DCIT, CENTRAL CIRCLE-27, NEW DELHI V. KAY PAN FRAGRANCE P.LTD, DELHI

ITA 1482/DEL/2022

AI Insights

The case involves appeals by the Revenue against the order of the CIT(A) which had deleted certain additions made by the Assessing Officer to the income of M/s Kay Pan Fragrance Pvt Ltd for the assessment years 2016-17 and 2017-18. The additions pertained to unexplained credits in the books, disallowance of interest expenses on unsecured loans, and late deposit of employee contributions to PF/ESI. The Tribunal found that the additions were not based on any incriminating material discovered during the search and seizure operation conducted on the assessee's premises. The Tribunal relied on precedents set by the Delhi High Court in CIT vs Kabul Chawla and other cases, which establish that completed assessments can only be interfered with based on incriminating material found during the search.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 112256 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2016-2017
• Other Referred Cases: CIT vs Kabul Chawla, CIT vs Meeta Gutgutia, Abhisar Buildwell Pvt Ltd vs. The Dy CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DAYAINDER SINGH SIDHU
• Keywords: Unexplained cash credit; Search and seizure; Block assessment; Bogus
• Section: 148; 143(3); 142(1); 143(2); 153; 132; 153A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI ‘C’ BENCH, NEW DELHI BEFORE SHRI YOGESH KUMAR US, JUDICIAL MEMBER, AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No. 1482/DEL/2022 [A.Y. 2016-17] ITA No. 1489/DEL/2022 [A.Y. 2017-18] The Dy. C.I.T Vs. M/s Kay Pan Fragrance Pvt Ltd Central Circle – 27 286, Main Road, Mandawali, New Delhi New Delhi PAN: AAECK 8045 Q (Applicant) (Respondent) Assessee By : None Department By : Shri Dayainder Singh Sidhu, CIT-DR Date of Hearing : 09.04.2025 Date of Pronouncement : 16.04.2025 ORDER PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:- The above two captioned appealsby the Revenue arepreferred against the order of the ld. CIT(A) -29, New Delhi dated 12.04.2022 for A.Y 2016-17and A.Y 2017-18 respectively. ITA No.1482/DEL/2022[A.Y. 2016-17] ITA No.1489/DEL/2022[A.Y. 2017-18] The Dy CIT Vs. Kay Pan Fragrance Pvt Ltd Page 2 of 12 2. Since the underlying facts are common in both the appeals of the Revenue and pertain to same assessee, they were heard together and are disposed of by this common order for the sake of convenience and brevity. As none appeared on behalf of the assessee, we decided to proceed further with the appeal with the assistance of the ld DR. ITA No. 1482/DEL/2022 [A.Y 2016-17] 3. The grounds raised by the Revenue read as under; “1. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 475,00,000/- made u/s 68 of the Act, without appreciating the facts that the assessee failed to establish the identity, genuineness and creditworthiness of the unsecured loan. 2. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 22,20,820/- on account of disallowance of interest expenses claimed by the assessee on unsecured loan which was not genuine. 3. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 1,56,350/- on account of employee contribution received to the assessee without appreciating the facts that the assessee had not deposited such amount within the stipulated time period. ITA No.1482/DEL/2022[A.Y. 2016-17] ITA No.1489/DEL/2022[A.Y. 2017-18] The Dy CIT Vs. Kay Pan Fragrance Pvt Ltd Page 3 of 12 4. That the order of the CIT(A) is perverse, erroneous and is not tenable on facts and in law.” 4. Briefly stated, the facts of the case are that the assessee company was incorporated on 15.06.2012 and is engaged in the business of manufacturing and trading of Gutkha, Pan Masala and Chewing tobacco. Original return in this case was filed on 17.10.2016 declaring loss of Rs.2,34,57,260/-.Search and seizure operation was conducted on M/s Kay Pan Fragrance Pvt. Ltd. [K P Group]under section 132 of the I. T. Act, 1961 on 15.01.2020 by the Investigation wing. A warrant of authorization for search was issued in the name of M/s.Kay Pan Fragrance Pvt. Ltd.for itsvarious business premises from where certain papers/documents belonging to the assessee company were found and seized. 5. Accordingly, notice u/s 153A of the Act was issued requiring the assessee to furnish return of income for the year under consideration being one of the six assessment years preceding to the assessment year in which search was conducted. 6. In response to the notice u/s 153A, the assessee filed return declaringloss of Rs.2,33,15,522/-on 27.03.2021. Notice u/s 142(1) along with a questionnaire dated 07.07.2021 was issued and duly ITA No.1482/DEL/2022[A.Y. 2016-17] ITA No.1489/DEL/2022[A.Y. 2017-18] The Dy CIT Vs. Kay Pan Fragrance Pvt Ltd Page 4 of 12 served upon the assessee. Further, notice u/s 143(2) issued on 16.08.2021 and was duly complied with by the assessee. In response to the notices issued, the AR of the assessee, submitted the requisite details and clarifications. 