GOPAL GARG,FARIDABAD V. DCIT, CENTRAL CIRCLE-2, FARIDABAD

ITA 3660/DEL/2023

AI Insights

The case revolves around an appeal by Gopal Garg against the order of the Commissioner of Income Tax (Appeals) which upheld the addition of Rs. 30,00,000 to his income, claimed to be an unsecured loan from a shell company, M/s Destiny Gems and Jewellers Pvt. Ltd. The addition was based on the findings from a search operation on the SRS group, where it was revealed that M/s Destiny Gems and Jewellers was a shell company. However, no incriminating material was found during the search at Garg's premises. The Tribunal examined whether the addition could be justified under section 153A of the Income Tax Act, considering the materials and statements from the search of a third party, and concluded that the procedure was not correctly followed, leading to the allowance of Garg's appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126216 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Other Referred Cases: CIT vs. Culcutta Knitwears [2014] 43 taxmann.com 446, PCIT (Central)-3 vs. Anand Kumar Jain (HUF) 2021(3) TMI 8, Trilok Chand Chaudhary, New Delhi vs ACIT, Central Circle-26, New Delhi, PCIT vs. Shivalik Mahajan in ITA No.5585/Del/2015, Om Prakash Tantia vs DCIT in ITA NO.4737/Del/2018
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Assessee Lawyers: VED JAIN
• Keywords: Salary income; Income from undisclosed sources; Documents seized; Search and seizure; Bogus; Grounds of appeal; Satisfaction; Addition of Rs. 30,00,000; Dismissed; Judgment; Commissioner; Statutory conditions; Procedure prescribed; Commissioner of Income Tax; Transfer; Transactions; Restored; Deleted; 153C; 153A; Department; Directors; Explanation; Section 132
• Section: 143(3); 142(1); 250; 153; 132; 153A; 68; 43; 153C; 20

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, ‘B’: NEW DELHI BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.3660/Del/2023 (ASSESSMENT YEAR 2017-18) Gopal Garg H.No.90, Sector-15, Faridabad, Haryana-121003. PAN:AHLPG2578D Vs. DCIT, Central Circle-2, Faridabad. (Appellant) (Respondent) Assessee by Sh. Ved Jain, Adv. and Sh. Ayush Garg, CA Department by Shri Surender Pal, CIT-DR Date of Hearing 17/03/2025 Date of Pronouncement 23/04/2025 O R D E R PER MANISH AGARWAL, AM, This appeal is filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-3 [“the CIT” in short], Gurugram, in Appeal No.11604/CIT(A)-3/GGN/2016-17 dated 26.10.2023 for Assessment Year 2017-18 passed y/s 250 of the Income Tax Act, 1961 (‘the Act’ in short). 2. Brief facts of the case are that assessee is an individual and is sole proprietor of M/s Jitendra Enterprises. Besides this assessee is having salary income from the companies where he is one of the director and also having rental and interest income. The return of income for the year under appeal was filed on 2 ITA No.3660/Del/2023 Gopal Garg vs. DCIT 30.10.2017 declaring total income of at 14,85,360/-. A search and seizure action was carried out u/s 132 of the Act in the case of SRS group of cases on 06.06.2018. The search action u/s 132 of the Act was also carried out at the residential and business premises of the assessee and his group companies. During the course of search no incrementing material was found/seized from the possession of assessee or any of the group concerns as is evident from the assessment order. During the course of search, one pen drive was found and seized from the premises of M/s Jitendra Enterprises which contains the trial balance of the assessee and other group companies. As per the trial balance of proprietary firm of assessee, he had taken unsecured loan of Rs. 30,00,000/- from M/s Destiny Gems and Jewellers Pvt. Ltd. The AO based on the statements recorded of employees and directors of SRS group during the course of post search investigation its case, hold that the company M/s Destiny Gems and Jewellers is a shell company and made an addition of Rs. 30,00,000/- towards unsecured loan in the hands of assessee in the assessment completed under section 153A of the Act. 3. Against such order, the assessee preferred the appeal before the Ld. CIT(A) wherein it was also claimed by the assessee that no incriminating material was found from the possession of the assessee, therefore, addition could not be made in the order passed/s 153A of the Act. Further, addition was challenged on merits. However, Ld. CIT(A) has not accepted the contention of the assessee and dismissed the appeal, therefore, the present appeal is filed by the assessee before the Tribunal. 3 ITA No.3660/Del/2023 Gopal Garg vs. DCIT 4. The assessee has raised the following grounds of appeal: “1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad both in the eye of law and on facts. 2. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the order passed by the learned AO under Section 153A is bad and liable to be quashed as the same has been framed consequent to a search which itself was unlawful and invalid in the eye of law. 3. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the additions made by the AO under Section 153A are bad in law in the absence of any incriminating material belonging to the assessee being found during the course of the search. 4. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in rejecting the contention of the assessee that the proceedings initiated under section 153A against the appellant and the assessment framed under section 153A r.w.s. 143(3) are in violation of the statutory conditions of the Act and the procedure prescribed under the law and as such the same is bad in the eye of law and liable to be quashed. 5. (i) On the facts and circumstances of the case, learned CIT(A) has erred both on facts and in law in confirming the addition of Rs.30,00,000/- made by the AO on account of loan received form Destiny Gems Private Limited invoking the provisions of Section 68 read Section 115BBE of the Income Tax Act. (ii) That the above addition has been confirmed rejecting the detailed submissions and explanations brought on record by the assessee to prove the identity and creditworthiness of the lenders as well as genuineness of the transactions. 6. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the above addition despite the fact that the same has been made by the AO without conducting the independent enquiry under section 133(6)/131 of the Act. 7. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the above addition despite that the same has been made merely by relying on the statements recorded at the back of the assessee, without giving assessee an opportunity to cross examine the same. 4 ITA No.3660/Del/2023 Gopal Garg vs. DCIT 8. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the above addition despite that the same has been made on the basis of material collected at the back of the assessee without giving assessee an opportunity to rebut the same. 9. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the above additions despite the fact that the same have been made by the AO by indulging in surmises without bringing on any direct evidence against the assessee, only on the basis of presumption and assumption. 10. The appellant craves leave to add, amend or alter any of the grounds of appeal.” 5. The grounds of appeal No.1 to 4 are legal grounds taken on the issue that additions have been made in the order passed u/s 153A/144 of the Act without referring to any incriminating material found and seized from the possession of the assessee. Further, the additions were solely based on the statements of 3rd parties thus no addition could be made in the order passed u/s 153A of the Act. Since, all these grounds of appeal are related to one issue, they are taken together for consideration first. 6. Before us, the Ld. AR of the assessee submitted that in the present case, addition has been made without making any reference to incriminating material found/seized during the course of search carried in the case of the assessee. As per Ld. AR it is admitted position that only one pen drive was found from the possession of assessee which contained regular transaction duly recorded in books and no incriminating material was found during the course of search conducted on the assessee. The AO has based his conclusion on the pre-post search enquiries and investigations carried out in the case of SRS group, where in the statements of various persons, it was found that the group was 5 ITA No.3660/Del/2023 Gopal Garg vs. DCIT engaged in providing entries through shell/paper companies relevant observations of AO in para 3.1 at page 3 are as under: \"The search action was initiated on SRS Group on 06.06.2018 and finally conducted on 02.08.2018. During the course of pre- search, search and post search investigation proceedings, it came to notice that SRS group accepted huge cash from public and has earned huge unaccounted income in last 6-7 years and the same have been routed back in the companies / concerns of the group in form of capital and loan from shell entities. After depositing the cash, funds were transferred by layering of funds to SRS Limited or other sister concerns. During the course of enquiries by the Investigation wing 71 shell concern and 91 own bogus concerns were identified to be used by the SRS group to route its funds. M/s Destiny Gems and Jewellers Ltd. has also been established a shell/paper entity. The statement of directors of these paper/shell companies were recorded on the oath wherein they admitted that they did not know anything about affairs of these companies and were just made directors by Sh. Anil Jindal, his allies and promoters of SRS Group.…” 7. It is thus submitted by Ld. AR that when no incriminating material was found and seized from the possession of the assessee, no addition could be made in the assessment completed u/s 153A. Ld. AR further submitted that though search was carried out simultaneously but none of the persons whose statements are relied upon were having any direct relationship as employee of assessee or director in any of the group company of the assessee and thus they are foreign entity with respect to the assessee company. 