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Judgment
PER MAHAVIR SINGH, VP
These cross-appeals, by the assessee and the Revenue, are arising out of the order of learned Commissioner of Income-tax (Appeals)-24, New Delhi dated 27th February, 2017 for the assessment years 2008-09 to 2013-14. Assessment was framed by the ACIT, Central Circle-8, New Delhi for the said assessment years under Section 153A read with Section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), vide his order dated 27th March, 2015.
The first common issue raised by the assessee in its appeals in ITA Nos.2250 to 2253/Del/2017 for the assessment years 2008-09 to 2011-12 is as regards the incriminating material being not the basis of assessment and, assessments are unabated and hence, the assessment consequent to search under Section 153A is bad in law.
Brief facts are that a search and seizure action under Section 132 of the Act was conducted on U.K. Paints/Dhingra Group, Vatika Group, Shahi Group and Span Group on 16th January, 2013. The main subject matter of assessment orders in the case of the present assessee i.e., Orris Infrastructure Pvt.Ltd. is the issue of unaccounted interest expenditure on loans given by various lenders such as U.K. Paints, Dhingra Group, Span Group to the assessee company, business receipts and unaccounted cash expenditure (only for assessment year 2010-11). Consequent to search on Orris Infrastructure on 16th January, 2013 under Section 132 of the Act, notice under Section 153A was issued by the Assessing Officer for these six relevant assessment years from assessment year 2008-09 to 2013-14. The assessee filed returns of income in response to notices under Section 153A read with Section 143(3) of the Act for these assessment years from 2008-09 to 2013-14.
At the outset, learned Counsel for the assessee stated that there is no incriminating material and, additions made by the Assessing Officer and sustained by the learned CIT(A) are not based on any incriminating material found during the course of search. Learned Counsel for the assessee stated that the facts that status of assessments in assessee's case for various years under appeal as on the date of search i.e., 16th January, 2013 was unabated and abated also, which are as under:-
| A.Y. 2008-09 | A.Y. 2009-10 | A.Y. 2010-11 | A.Y. 2011-12 |
|---|---|---|---|
| Completed u/s 153A pursuant to earlier search on 13.3.2008 - Unabated | Completed u/s 143(3) - Unabated | Completed u/s 143(3) - Unabated | Notice u/s 143(2) not issued - period expired - unabated |
According to learned Counsel, for assessment years 2008-09 to 2011-12, the assessments are unabated, and no action as on the date of search was pending. He stated that the Assessing Officer relied on the third party statements seized in the U.K. Paints group search conducted on 16th January, 2013, which was another group. He submitted that the Assessing Officer made additions for all these assessment years aggregating to Rs.97.88 crores, out of which, learned CIT(A) restricted the addition at ₹13.41 crores for all these assessment years i.e., 2008-09 to 2013-14. Learned Counsel for the assessee stated that how the assessments for assessment year 2008-09 to 2011-12 were unabated. For this, he filed a chart for filing of return under Section 139(1) and 153A of the Act, which reads as under:-
Return filing chart [139(1) and 153A]
| Assessment Year | Original Return | Return pursuant to Notice U/s 153A | ||
|---|---|---|---|---|
| Date of Filing | Income Declared | Date of Filing | Income Declared | |
| 2008-09 | 30.09.2008 | 3,25,28,400 | 05.11.2014 | 3,33,40,200 |
| 2009-10 | 31.03.2010 | 18,88,09,930 | 05.11.2014 | 18,88,09,930 |
| 2010-11 | 15.10.2010 | (6,04,21,379) | 05.11.2014 | (6,04,21,379) |
| 2011-12 | 30.09.2011 | 57,92,200 | 05.11.2014 | 57,92,200 |
Learned Counsel for the assessee further filed a chart depicting the additions made on account of unaccounted interest expenditure, business receipts already disclosed in the return of income and cash expenditure which is recorded in the books of account but treated by the Assessing Officer as unaccounted, which reads as under:-
| Particulars of Addition made by AO | AY 2008-09 | AY 2009-10 | AY 2010-11 | AY 2011-12 |
|---|---|---|---|---|
| Unaccounted interest expenditure | 6,48,83,421 | 11,67,26,593 | 11,67,26,593 | 2,46,81,704 |
| Business receipt | -- | -- | 25,00,00,000 | -- |
| Unaccounted cash expenditure | -- | -- | 29,59,82,000 | -- |
