Keyman Trading Service Pvt. Ltd vs DCIT

PER M. BALAGANESH, A. M.:

The appeal in ITA Nos. 1525 & 1526/Del/2023 for AY 2018-19 and 2019-20, arise out of the order of the Commissioner of Income Tax (Appeals)-4, Kanpur [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 20.03.2023 against the order of assessment passed u/s 153C/ 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 30.09.2021 respectively by the Assessing Officer, JCIT(OSD), Central Circle-1, Noida (hereinafter referred to as ‘ld. AO’). Issues involved in these two appeals are identical and hence they are taken up together and disposed of by this common order for the sake of convenience. Both the parties mutually agreed that the appeal for the assessment year 2018-19 could be taken as the lead case and the decision rendered thereon shall apply with equal force for assessment year 2019-20 also in view of identical issues except with variance in figures.

The Ground No. 2 raised by the assessee challenging the validity of the assessment in the absence of Document Identification Number (DIN) was stated to be not pressed by the Learned AR. The same is reckoned as a statement made from the Bar and accordingly Ground No. 2 raised by the assessee is dismissed.

The Ground No. 4 raised by the assessee is challenging the validity of the additions made in the assessment on account of unsecured loans in the absence of incriminating material found during the course of search. This goes to the root of the matter and hence we deem it fit to address the same first.

We have heard the rival submissions and perused the materials available on record. The Learned AO noted in the assessment order that a search and seizure operation under section 132 of the Act was conducted on 11-10-2018 in the premises of the assessee comprising M/s PMC group of cases. During the course of search and seizure operation, certain information / documents belonging to the assessee were also found. In view of search operation, the group cases were centralized to Central Circle-1 Noida vide order passed by the Learned PCIT Noida under section 127 of the Act dated 18-2-2021. This preliminary issue per se was objected by the Learned AR before us that there was no search conducted under section 132 of the Act on the assessee per se and further the assessee does not belong to PMC group of cases. The Learned AR also drew our attention that the assessment in the case of the assessee has been framed under section 153C of the Act which establishes the contentions of the assessee herein. Be that as it may, we find that the notice under section 153C of the Act stood issued to the assessee on 24-3-2021. There is no evidence brought on record by the parties before us with regard to date of recording of satisfaction note, if any, under section 153C of the Act for the assessee. Hence, the date of search qua the assessee herein is construed based on the date of issuance of notice under section 153C of the Act i.e. 24-3-2021. The assessee filed return of income for assessment year 2018-19 on 2-4-2021 declaring loss of Rs 30,82,81,895 which is the same loss as was declared in the original return of income filed under section 139(1) of the Act on 27-10-2018. The Learned AO noted that assessee had taken unsecured loan from M/s Amarendra Financial Private Limited of Rs 8.15 crores; M/s Dinker Commercial Private Limited of Rs 12.45 crores and M/s Nishanth Inbuilt Limited of Rs 7.40 crores totaling to Rs 28 crores. According to Learned AO, these three concerns were business concerns operated by Shri Rajkumar Modi. The interest paid to these three parties amounted to Rs 62,27,236. The Learned AO observed that the unsecured loans received from these three parties are accommodation entries as it had emanated from the concerns operated by Shri Rajkumar Modi who was found to be entry operator and who was found to be providing accommodation entries. Accordingly, the Learned AO added the entire unsecured loan receipt of Rs 28 crores received from three parties and also disallowed the interest payment made to them in the sum of Rs 62,27,236 in the assessment. The Learned AO also added alleged commission expenditure @ 4% on the aforesaid alleged accomodation entries of Rs 28 crores and made an addition under section 69C of the Act in the sum of Rs 1,12,00,000 in the assessment.

