EVERGREEN FINANCIAL SERVICES,MUMBAI V. DCIT, CENTRAL CIRCLE- 4(1), MUMBAI, MUMBAI

CO 146/MUM/2024

AI Insights

The case involves an appeal by the Revenue against the decision of the Commissioner of Income Tax (Appeals) which had deleted certain additions made by the Assessing Officer (AO) under sections 68 and 37 of the Income Tax Act, 1961, concerning unsecured loans and interest expenses, respectively. The assessee, Evergreen Financial Services, also filed a cross-objection challenging the validity of the additions made under section 153A in the absence of incriminating material found during the search. The Tribunal examined the legal provisions and precedents to determine the validity of the additions and the applicability of section 153A post-search.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 470856 (ITAT-MUMBAI)
• Appeal Type: Cross Objection
• Pronouncement Date: 27-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2013-2014
• Other Referred Cases: Collector Land Acquisition, Anantnag v/s MST Katiji and others, PCIT v/s Abhisar Buildwell (P.) Ltd., PCIT v/s Pavitra Realcon (P) Ltd., PCIT v/s Pilot Industries Ltd., PCIT v/s Anant Kumar Jain (HUF), Kailashben Manharlal Chokshi v. CIT, CIT v. Harjeev Aggarwal
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BISWANATH DAS
• Assessee Lawyers: VIJAY MEHTA
• Keywords: Condonation of delay; Unexplained cash credit; Retraction; Search and seizure; Bogus
• Section: 143(3); 142(1); 143(2); 250; 132; 153A; 68; 153C; 37; 37(1); 20

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA No. 1625/MUM/2024 Assessment Year : 2013-14 DCIT, Central Circle-4(1), Room No. 1916, 19th floor, Air India Building, Nariman Point, Mumbai-400021. ……………. Appellant v/s Evergreen Financial Services, Kanakia Future City, CTS 101, Behind Dr. L H Hiranandani Hospital, Mumbai-400093. PAN : AABFE 9028 R ……………. Respondent CO No. 146/MUM/2024 (Arising out of ITA No. 1625/MUM/2024) Assessment Year : 2013-14 Evergreen Financial Services, Vilco Centre, A Wing, Gr. Floor, Subhash Road, Opp. Garware, Vile Parle (East) Mumbai-400057. PAN : AABFE 9028 R …………. Cross Objector (Original Respondent) v/s DCIT, Central Circle-4(1), Room No. 1916, 19th floor, Air India Building, Nariman Point, Mumbai-400021. ……………. Respondent (Original Appellant) Assessee by : Shri Vijay Mehta Revenue by : Shri Biswanath Das, CIT-DR Date of Hearing – 18/12/2024 Date of Order – 27/02/2025 2 Evergreen Financial Services. ITA No. 1625 & CO No. 146/M/2024 O R D E R PER SANDEEP SINGH KARHAIL, J.M. The present appeal by the Revenue and cross-objection by the assessee have been filed against the impugned order dated 30/01/2024, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals)-52, Mumbai, [“learned CIT(A)”], for the assessment year 2013-14. 2. In its appeal, the Revenue has raised the following grounds: – “1. On the facts and in the circumstances of the case, Ld. CIT(A) erred in deleting the addition made by the AO of Rs. 10,13,50,000/- u/s 68 of the Income Tax Act, 1961, on account of unsecured loans, without appreciating the fact that the assessee has failed to prove the genuineness and creditworthiness of the parties/entities from whom the loans were availed. 2. On the facts and in the circumstances of the case, Ld. CIT(A) erred in deleting the addition made by the AO of Rs. 24,25,431/- u/s 37 of the Income Tax Act, 1961, on account of disallowance of interest expenses, without appreciating the fact that the assessee has failed to prove the genuineness and creditworthiness of the lender parties/entities to whom interest was paid.” 3. While the assessee has raised the following grounds in its cross- objection: – “1. The learned CIT(A) has erred in not holding that the additions made by the Assessing Officer are invalid and bad in law since the same are not based on any incriminating material found during the course of search. 2. The learned CIT(A) ought to have held that the assessment order is bad in law as there is no valid approval of Addl. CIT as required u/s. 153D of the Act.” 4. In its appeal, the Revenue has raised the grounds challenging the relief granted by the learned CIT(A) on merits. On the other hand, the assessee has filed the cross-objection challenging the additions made under section 153A of the Act in the absence of any incriminating material found during the 3 Evergreen Financial Services. ITA No. 1625 & CO No. 146/M/2024 search. As the issues raised by the assessee, vide its cross-objection, are jurisdictional issues, which go to the root of the matter, therefore, we are considering the same at the outset. 5. The cross-objection filed by the assessee is delayed by 20 days. Along with the cross objection, the assessee has filed an application seeking condonation of delay duly supported by the affidavit sworn by the assessee’s partner, submitting as follows: – “1) I say that the assessee is a partnership firm. I further say that I am a director in M/s. Kanakia Spaces Realty Private Limited and M/s. Kanakia Spaces Reaity Private Limited is one of the partners in M/s. Evergreen Financial Services. 