8. Statements of third persons used for framing the assessment were recorded during the course of search action on SRS group. The assessee does not have any interest in the SRS group. Therefore, no addition could be made on the basis of such statement in the order passed u/s 153A of the Act. 6 ITA No.3660/Del/2023 Gopal Garg vs. DCIT 9. The ld. AR further submitted that the loan of Rs. 30.00 taken from M/s Destiny Gems & Jewllers Pvt. Ltd. is duly appearing in the regular books of account and based on which final accounts were prepared and return was filed. Assessee had filed Balance Sheet before the AO wherein loan was appearing and the same has not been doubted by the AO as is evident from the notice issued by the Id. AO u/s 142(1) of the Act. Thus, the same cannot be treated as incriminating material. Ld. AR argued that if additions have to be made by the AO on the basis of documents found in the case of search on third party or statement recorded during the course of search action on third party, then the AO should have recorded the satisfaction note as prescribed u/s 153C of the Act which has not been done in the present case. According to ld.AR, the AO has used the statement on oath recorded in the course of search conducted in the case of a third party (i.e., search of SRS group) for making the additions in the hands of the assessee. As per the mandate of Section 153C, if this statement was to be construed as an incriminating material belonging to or pertaining to a person other than person searched (as referred to in Section 153A) then the only legal recourse available to the AO was to proceed in terms of section 153C of the Act by handing over the same to the AO who has jurisdiction over such person. Since, in the instant case, the assessment was framed under section 153A by making addition solely on the basis of statement of third party recorded during the search of other company, therefore he requested that the assessment order u/s 153A is without jurisdiction, void-ab-initio and liable to be quashed. 7 ITA No.3660/Del/2023 Gopal Garg vs. DCIT 10. On the other hand, the Ld. CIT-DR vehemently supported the orders of the lower authorities and submitted that there was a common search carried out in the case of the assessee and SRS group. The employees / directors of the loaner company M/s Destiny Gems and Jewellers Pvt. Ltd. had admitted in their statements that they have acted on the instructions of Shri Anil Jindal of SRS Group, thus such statements can be used as material for making additions in the case of the assessee in the order passed u/s 153A of the Act. The ld. CIT DR thus prayed that contention of the assessee no addition could be made on the basis of statements of third persons in the assessment completed u/s 153A is baseless as search was carried in the case of both the groups simultaneously, therefore, he requested that the additions were rightly made in the hands of the assessee in the order passed u/s 153A of the Act, and, he prayed for the confirmation of the action of the lower authorities. 11. We have heard the rival submissions and perused the materials available on record. From the perusal of the impugned order of AO, we find that the AO referred one pen drive seized from the premises of the proprietorship firm of the assessee containing Trial balance of the assessee. In the said trial balance, an entry of unsecured loan of Rs. 30.00 lacs taken from M/s Destiny Gems & Jewellers Pvt. Ltd. is appearing. The trail balance is prepared from the regular books of accounts and in the Balance Sheet, this loan of Rs.30,00 lacs taken from M/s Destiny Gems & Jewellers Pvt. Ltd. is duly appearing. Therefore, 8 ITA No.3660/Del/2023 Gopal Garg vs. DCIT this document could not be hold as incriminating material. It is further seen that besides pen drive, the AO has relied upon the statements of various directors of the loaner company wherein they accepted that the said company is paper/ shell company and concluded that the loan taken from the said company is bogus. It is admitted position that search was simultaneously carried out in the case of assessee as well as in the case of SRS group of cases, however, both the entities are independent and separate entities. The AO cannot allowed to assume jurisdiction to assess the assessee u/s 153A on the statements of third parties in whose cases, search was also carried out and such persons were not related to the assessee. At the best, the AO should have proceeded to assess the income of the assessee for such statements u/s 153C after following the procedure of recording of satisfaction to this effect as laid down by the Hon’ble Supreme Court in the case of CIT vs. Culcutta Knitwears [2014] 43 taxmann.com 446. 