case on hand pertains to AY 2009-10. It is obviously beyond the ten year outer ceiling limit prescribed by the statute. The terminal point is the tenth year calculated from the end of the assessment year relevant to the previous year in which search is conducted. The long arm of the law can go up to this terminal point and not one day beyond. When the sta....
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....hen takes us to the principal question of identifying the point of origin for the purposes of computation of the six AYs' and the "relevant assessment year" as defined by section 153A. As is manifest from a plain reading of section 153C, the six AYs' are ordained to be those which immediately precede the AY relevant to the previous year in which the search may have been conducted or requisition made. The block of six AYs' would thus have to be identified bearing in mind the AY pertaining to the FY in which the search had been conducted or requisition made. The aforesaid AY would thus constitute the anchor point for the purposes of identification of the six AYs'. The statute envisages a similar process to be adopted for the purposes of computation of the "relevant assessment year" and where applicable constructs a block of ten AYs'. The significant difference between the two however is that while the six AYs' hinge upon the phrase "Immediately preceding" the AY pertaining to the search year, the ten AYs' are liable to be computed or reckoned from the end of the AY relevant to the year of search. In our considered opinion, the petitioners have correctly id....
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....rovided under section 153C of the Act No. of years AY 2021-22 1 AY 2020-21 2 AY 2019-20 3 AY 2018-19 4 AY 2017-18 5 AY 2016-17 6 Consequently, AY 2021-22 would become the first of the six preceding AYs' and would as per the table set out hereinabove terminate at AY 2016-17. 88. Section 153A replicates the basis on which the six AYs' are to be identified and computed with the solitary distinction being that in the case of the searched person, the six AYs' are liable to be computed from the AY pertaining to the FY in which the search was conducted. The starting point for the purposes of identifying the six AYs' in the case of section 153A would thus turn upon the year of search as opposed to the handover of material which is spoken of in the First Proviso to section 153C. If one were to therefore assume that a search took place on a person between 01 April 2021 to 31 March 2022, the pertinent AY would become AY 2022-23 and the corresponding six AYs' would be as follows:- Computation of the six-year block period as provided under section 153C of the Act No. of years AY 2021-22 1 AY 2020-21 2....
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....shed and thus, we quash the assessment order passed by the Assessing Officer u/s 153A of the Act dt. 31.03.2023 for A.Y. 2011-12. Thus, ground no.5 is allowed. 14. As we have allowed Ground No. 5 of the assessee's appeal in ITA No. 1050/Hyd/2024 for A.Y. 2011-12, no addition can be made by the Assessing Officer in the hands of the assessee for A.Y. 2011-12 as a consequence. Accordingly, the assessee's appeal is allowed, and the remaining grounds of the appeal have become academic. 15. In the result, the appeal of assessee in ITA No.1043/Hyd/2024 for A.Y. 2011-12 is allowed. ITA NOS.1044 TO 1046/HYD/2024 FOR A.Ys 2012-13 to 2014-15 16 The common issue that came up for our consideration from Ground Nos.2 to 4 of the assessee's appeal for assessment years 2012-13 to 2014-15 pertains to the disallowance of claim of deduction of expenditure against the unaccounted cash receipts from sale of spent solvents / scrap. The facts with regard to the impugned dispute are that the assessee is engaged in the manufacturing and sale of bulk drugs. In the process, the assessee purchased various solvents and used them for manufacturing bulk drugs. The used solvents had to be discarded....
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....erated out of dismantling of old building / units purchased by the companies and the proceeds from the disposal of such scrap have never reached the respective companies since the immediate disposal of such scrap for paving the way for further construction or development, is the priority of the management. However, considering the fact that the data was found in the registered office of the appellant company and in order to put a quietus to the issue, he stated that the cash receipts from the sale of spent solvents / scrap of Rs. 1,77,82,220/- was offered as additional income in the hands of assessee for the year under consideration. 17. Subsequently, during the post-search investigation, Shri MSN Reddy has furnished a sworn affidavit dated 05-07-2021 to the DDIT(Investigation), Unit - II(2), Hyderabad, and reiterated his statements made during the course of the search in the statement recorded on 27-4-2021. Apart from reiterating the explanation furnished in his sworn statement dated 27-4-2021, he explained in the affidavit that the disposal of hazardous waste of spent solvents / scrap does not attract serious attention of the management from the financial perspective since the....