| Grand Total | 6,48,83,421 | 11,67,26,593 | 66,27,08,593 | 2,46,81,704 |
The learned Counsel also drew our attention to a chart where he has tabulated the additions made by the Assessing Officer and deleted and sustained by the learned CIT(A) and the period involved, which reads as under:-
| Particulars | Period Involved (AY) | A.O. Addition (₹) | CIT(A) Deletion (₹) | CIT(A) Sustained (₹) |
|---|---|---|---|---|
| Unaccounted interest expenditure | 2008-09 to 2013-14 | 43,28,88,657 | 37,37,80,797 | 5,91,07,860 |
| Unaccounted cash expenditure | 2008-09 to 2013-14 | 29,59,82,000 | 22,09,82,000 | 7,50,00,000 |
| Forfeited advance (business receipt) | 2010-11 | 25,00,00,000 | 25,00,00,000 | -- |
| 97,88,70,657 | 84,47,62,797 | 13,41,07,860 |
Learned Counsel for the assessee took us through the order of learned CIT(A) and that of the Assessing Officer and also the arguments that the Assessing Officer's total reliance and confirmation by the learned CIT(A) is only on the basis of material found during the course of search conducted on U.K. Paints Group on 16th January, 2013. He stated that the issue now stands covered in favour of the assessee and against the Revenue by the decision of Hon'ble Supreme Court in the case of PCIT Vs. Abhisar Buildwell Pvt.Ltd. – (2023) 454 ITR 212 (SC), wherein the Hon'ble Court has categorically held that no addition can be made under Section 153A in respect of completed assessments unless incriminating material is found during the course of search in the case of the assessee. Learned Counsel stated that no diaries, no cash ledger, no incriminating statements of directors or employees were recorded during the course of search, which have been referred to by the Department at the stage of assessment or appellate proceedings or even now. Learned Counsel for the assessee drew our attention to learned CIT(A)'s order making observations and findings qua the alleged incriminating material in order to sustain the additions in assessee's case for unabated assessments. Learned Counsel for the assessee, on being asked from the Bench, tabulated the entire material referred by the learned CIT(A), as under:-
| Para/Page Ref. (CIT(A) Order) | Material/Annexure | CIT(A)'s Finding |
|---|---|---|
| Pages 8-9 | Emails with Excel sheets (A-29, A-30) | CIT(A) notes that these were retrieved from Orris's own hard disk during the 16.01.2013 search. They contain computations of interest at 24% (accounted) and an addition 12% (unaccounted). CIT(A) treats these as primary incriminating material against Orris. |
| Pages 11-13 | Same emails (A-29, A-30) | Observes that the Excel files specifically record actual unaccounted payments. |
| On this basis, sustains additions of unaccounted interest for certain lenders. At the same time, deletes additions for other parties (Merlin, Crane, SA Developers, etc.) as no material was found qua them. | ||
| Pages 32-33, | DLF correspondence (A-15, 10.08.2009 & 12.08.2009) | Records that Orris's letter declared forfeiture of ₹25 crore and DLF's reply accepted it. But accepts assessee's evidence (ledger and registered sale deeds of 25.05.2010) showing that the same ₹25 crore was later adjusted against sale of Hayatpur land. Holds that AO's treatment would result in double taxation; deletes the addition in full. |
| Pages 37-39 | Excel 'DLF' worksheet (A-30) | Notes that AO treated 'ca' entries as cash. Assessee explained 'ca' current account, and demonstrated reconciliation with ICICI current a/cs (nos. ending 5303 & 2926). CIT(A) finds this explanation plausible; accepts reconciliation for most entries (₹14.60 cr). However, entries aggregating ₹6.90 Cr remained unmatched, which he sustains as unexplained expenditure. |
| Pages 43-44 | Excel 'Deepak Gupta-2' worksheet (A-30) | CIT(A) records that the worksheet emanated from Orris's hard disk but was authored by a broker/ex-employee. Most entries are marked 'cheque' and tally with ledgers. Only one entry of ₹60 lakh marked 'cash' could not be reconciled. CIT(A) nevertheless notes it pertains to AY 2009-10 (buy-back of 15,000 sq.ft.). |
| THIRD PARTY MATERIAL | ||
| Pages 7-8 | Diaries AA-1 and AA-2 (U.K. Paints search 16.09.2011) | Acknowledges that these diaries were seized from U.K. Paints, not Orris. Nonetheless, holds that they contain systematic notings of loans, bifurcation |
| of cheque vs. 'material' (cash) interest. | ||
| Page 22 | Diary page AA-2/40 | Interprets the page to show U.K. Paints charging 33% interest vs. Orris booking only 12%. Concludes the 21% difference was unaccounted. |
| Page 6,9,55 | Statements of Naveen Choudhary | Notes assessee's objection of no cross-examination. Treats statements as provided and consistent with records but not sole basis. |
| Page 47-54 | Jurisdictional ground (no incriminating material) | Assessee argued that no incriminating material was found at Orris's premises; additions impermissible. The CIT(A) records that emails with Excel attachments (Annexures A-29 & A-30) were indeed seized from Orris's premises, which clearly evidenced dual-rate interest computations and actual unaccounted payments. The CIT(A) further notes that the assessee's reliance on Anil Khandelwal is misplaced. In that case, the incriminating material belonged to a third party; here, material (emails and Excel) was seized from Orris's own computer hard disk. He further refers to Dayawanti v. CIT (Del HC), where it was held that seized documents are to be read in entirety, and if they show a pattern of undisclosed transactions, additions can be made under s. 153A. The CIT(A) next holds that while the diaries were seized from U.K. Paints, the primary incriminating evidence is the emails from Orris's premises; the diaries merely corroborate. The CIT(A) further reasons that statements of U.K. Paints CFO Naveen Choudhary and promoter |
| Kuldeep Dhingra, though objected to for lack of cross-exam, are consistent with the seized documents. Even if ignored, the emails + Excel from Orris's premises are sufficient to sustain the additions. |
Learned Counsel for the assessee further stated that learned CIT(A) has sustained the additions partly on the basis of certain emails with excel attachments retrieved from assessee's computer during the search. Particularly, learned CIT(A) referred to email dated 5th August, 2010 of Rajneesh Gupta (U.K. Paints) to Naveen Choudhary, the email dated 30th December, 2009 from Bala Parmeshwaran (Shahi Group) to Orris officials and the email dated 16th July, 2010 from K.K. Gautam (Span Group). The learned Counsel explained before us that such material does not qualify as incriminating material for the reason that all the emails relied on by the Revenue authorities were sent by lender-side persons and not authored by the assessee. They do not constitute admission by the assessee, particularly when these were not confronted to the assessee either during assessment stage or during the first appellate stage. He explained that the attached excel files are nothing more than the computation prepared by the lenders themselves and they are unsigned and unauthenticated and not part of either assessee's or the third party's statutory records. He argued that these evidences do not constitute actual payment of cash interest. The learned Counsel submitted that the Courts have consistently held that such loose papers or third-party documents are dumb documents unless independently corroborated. He relied on the decision of Hon'ble Delhi High Court in the case of CIT Vs. D.K. Gupta – (2013) 352 ITR 313 (Del), wherein it is held that loose papers/printouts not forming part of assessee's regular books and lacking independent corroboration are merely dumb documents and cannot by themselves justify additions. Learned Counsel also relied on the decision of Hon'ble Supreme Court in the case of CIT Vs. Sinhgad Technical Education Society - (2017– 397 ITR 344 (SC), wherein it is held that incriminating material must be demonstrably linked to the relevant assessment year and the assessee. He stated that in the present case, no such nexus exists with the emails pointed out by the Revenue and the assessee. Learned Counsel stated that there is no examination or cross-examination of the senders of these emails i.e., Rajneesh Gupta, Bala Parmeshwaran and K.K. Gautam and none of them were examined by the Department. To strengthen his case, learned Counsel stated that from same emails and excel worksheets were relied upon in the assessments of U.K. Paints and Span Holdings, wherein ITAT Delhi Bench, vide order dated 5th September, 2023 and 27th December, 2024 in the case of U.K. Paints and Span Holdings respectively, have deleted the alleged cash interest income in the hands of those lenders. It was contended that once the recipients have been judicially held not to have received such cash, the assessee cannot be taxed as the alleged payer.
Learned Counsel for the assessee also stated that this issue stands covered by the decision of Delhi Tribunal in the case of Gulshan Investment Co. Pvt.Ltd. Vs. DCIT in ITA No.3872/Del/2024, dated 16th April, 2024, wherein the Tribunal has elaborately examined legal requirements under Section 153A and 153C of the Act. We noted that in the case of Gulshan Investment Co. Pvt.Ltd. (supra), the Tribunal held that for completed (unabated) assessment years, no addition can be made under Section 153A unless incriminating material is unearthed during search at the assessee's own premises. The Tribunal followed the binding decision of the Hon'ble Supreme Court in PCIT Vs. Abhisar Buildwell Pvt.Ltd. – (2023) 454 ITR 212 (SC), and Hon'ble Delhi High Court judgment in CIT Vs. Kabul Chawla – (2016) 380 ITR 573 (Del). It was further held that third-party statements or third-party documents, even if recorded or seized during search, do not constitute incriminating material for Section 153A unless there is a direct and corroborated nexus with the assessee, which must emanate from the assessee's own search. Furthermore, the Tribunal specifically emphasized that if the additions are based on third-party material, the Assessing Officer must strictly comply with the procedural requirement of recording a satisfaction note under Section 153C, as per the mandate of the Hon'ble Supreme Court in CIT Vs. Calcutta Knitwears – (2014) 43 taxmann.com 446 (SC) and CBDT Circular No.24/2015 dated 31st December, 2015. The Tribunal noted that in the absence of such a satisfaction note, the entire assumption of jurisdiction under Section 153C would fail.
In view of the above, we are of the view that additions based purely on material i.e., excel sheets, emails and statements seized from third parties i.e., U.K. Paints Group entities and not from the premises of the assessee and particularly when no incriminating material relatable to the assessee was found during the course of search under Section 132 of the Act, the jurisdiction assumed under Section 153A of the Act in these four assessment years, where assessments were completed under Section 143(3) or Section 153 of the Act, as the case may be, and there is no abated assessment, the assessment framed under Section 153A is invalid following the settled law laid down by the Hon'ble Supreme Court in the case of Abhisar Buildwell Pvt.Ltd. (supra). In terms of the above, we quash the assessments under Section 153A in these four assessment years i.e., 2008-09 to 2011-12 in ITA Nos.2250 to 2253/Del/2017.
Since we have quashed the search assessment framed under Section 153A while dealing with the jurisdiction issue raised by the assessee as regards no incriminating material, consequently, the Revenue's appeals in ITA Nos.2698/Del/2017, 2699/Del/2017, 2700/Del/2017 and 2701/Del/2017 have been rendered academic, and are dismissed.
Now, coming to assessee's appeals in ITA Nos.2254/Del/2017 and 2255/Del/2017 for the assessment years 2012-13 and 2013-14, at the outset, learned Counsel for the assessee stated that these are unabated assessments and hence, the issue of incriminating material does not arise. He fairly conceded that in these two appeals raised by the assessee, this issue does not emanate and hence, the same can be dismissed. Accordingly, these two appeals of the assessee are dismissed.
Coming to the Revenue's appeals in ITA Nos.2702/Del/2017 and 2703/Del/2017 for the assessment years 2012-13 and 2013-14, the common issue in these two appeals is as regards the order of learned CIT(A) deleting the addition of unaccounted interest of ₹6,12,17,107/- for assessment year 2012-13 and ₹4,86,53,239/- for assessment year 2013-14. The Revenue has raised common grounds in these two appeals, which are covered by the above issue.