7. Not satisfied with the reply of the assessee, the Assessing Officer was of the view that the assessee failed to prove the identity, credit worthiness of the lender who had provided unsecured loans to the assessee company and genuineness of transaction and finally made an addition of Rs. 2,65,61,650/- u/s 68 of the Income Tax Act as follows: - Rs. 4,75,00,000/- on account of unexplained credits in the books of account; - Rs. 22,20,820/- on account of interest expenses claimed on the unsecured loans, and - Rs. 1,56,350/- being late deposit of employee contribution in PF/ESI. 8. The assessee was aggrieved and went in appeal before the ld. CIT(A). ITA No.1482/DEL/2022[A.Y. 2016-17] ITA No.1489/DEL/2022[A.Y. 2017-18] The Dy CIT Vs. Kay Pan Fragrance Pvt Ltd Page 5 of 12 9. After considering the facts and circumstances, the ld. CIT(A) deleted the said additions holding as under: “8.4 I find that the addition made in the assessment order is not based upon any incriminating material or documents found during the course of search. The assessment order does not refer to any seized material or any incriminating material found during the course of search regarding the additions made. In the assessment order it has been mentioned that, on the basis of the details filed by the assessee during the assessment proceedings, the AO issued a notice to the assessee to explain about the unsecured loans of Rs. 4,75,00,000/- procured from six parties. Thus, the information regarding the six unsecured loans taken by the appellant was not found in the form of incriminating evidence during the course of search conducted on the appellant. Also there is no mention of incriminating evidence found during search to suggest that the appellant had paid bogus interest amounting to Rs 22,20,820/ pertaining to the said six loans during the year. In the assessment order it has been mentioned that, on the basis of the Audit Report filed by the assessee during the assessment proceedings, the AO found that the appellant had deposited late the PF and ESI contribution amounting to Rs 1,56,350/- received from the employees in the Government Account, during the year. Thus, the information regarding the late deposit of PF and ESI by the appellant was not found in the form of incriminating evidence during the course of search conducted on the appellant. ITA No.1482/DEL/2022[A.Y. 2016-17] ITA No.1489/DEL/2022[A.Y. 2017-18] The Dy CIT Vs. Kay Pan Fragrance Pvt Ltd Page 6 of 12 8.5 The position of law that addition can be made only on the basis of incriminating material etc. found during search, has been laid down by the Hon'ble jurisdictional High Court in the case of CIT vs Kabul Chawla (2016) 380 ITR 0573 and plethora of subsequent judicial pronouncements as relied upon by the appellant. The Hon'ble Delhi High Court in the case of Kabul Chawla reported in 380 ITR 573 has held that the completed assessment can be interfered with by the Assessing Officer while making the assessment u/s 153A only on the basis of some incriminating material found on or 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 not known in the course of original assessment. The Hon'ble Delhi High Court in the case of CIT vs Kabul Chawla, reported as 380 ITR 573, has held at para 37 as follows- *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: \"vii Completed assessments can be interfered with by the AO 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.\" ITA No.1482/DEL/2022[A.Y. 2016-17] ITA No.1489/DEL/2022[A.Y. 2017-18] The Dy CIT Vs. Kay Pan Fragrance Pvt Ltd Page 7 of 12 8.5.1 Following the above decision, the Hon'ble Jurisdictional High Court in the case of CIT vs. MeetaGutgutia reported in 395 ITR 526 has taken a similar view that once the assessment has attained finality for a particular year i.e. it is not pending then the same cannot be subject to tax in proceedings u/s 153A of the I.T. Act. The SLP of the Revenue challenging the decision of the Hon'ble Delhi High Court in the case was dismissed by the Honble Supreme Court. There are plethora of judicial pronouncements after the above verdicts that unabated assessments can be interfered with u/s 153A only on the basis of incriminating material/documents/evidence discovered during the course of search. 8.6 Accordingly, I am of the view that the addition on account six loans procured, bogus interest expenses paid and of late deposit of PF and ESI, by AO is not justifiable. Respectfully following the legal pronouncements as discussed above, it is held that the additions made by the AO were contrary to provisions of law. In view of the above, the additions made by the AO ofRs. 4,75,00,000/- regarding unsecured loan procured from 6 parties, Rs. 22,20,820/- of interest expenses claimed and of Rs. 1,56,350/- pertaining to late deposit of PF and ESI in the Government Account are deleted. Accordingly, the appellant gets relief on this ground of appeal.” ITA No.1482/DEL/2022[A.Y. 2016-17] ITA No.1489/DEL/2022[A.Y. 2017-18] The Dy CIT Vs. Kay Pan Fragrance Pvt Ltd Page 8 of 12 10. We have heard the ld DR at length and with his assistance have perused the relevant material on record. The challenge before us is that whether the impugned additions in the assessment orders, devoid of any incriminating material found at the time of search, are sustainable under law. 11. We find that