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.... 58,57,556 41,70,416 3,24,22,875 9,03,945 11,53,30,981 Total 45,52,39,617 18,45,03,085 4,39,01,458 2,59,09,243 11,32,72,843 9,03,945 82,37,30,191 18. During the course of assessment proceedings, in the written submissions furnished to the AO in response to notice under Section 142(1) of the Act, the appellant reiterated the explanation furnished by MSN Reddy, the Managing Director of the appellant company, in the sworn statement dated 27-04-2021 and the affidavit dated 05-07-2021, and contended that the unaccounted cash receipts from the sale of spent solvents / scrap offered as additional income in the return of income filed under Section 153A of the Act do not represent the real income of the assessee, as the said amounts were expended for the purpose of business by way of disbursement to the workers who were involved in handling of the said material as per their demand considering the risks and inconveniences they had to face in handling the hazardous waste. Therefore, the appellant requested for deduction towards expenditure incurred for disposal of such hazardous material and claimed that the appellant and other group companies incurred ....
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....ng the submissions of the assessee and also taken note of the Excel data sheet found on the pen-drive, allowed partial relief towards the additional claim of expenditure against unaccounted cash receipts from sale of spent solvents / scrap to the extent of 10% gross receipts on estimation basis by holding that the expenditure shown in the seized material containing entries of cash inflow towards unaccounted cash receipts from sale of spent solvents / scrap as well as cash outflow entries showing handling the cash to various persons. Since both debit and credit entries are simultaneously recorded in the same seized document, the document should be read as a whole and cherry picking of data according to convenience is not justified. The LD.CIT(A) further observed that it is evident from the sworn statement dated 27-4-2021 and the subsequent affidavit dated 5-7-2021 of Shri MSN Reddy that since beginning, he adhered to his stand that the unaccounted cash receipts were utilized for making payments to workers who were involved in handling of disposal of hazardous waste. The appellant submitted notarized affidavits of the concerned employees and labour contractors as additional evidence ....
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....disposal of scrap without considering the other elements of cost like transportation, handling, and disposal of hazardous waste. The LD.CIT(A), referring to seized material found in the form of an Excel sheet, submitted that except few occasions, the amounts received from the sale of spent solvents / scrap have been given back for further disposal of hazardous waste, as additional wages, to employees who were involved in the disposal of said scrap. The AO conveniently ignored one part of the seized document, which contains details of expenditure incurred against unaccounted cash receipts from the sale of spent solvents / scrap, even though the Managing Director of the appellant company claimed that the management did not pay any attention to the financial aspects of the disposal of spent solvents / scrap, but only showed interest in the quick and early disposal of waste because of its hazardous nature and the impact that may be created on environment. Although, the appellant has furnished all the evidence, including the sworn affidavit from the persons deployed to disburse expenditure to various persons, but the LD.CIT(A) has ignored all the evidence filed by the assessee and allow....
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....payments made to MSN Reddy and other Directors of the appellant and other companies. From the above, it is very clear that the LD.CIT(A) has rightly allowed 10% of the receipt as expenditure incurred against unaccounted cash receipts, considering the nature of the material and the risk involved in the disposal of the said hazardous waste. Therefore, CIT-DR submitted that the order of the LD.CIT(A) should be upheld. 26. We have heard both parties, perused the material available on record and gone through the orders of the authorities below. We find that, this issue is squarely covered in favour of the assessee by the decision of the ITAT Hyderabad Benches, in assessee's own case for A.Y. 2015-16 in ITA No.1047/Hyd/2024 wherein the Tribunal has followed the decision in the case of MSN Pharmachem Private Limited for the A.Y 2019-20 in ITA No.884/Hyd/2024, where the Tribunal has directed the Assessing Officer to allow 60% of expenditure against unaccounted cash receipts from sale of spent solvents / scrap for the year under consideration. The relevant findings of the Tribunal are as under: "10. We have heard both parties, perused the material, and gone through the orders of....
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....l as cash outflow represents cash payments made in the name of various persons. The AO considered one part of the entries contained in the seized material, which includes cash inflow representing unaccounted cash receipts from sale of spent solvents / scrap, however, he conveniently ignored the other part of the entries contained in the very same incriminating material, which represents cash outflow in the name of various employees. Since the cash inflow and outflow are recorded in the very same incriminating material, in our considered view, the said seized material should be read as a whole for the purpose of assessment instead of cherry- picking of data according to the convenience of the Assessing Officer or the assessee. Therefore, in our considered view, the findings recorded by the LD.CIT(A) on this issue while allowing adhoc deduction on estimate basis to the extent of 10% of such unaccounted cash receipts is in accordance with law and needs to be accepted. Furthermore, there is no dispute regarding the fact that, right from the beginning, MSN Reddy, the managing director of the assessee company, made it very clear that the disposal of the hazardous waste material and amoun....