The Learned AO also noticed that assessee had received unsecured loan of Rs 1 crore from M/s Lenient Consultant Private Limited and paid interest of Rs 1,46,466 on the said loan during the year under consideration. The Learned AO noted that Lenient Consultants Private Limited is an accommodation entry providing company which came to light during the course of search of Samtel Group, which group was also centralized with Central Circle 2 Noida and assessment was completed in December 2019 thereon. The Learned AO noted that during post search investigation in Samtel group, the director and key person of M/s Lenient Consultants Private Limited, Shri Shailendra Kumar had admitted in his statement on oath under section 131(1A) of the Act on 20-1-2018 that he provides accommodation entry in the form of loan, share capital, etc., in lieu of commission in cash. Based on such statement, the Learned AO proceeded to treat the receipt of loan of Rs 1 crore from Lenient Consultants Private Limited as an accommodation entry and added the same as unexplained cash credit under section 68 of the Act along with corresponding disallowance of interest of Rs 1,46,466. The Learned AO also added alleged commission expenditure @ 4% on the aforesaid alleged accommodation entry of Rs 1 crore and made an addition under section 69C of the Act in the sum of Rs 4,00,000 in the assessment. This action of the Learned AO was upheld by the Learned CITA.

As stated above, the date of search qua the assessee herein would be 24-3-2021 being the date of issuance of notice under section 153C of the Act to the assessee. Hence the search falls in assessment year 2021-22 qua the assessee. Accordingly, the assessments for the assessment years 2018-19 and 2019-20 (being the years under consideration) would fall under the category of unabated/ completed assessments as on the date of search. Hence in the absence of any incriminating material found during the course of search, no additions could be made in the case of the assessee in a completed assessment. Admittedly, there is absolutely no seized material that is referred to by the Learned AO while making the additions on account of unsecured loans, interest disallowance and alleged commission expenditure.This objection of absence of incriminating material was indeed made by the assessee even before the Learned AO. We find that the Learned AO had duly addressed this aspect of the issue in Page 89 of his assessment order wherein he had placed heavy reliance on the decision of the Hon’ble Jurisdictional Allahabad High Court in the case of Raj Kumar Arora reported in 367 ITR 517 (All) as a binding precedent. This clearly goes to prove that the Learned AO had practically conceded the fact that there was absolutely no incriminating material found during the course of search qua the additions that were made in the assessment. Now that the same issue is already settled by the Hon’ble Supreme Court in the case of PCIT vs Abhishar Buildwell (P) Ltd reported in 454 ITR 212 (SC) wherein it was categorically held that in respect of completed assessments/ unabated assessments, no addition could be made by the Assessing Officer in the absence of any incriminating material found during the course of search under section 132 of the Act or requisition under section 132A of the Act. The same ratio would be equally applicable for assessments framed under section 153C of the Act as was held by the Hon’ble Supreme Court in the case of DCIT vs U K Paints reported in 454 ITR 441 (SC). Respectfully following the aforesaid decisions of Hon’ble Supreme Court, it could be safely concluded that there was no incriminating material found during the course of search qua the additions made in the hands of the assessee in respect of completed assessments and hence the additions made thereon are hereby directed to be deleted. We find that the Learned DR vehemently argued that the additions were made based on the statements recorded from third parties during the course of their search. The law is very well settled that statements recorded either under section 132(4) or section 131(1A) of the Act does not constitute any incriminating material found during the course of search. Reliance in this regard is placed on the decision of Hon’ble Delhi High Court in the case of Best Infrastructure reported in 397 ITR 82 (Del) and CIT vs Harjeev Aggarwal (Delhi HC). Respectfully following the said decisions of Hon’ble Delhi High Court, the arguments advanced by the Learned DR that statements recorded constitute incriminating material are hereby dismissed.

In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, the Ground No 4 raised by the assessee is hereby allowed and additions made in the assessment are hereby deleted for want of incriminating material.

Since the entire additions are deleted on this technical aspect, the adjudication of other factual and legal grounds would become academic in nature and they are left open.

In the result, both the appeals of the assessee are partly allowed.