12. It would not be out of place to refer to the Notes on Clauses of the Finance Bill 2015 when the legislature thought it fit to amend the provisions of section 153C of the Act w.e.f. 01.06.2015 based on above judgment of Hon’ble Supreme Court. Clause 36 reads as under: Clause 36 of the Bill seeks to amend section 153C of the Income- tax Act relating to assessment of income of any other person. The existing provisions contained in section 153C provide that in the course of an assessment proceeding, in the case of a person in whose case search action under section 132 or action under section 132A have been conducted, and whether the Assessing Officer is satisfied that the assets or books of account or documents seized belong to another person, then, the assets or books of account or documents seized shall be handed over to the Assessing Officer 9 ITA No.3660/Del/2023 Gopal Garg vs. DCIT having jurisdiction over such other person and that Assessing Officer shall proceed against such other person, if he is that the books of accounts or documents or assets seized have a bearing on determination on the total income of such other person. It is proposed to amend sub-section (1) of the said section so as to provide that where the Assessing Officer is satisfied that, (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the of account or documents or assets, seized or requisitioned, shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if that Assessing Officer is satisfied that the books of account or documents or assets, seized or requisitioned, have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of section 153А. This amendment will take effect from 1st June, 2015. 13. It is thus clear that any material/ statements pertaining / relating to a person other than the person searched, was first to be handed over by the AO of the searched person after recording his satisfaction, to the AO of other person to whom such material/ statements belonged, who after recording his satisfaction, has to proceed against such other person by issuing a notice u/s 153C of the Act and then to assess / re- assess income of such other person for such material/ statements. 14. The Hon’ble Jurisdictional High Court in the case of PCIT (Central)-3 vs. Anand Kumar Jain (HUF) and others reported in 2021(3) TMI 8 vide order dt. 12.2.2021 in ITA No. 23, 26- 31/2021 has held as under: 10 ITA No.3660/Del/2023 Gopal Garg vs. DCIT “Even if a search was conducted upon the premises of the assessee, if the AO was relying upon the incriminating material found from the search of third party, then the same cannot be used for assessment u/s 153A and AO should have restored to section 153C of the Act. 15. The Co-ordinate Bench of ITAT in the case of Trilok Chand Chaudhary, New Delhi vs ACIT, Central Circle- 26, New Delhi on 20 August, 2019 under identical circumstances has held as under: “In our considered opinion, when the case of the assessee is covered under the provision of section 153 of the Act and if reliance is placed on the incriminating material found during the course of search of third- party, then provision of section 153C of the Act would be applicable and have to be adhered to. Thus, in the instant case, the Assessing Officer was required to first complete the proceedings undersection 153A in hand, which were initiated by way of notice dated 30/06/2014 and thereafter, he was at liberty to take action under section 153C of the Act for bringing the material found from the premise of Sh. Ashok Chaudhri to tax in the hands of the assessee. However, in the case under appeal before us, admittedly, Section 153C is not invoked in the case of the assessee and the assessment is framed under Section 153A. We, respectfully following the above decisions of Hon'ble Jurisdictional High Court, hold that during the course of assessment under Section 153A, the incriminating material, if any, found during the course of search of the assessee only can be utilized and not the material found in the search of any other person.” 16. Similarly, the Co-ordinate Bench of ITAT Delhi in the case of PCIT vs. Shivalik Mahajan in ITA No.5585/Del/2015 has held as under: “Obviously, the reference to the incriminating material in the above decisions of Hon'ble Jurisdictional High Court is in regard to incriminating material found as a result of search of the assessee's premises and not of any other assessee. The legislature has provided Section 153C by invoking the same the Revenue can utilize the incriminating material found in the case of search of any other person to the different assessee.” 11 ITA No.3660/Del/2023 Gopal Garg vs. DCIT 17. Similar view is expressed by the Coordinate Bench of ITAT Delhi in its recent judgment in the case of Om Prakash Tantia vs DCIT in ITA NO.4737/Del/2018 vide order dated 07.03.2025. 18. In view of above discussion, by respectfully following the decisions of Hon'ble Jurisdictional High Court in the case of Anand Jain, HUF (supra) and coordinate benches of the Tribunal in various cases, we hold that no addition could be made in the assessment completed u/s 153A of the Act on the basis of statements of third party recorded during the search in their own case. Therefore, the addition of Rs. 30.00 lacs made in the hands of the assessee on account of unsecured loan taken from M/s Destiny Gems & Jewellers Pvt. Ltd. solely on the basis of statements of third party is hereby deleted. 19. In view of the above findings, the grounds of appeal No.1 to 4 of the assessee are allowed. Remaining grounds of appeal taken by the assessee on merits are not adjudicated as they become academic. 20. In the result, the appeal of the assessee is allowed. Order pronounced on 23.04.2025. Sd/- Sd/- (MAHAVIR SINGH) (MANISH AGARWAL) VICE PRESIDENT ACCOUNTANT MEMBER Dated 23.04.2025 PK/Sr. PS 12 ITA No.3660/Del/2023 Gopal Garg vs. DCIT Copy forwarded to: 1. Assessee 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi "