Navrang Theatres Private Limited vs Deputy Commissioner of Income Tax

5.

I have considered the material on record including written submissions of the appellant filed during appellate proceedings. I have also perused the assessment order u/s 153C r.w.s 143(3) of the Income tax Act, 1961.

5.1

In the present appeal, the appellant has raised an additional ground of appeal. However, before proceeding to discuss the merits of the aforesaid grounds, the first issue which requires consideration is whether the additional/amended ground of appeal raised by the appellant during appellate proceedings be admitted or not when such ground was not raised in the memo of appeal. From the perusal of the additional ground raised by the appellant, it is seen that the ground raised by the appellant is purely legal in nature. The provision of section 250(5) of the Income tax Act, 1961 provides that Commissioner (Appeals) may at the time of hearing of an appeal allow an appellant to go into any ground of appeal not specified in the grounds of appeal, if he/she is satisfied that the omission of that ground from the form of appeal was not wilful or unreasonable. From the facts of instant case, it is seen that it cannot be said that omission of that ground from the form of appeal was wilful or unreasonable. Therefore, the additional/amended ground of appeal filed by the appellant is admitted.

5.1.1

In the Additional Ground No 1, the appellant has contended that the assessment order passed by Ld. Assessing officer is uploaded on ITBA without any Document Identification number (DIN), which is mandatory condition to mention the DIN otherwise Order passed by Ld. AO is liable to be quashed.

DECISION:

5.1.2

I have considered the facts of the case. It is ascertained from the AO's report that the assessment order has been passed on 23/12/2021 & uploaded through common function module at ITBA with DIN bearing No. ITBA/AST/S/91/2021-22/1038074743(1).

5.1.3

Thus, this is not a case wherein DIN was not generated or communicated at all. This, certainly, is not a case of an order without DIN. I find that this order has been typed and sent along with a DIN. It is because of this reason that the appellant could also file further appeal and generate Form 35 against the said assessment order. In the instant case, originally, no objection was raised before the AO as regards non-availability of DIN in the assessment order by the appellant before the AO. This clearly shows that the appellant did not have any reason to suspect the audit trail and that no real prejudice was caused to it. It would be travesty of justice if any assessment order is set aside on merely such ground. Moreover, it is well-known principle that Circulars of CBDT cannot override the provisions of the Act which are enacted to collect just tax dues of the Government, and such Circulars, certainly cannot be used to achieve the opposite effect.

5.1.4

In the case of Chairman Mining Board vs Ramjee 1977 AIR 965 SC, the Hon’ble Supreme Court observed as under: “Natural justice is no unruly horse, no lurking land mine, nor a judicial cure-all. If fairness is shown by the decision-maker to the man proceeded against, the form, features and the fundamentals of such essential processual propriety being conditioned by the facts and circumstances of each situation, no breach of natural justice can be complained of. Unnatural expansion of natural justice, without reference to the administrative realities and other factors of a given case, can be exasperating. We can neither be finical nor fanatical but should be flexible yet firm in this jurisdiction. No man shall be hit below the belt— that is the conscience of the matter.”.

5.1.5

A different yet a connected issue had come up before the Hon’ble Bombay High Court in the case of Veena Estate Pvt. Ltd. v. CIT in (2024) 158 taxmann.com 341 dt. 11.01.2024. In that case, the appellant had taken a plea of defect in notice going to the root of jurisdictional validity and challenged the same. The Hon’ble High Court, however, held otherwise as follows:

> “41. It is a settled principle of law that any breach of the principles of natural justice cannot be addressed by a straight jacket formula. Any complaint of breach of principles of natural justice would be required to be considered in the facts of the case. When the facts of the case would demonstrate it, to be an undisputed position, that no real prejudice was caused to a party aggrieved by an order, being alleged to be breach of the principles of natural justice, the Court would certainly not interfere. Such complaint and/or a genuine grievance of the breach of principles of natural justice accompanied with the prejudice it would cause, is required to be made with utmost promptness. Any delay in making such complaint or raising a grievance would give rise to a position that such grievance is either not genuine or is belated and/or a technical plea being agitated. In Natwar Singh vs. Director of Enforcement & Anr. (supra), the Supreme Court while observing on the test of real prejudice, observed that there is no such thing as ‘technical infringement of natural justice’, as what is necessarily to be seen is that there must have been caused some real prejudice to the complainant.

> 63. ... Even assuming that defect in the notice has adversely affected the interest of the noticee, the manner in which the interest is adversely affected and/or the nature of the prejudice caused to him, is required to be raised / set out with utmost promptness and/or at the first available opportunity... Even otherwise and considering the well settled position in law, even a legal right which may accrue to a party can be waived. Such party would be later on estopped / precluded from raising any question on a breach of a right which stood waived.”

5.1.6

In the case of Kalyan Kumar Ray v. CIT, 191 ITR 634, the Hon’ble Supreme Court (3 Judge Bench) held that assessment is one integrated process involving not only the assessment of the total income but also the determination of tax. It was further held that the tax calculation and assessment order are integral to each other. Seen in this light, the fact that AO had generated DIN and communicated to the appellant, in my view, satisfy the provisions of the Act, including that of S. 292B. It is also noted that the appellant has acknowledged receipt of such order.

5.1.7

(For argument’s sake, even if DIN was not communicated), in the case of Areva T&D India Ltd. 294 ITR 233, the Hon’ble Madras High Court held that where there are procedural irregularities, the assessment cannot be annulled and could be cured.

5.1.8

The Hon’ble AP High Court in the case of Thakur V. Hariprasad v. CIT [1987] 32 Taxman 196 has held that where the principles of natural justice are not followed, the order is only voidable and it can be cured with a direction to afford opportunity to the assessee of being heard. The decision in the case of Grindlays Bank Ltd. v. ITO [1980] 3 Taxman 38 (SC) is also to the same effect. Thus, it cannot be stated that the action of AO is fatal to the proceedings. As a matter of fact, the case before me stands on a very firm legal footing in as much as DIN was generated and communicated simultaneously.

5.1.9

In the light of detailed discussion above, I am unable to decide this issue in a manner favourable to the appellant. The contentions of the appellant are REJECTED.

5.2

In the Additional Ground No 2, the appellant has contended that the AO had failed to make any enquiry from the lender, and relied on the Satisfaction Note for considering the Application Money as Accommodation Entries. In Ground No. 1, the appellant has contended that the Assessing Officer erred in issuing the notice u/s 153C as before issuing notice under Section 153C of the Act, the Assessing Officer of the searched person must be satisfied that, inter alia, any document seized or requisitioned belongs to a person other than the searched person. In the present case, mere statements of Mr. Nishant Chhajer and Mr. Vikas Aggarwal and Mr. Ashish Begwani and presence of a sheet containing list of beneficiaries cannot be considered as documents. The document purported to be seized during search operations mentioned in your satisfaction note does not belong to the assessee. The satisfaction drawn on the basis of standalone statement of the person searched u/s 132(4) without any documentary evidence cannot take the shape of books of accounts or documents as mentioned in section 153C(1)(b). Reference can be taken from the case laws below: [2019] 109 taxmann.com 202 (Gujarat) PCIT v. Himanshu Chandulal Patel (Para 20,21) 5 [2011] 10 taxmann.com 191 (Delhi)- CIT v. Raj Pal Bhatia 5[2008] 170 Taxman 164 (Rajasthan)- CIT v. Smt. Chitra Devi Soni 5[2015] 54 taxmann.com 295 (Delhi Trib.)- DCIT v. Qualitron Commodities (P.) Ltd 5[2019] 112 taxmann.com 163 (Karnataka) PCIT v. Star PVG Exports

5.2.1

The detailed submissions of appellant related to Ground No. 1 of appeal is reproduced below for ready reference.

That the Learned Assessing Officer erred in issuing the notice u/s 153C as before issuing notice u/s 153C of the Act, the Assessing officer of the searched person must be satisfied that any documents seized or requisitioned belongs to a person other than the searched person

In the present case, it has been argued that the mere statements of Mr. Nishant Chhajer, Mr. Vikas Agarwal, and Mr. Ashish Bagwani, in the presence of an excel sheet containing a list of beneficiaries, cannot be considered as valid documents. Furthermore, it has been pointed out that the documents purported to be seized during the search operations mentioned in the satisfaction note do not belong to the assessee.

It has also been argued that the satisfaction note drawn on the basis of statements made by persons searched under Section 132 of the Income Tax Act, without any documentary evidence, cannot be considered as books of accounts or documents as mentioned in Section 153(1)(b). Therefore, there is no basis for inferring that the transactions in question are not genuine and are accommodation entries.

It is important to note that a proper inquiry should be conducted to establish the authenticity of the evidence presented by the authorities, and mere statements cannot be the sole basis for drawing any conclusions.

The recent decision of the Delhi High Court in the case of Anand Kumar Jain HUF has been followed and upheld in an appeal filed by the assessee against an assessment made under section 153A. The court held that the statement of a third party could not be used to make an addition in the hands of the assessee in the case of a search in the absence of any corroborative material. The learned departmental representative failed to produce any material other than the statement of Mr. Malu for making the above addition.

Furthermore, it is important to note that a statement alone cannot be treated as incriminating material upon which an addition can be made.

The appellant relied upon the decision of the Hon'ble Delhi High Court in the case of Meeta Gutguti to support this proposition. In addition, no addition based on the third party can be made unless such party is allowed to be cross-examined by the Id AO. The addition in this case was solely made based on the statements of Mr. Nishant Chhajer, Mr. Vikas Agarwal, and Mr. Begwani, who are neither the director nor the shareholder of the assessee. Furthermore, their statements did not name the assessee at all."

DECISION:

5.2.2

In this context, a perusal of Satisfaction-Note recorded by the AO of the any other person as per Section 153C of the IT Act, 1961, reveals that the officer has explicitly discussed the incriminating material and duly recorded therein that it comprises of an excel sheet containing the name of appellant as one of the beneficiaries of accommodation entries facilitated by Sh. Ashish Begwani on whom search action was conducted by the department under section 132 of the Income tax Act, 1961. It is further noticed that the officer has distinctly recorded in his Satisfaction-Note that after the search action, department had unearthed the accommodation entries being facilitated by Sh. Begwani on a humungous scale, and that Sh. Ashish Begwani had admitted these facts before ITSC. The officer has categorically recorded that it was only after due examination of these incriminating documents, that he has arrived at his satisfaction that appellant was one of the beneficiaries of accommodation entries facilitated through Begwani, and these documents had a bearing upon determination of income of the appellant. The statement of Sh. Ashish Begwani and Sh.Vikas Aggarwal recorded u/s 132(4) of the Income tax Act,1961 has evidentiary value before law, and hence reliance placed on the same by the AO, is in order. Thus, in my view, the actions undertaken by the AO of the any other person under Section 153C of the IT Act,1961, fulfil the mandatory requirements for assuming jurisdiction over the case under the provisions of the Income tax Act,1961.

5.2.3

The assumption of jurisdiction under Section 153C of the IT Act,1961 in this case is in accordance with judgement in the case of Abhisar BuildwellPvt. Ltd. in Civil Appeal No. 6580 of 2021 dt. 24.04.2023, wherein the Hon'ble Supreme Court held as under: -

"In view of the above and for the reasons stated above, it is concluded as under:

- i) that in case of search under Section 132 or requisition under Section 132A, the AO assumes the jurisdiction for block assessment under section 153A;

- ii) all pending assessments/reassessments shall stand abated;

- iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the 'total income' taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns;

- and

- iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments."

5.2.4

It is also noticed that in this case, the AO of the Searched Person covered u/s 153A of the IT Act, 1961 had also recorded his due satisfaction for initiation of action under Section 153C in the case of appellant prior to transfer of seized records to AO having jurisdiction over the appellant. Thereafter, only upon examination of these records, the AO having jurisdiction over the appellant's case recorded his satisfaction. Thus, two distinct satisfaction notes ensuring strict compliance to mandate of ACIT Vs Pepsi Foods Private Limited [2018] SC and Delhi High Court in the case of Pepsi Foods Private Limited [2014] were recorded.

5.2.5

In view of the above discussion, there is indeed an availability of "incriminating material" in the case of the appellant, which had a clear bearing on determination of its total assessable income. The procedure laid down as per the provisions of Section 153C of the IT Act, 1961 for invoking Section 153C in this case were duly catered to. As per the decision of the Hon'ble Apex Court, in the case of Abhisar BuildwellPvt. Ltd. in Civil Appeal No. 6580 of 2021 dt. 24.04.2023, the AO does get jurisdiction to assess u/s 153C in respect of such incriminating material. The case laws relied upon by the appellant are inapplicable to the facts of the case. Therefore, I am unable to accede to the contention raised by the appellant. Hence, this ground stands DISMISSED.

5.3

In Ground No. 2, the appellant has contended that it has received Share Application Money as on 31.03.2015. All the share application money was received by the assessee through bank account (copy of bank statement is enclosed) and subsequently shares were issued as per the share valuation report issued by M/s Sandeep Kapoor & Co. Chartered Accountants (Copy Attached). The valuation was made at Rs. 2700.00 per share however taking a conservative view value was taken at Rs. 2600.00 per share and shares were issued at a premium of Rs. 2500.00 only.In Ground No. 3, the appellant vehemently deny that these are accommodation entries. Copies of Balance Sheet of the three parties i.e. Chandrachur Vanijya Pvt Ltd., Shree Ohm Properties Pvt Ltd and Xo Infratech Pvt. Ltd along with the Form PAS-3 attached as evidence.The shares such issued are still held by the above-mentioned parties and they are the shareholders in the company as on 31.03.2021.In Ground No. 4, the appellant has contended that the mere non-reply by the above-mentioned parties against the notice issued to them for confirmation does not constitutes as a lack of evidence for the genuineness of the entries. The fact that the company at present is Defunct or Strike off or has not filed its annual return from past 5 years and not traceable, cannot ascertain the genuineness as it was active at the time of issuing share application money.In Ground No. 5, the appellant has contended that without receiving a proper intimation by the shareholder company, one cannot know the active or non-active status of the company. Hence, the same are in the list of shareholders as on 31.03.2021. In Ground No. 6, the appellant has contended that the it is wrong on the part of the Assessing Officer to issue a notice u/s 153C before giving a proof of evidence or a proper document against the assessee and consider the genuine entries for receipt of amount against share application money as Accommodation Entries.

5.3.1

The detailed submissions of appellant related to Ground No. 2 of appeal is reproduced below for ready reference:

"Ground No. 2

That the assessee has received Share Application Money on 31.03.2015. All the share application money was received by the assessee through bank account and subsequently shares were issued as per the share valuation report

The Share Application Money was received through bank transactions and the shares were issued subsequently as per the Valuation Report. The assessee company had already submitted copies of bank account statements, which clearly show that all the Share Application Money was received through bank transactions. Furthermore, a valuation of shares was conducted before issuing the shares, and the shares were issued as per the Valuation Report. This clearly demonstrate that all the legal and regulatory requirements were duly complied with.

It is also pertinent to note that a Search and Seizure u/s 132 of the Income Tax Act was carried out in Ashish Begwani Group on 22.10.2016, and Mr. Ashish Begwani was found to be involved in facilitation of accommodation entry along with Kolkata based entry operator Sh. Gopal Agarwal and his son Sh. Vikas Kumar Agarwal. During the assessment proceedings, the learned Assessing Officer presented statements made by Mr. Begwani that allegedly implicated appellant company in the accommodation entry.

However, we would like to reiterate that the appellant company had no knowledge or acquaintance with Mr. Begwani or any of his associates, and the transactions in question were genuine. It is therefore not justified to question the genuineness of share application money being received by the appellant company based on statements made by an alleged accomplice in an unrelated case.

Moreover, the company had already submitted all the necessary documentation and reports to substantiate their claim that the shares were issued as per the valuation report, and all the Share Application Money was received through bank transactions.

The appellant company placed reliance of following case law: CIT vs. Steller Investment Ltd. (2015) 372 ITR 680 (Delhi High Court) In this case, the assessee had received share application money through banking channels, and the shares were issued as per the valuation report. The Assessing Officer had treated the share application money as unexplained cash credit under Section 68 of the Income Tax Act, 1961 and made additions to the income of the assessee.

However, the Delhi High Court held that the onus is on the Assessing Officer to prove that the transactions are not genuine. The Court held that where the share application money is received through banking channels, and the shares are issued as per the valuation report, it is not open to the Assessing Officer to disregard the transaction without bringing any material on record.

The Court further held that if the assessee has furnished all the details and documents relating to the transaction, and there is nothing to indicate that the transaction is not genuine, the Assessing Officer cannot make any additions to the income of the assessee.

Thus, the case of Steller Investment Ltd. establishes the principle that if the share application money is received through banking channels, and the shares are issued as per the valuation report, the transaction is considered genuine, and the onus is on the Assessing Officer to prove otherwise. The judgement was held in favor of the assessee.

Further, in the case of Commissioner of Income Tax vs. Electro Polychem Ltd (2012) 344 ITR 366 (Bam HC), the assessee had received share application money and had issued shares at a premium. The Assessing Officer treated the share application money as unexplained cash credit under Section 68 of the Income Tax Act, 1961 and made additions to the income of the assessee.

However, the Bombay High Court held that if the share application money is received through banking channels, and the shares are issued at a premium based on a valuation report, the Assessing Officer cannot reject the claim of the assessee without bringing any material on record.

The Court further held that the onus is on the Assessing Officer to prove that the transaction is not genuine. If the assessee has furnished all the details and documents relating to the transaction, and there is nothing to indicate that the transaction is not genuine, the Assessing Officer cannot make any additions to the income of the assessee.

Therefore, the case of Commissioner of Income Tax vs. Electro Polychem Ltd. reinforces the principle that if the share application money is received through banking channels, and the shares are issued at a premium based on a valuation report, the transaction is considered genuine, and the onus is on the Assessing Officer to prove otherwise. The judgement was held in favour of the assessee.

Further relying on, CIT v. Divine Leasing and Finance Ltd. (2014) - In this case, the assessee received share application money through banking channels and issued shares at a premium after obtaining the share valuation report. The AO sought to tax the premium as income of the assessee, but the Tribunal held that the AO had not brought any material on record to suggest that the transaction was not genuine and the share valuation report was incorrect. The Tribunal ruled in favor of the assessee."

"Ground No. 3

That the appellant vehemently deny that these are accommodation entries.

With respect to this matter the appellant refute the allegations made against them that the transactions in question are accommodation entries.

We would like to emphasize that these allegations have been made without any solid evidence or proof to back them up. Merely on the basis of an excel sheet or the fact that the parties did not provide a reply or confirmation to the notice w/s 13 of the Income Tax Act, it is inappropriate to call such entries accommodation entries.

The appellant emphatically denies that the transactions in question are accommodation entries. The appellant has always maintained complete transparency and honesty in their dealings and has been conducting their business in a legitimate and lawful manner. It is worth mentioning that the appellant has provided all the necessary documents and evidence to prove the genuineness of these transactions. Moreover, the appellant has also complied with all the legal requirements and regulations relating to these transactions.

Furthermore, it is highlighted that all the share application money was received through banking channels, and all the necessary details, including the PAN of the parties, were provided to the Ld AO.

Moreover, the shares in question are still being held by those parties, and there is no reason to suspect that they were acquired for any illegitimate or fraudulent purpose. Therefore, we request the authorities to withdraw the allegations made against the appellant and to give them the benefit of the doubt. We are confident that upon careful examination of the evidence and documents submitted by the appellant, the authorities will be able to verify the genuineness of the transactions in question and clear the appellant of any wrongdoing.

The appellant has placed reliance of following case laws:

Nova Promoters and Finlease Pvt. Ltd. vs. ACIT (2012): This is a case decided by the Hon'ble Delhi High Court in 2012. In this case, the assessee, Nova Promoters and Finlease Pvt. Ltd., was issued a notice by the AO under Section 148 of the Income Tax Act, 1961, reopening the assessment for the assessment year 1999-2000.

During the assessment proceedings, the AO treated certain share transactions as accommodation entries and disallowed the losses claimed by the assessee. The assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], which was dismissed. The assessee then approached the Income Tax Appellate Tribunal (ITAT), which upheld the order of the CIT(A). The assessee then filed an appeal before the Delhi High Court.

The main issue in this case was whether the AO was justified in treating the share transactions as accommodation entries and disallowing the losses claimed by the assessee. The High Court held that the AO cannot treat the transactions as accommodation entries merely on the basis of an excel sheet without any corroborative evidence. The court further stated that the onus is on the AO to prove that the transactions are not genuine.

In this case, the AO had not brought any material on record to show that the transactions were not genuine. The court observed that the AO had not conducted any further enquiry or investigation to establish that the transactions were not genuine. Therefore, the court held that the AO's conclusion that the transactions were accommodation entries was not based on any corroborative evidence and was merely a presumption.

The court also observed that the appellant had provided all the necessary documents and evidence to prove the genuineness of the transactions. Moreover, the appellant had also complied with all the legal requirements and regulations relating to these transactions. Therefore, the court set aside the order of the AO and directed the AO to allow the losses claimed by the assessee.

Overall, the Nova Promoters and Finlease Pvt. Ltd. vs. ACIT case highlights the importance of providing adequate evidence to prove the genuineness of transactions and the onus on the AO to prove that the transactions are not genuine.

In CIT vs. KLM AxivaFinvest Ltd. (2015), the assessing officer (AO) had treated certain share transactions as bogus and disallowed the losses claimed by the assessee. However, the Income Tax Appellate Tribunal (ITAT) had held that the transactions were genuine and that the onus was on the revenue authorities to prove that the transactions were not genuine. The High Court had upheld the order of the ITAT, stating that the AO had not brought any material on record to show that the transactions were not genuine.

The assessee, KLM AxivaFinvest Ltd., had claimed a loss on the sale of shares. The AO had disallowed the loss on the ground that the transactions were not genuine and were sham transactions. The AO had relied on a statement made by one of the parties involved in the transactions to support his contention that the transactions were not genuine. However, the ITAT had found that the transactions were genuine and that the AO had not brought any material on record to show that the transactions were not genuine. The ITAT had also noted that the assessee had provided documentary evidence to support the genuineness of the transactions, and that the parties involved in the transactions had provided confirmations and details of the transactions. The High Court had upheld the order of the ITAT, stating that the AO had not brought any material on record to show that the transactions were not genuine, and that the onus was on the revenue authorities to prove that the transactions were not genuine. The court had also observed that the statement of one of the parties could not be relied upon to hold that the transactions were not genuine, especially when the parties involved in the transactions had provided confirmations and details of the transactions. The court had therefore held that the transactions were genuine, and the assessee was entitled to claim the loss on the sale of shares.

Further, in case of VLS Finance Ltd. vs. ACIT (2018), the Hon'ble Madras High Court held that the AO cannot treat the transactions as accommodation entries merely on the ground that the parties did not reply or confirm to the notice u/s 131 of the Income Tax Act. The court further stated that the onus is on the AO to prove that the transactions are not genuine."

"Ground No. 4

Mere non-reply by the above mentioned parties against the notice issued to them for confirmation does not constitute as a lack of evidence for the genuineness of the entries.

Based on the seized excel sheets, the AO had concluded that the appellant company was engaged in receiving funds from a few parties as accommodation entries. Further, notices under section 131 of the Income Tax Act, 1961 were issued to all the suspected lender parties on November 20, 2021. However, no reply or confirmation was received from these parties.

It is important to note that the mere absence of a response from these parties does not necessarily imply that the transactions in question were not genuine.

We respectfully submit that the conclusion drawn by the AO based solely on the non-reply from the aforementioned parties is incorrect. It is essential to consider all available evidence and circumstances surrounding the transactions to arrive at an accurate and fair assessment.

In CIT v. Oasis Hospitalities Pvt. Ltd. (2018), the Delhi High Court was considering whether the assessee company had discharged its burden of proving that the funds received from certain parties were genuine and not in the nature of accommodation entries. The AO had issued notices to the lender parties under Section 133(6) of the Income Tax Act, but they did not respond. The AO concluded that the transactions were not genuine and added the amount to the assessee's income.

The assessee challenged this decision before the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT), both of which ruled in favor of the assessee. The ITAT found that the assessee had discharged its burden of proving the genuineness of the transactions by providing the necessary details of the parties, their addresses, PAN, and bank account details. The ITAT also noted that the assessee had provided documentary evidence to support the transactions, such as copies of the share application forms, share certificates, bank statements, and confirmations from the lender parties.

The revenue authorities appealed the decision to the Delhi High Court, arguing that the ITAT had erred in finding that the transactions were genuine. However, the High Court upheld the decision of the ITAT and ruled in favor of the assessee. The High Court noted that the burden of proving that the transactions were not genuine was on the revenue authorities and that the mere fact that the lender parties did not respond to the notice issued by the AO was not sufficient to have the transactions as accommodation entries.

The High Court also noted that the ITAT had considered all the available evidence and circumstances surrounding the transactions, and had arrived at a well-reasoned decision. The High Court held that the ITAT's decision was based on a correct interpretation of the law and was not erroneous. Therefore, the High Court dismissed the appeal of the revenue authorities and upheld the decision of the ITAT in favor of the assessee.

Another similar case is CIT v. Euro India Fresh Foods Ltd. (2018) where the Delhi High Court held that if an assessee provides all the necessary details and documentary evidence to prove the genuineness of the transactions, then the mere fact that the lender parties did not respond to the notice issued by the AO cannot be the sole basis for treating the transactions as accommodation entries. The burden of proving that the transactions are not genuine is on the revenue authorities, and they must produce some other evidence or material to prove their case.

In the case of CIT v. Precision Finance Pvt. Ltd. (2016) where the Delhi High Court held that the mere fact that the lender parties did not respond to the notice issued by the AO was not sufficient to treat the transactions as accommodation entries. The burden of proving that the transactions were not genuine was on the revenue authorities, and the assessee had discharged its burden of proving the genuineness of the transactions by providing the necessary details of the parties, their addresses, PAN, and bank account details. The High Court also noted that the ITAT had considered all the available evidence and circumstances surrounding the transactions, and had arrived at a well-reasoned decision in favor of the assessee.”

DECISION:

“9.

A bare reading of Section 68 of the Act suggests that there has to be credit of amounts in the books maintained by an assessee; such credit has to be a sum during the previous year and if the assessee offers no explanation about the nature and source of such credit or the explanation offered is not satisfactory, then the sums so credited can be treated as income of the assessee for that previous year. The expression ‘no explanation is offered’ or ‘the explanation offered is not satisfactory’ puts an onus on the assessee to offer a lucid, reasonable and acceptable explanation before the Assessing Officer and thereupon the Assessing Officer should form an opinion accepting or rejecting the explanation based upon appreciation of facts/materials and other attending circumstances. Section 68 of the Act was examined in A. Govindarajulu Mudaliyar v. CIT [1958] 34 ITR 807 (SC) observing that there were ample authorities for the proposition that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during an accounting year, the Assessing Officer is entitled to draw inference that the receipts are of an assessable nature. Whether explanation should be accepted or not is not to be examined factually but having regard to test of human probabilities and normal course of conduct. Reference can be made to CIT v. Durga Prasad More [1971] 82 ITR 540 (SC), CIT v. Daulat Ram Rawatmull, [1973] 87 ITR 349 (SC) and other cases referred to in CIT v. Nova Promoters & Finlease (P.) Ltd. [2012] 342 ITR 169/206 Taxman 207/18 taxmann.com 217 (Delhi). In these cases, it has been observed that what is apparent must be considered real until it is shown that there are reasons to believe that the apparent is not real. Caution must be exercised on self-serving statements made in the documents as they are easy to make and rely upon in case an assessee wants to evade taxes. Proof is required and the assessing authorities should not put blinkers while looking at the documents before them. Surrounding circumstances are equally important."

"Natural justice is no unruly horse, no lurking landmine, nor a judicial cure-all. If fairness is shown by the decision-maker to the man proceeded against, the form, features and the fundamentals of such essential procedural propriety being conditioned by the facts and circumstances of each situation, no breach of natural justice can be complained of. Unnatural expansion of natural justice without reference to the administrative realities and other factors of a given case can be exasperating. Courts cannot look at law in the abstract or natural justice as a mere artifact... If the totality of circumstances from denial of reasonable opportunity the Court will decline to be punctilious or fanatical as if the rules of natural justice were sacred scriptures."

“The Section 153C action is based on searches which were conducted upon four individuals in April, 2019. According to the writ petitioner, on the basis of the material which was gathered in the course of those searches, the Assessing Officer³ of the searched persons also drew corresponding Satisfaction Notes for initiation of proceedings against the petitioner in terms of Section 153C of the Act on various dates the details whereof are set out in a tabular fonn as under:-

3.

Dr. Singhvi, learned senior counsel appearing in support of the instant writ petitions has raised the following submissions in support of the challenge to the initiation of action under Section 153C. Dr. Singhvi submitted that . in terms of the impugned notices, the respondent seeks to undertake an assessment pertaining to AY s' 2014-15 to 2020-21. It was his submission that the assessment which is proposed to be undertaken for AYs 2014-15, 2015-16 and 2016-17 would be barred by the period of limitation as raised by virtue of the First Proviso to Section 153C of the Act. It was his contention that assessment under Section 153C of the Act could have at best covered the period of AYs' 2017-18 to 2020-21 and the three additional AYs namely 2014-15, 2015-16 and 2016-17 would be barred by limitation. The aforesaid submission proceeds on the premise that in light of the satisfaction recorded, the action under Section 153C of the Act could have extended only to six AYs' and that period undisputedly terminating on AY 2017-18.

4.

The aforenoted submission additionally proceeds on the basis that since the AO had failed to invoke Section 153A, the ten permissible block assessment years which could be opened up by virtue of the definition of "relevant assessment year" would not apply. It was the submission of Dr. Singhvi that in the absence of the AO having alluded to the Fourth Proviso of Section 153 A and having recorded satisfaction of income exceeding INR 50 lakhs having possibly escaped assessment for each' of the relevant AY or AYs ' would constitute a sufficient ground for the impugned notices and proceedings being quashed.

5.

It was also the submission of Dr. Singhvi that Section 153C obliges the AO to make specific reference to the incriminating material that may have been found in respect of each of the AY s' in respect of which proceedings under Section 153C are proposed to be initiated. According to learned senior counsel, in the absence of an explicit reference to the incriminating material or asset that may have been discovered year wise and a failure to establish a connection between such material and the total income of each of the six AYs¹, invalidates the initiation of action under Section 153C of the Act.

6.

It was then submitted by Dr. Singhvi that a combined Satisfaction Note as drawn by the AO in the present case would not satisfy the statutory requirements of Section 153C of the Act. According to learned senior counsel, for the purposes of undertaking an assessment in respect of the relevant AY or AYs ¹ based on material gathered in the course of the search, the AO is obliged to draw a Satisfaction Note independently in respect of each of the AYs'. According to Dr. Singhvi, this would be the position which would flow from the judgment rendered by the Supreme Court in CITv. Singhad Technical Education Society [2017] 84 iaxmann.com 290/250 Taxman 225/397 ITR 344 (SC)/[2018] 11 SCC 490. (emphasis supplied)

7.

It was then contended that the commencement of proceedings under Section 153C of the Act against the .writ petitioner has been inordinately delayed and consequently the notices and the proceedings are liable to be quashed based on the principles enunciated by the Supreme Court in C/T v. Calcutta Knitwears [2014] 43 taxmann.com 446/223 Taxman 115 (Mag.)/362 ITR 673/6 SCC 444 read along with the Circular issued by the Central Board of Direct Taxes⁴ dated 31 December 2015.

8.

Taking us through the decision in Calcutta Knitwears, Dr. Singhvi submitted that the Supreme Court had clearly held that the satisfaction liable to be recorded in the case of a person other than the one searched could have been drawn either at the time of or along with the initiation of proceedings against the searched person, alternatively in the course of assessment proceedings or "immediately after" the assessment proceedings had been completed. According to Dr. Singhvi, the recordal of satisfaction on the dates indicated above and the issuance of notices on 07 March 2023 would clearly not qualify or be compliant with the expression — immediately after" as the Supreme Court had observed. According to learned senior counsel, it was the aforesaid principles enunciated in Calcutta Knitwears which ultimately came to be accepted by the CBDT itself as would be evident from a reading of Circular No. 24/2015 which is reproduced hereinbelow:-

"CIRCULAR NO.24/2015 [F.NO.279/MISC./140/2015/ITJ] SECTION 153C, READ WITH SECTION 158BD, OF THE INCOME-TAX ACT, 1961 - SEARCH AND SEIZURE -ASSESSMENT OF INCOME IN CASE OF OTHER PERSON -RECORDING OF SATISFACTION NOTE UNDER SECTION 158BD/153C OF SAID ACT CIRCULAR NO.24/2015 [F.NO.279/MISC./140/2015/ITJ], DATED 31-12-2015

The issue of recording of satisfaction for the purposes of section 158BD/53C has been subject matter of litigation.

2.

The Hon'ble Supreme Court in the case of M/s Calcutta Knitwears in its detailed judgment in Civil Appeal No. 3958 of 2014 dated 123-[2014] 43 taxmann.com 446/267 CTR 105/362 ITR 673/223 Taxman 115 (SC) (available in NIRS at 2014-LL-03 12-51) has laid down that for the purpose of section 158BD of the Act. recording of a satisfaction note is a prerequisite and the satisfaction note must be prepared by the AO before he transmits the record to the other AO who has jurisdiction over such other person u/s 158BD. The Hon’ble Court held that "the satisfaction note could be prepared at any of the following stages:

(a)

at the time of or along with the initiation of proceedings against the searched person under sectionl58BC of the Act: or

(b)

in the course of the assessment proceedings under section 158BC of the Act: or

(c)

immediately after the assessment proceedings are completed under section 158BC of the Act of the searched person.

3.

Several High Courts have held that the provisions of section 153C of the Act are substantially similar/pari- materia to the provisions of section 158BD of the Act and therefore, the above guidelines of the Hon’ble SC, apply to proceedings u/s 153C of the IT Act, for the purposes of assessment of income of other than the searched person. This view has been accepted by CBDT.

4.

The guidelines of the Hon’ble Supreme Court as referred to in para 2 above, with regard to recording of satisfaction note, may be brought to the notice of all for strict compliance. It is further clarified that even if the AO of the searched person and the "other person" is one and the same, then also he is required to record his satisfaction as has been held by the Courts.

5.

In view of the above, filing of appeals on the issue of recording of satisfaction note should also be decided in the light of the above judgment. Accordingly, the Board hereby directs that pending litigation with regard to recording of satisfaction note under section 158BD/153C should be withdrawn/not pressed if it does not meet the guidelines laid down by the Apex Court."

9.

Dr. Singhvi has also relied upon certain decisions rendered by this Court, the Gujarat High Court, as well as the Income Tax Appellate Tribunal⁵ to submit that an inordinate delay in commencement of proceedings under Section 153C of the Act would itself be sufficient for proceedings being invalidated. The aforesaid submission was also sought to be supplemented by way of the following chart:-

10.

Having heard, Dr. Singhvi, who appeared for the petitioners as well as Mr. Hossain, learned counsel representing the respondents, we note that undisputcdly insofar as AYs 2014-15, 2015-16 and 2016-17 are concerned, final assessment orders had come to be framed in respect of the petitioner in December 2018. These petitions are, therefore, undisputedly not concerned with abated assessments.

"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."

"8.

In SSP Aviation (supra) the High Court inter alia reasoned as follows:—

"14.

Now there can be a situation when during the search conducted on one person under Section 132, some documents or valuable assets or books of account belonging to some other person, in whose case the search is not conducted, may be found. In such case, the Assessing Officer has to first be satisfied under Section 153C, which provides for the assessment of income of any other person, i.e., any other person who is not covered by the search, that the books of account or other valuable article or document belongs to the other person (person other than the one searched). He shall hand over the valuable article or books of account or document to the Assessing Officer having jurisdiction over the other person. Thereafter, the Assessing Officer having jurisdiction over the other person has to proceed against him and issue notice to that person in order to assess or reassess the income of such other person in the, manner contemplated by the provisions of Section 153A. Now a question may arise as to the applicability of the second proviso to Section 153A in the case of the other person, in order to examine the question of pending proceedings which have to abate. In the case of the searched person, the date with reference to which the proceedings for assessment or reassessment of any assessment year within the period of the six assessment years shall abate, is the date of initiation of the search under Section 132 or the requisition under Section 132A. For instance, in the present case, with reference to the Puri Group of Companies, such date will be 5.1.2009. However, in the case of the other person, which in the present case is the petitioner herein, such date will be the date of receiving the books of account or documents or assets seized or requisition by the Assessing Officer having jurisdiction over such other person. In the case of the other person, the question of pendency and abatement of the proceedings of assessment or reassessment to the six assessment years will be examined with reference to such date."

9.

It is evident on a plain interpretation of Section 153C(1) that the Parliamentary intent to enact the proviso was to cater not merely to the question of abatement but also with regard to the date from which the six year period was to be reckoned, in respect of which the returns were to be filed by the third party (whose premises are not searched and in respect of whom the specific provision under Section 153-C was enacted. The revenue argued that the proviso [to Section 153(c)(1)] is confined in its application to the question of abatement.

10.

This Court is of the opinion that the revenue's argument is insubstantial and without merit. It is quite plausible that without the kind of interpretation which SSP Aviation adopted, the A.O. seized of the materials - of the search party, under Section 132 - would take his own time to forward the papers and materials belonging to the third party, to the concerned A.O. In that event if the date would virtually —relate back" as is sought to be contended by the revenue, (to the date of the seizure), the prejudice caused to the third party, who would be drawn into proceedings as it were unwittingly (and in many cases have no concern with it at all), is dis-proportionate. For instance, if the papers are in fact assigned under Section 153-C after a period of four years, the third party assessee's prejudice is writ large as it would have to virtually preserve the records for at latest 10 years which is not the requirement in law. Such disastrous and harsh consequences cannot be attributed to Parliament. On the other hand, a plain reading of Section 153-C supports the interpretation which this Court adopts."

"Provided also that no notice for assessment or reassessment shall be issued by the Assessing Officer for the relevant assessment year or years unless—

(a)

the Assessing Officer has in his possession books of account or other documents or evidence 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 lupees or more in the relevant assessment year or in aggregate in the relevant assessment years;

(b)

the income referred to in clause (a) or part thereof has escaped assessment for such year or years; and

(c)

the search under Section 132 is initiated or requisition under Section 132-A is made on or after the 1^st day of April, 2017."

"37.

On a conspectus of section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:

(i)

Once a search takes place under section 132 of the Act, notice under section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six assessment years immediately preceding the previous year relevant to the assessment year in which the search takes place.

(ii)

Assessments and reassessments pending on the date of the search shall abate. The total income for such assessment years will have to be computed by the Assessing Officers as a fresh exercise.

(iii)

The Assessing Officer will exercise normal assessment powers in respect of the six years previous to the relevant assessment year in which the search takes place. The Assessing Officer has the power to assess and reassess the "total income" of the aforementioned six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six assessment years "in which both the disclosed and the undisclosed income would be brought to tax".

(iv)

Although section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or infonnation available with the Assessing Officer which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made under this section only on the basis of the seized material."

(v)

In the absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word "assess" in section 153A is relatable to abated proceedings (i.e., those pending on the date of search) and the word "reassess" to the completed assessment proceedings.

(vi)

In so far as the pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under section 153A merges into one. Only one assessment shall be made separately for each assessment year on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer.

(vii)

Completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment."

“35.

Having said that, let us revert to the discussion of Section 158-BD of the Act. The said provision is a machinery provision and inserted in the statute book for the purpose of carrying out assessments of a person other than the searched person under Sections 132 or 132-A of the Act. Under Section 158-BD of the Act, if an officer is satisfied that there exists any undisclosed income which may belong to any other person other than the searched person under Sections 132 or 132-A of the Act, after recording such satisfaction, may transmit the records/documents/chits/papers, etc. to the assessing officer having jurisdiction over such other person. After receipt of the aforesaid satisfaction and upon examination of the said other documents relating to such other person, the jurisdictional assessing officer may proceed to issue a notice for the purpose of completion of the assessments under Section 158-BD of the Act, the other provisions of Chapter XIV-B shall apply-xxxx xxxx xxxx

(37)

The Tribunal and the High Court are of the opinion that it could only be prepared by the assessing officer during the course of the assessment proceedings under Section 158-BC of the Act and not after the completion of the said proceedings. The courts below have relied upon the limitation period provided in Section 158-BE(2)(6) of the Act in respect of the assessment proceedings initiated under Section 158-BD i.e. two years from the end of the month in which the notice under Chapter XIV-B was served on such other person in respect of search initiated or books of account or other documents or any assets are requisitioned on or after 1-1-1997. We would examine whether the Tribunal or the High Court are justified in coming to the aforesaid conclusion.

(38)

We would certainly say that before initiating proceedings under Section 158-BD of the Act, the assessing officer who has initiated proceedings for completion of the assessments under Section 158-BC of the Act should be satisfied that there is an undisclosed income which has been traced out when a person was searched under Section 132 or the books of accounts were requisitioned under Section 132-A of the Act. This is in contrast to the provisions of Section 148 of the Act where recording of reasons in writing are a sine qua non. Under Section 158-BD the existence of cogent and demonstrative material is germane to the assessing officers' satisfaction in concluding that the seized documents belong to a person other than the searched person is necessary for initiation of action under Section 158-BD. The bare reading of the provision indicates that the satisfaction note could be prepared by the assessing officer either at the time of initiating proceedings for completion of assessment of a searched person under Section 158-BC of the Act or during the stage of the assessment proceedings. It does not mean that after completion of the assessment, the assessing officer cannot prepare the satisfaction note to the effect that there exists income tax belonging to any person other than the searched person in respect of whom a search was made under Section 132 or requisition of books of accounts was made under Section 132-A of the Act. The language of the provision is clear and unambiguous. The legislature has not imposed any embargo on the assessing officer in respect of the stage of proceedings during which the satisfaction is to be reached and recorded in respect of the person other than the searched person. ** ** **

41.

In the result, we hold that for the purpose of Section 158-BD of the Act a satisfaction note is sine qua non and must be prepared by the assessing officer before he transmits the records to the other assessing officer who has jurisdiction over such other person. The satisfaction note could be prepared at either of the following stages:

(a)

at the time of or along with the initiation of proceedings against the searched person under Section 158-BC of the Act;

(b)

along with the assessment proceedings under Section 158-BC of the Act; and

(c)

immediately after the assessment proceedings are completed under Section 158-BC of the Act of the searched person."

"17.

The application of Calcutta Knitwears was the subject matter of a recently decided case, i.e., CIT v. V. K. Narang HUF (I. T. A.No. 1064 of 2009, decided on January 8, 2015) [2016] 67 taxmann.com 183/[2015] 372 ITR 333 (Delhi) where it was observed that (page 336):

"Having regard to the decision in Manish Maheshwari v. Asst. CIT [2007] 208 CTR 97/289 ITR 341/159 Taxman 258 (SC) this court is of the opinion that the satisfaction note in the present case meets with the requirements of law. So far as the question of delay is concerned, the court is of the opinion that in the facts and circumstances of the present case, it cannot be held that there was any delay in recording the satisfaction note. The assessment of the searched person was completed on December 31, 2001. The satisfaction note was recorded on May 30, 2002, i.e., just about five months after the date of completion of the searched person. Notice was issued on June 3, 2002, immediately after the satisfaction note was recorded to the present assessee.

Having regard to the declaration of law made by the Supreme Court which specified three possible points in time when notice under section 158BD can be issued to third party/assessee, on the basis of material found on the premises of the searched person, the period of five months spent by the Assessing Officer of the searched person in finalizing the satisfaction note, can be said to have been proximate to the assessment proceedings. We also recollect the decision of this court in CIT v. Raghubir Singh Garg (I. T. A. No. 1420 of 2010, decided on August 27, 2014) (2015) 4 ITR-OL 256 (Delhi). In that case, the search took place on August 29, 2002, and the satisfaction note was recorded on January 16, 2003, i.e., within a period of four-and-half months. The court was of the opinion that the satisfaction note could be upheld. Following the said decision it is held that tliere was no delay in issuance of notice under section I58BD in the facts of the case."

18.

In light of the aforementioned position of law this court finds that the delay of 5 months in the issuing of notice by the Assessing Officer in the present appeals cannot be unreasonable. Accordingly, the impugned orders of the Income-tax Appellate Tribunal dated April 4, 2008, and April 17, 2009, is set aside on this aspect. The satisfaction note is held to be validly issued and within a reasonable time. In the light of the above observations of the Supreme Court in Calcutta Knitwears, particularly the contextual facts discussed (i.e., completion of the searched party's assessment on March 31, 2005, satisfaction note under section 158BD issued on July 15, 2005, and notice issued on February 10, 2006) it cannot be said that the delay in issuing the notice (although the satisfaction note was recorded within reasonable time) was fatal to the block assessment against the present assessee."

34.

As is manifest from the above, while the Section 153C notice was issued on 07 March 2023, the Satisfaction Note appears to have been provided to the petitioner on 28 and 30 June 2023. These writ petitions came to be preferred long thereafter on 19 March 2024. We take note of the statutory timeframes stipulated under Section 153B of the Act for completion of assessment proceedings and more particularly the Second and Third Proviso's which mandate assessment itself being completed within twelve months from the time when the books of account or material is handed over to the AO of the non-searched person. This would mean that in the present case and taking the date of handing over or recordal of satisfaction as constituting the date from which that period is liable to be reckoned, the assessment is liable to be completed by 31 March 2024.

35.

The writ petitioner has thus chosen to approach this Court only a few days before the time for completion of assessment would expire and at the proverbial fag end of the proceedings. We consequently find no justification to interdict the assessment proceedings at this belated stage by invoking our jurisdiction under Article 226 of the Constitution. However and whetlier the asserted delay in commencement of proceedings would be fatal to the assessment itself is a question that we leave open to be urged at an appropriate juncture.

36.

Accordingly and subject to the aforesaid observations, we dismiss these writ petitions. All pending applications shall stand disposed of.”

B. BROAD FACTUAL MATRIX

"Sanction note for initiating proceedings u/s 153C of the Income Tax Act 1961 in the case of Saksham Commodity Private Limited (PAN: AABCM533G) A letter dated 24.06.2022 from DCIT, Central Circle-28, Delhi issued vide F.No. DCIT/CC-28/Misc/2022-23/956 has been received in this office. Through the above letter, the following have been informed:

1.

A search and seizure operation was carried out in the Alankit Group of cases on 18.10.2019 subsequently the said group was centralized to the jurisdiction of the undersigned. Accordingly, during the course of assessment proceedings u/s 153A of Alankit Group, material/documents related to case of Saksham Commodity Private Limited have been found.

2.

Ledgers of have been obtained from laptop of Sh. Sunil Kumar Gupta found and seized from the residence of Sh. Sunil Kumar Gupta, at 3584/4, Narang Colony, Gali No. Tri Nagar Delhi (Path: A-321 SUNIL KUMARGUPTAHPLAPTOPIEXTRA CTED DATA\Tally[root].\LocalDisk ANARKALI/BAC KUPIDATA 241DATA24).

3.

The transactions entered into by various beneficiaries, against unaccounted cash or otherwise to take accommodation entries, are as tabulated below:

Name of Beneficiary	F.Y.	Particulars of transaction as per ledger	Sum of Amount Debit in Ledger	Sum of Amount Credit in Ledger
SAKSHAM COMMODITY PRIVATE LIMITED	2009-10	VIJAY BANK- AFL 242	1,50,000	43,00,000
		VIJAY BANK- AIL	35,00,000	32,00,000
	2010-11	VIJAY BANK-AFL	22,50,000
	2011-12	Cash		16,00,000
		VIJAY BANK AFL	16,00,000

4.

The assessment proceedings are required to be taken u/s 153C of the Income Tax Act, 1961 as the warrant issued in the name of Sh. Alok Kumar Aggarwal, Sh. Ankit Aggarwal, M/s Alankit Ltd. and M/s Alankit Assignment.

A.Y. Invoiced: A.Y. 2010-11 to A.Y. 2020-21."

“32.

We have catalogued and dealt with all the available decisions of this Court brought to our notice on the point at issue. It is clear that as amongst the several two - Judges Bench decisions, there is a conflict of opinion and needs to be set at rest. The source of power confening binding efficacy on decisions of this Court is not uniform in all such decisions. Reference is found having been made to (i) article 141 (ii) doctrine of merger, (iii) res judicata, and (iv) rule of discipline flowing from this Court being the highest Court of the land.

33.

A petition seeking grant of special leave to appeal may be rejected for several reasons. For example, it may be rejected: (z) as barred by time, or (ii)being a defective presentation, (iii) the petitioner having no locus standi to file the petition, (iv) the conduct of the petitioner disentitling him to any indulgence by the Court and (v) the question raised by the petitioner for consideration by this Court being not fit for consideration or deserving to be dealt with by the Apex Court of the country and so on. The expressions often employed by this Court while disposing of such petitions are- 'heard and dismissed', 'dismissed', 'dismissed as barred by time' and so on. May be that at the admission stage itself the opposite party appears on caveat or on notice and offers contest to the maintainability of the petition. The Court may apply its mind to the merit worthiness of the petitioner's prayer seeking leave to file an appeal and having formed an opinion may say 'dismissed on merits'. Such an order may be passed even ex parte, that is, in the absence of the opposite party. In any case, the dismissal would remain a dismissal by a non-speaking order where no reasons have been assigned and no law has been declared by the Supreme Court. The dismissal is not of the appeal but of the special leave petition. Even if the merits have been gone into, they are the merits of the special leave petition only. In our opinion, neither doctrine of merger nor article 141 is attracted to such an order. Grounds entitling exercise of review jurisdiction conferred by order 47, rule 1, of the Code or any other statutory provision or allowing review of an order passed in exercise of writ or supervisory jurisdiction of the High Court (where also the principles underlying or emerging from order 47, rule 1 act as guidelines) are not necessarily the same on which this Court exercises discretion to grantor not to grant special leave to appeal while disposing of a petition for the purpose. Mere rejection of special leave petition docs not take away the jurisdiction of the Court, Tribunal or forum whose order forms the subject-matter of petition for special leave to review its own order if grounds for exercise of review jurisdiction are shown to exist. Where the order rejecting a special leave petition is a speaking order, that is, where reasons have been assigned by this Court for rejecting the petition for special leave and are stated in the order, still the order remains the one rejecting prayer for the grant of leave to appeal. The petitioner has been turned away at the threshold without having been allowed to enter in the appellate jurisdiction of this Court. Here also the doctrine of merger would not apply. But the law stated or declared by this Court in its order shall attract applicability of article 141. The reasons assigned by this Court in its order expressing its adjudication (expressly or by necessary implication) on point of fact or law shall take away the jurisdiction of any other Court, Tribunal or authority to express any opinion in conflict with or in departure from the view taken by this Court because permitting to do so would be subversive of judicial discipline and an affront to the order of this Court. However, this would be so not by reference to the doctrine of merger.

34.

Once a special leave petition has been granted, the doors for the exercise of appellate jurisdiction of this Court have been let open. The order impugned before the Supreme Court becomes an order appealed against. Any order passed thereafter would be an appellate order and would attract the applicability of doctrine of merger. It would not make a difference whether the order is one of reversal or of modification or of dismissal affirming the order appealed against. It would also not make any difference if the order is a speaking or non-speaking one. Whenever this Court has felt inclined to apply its mind to the merits of the order put in issue before it though it may be inclined to affirm the same, it is customary with this Court to grant leave to appeal and thereafter dismiss the appeal itself (and not merely the petition for special leave) though at times the orders granting leave to appeal and dismissing the appeal are contained in the same order and at times the orders are quite brief. Nevertheless, the order shows the exercise of appellate jurisdiction and therein the merits of the order impugned having been subjected to judicial scrutiny of this Court.

35.

'To merge' means to sink or disappear in something else; to become absorbed or extinguished; to be combined or be swallowed up. Merger in law is defined as the absorption of a thing of lesser importance by a greater, whereby the lesser ceases to exist, but the greater is not increased; and absorption or swallowing up so as to involve a loss Of identity and individuality. [See Corpus Juris Secundum Vol. LVII, pp. 1067-1068],

36.

We may look at the issue from another angle. The Supreme Court cannot and does not reverse or modify the decree or order appealed against while deciding a petition for special leave to appeal. What is impugned before the Supreme Court can be reversed or modified only after granting leave to appeal and then assuming appellate jurisdiction over it. If the order impugned before the Supreme Court cannot be reversed or modified at the special leave petition stage, obviously that order cannot also be affirmed at the special leave petition stage.

To sum up our conclusions are :

(i)

Where an appeal or revision is provided against an order passed by a Court, Tribunal or any other authority before superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of law.

(ii)

The jurisdiction conferred by article 136 is divisible into two stages. First stage is upto the disposal of prayer for special leave to file an appeal. The second stage commences if and when the leave to appeal is granted and special leave petition is converted into an appeal.

(iii)

Doctrine of merger is not a doctrine of universal or unlimited application. It will depend on the nature of jurisdiction exercised by the superior forum and the content or subject-matter of challenge laid or capable of being laid shall be determinative of the applicability of merger. The superior jurisdiction should be capable of reversing, modifying or affirming the order put in issue before it. Under article 136, the Supreme Court may reverse, modify or affirm the judgment, decree or order appealed against while exercising its appellate jurisdiction and not while exercising the discretionary jurisdiction disposing of petition for special leave to appeal. The doctrine of merger can, therefore, be applied to the former and not to the latter.

(iv)

An order refusing special leave to appeal may be a non-speaking order or a speaking one. In either case it does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in place of the order under challenge. All that it means is that the Court was not inclined to exercise its discretion so as to allow the appeal being filed.

(v)

If the order refusing leave to appeal is a speaking order, i.e., gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a W declaration of law by the Supreme Court within the meaning of article 141. Secondly, other than the,., declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the Court, Tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the Apex Court of the country. But, this does not amount to saying that the order of the Court, Tribunal or authority below has stood merged in the order of the Supreme Court rejecting special leave petition or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties.

(vi)

Once leave to appeal has been granted and appellate jurisdiction of the Supreme Court has been invoked, the order passed in appeal would attract the doctrine of merger; the order may be of reversal, modification or merely affirmation.

(vii)

On an appeal having been preferred or a petition seeking leave to appeal having been converted into an appear before the Supreme Court, the jurisdiction of the High Court to entertain a review petition is lost thereafter as provided by sub-rule (1) of rule (1) of order 47 of the Code.

37.

Having thus, made the law clear, the case at hand poses no problem for solution. The earlier order of the High Court was sought to be subjected to exercise of appellate jurisdiction of the Supreme Court by the State of Kerala wherein it did not succeed. The prayer contained in the petition seeking leave to appeal to this Court was found devoid of any merits and, hence, dismissed. The order is a non-speaking and unrea- soned order. All that can be spelled out is that the Court was not convinced of the need for exercising its appellate jurisdiction. The order of the High Court, dated 17-12-1982, did not merge in the order, dated 18-7-1993, passed by this Court. So it is available to be reviewed by the High Court. Moreover, such a right of review is now statutorily conferred on the High Court by sub-section (2) of section 8C of the Kerala Act. The Legislature has taken care to confer the jurisdiction to review on the High Court as to such appellate orders also against which, though an appeal was carried to tlie Supreme Court, the same was not admitted by it. An appeal would be said to have been admitted by the Supreme Court if leave to appeal was granted. The constitutional validity of sub-section (2) of section 8C has not been challenged. Though, Shrt T.L.V. Iyer, the learned senior counsel for the appellant, made a feeble attempt a', raising such a plea at the time of hearing but unsuccessfully, such a plea has not so far been raised before the High Court also and not in the petition filed before this Court.

No fault can be found with the approach of the High Court. The appeal is dismissed. No order as to the costs.”