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....vits that they have disbursed the amounts received out of unaccounted cash receipts from sale of spent solvents / scrap for the purpose of making higher payments to employees, who involved in handling and disbursal of hazardous waste. Therefore, in our considered view, the LD.CIT(A), having noticed the fact that the process involved in handling and disbursal of hazardous waste is cumbersome and also involves a certain amount of expenditure, but erred in allowing deduction of 10% on estimation basis from unaccounted cash receipts from the sale of spent solvents / scrap. 10.3. Having said so, let us come back how to quantify the amount of expenditure incurred by the appellant for earning unaccounted cash receipts from the sale of spent solvents / scrap. Admittedly, the seized material contains cash outflow in the name of various persons, including the employees of the appellant company, and their associates. The appellant has quantified the total amount of cash outflow in the seized document in the name of employees at Rs. 66,80,52,108/- for all assessment years and for all the assessees put together. The appellant has also quantified cash outflows of Rs. 17,63,52,315/- in t....
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....notarized affidavits hold evidentiary value. However, the AO, in the remand report, even though not disputing the veracity of the said notarized affidavits or discrediting its contents or bringing any other material on record to disprove the contents of the affidavits, has simply rejected the arguments made by the assessee regarding the expenditure incurred for handling the said scrap. We further noted that the cash outflow represents payments made to various employees are in the name of few employees, and during the course of search, simultaneously search was carried out at the residence of three employees, where no incriminating material has been found in their possession to allege that the cash received by them has been utilized for their personal purposes, including the acquisition of any assets. This fact is further strengthened the arguments of the assessee that the cash given to said employees has been utilized for the purpose of business and also for disbursal of cash to the workers, who involved in handling of hazardous waste. Therefore, we are of the considered view that the LD.CIT(A), having taken note of the affidavit filed by the employees of the assessee, who are invo....
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....tain amount of expenditure for other expenses like transportation, packing etc. Since there is no direct evidence regarding other expenditures, in our considered view, the only possible way is to estimate a reasonable amount of expenditure against unaccounted receipts from sale of spent solvents / scrap. Therefore, considering the fact that the appellant has already disbursed 80% of the amount received from unaccounted cash receipts in the name of various employees, and also going by the nature of the material, in our considered view, at least 60% of the receipts need to be considered as expenditure against unaccounted receipts from the sale of spent solvents / scrap. Therefore, we direct the AO to deduct 60% of the receipts as expenditure against unaccounted receipts from sale of spent solvents / scrap. In other words, out of the additional income offered by the assessee and assessed by the AO towards unaccounted receipts from sale of spent solvents / scrap, the assessee gets relief to the extent of 60%, and the balance amount of 40% of unaccounted cash receipts is hereby sustained for both the assessment years. " 27. In this view of the matter and by respectfully, following th....
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....n the said forth proviso are cumulatively fulfilled, the Assessing Officer does not get jurisdiction to issue notice u/s 153A of the Act for the "relevant assessment year or years". 30. The learned counsel for the assessee further referring to the facts of the present case submitted that in the present case, admittedly, the Assessing Officer issued notice u/s 153A of the Act on the basis of "Satisfaction Note" and as per the said 'satisfaction note', the Assessing Officer referred to the incriminating material pertains to unaccounted receipts from sale of spent solvents and scrap. However, the 'satisfaction note' recorded by the Assessing Officer does not bring out the fulfilment of the conditions laid down in 4th proviso to Section 153A(1) of the Act. Further, the Assessing Officer considered the noting in the material found during the course of search which contains unaccounted receipts from sale of spent solvents and scrap, amounts given to the Director of the appellant company and considered that amount given to the directors as 'advances' within the meaning of "asset" as defined in clause (a)(o) of 4th proviso to Section 153A of the Act, but the fact remains that the 'satis....
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.... which reveal that the income, represented in the form of "asset", which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more in the relevant assessment year or in aggregate in the relevant assessment years. From the 4th proviso to Section 153A(1) of the Act, it is undisputedly clear that, if the Assessing Officer has in his possession, the books of accounts or other documents or evidence which reveals that the income represented in the form of an "asset", which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more in the relevant assessment year or in the aggregate in relevant assessment years, then the Assessing Officer shall assume jurisdiction by issuance of notice u/s 153A and assess or re-assess the total income of the assessee. 33. In the present case, going by the 'satisfaction note' recorded by the Assessing Officer for issuance of notice u/s 153A of the Act for assessment year in question, we find that the Assessing Officer recorded satisfaction in light of incriminating material found during the course of search which reveals unaccounted receipts from sale of spent solvents and scrap and also advances gi....