2) I say that the CIT(A) passed the order on 30.01.2024 for A.Y. 2013-14. I further say that the CIT(A) had decided the legal ground against the assessee, however, he had deleted the additions/disallowances made by the Assessing Officer on merit. 3) I say that since on merits relief was granted no second appeal was filed before the Hon'ble Tribunal. I further say that upon receipt of copy of Form No. 36 and grounds of appeal filed by the revenue also, no cross-objection was filed due to lack of proper professional advice. 4) I say that when the hearing in the appeal filed by the revenue was fixed before the Hon'ble Tribunal on 06.08.2024, the assessee approached a counsel in the third week of July, 2024 to represent the matter before the Hon'ble Tribunal on 06.08.2024. 5) I say that the counsel, during the conference with him in the third week of July 2024, explained the necessity for filing a cross-objection. I further say that accordingly the captioned cross-objection has been filed before the Hon'ble Tribunal. 6) I say that the cross-objection is marginally late by 20 days which, however, was not due to any negligence or deliberate act but for lack of proper professional advice. 7) I repeat and reiterate the statements and averments made in the accompanying application for condonation of delay and they may be treated as reproduced verbatim in this affidavit. 8) I say that whatever stated above is true to the best of my knowledge and belief.” 4 Evergreen Financial Services. ITA No. 1625 & CO No. 146/M/2024 6. We find that the reasons stated by the assessee for seeking condonation of delay fall within the parameters for grant of condonation laid down by the Hon’ble Supreme Court in the case of Collector Land Acquisition, Anantnag v/s MST Katiji and others: 1987 SCR (2) 387. It is well established that rules of procedure are handmaid of justice. When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred. In the present case, the assessee did not stand to benefit from the late filing of the cross-objection. In view of the above and having perused the affidavit, we are of the considered view that there exists sufficient cause for not filing the present cross-objection within the limitation period and therefore, we condone the delay in filing the cross-objection by the assessee and we proceed to decide the same on merits. 7. The issue arising in Ground No.1, raised in assessee’s cross-objection, pertains to the validity of additions made under section 153A of the Act in the absence of incriminating material found during the search. 8. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is a partnership firm, and is engaged in the business of dealing and investing in movable and immovable properties, financials. For the year under consideration, the assessee filed its original return of income on 30/08/2013, declaring a total income of Rs.12,58,950. The return filed by the assessee was selected for scrutiny under CASS, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. After examining the details filed by the assessee, the Assessing Officer (“AO”), vide order dated 28/01/2016 passed 5 Evergreen Financial Services. ITA No. 1625 & CO No. 146/M/2024 under section 143(3) of the Act, assessed the total income of the assessee accepting the returned income. 9. Subsequently, a search and seizure action under section 132 of the Act was carried out on 04/10/2018 at the assessee and other group entities at their office premises, branches and residences of a few employees. The residential premises of the partners were also covered under the search action under section 132 of the Act. Accordingly, notice under section 153A of the Act was issued on 03/02/2020 to the assessee. In response, the assessee filed its return of income on 02/03/2020 declaring a total income of Rs.12,58,950 [i.e. equivalent to the assessed income as per the assessment order passed under section 143(3) of the Act]. Thereafter, notices under section 143(2) as well as 142(1) along with a detailed questionnaire were issued and served on the assessee, which were responded to by the assessee. The AO, vide order dated 03/06/2021 passed under section 153A of the Act, computed the total income of the assessee at Rs.10,50,34,381, after making certain additions/disallowances under section 68 and section 37(1) of the Act. 10. In its appeal before the learned CIT(A), the assessee, inter-alia, raised ground challenging the additions made vide order passed under section 153A of the Act in the absence of incriminating material found during the search. The learned CIT(A), vide impugned order, inter-alia, decided the issue against the assessee. Being aggrieved, the assessee has filed cross-objection before us. 6 Evergreen Financial Services. ITA No. 1625 & CO No. 146/M/2024 11. We have considered the submissions of both sides and perused the material available on record. In the present case, it is undisputed that the scrutiny assessment under section 143(3) of the Act was already concluded vide order dated 28/01/2016 in the case of the assessee. Thus, on the date of search and seizure action under section 132 of the Act, i.e. 04/10/2018, no assessment for the year under consideration was pending and therefore the same was not abated as per the second proviso to section 153A of the Act. From the perusal of the order passed under section 153A of the Act, we find that the AO made the following additions/disallowances: - (i) Addition under section 68 of the Act on the basis that the assessee has failed to establish the genuineness of the transaction and source and creditworthiness of the following loan-lenders for the amount of loan received by the assessee during the year: – Name of the lender Loan amount M/s Sigma Commodities Private Limited 1,00,00,000/- M/s Penguin Trading & Agencies Ltd 5,00,00,000 M/s Uttam Galva Metallics Limited. 4,13,50,000 Total addition u/s 68 10,13,50,000 (ii) Considering the non-genuineness of the loan transactions, the following interest expenditure on the loan, taken during the year and in the earlier year, was held to be non-genuine and was disallowed under section 37(1) of the Act: - Name of the lender Interest amount M/s Sigma Commodities Private Limited 4,51,234 M/s Penguin Trading & Agencies Ltd 4,27,397 M/s Dhankuber Exports Private Limited 9,48,000 7 Evergreen Financial Services. ITA No. 1625 & CO No. 146/M/2024 M/s Transgate Investment & Developers Pvt Ltd 3,58,800 M/s Paanash Trading Private Limited 2,40,000 Total addition u/s 37 24,25,431 12. We find that the addition under section 68 of the Act, in respect of the loan received from M/s Sigma Commodities Private Limited and M/s Penguin Trading and Agencies Limited, were made by referring to the Form 3CD, data available on the MCA portal, and financials of the company. It is further evident from the record that when the assessee raised a specific objection, in response to the show cause notice issued during the assessment proceedings under section 153A of the Act, that the year under consideration is not abated, and therefore, no addition can be made in absence of any incriminating material found during the search, the AO, in the order passed under section 153A of the Act, neither referred to the incriminating material found during the search nor dealt with the specific objection raised by the assessee and proceeded to make the addition under section 68 of the Act by treating the loan received by the assessee as unexplained cash credit on the basis of its understanding regarding the financials of the company and also on the basis that the assessee failed to produce the Director/Authorised Signatory of the company. Further, the AO also disallowed the interest paid to the aforesaid two parties under section 37(1) of the Act by considering the loan transaction as non-genuine. 13. It is further evident from the record that the addition under section 37(1) of the Act on account of the interest paid to M/s Transgate Investment and Developers Private Limited, and M/s Paanash Trading Private Limited, for 8 Evergreen Financial Services. ITA No. 1625 & CO No. 146/M/2024 the loan taken by the assessee in earlier years, was made by the AO again by referring to the details available on the MCA portal, the financials of the company, and ROC data, without any reference to the material found during the search. Therefore, it is discernible from the perusal of the record that the aforesaid additions/disallowances made by the AO under section 68 and section 37(1) of the Act are all based on material which was not found during the search and rather the same was retrieved from publicly available database. 14. At this stage, it is relevant to note the ratio laid down by the Hon’ble Supreme Court in PCIT v/s Abhisar Buildwell (P.) Ltd., reported in [2023] 149 taxmann.com 399 (SC), wherein the Hon’ble Supreme Court held that in case no incriminating material is found during the search conducted under section 132 of the Act, the AO has no jurisdiction to make an assessment in respect of completed/unabated assessments. The relevant observations of the Hon’ble Supreme Court, in the aforesaid decision, are reproduced as follows: - “14. In view of the above and for the reasons stated above, it is concluded as under: i) to iii) …….. 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.” 9 Evergreen Financial Services. ITA No. 1625 & CO No. 146/M/2024 15. As regards the addition made under section 68 of the Act in respect of the loan received from M/s Uttam Galva Metallics Ltd and disallowance under section 37(1) of the Act in respect of interest paid to M/s Dhan Kuber Exports Pvt. Ltd., it is evident from the record that the AO not only referred to the Form 3CD, the ledger of the party in assessee’s book of accounts and ledger confirmation as furnished by the assessee, and data available on MCA portal but also referred to the statement of Shri Darshan Doshi, who was working in accounts and Finance Department of the assessee group. We find that in his statement recorded under section 132(4) of the Act, Shri Darshan Doshi stated that there were a lot of instances where the bogus unsecured loan was received by giving cash in exchange for cheque or by giving cheque in exchange for cash. The portion of the statement of Shri Darshan Doshi, as relied upon by the AO, is reproduced as follows: - “Q.23 Apart from this cash loan received by your company M/s. Kanakia Spaces Realty Pvt. Ltd. through you, are there any bogus unsecured loans also which were though received in cheque but cash was paid in lieu of that? Ans. Sir, I accept that there are lot of instances where begus unsecured loans are received by giving 'cash in lieu of cheque' / 'cheque in lieu of cash' in firm Evergreen Financial Services. But some of these bogus unsecured Toan parties which I am able to recall as of now are as follows: Sr. No. Name of the person/ company Amount (Rs.) 1. Akshay Sthapatya Pvt. Ltd. 1,20,00,000 2. Antartica Trading Co. 11,00,000 3. Dhan Kuber Exports Pvt. Ltd. 1,33,00,000 4. Ravi Subodh Mahaseth 10,00,000 5. Samir Diamonds 25,83,437 6. Uttam Galve Metalics Ltd. 5,77,00,000 7. Vertex Trade and Interchange 3,00,00,000 16. It is the plea of the assessee that the said statement was not only retracted after the search but there was no material found during the search which would corroborate the aforesaid statement. During the assessment 10 Evergreen Financial Services. ITA No. 1625 & CO No. 146/M/2024 proceedings, the assessee submitted that Shri Darshan Doshi has stated that he was handling the unaccounted cash receipts for the past 3 years, and therefore, such a statement cannot be relied upon for making the addition in the year under consideration. It is evident from the record that the assessment order passed under section 153A of the Act is completely silent on the aforesaid submissions of the assessee and did not even point out any material found during the search which would corroborate the statement of Shri Darshan Doshi recorded under section 132(4) of the Act. 17. We find that the Hon’ble Delhi High Court in PCIT v/s Pavitra Realcon (P) Ltd., reported in (2024) 340 CTR 225 (Del.), held that statement under section 132(4) of the Act alone, without any other material discovered during the search which would corroborate search statement, do not grant the AO authority to make an assessment. The relevant findings of the Hon’ble Delhi High Court, in the aforesaid decision, are reproduced as follows: – “18. The primary grievance which arises in the present appeals pertains to whether the ITAT was right in deleting additions made under Section 68 of the Act by holding that no assessment could have been made on mere presumption of existence of incriminating material. 19. Undisputedly, during the period of search, no incriminating material appears to have been found. However, the Revenue proceeded to issue notice under Section 143(2) of the Act on the pretext of the statements of the Directors of the respondent-assessee companies recorded under Section 132(4) of the Act and material seized from the search conducted on Jain group of companies. The assessment order was also passed under Section 143(3) read with Section 153C of the Act making additions under Section 68 of the Act. 20. However, it is an undisputed fact that the statement recorded under Section 132(4) of the Act has better evidentiary value but it is also a settled position of law that addition cannot be sustained merely on the basis of the statement. There has to be some material corroborating the content of the statements. 11 Evergreen Financial Services. ITA No. 1625 & CO No. 146/M/2024 21. In the case of Kailashben Manharlal Chokshi v. CIT1, the Gujarat High Court held that the additions could not be made only on the Signature 1 Not Verified 2008 SCC OnLine Guj 436 Digitally Signed By:MAANAS JAJORIA Signing Date:29.05.2024 16:29:11 B basis of admissions made by the assessee, in the absence of any corroborative material. The relevant paragraph no. 26 of the said decision has been reproduced hereinbelow: - 26. In view of what has been stated hereinabove we are of the view that this explanation seems to be more convincing, has not been considered by the authorities below and additions were made and/or confirmed merely on the basis of statement recorded under section 132(4) of the Act. Despite the fact that the said statement was later on retracted no evidence has been led by the Revenue authority. We are, therefore, of the view that merely on the basis of admission the assessee could not have been subjected to such additions unless and until, some corroborative evidence is found in support of such admission. We are also of the view that from the statement recorded at such odd hours cannot be considered to be a voluntary state ment, if it is subsequently retracted and necessary evidence is led contrary to such admission. Hence, there is no reason not to disbelieve the retrac tion made by the Assessing Officer and explanation duly supported by the evidence. We are, therefore, of the view that the Tribunal was not justified in making addition of Rs. 6 lakhs on the basis of statement recorded by the Assessing Officer under section 132(4) of the Act. The Tribunal has com mitted an error in ignoring the retraction made by the assessee. [Emphasis supplied] 22. Further, the position with respect to whether a statement recorded under Section 132(4) of the Act could be a standalone basis for making assessment was clarified by this Court in the case of CIT v. Harjeev Aggarwal2, wherein, it was held that merely because an admission has been made by the assessee during the search operation, the same could not be used to make additions in the absence of any evidence to corroborate the same. The relevant paragraph of the said decision is extracted herein below:- \"20. In our view, a plain reading of section 158BB(1) of the Act does not contemplate computing of undisclosed income solely on the basis of a statement recorded during the search. The words \"evidence found as a result of search\" would not take within its sweep statements recorded during search and seizure operations. However, the Signature 2 Not Verified 2016 SCC OnLine Del 1512 Digitally Signed By:MAANAS JAJORIA Signing Date:29.05.2024 16:29:11 B statements recorded would certainly constitute information and if such information is relatable to the evidence or material found during search, the same could certainly be used in evidence in any proceedings under the Act as expressly mandated by virtue of the Explanation to section 132(4) of the Act. However, such statements on a stand alone basis without reference to any other material discovered during search and seizure operations would not empower the Assessing Officer to make a block assessment merely because any admission was made by the assessee during search operation. [Emphasis supplied] 23. In our opinion, the Act does not contemplate computing of undisclosed income solely on the basis of statements made during a search. However, these statements do constitute information, and if they relate to the evidence or material found during the search, they can be used in proceedings under the Act, as specified under Section 132(4) of the Act. Nonetheless, such statements alone, without any other material discovered during the search 12 Evergreen Financial Services. ITA No. 1625 & CO No. 146/M/2024 which would corroborate said statements, do not grant the AO the authority to make an assessment.” 18. We further find that in para-25 of the aforesaid decision, the Hon’ble Delhi High Court also referred to the ratio laid down by the Hon’ble Supreme Court in Abhisar Buildwell (P.) Ltd. (supra). 19. We find that similar findings were rendered by the Hon’ble Delhi High Court in PCIT v/s Pilot Industries Ltd., reported in (2023) 457 ITR 437 (Del.), and in PCIT v/s Anant Kumar Jain (HUF), reported in (2021) 432 ITR 384 (Del.). 20. Since, in the present case, it is undisputed that the assessment year under consideration is an unabated/concluded year, therefore, we find no basis in upholding the additions made by the AO under section 68 and disallowance made under section 37(1) of the Act in the absence of incriminating evidence found during the search. Accordingly, the same are deleted. As a result, Ground No.1, raised in assessee’s cross objection, is allowed. 21. In view of our aforesaid findings, Ground No. 2, raised in assessee’s cross objection is rendered academic, and therefore, is left open. 22. Since the additions made by the AO under section 68 and disallowances made under section 37(1) of the Act have been found to be unsustainable in law, the grounds raised by the Revenue challenging the relief granted by the learned CIT(A) on merits are rendered infructuous, and therefore, are dismissed. 13 Evergreen Financial Services. ITA No. 1625 & CO No. 146/M/2024 23. In the result, the cross objection by the assessee is allowed, while the appeal by the Revenue is dismissed. Order pronounced in the open Court on 27/02/2025 SSSS Sd/-SSSSSSS/- NARENDRA KUMAR BILLAIYA ACCOUNTANT MEMBER Sd/-- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 27/02/2025 Dragon Legal Rahul Sharma, Sr. P.S. Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order Assistant Registrar ITAT, Mumbai "