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Judgment
PER M. BALAGANESH, A. M.:
The appeal in ITA Nos. 3762 and 3763/Del/2025 AYs 2016-17 and 2017-18, arises out of the order of the ld Commissioner of Income Tax (Appeals)-26, New Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] 07.03.2025 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 21.12.2019 by the Assessing Officer, ACI, Central Circle-14, New Delhi (hereinafter referred to as ‘ld. AO’).
ITA No. 3762/Del/2025 – Asst Year 2016-17 – Assessee Appeal
At the outset, we find that the appeal filed by the Assessee is delayed by 6 days before this tribunal. Considering the reasons adduced in the condonation petition, in the interest of substantial justice, we are inclined to condone the delay and admit the appeal of the Assessee for adjudication.
The Assessee has raised the following grounds of appeal before us:-
“1.That the Ld. Commissioner of Income Tax (Appeals) ["CIT(A)") has erred both in law and on facts in upholding the assessment order passed under section 153C read with section 143(3) of the Income-tax Act, 1961, without appreciating that the jurisdictional conditions precedent for initiating proceedings under section 153C were not satisfied in the present case.
2.That the Ld. CIT(A) has erred in not appreciating that the assessment order passed under section 153C was time-barred in view of the statutory limitation prescribed under section 153B of the Act, as the assessment order dated 31.12.2019 was served only on 13.01.2020.
3.That the Ld. CIT(A) has failed to appreciate that the assessment is bad in law in the absence of any incriminating material pertaining to the appellant for the relevant assessment year found during the search, and in contravention of the settled law laid down in the case of CIT v. Sinhgad Technical Education Society and other binding precedents.
4.That the Ld. CIT(A) has erred in law and on facts in confirming the addition of Rs. 1,80,22,599/- as unexplained cash payments merely based on uncorroborated and unauthenticated electronic data, without satisfying the evidentiary requirement under section 65B of the Indian Evidence Act, 1872.
5.That the Ld. CIT(A) has erred in law and on facts in sustaining the addition of Rs. 31.90.781/- as unexplained cash receipts without any independent inquiry, corroborative evidence, or opportunity to rebut the alleged entries.
6.That the Ld. CIT(A) has erred in confirming the addition of Rs. 14,47,85,976/-by treating unsecured loans as bogus, despite the assessee having furnished supporting documents establishing identity, creditworthiness, and genuineness of the loan transactions.
7.That the Ld. CIT(A) has further erred in upholding the arbitrary addition of Rs. 28,95,719/-as alleged commission expenditure @ 2% on unsecured loans, without any evidence or basis for such estimation.
8.That the Ld. CIT(A) has grossly erred in confirming the addition of Rs. 46,71,556/- towards alleged bogus purchases without confronting the assessee with any adverse material or providing a fair opportunity to rebut the same.
9.That the entire assessment proceedings are vitiated due to denial of proper opportunity. non-supply of incriminating documents, and reliance on unverifiable electronic data, thereby violating the principles of natural justice.
10.That the appellant craves leave to add, amend, alter, or withdraw any of the grounds of appeal at the time of hearing.”
We have heard the rival submissions and perused the materials available on record. The Assessee is a partnership firm formed on 25-10-2015 by way of conversion of proprietorship concern of Shri Purushottam Lal Soni, namely M/s Soni Traders into the partnership firm under the same name. The partnership firm had taken over all the assets and liabilities of the proprietorship concern. All these facts are not doubted or disputed by the revenue. A search and seizure operation under section 132 of the Act was carried out on 16-12-2016 in the business and residential premises of Purushottam Lal Soni group of cases. Some incriminating papers or documents related to the Assessee were found and seized during the course of such search and seizure operation. A satisfaction note was recorded by the AO of the searched person on 22-12-2018 stating that the seized document styled as Party PSR Annexure A-1 seized from the premises of Purushottam Lal Soni relates / pertains to the Assessee herein. Accordingly, proceedings stood initiated under section 153C of the Act on the Assessee which would be obviously after 22-12-2018.
Notice under Section 153C of the Act stood issued to the Assessee for assessment year 2016-17 on 29-12-2018. In response to the same, the Assessee filed the return of income on 16-12-2019 declaring total income of Rs. 1,06,54,694. Later, notice under Section 143(2) of the Act was issued on 30-12-2019, which was duly served upon the Assessee. The assessment stood completed under section 153C read with section 143(3) of the Act for the assessment year 2016-17 in the hands of the Assessee firm on 31-12-2019 determining the total income of the Assessee at Rs 18,42,21,320 after making the following additions :-
addition on account of unexplained cash payments – Rs 1,80,22,599
addition on account of unexplained cash receipts – Rs 31,90,781
addition on account of unsecured loans treating it as bogus – Rs 14,47,85,976
addition on account of commission expenditure for obtaining bogus unsecured loans – Rs 28,95,719
addition on account of bogus purchases – Rs 46,71,556
The learned AR placed on record the copy of search assessment order framed under section 153A of the Act in the hands of Purushottam Lal Soni on 31-12-2019 (which is the same date of passing of section 153C assessment order in the hands of the Assessee herein) wherein the aforesaid first four additions [i.e. (a) to (d) ] were made in his hands on Substantive basis. It is pertinent to note that assessment in the case of the Assessee also was made on Substantive basis. Hence same additions have been made both in the hands of Purushottam Lal Soni under section 153 A of the Act on Substantive basis and also in the hands of the Assessee herein on Substantive basis under section 153C of the Act. This goes to prove that the very basis of recording of satisfaction note for triggering the proceedings under section 153C of the Act qua the Assessee herein gets faulted which in turn becomes fatal to the very assumption of jurisdiction under section 153C of the Act.
In respect of addition made on account of bogus purchases referred to in point (e) supra in the sum of Rs 46,71,556, we find that the Learned AO in Para 8 of the assessment order framed under section 153C of the Act on 31-12-2019 for the assessment year 2016-17 had stated that there were some documents seized /impounded during the search / survey proceedings conducted on Shri Puneet Kulthia on 07-03-2017, wherein it was found that Shri Puneet Kulthia was engaged in providing / arranging accomodation entries and hawala transactions. On perusal of the Para 8 to 8.3. of the assessment order framed under section 153C of the Act qua the Assessee herein, it is very clear that only the materials found from the search / survey proceedings of Shri Puneet Kulthia had been used for making the addition on account of bogus purchases in the sum of Rs 46,71,556. First of all, there is no clarity given in the assessment order as to whether there was search conducted on Shri Puneet Kulthia on 07-03-2017 or survey conducted on him on 07-03-2017. Either way, if it is to be construed as Survey conducted under section 133A of the Act, then the law is very well settled that the survey materials found / impounded from one person cannot be used in section 153C proceedings qua the third person. Similarly if it is to be construed as Search conducted on 07-03-2017, then any action on the Assessee herein could have to be taken separately under section 153C of the Act after recording due satisfaction notes by handing over the seized documents by the AO of the searched person to the AO of the Assessee herein. Undoubtedly, no such compliance was made by the revenue in the instant case. It is not in dispute that the proceedings qua the Assessee herein stood initiated under section 153C of the Act based on the search conducted in the case of Purushotham Lal Soni on 16-12-2016. Hence the assessment framed in the hands of the Assessee herein under section 153C of the Act on 31-12-2019 for the assessment year 2016-17 is based on the search of Purushotham Lal Soni and not the search of Shri Puneet Kulthia. Hence the materials found and seized / impounded from Shri Puneet Kulthia cannot be used in the impugned search assessment framed under section 153C of the Act. Accordingly, the addition made on account of bogus purchases in the sum of Rs 46,71,556 cannot be sustained in the eyes of law.
It is pertinent to note that the Assessing Officer of both Purushotham Lal Soni and Assessee herein is the same person. Further in the Satisfaction note recorded by the AO of Purushottam Lal Soni, the seized document reference Party PSR Annexure A-1 was referred to as pertaining to the Assessee herein. But we find that this seized document was not even mentioned in the entire assessment order framed under section 153C of the Act in the hands of the Assessee herein for the Assessment Year 2016-17. This itself goes to prove that the seized document reference Party PSR even if assumed to be pertaining/ relating to the Assessee, does not have a bearing on the determination of total income of the Assessee herein, which also becomes fatal to the very assumption of jurisdiction under section 153C of the Act qua the Assessee herein. Reliance in this regard is placed on the decision of the Hon’ble Jurisdictional Delhi High Court in the case of Saksham Commodities Ltd vs ITO reported in 464 ITR 1 (Del).
In view of the aforesaid observations and respectfully following the judicial precedent, we have no hesitation in holding that the entire assumption of jurisdiction under section 153C of the Act qua the Assessee herein is flawed and consequentially the assessment framed under section 153C of the Act for the assessment year 2016-17 is hereby quashed.
Since the entire assessment framed under section 153C of the Act on 31-12-2019 for the assessment year 2016-17 is quashed, the adjudication of other legal and factual grounds become academic in nature and they are left open.
In the result, the appeal of the Assessee is partly allowed.
ITA No. 3763/Del/2025 – Asst Year 2017-18 – Assessee Appeal
At the outset, we find that the appeal filed by the Assessee is delayed by 6 days before this tribunal. Considering the reasons adduced in the condonation petition, in the interest of substantial justice, we are inclined to condone the delay and admit the appeal of the Assessee for adjudication.
The Assessee has raised the following grounds of appeal before us:-
“1.That on the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) ["CIT(A)"] has erred in upholding the validity of the assessment order passed under section 143(3) of the Income-tax Act, 1961, whereas the assessment ought to have been framed under section 153C of the Act, and hence the order is without jurisdiction and bad in law.
2.That the Ld. CIT(A) has erred in not appreciating that the assessment order dated 31.12.2019 was served beyond the period of limitation as per section 153B of the Act, thereby rendering the assessment null and void.
3.That the Ld. CIT(A) has grossly erred in confirming the addition of Rs. 72,93,38,623/- as unexplained cash payments, ignoring the fact that the alleged data was never provided in usable form and the assessee was not confronted with any conclusive material or provided opportunity to rebut.
4.That the Ld. CIT(A) has erred in sustaining the addition of Rs. 59,44,70,000/- as unexplained cash receipts without establishing the nexus of the alleged transactions with the assessee's business, and despite the absence of any primary or corroborative evidence.
5.That the Ld. CIT(A) has erred in confirming the addition of Rs. 20,38,97,081/- on account of bogus unsecured loans, without proper inquiry or appreciation of the confirmations and supporting documents furnished by the assessee
6.That the Ld. CIT(A) has erred in sustaining the addition of Rs. 40,77,942/-towards alleged commission expense on the so-called bogus loans, in a presumptive and ad hoc manner, without any material evidence or basis.
7.That the Ld. CIT(A) has erred in confirming the addition of Rs. 82,55,73,913/- as unexplained creditors, in complete disregard of the accounting records and ledger confirmations filed, and in violation of principles of natural justice.
8.That the Ld. CIT(A) has erred in upholding the addition of Rs. 4,46,00,000/- as unexplained debtors without demonstrating any inconsistency or discrepancy in the assessee's books and without discharging the burden of proof.
9.That the Ld. CIT(A) has erred in sustaining the addition of Rs. 11,65,00,000/- as unexplained loans merely on assumptions and conjectures, and in the absence of any adverse material.
10.That the Ld. CIT(A) has erred in confirming the addition of Rs. 12,23,878/- as alleged commission on accommodation entries without any basis or third-party confirmation.
11.That the Ld. CIT(A) has erred in sustaining the addition of Rs. 1,11,38,23,320/- as unexplained cash deposits, ignoring the detailed explanation submitted and failing to consider the duplication and overlap with other additions.
12.That the Ld. CIT(A) has erred in confirming the addition of Rs. 18,00,00,000/- on account of alleged surrendered commission income, despite no incriminating evidence or voluntary admission by the assessee.
13.That the Ld. CIT(A) has erred in confirming multiple additions based on electronic data allegedly extracted from seized hard drives, without ensuring compliance with Section 65B of the Indian Evidence Act, 1872, thereby violating evidentiary norms.
14.That the entire assessment stands vitiated in the absence of any incriminating material pertaining to the assessee for the relevant assessment year, in violation of the ratio laid down in CIT v. Kabul Chawla and CIT v. Sinhgad Technical Education Society.
15.That the Ld. CIT(A) has failed to appreciate the inconsistencies in the assessment order including mismatch in computation of income, overlapping additions, and mechanical satisfaction for penalty initiation.
16.That the assessment order is vitiated for non-supply of material relied upon, denial of adequate opportunity to the assessee, and mechanical finalisation of assessment, thereby violating the principles of natural justice.
17.That the appellant craves leave to add, alter, amend, or withdraw any ground(s) of appeal at the time of hearing in the interest of justice.”
We have heard the rival submissions and perused the materials available on record. The Assessee is a partnership firm formed on 25-10-2015 by way of conversion of proprietorship concern of Shri Purushottam Lal Soni, namely M/s Soni Traders into the partnership firm under the same name. The partnership firm had taken over all the assets and liabilities of the proprietorship concern. All these facts are not doubted or disputed by the revenue. A search and seizure operation under section 132 of the Act was carried out on 16-12-2016 in the business and residential premises of Purushottam Lal Soni group of cases. Some incriminating papers or documents related to the Assessee were found and seized during the course of such search and seizure operation. A satisfaction note was recorded by the AO of the searched person on 22-12-2018 relevant to Assessment Year 2019-20 stating that the seized document styled as Party PSR Annexure A-1 seized from the premises of Purushottam Lal Soni relates / pertains to the Assessee herein. Accordingly, proceedings stood initiated under section 153C of the Act on the Assessee which would be obviously on or after 22-12-2018. Hence the date of handing over of the seized document by the AO of the searched person to the AO of the Assessee herein also would be on or after 22-12-2018. Accordingly, the date of search qua the Assessee herein would have to be construed as falling in Assessment Year 2019-20. Reliance in this regard is placed on the decision of the Hon’ble Supreme Court in the case of CIT vs Jasjit Singh reported in 458 ITR 437 (SC). Hence, the block period of 6 years or 10 years, as the case may be, need to be reckoned from AY 2019-20, being the year of search for the assessee and not based on the search date of originally searched person (i.e. Purushotham Lal Soni). Considering the date of search as to fall in Assessment Year 2019-20, the assessment, if any, for the Assessment Year 2017-18 could be framed only under section 153C of the Act, whereas in the instant case, the assessment has been framed under section 143(3) of the Act. Accordingly, the assessment framed under section 143(3) of the Act for the Assessment Year 2017-18 on 31-12-2019 would be illegal and void abinitio.
Since the entire assessment framed under section 143(3) of the Act on 31-12-2019 for the assessment year 2017-18 is declared illegal and void abinitio, the adjudication of other legal and factual grounds become academic in nature and they are left open.
In the result, the appeal of the Assessee is partly allowed.
To sum up, both the appeals of the Assessee are partly allowed.