Brief facts are that during search on assessee group under Section 132 of the Act on 16th January, 2013, various materials were unearthed and, for this material, there are certain loans on which interest was paid, the issue being those amounts of unexplained expenditure. The Assessing Officer added the interest as per seized Annexures AA-1 and AA-2, which is part of assessment order paragraph 2, wherein interest of 24% was assessed. The Assessing Officer, in view of these documents seized i.e., AA-1 and AA-2, noted that the assessee has accepted that Orris Infrastructure has entered into loan transaction with various concerns of U.K. Paints, Shahi Exports Group and Span India Group but, no transaction has been recorded in the books of account. Annexure AA-1 and AA-2 were seized from the cabin of Naveen Choudhary during the search on 16th September, 2011 and he himself has accepted in the recent search on 16th January, 2013 that the notings on these Annexures are interest received from various parties to whom ICDs have been given. Accordingly, the Assessing Officer made addition by observing as under:-
'1. The assessee, M/s Orris Investment Pvt.Ltd. took ICDs from Span Group, U.K. Paints Group and Shahi Group and others during the various AYs.
2.Interest is paid at two rates of interest by the borrower, one through cheque at different and the other in material/cash. However, aggregate rate of interest charged by the assessee is found to be 36%. Further, the interest expenditure in cash/material has not been accounted in the books of accounts. Hence, it is the unaccounted expenditure of the assessee which have been met out of unexplained source of income of the assessee. It is also established that the assessee has paid delayed interest @ 36% on the interest due.
In view of the discussion in the preceding paras the unaccounted interest expenditure including delayed interest/penalty earned from borrower on different ICD alongwith cash ICDs which remain totally out of books for various years is as under:
Name of borrower Unaccounted interest for the AY 2008-09 Unaccounted interest for the AY 2009-10 Unaccounted interest for the AY 2010-11 Unaccounted interest for the AY 2011-12 Unaccounted interest for the AY 2012-13 Unaccounted interest for the AY 2013-14 Span India 17978630 11120594 UK Paints 21581038 22268788 24723627 2089036 UK Paints (Cash ICD) 11536438 15963156 SA Developers 1079119 3119295 Span Holding 3996922 23936084 25562904 6800776 12585161 5785498 Span Holding (Cash ICD) 5569315 6443836 SS Dhingra 491462 1702216 Uttam 278661 1998831 Wang 5601349 16673864 Sarla Fabric 20835369 23964820 25868495 9494083 Sarla Fabric (Cash ICD) 11536438 13347945 Citiland 777684 6131625 Delhi Brass 16212493 18106714 3175775 Garmex 696460 11715904 Flair 1762780 SHE 15558839
Realors Total 64883421 116726593 111909963 24681704 61217107 48653239 Accordingly, unaccounted interest expenditure of the assessee for the AY 2012-13 amounting to Rs.6,12,17,107/- is added to the income of the assessee. In view of the above it is established that the assessee company has attracted the provisions of section 271(1)(c) of the I.T. Act, 1961 by furnishing inaccurate particulars of its income, for which penalty proceedings u/s 271(1)(c) are being initiated separately.