the return of income in the impugned case was filed on 17.10.2016 and the search of the assessee group was conducted and 15.1.2020. The last date for issuance of notice under section 143(2) of the Act for the original return filed was 30.9.2017.However no notice under section 143(2) was issued till 30.09.2017 and also no proceedings under section 143(3) or under section 148 were pending on the date of search. Thus this was a case of completed/unabated assessment. We further find from the perusal of the order of the ld. CIT(A) that there is not even a whisper of any incriminating material found at the time of search in respect of the additions made. 12. The Hon'ble Supreme Court in the case of Abhisar Buildwell [supra] has set at rest the entire quarrel revolving around the assessments devoid of incriminating material. The relevant findings read as under: ITA No.1482/DEL/2022[A.Y. 2016-17] ITA No.1489/DEL/2022[A.Y. 2017-18] The Dy CIT Vs. Kay Pan Fragrance Pvt Ltd Page 9 of 12 “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. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved. The question involved in the present set of appeals and review petition is answered accordingly in terms of the above and the ITA No.1482/DEL/2022[A.Y. 2016-17] ITA No.1489/DEL/2022[A.Y. 2017-18] The Dy CIT Vs. Kay Pan Fragrance Pvt Ltd Page 10 of 12 appeals and review petition preferred by the Revenue are hereby dismissed. No costs. 15.1 In view of the discussion hereinabove, once during search undisclosed income is found on unearthing the incriminating material during the search, the AO would assume jurisdiction to assess or reassess the total income even in case of completed/unabated assessments. Therefore, the impugned judgment(s) and order(s) passed by the High Court taking the view that the AO has the power to reassess the return of the assessee not only for the undisclosed income, which was found during the search operation but also with regard to material that was available at the time of original assessment does not require any interference. Under the circumstances, the aforesaid appeals preferred by the assessee – M/s Kesarwani Zarda Bhandar, Sahson, Allahabad deserve to be dismissed and are accordingly dismissed. In the facts and circumstances of the case, no costs.” 12. We are of the considered view that the impugned year is a completed/unabated year and the AO has made additions on the basis of other materials on record. There is no incriminating materials found in the course of search in respect of additions made by the AO. Respectfully following therefore, the judgement of the Hon'ble Supreme Court in the case of Abhisar Buildwell Pvt Ltd454 ITR 212 which affirmed the ratio laid down by the Hon'ble Jurisdictional High ITA No.1482/DEL/2022[A.Y. 2016-17] ITA No.1489/DEL/2022[A.Y. 2017-18] The Dy CIT Vs. Kay Pan Fragrance Pvt Ltd Page 11 of 12 Court of Delhi in the case of Kabul Chawla 380 ITR 573, we direct the AO to delete the additions made in the impugned assessment order.The ground of appeal of the Revenue are dismissed. ITA No. 1489/DEL/2022 [A.Y 18 13. The facts of the AY 2017-18 are identical to the facts of the AY 2016-17 discussed above. The CIT(A) has given a categorical finding that for the instant year the case is that of completed/unabated year and the additions made are devoid of any incriminating materials. Therefore the decision in AY 2016-17 above, applies mutatis mutandis in AY 2017-18. The ground of appeal of the revenue is thus dismissed. 14. In the result, both the appeals of Revenue in ITA No. 1482 and 1489/DEL/2022are dismissed. The order is pronounced in the open court on 16.04.2025. Sd/- Sd/- [YOGESH KUMAR US] [NAVEEN CHANDRA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 16th APRIL,2025. VL/ ITA No.1482/DEL/2022[A.Y. 2016-17] ITA No.1489/DEL/2022[A.Y. 2017-18] The Dy CIT Vs. Kay Pan Fragrance Pvt Ltd Page 12 of 12 Copy forwarded to: 1. Assessee 2. Respondent 3. CIT 4. CIT(A) Asst. Registrar, 5. DR ITAT, New Delhi Sl No. PARTICULARS DATES 1. Date of dictation of Tribunal Order .04.2025 2. Date on which the typed draft Tribunal Order is placed before the Dictation Member .04.2025 3. Date on which the typed draft Tribunal Order is placed before the other Member 4. Date on which the approved draft Tribunal Order comes to the Sr. P.S./P.S. 5. Date on which the fair Tribunal Order is placed before the Dictating Member for pronouncement 6. Date on which the signed order comes back to the Sr. P.S./P.S 7. Date on which the final Tribunal Order is uploaded by the Sr. P.S./P.S. on official website 8. Date on which the file goes to the Bench Clerk alongwith Tribunal Order 9. Date of killing off the disposed of files on the judiSIS portal of ITAT by the Bench Clerks 10. Date on which the file goes to the Supervisor (Judicial) 11. The date on which the file goes for xerox 12. The date on which the file goes for endorsement 13. The date on which the file goes to the Superintendent for checking 14. The date on which the file goes to the Assistant Registrar for signature on the Tribunal order 15. Date on which the file goes to the dispatch section 16. Date of Dispatch of the Order "