(Addition : Rs.6,12,17,107/-)
Aggrieved, assessee preferred appeal before the learned CIT(A). Learned CIT(A), after considering the entire submissions, deleted the addition of interest computed at 36% or 24% to 12% and 18% respectively vide paragraph 4.2.12 of his order, as under:-
"4.2.12Upon an appreciation of all the evidence discussed above, I therefore direct the A.O. that:-
(1)In respect of the transactions with UK Paints P. Ltd. only, in view of the evidence showing a payment of unaccounted interest over a sustained period of time:-
(i)the A.O. should compute undisclosed interest @24% on Rs.12.50 crores from 1.12.2008 to 19.8.2009 as paid by the appellant. [AA-1/10 and AA-1/81]
(ii)From 20.08.2009 till 30.11.2009 the A.O. shall compute unaccounted interest paid @12% on the loan of Rs.20.33 crores as reduced by periodic repayments, for which evidence of regular receipt of payment by U.K. Paints P. Ltd. is available [A-1/101 (back) and AA-1/53 (back)]
(iii)the notings of Sh. N Choudhary at seized diary AA-2/40 show that the appellant has paid interest @33% on the loan transaction Rs.10 crores. However, the appellant has shown interest @12% only in its books. The remaining 21% on this loan is not accounted for. Of course, the seized documents evidencing computation of undisclosed interest on the loan are pertinent only to October 2007, whereas the loan tenure was from 2.04.2007 to 22.11.2007. As discussed earlier in this Order (at para 4.3.11), following the ratio of the judgement of jurisdictional Delhi High Court in Smt. Dayawanti v CIT in ITA 357/2015 dated 27.10.2016, and the ratio laid down by the Hon'ble Supreme Court on preponderance of probability in CIT. v. Durga Prasad More (supra) and Sumati Dayal v. CIT, I hold that the entries pertaining to undisclosed interest as seen in the seized documents can be extrapolated to hold that the appellant has been paying unaccounted interest @21% for the entire tenure of the loan of Rs.10 crores. I therefore direct the A.O. to consider unaccounted interest on the loan of Rs.10 crores @21% p.a. for the period 2.4.2007 to 2.11.2007.
(iv)The accounted-for loan of Rs.4 crores to Orris from 31.5.2010 to 5.8.2010 is contemporaneous with the loan amount discussed at para (ii) above. The interest for the latter has been held to be 36%, whereas the recorded rate is @18%. Applying ratio laid down by the Hon'ble Supreme Court on preponderance of probability and the ratio of Delhi High Court in Smt. Dayawanti v CIT in ITA 357/2015 dated 27.10.2016, I direct that the A.O. should add unaccounted interest @18% on the principal amount of this loan (as reduced/increased from time to time).
(v)AA-1/53(back) clearly shows a separate unaccounted loan of Rs.12.83 crores (depicted as "material"), extended by U K. Paints Pvt. Ltd. to Orris @24% pa for the month of July 2009. The A.O. also directed to include the undisclosed interest payment thereon of Rs.26,15,210/- in the total income of the appellant for AY 2010-11 (interest for July 2009, as seen in the document).
(2)In addition, the A.O. is also directed to include the undisclosed interest of Rs.1,24,31,394/- paid to UK Paints, Sarla Fabrics and Span Holdings on 07.01.2010 (for the months of December, 2009 and January 2010), as seen in the seized emails.
(3)There is no evidence whatsoever that the appellant even had any understanding with other parties like SA Developers, SS Dhingra, Uttam Enterprises, Flair and SEH Realtors for payment of undisclosed interest on loans taken from them. The loan transaction with these parties are independently handled. These addition made on transaction with these parties is therefore deleted."
Aggrieved, Revenue is in appeal before the Tribunal.
We have heard the rival submissions and perused the material placed before us. We noted that the similar issue is covered by the decision of ITAT in group cases in the case of Span Holdings Pvt.Ltd. Vs. ACIT, ITA Nos.1270-1275/Del/2017, order dated 27.12.2024 (ITAT Delhi) and U.K. Paints India Ltd. Vs. ACIT, M.A. No.84/Del/2020, order dated 05.09.2023 (ITAT Delhi), wherein the alleged cash interest income in the hands of those lenders U.K. Paints India and Span Holdings was deleted and hence, this issue stands covered in favour of the assessee and against the Revenue. As no argument was made by the learned CIT-DR in regard to the deletion of addition in the group cases i.e., U.K. Paints India and Span Holdings (supra), we confirm the order of learned CIT(A) in deleting the addition.
In the result, all the appeals of the Revenue and the appeals of the assessee in ITA Nos.2254/Del/2017 and 2255/Del/2017 are dismissed, and the appeals of the assessee in ITA Nos.2250/Del/2017, 2251/Del/2017, 2252/Del/2017 and 2253/Del/2017 are allowed.