G-Tech Stone Ltd., CHENNAI V. ACIT Corporate Circle 2(1), CHENNAI

ITA 3053/CHNY/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 5272 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 11-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Search and seizure; Proportionate interest; Bad and doubtful debts; Validity of assessment; Commercial expediency; Reason to believe; Documents seized; Reassessment proceedings; Set aside
• Section: 147; 148; 132; 40A(3); 139; 143(3); 153A; 143(1); 143(2); 113; 13; 153; 153C

Judgement Text

आयकर अपीलीय अिधकरण ‘बी’Ɋायपीठ चेɄई मŐ। IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, CHENNAI माननीय ŵी वी. द ु गाŊ राव, Ɋाियक सद˟ एवं माननीय ŵी मनोज कु मार अŤवाल ,लेखा सद˟ के समƗ। BEFORE HON’BLE SHRI V. DURGA RAO, JUDICIAL MEMBER AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपीलसं./ ITA Nos.580 to 583/Chny/2018 (िनधाŊरणवषŊ / Assessment Years: 2007-08 to 2010-11) ACIT Central Circle -2(1), Investigation Wing, Chennai – 600 034. बनाम/ Vs. M/s. G. Tech Stone Ltd No. 7, Seshadri Road, LVR Centre, Alwarpet, Chennai 600 001. & आयकरअपीलसं./ ITA Nos.3053/Chny/2017& 537TO 539/Chny/2018 (िनधाŊरणवषŊ / Assessment Years: 2008-09, 2011-12 to 2013-14) M/s. G. Tech Stone Ltd No. 7, Seshadri Road, LVR Centre, Alwarpet, Chennai 600 001. बनाम/ Vs. ACIT Corporate Circle 2(1), Chennai 600 034. ̾थायीलेखासं./जीआइआरसं./PAN/GIR No. AAACG-1179-K (अपीलाथŎ/Appellant) : (ŮȑथŎ / Respondent) अपीलाथŎकीओरसे/ Appellant by : Shri S. Sridhar (Advocate) – Ld. AR ŮȑथŎकीओरसे/Respondent by : Shri Clement Ramesh Kumar – Ld. CIT-DR सुनवाईकीतारीख/ Date of Hearing : 03-02-2022 घोषणाकीतारीख / Date of Pronouncement : 05-04-2022 2 ITA 537 to 539 & 580 to 583/Chny/2018 & ITA 3053/Chny/2017 आदेश / O R D E R Per Bench 1.1 The revenue is in further appeal for Assessment Years (AY) 2007- 08 to 2010-11 whereas the assessee is in further appeal before us for AY 2008-09 & 2011-12 to 2013-14. However, the facts as well as issues are substantially the same. The appellate order is common order for AY 2007-08 & 2008-09 which is passed by learned Commissioner of Income Tax (Appeals)-18, Chennai [CIT(A)] on 27.11.2017. The appellate order is also common order for AYs 2009-10 & 2010-11 which has been passed by same authority on 28.11.2017. The appellate order for AYs 2011-12 to 2013-14 has been passed separately on 28.11.2017. The assessment, for all the years, except for AY 2013-14, have been framed by Ld. AO u/s 143(3) r.w.s. 153A vide separate orders. The assessment for AY 2013-14 has been framed u/s 143(3). 1.2 The assessee’s appeal for AY 2008-09 arises out of the order of first appellate authority dated 06.07.2017 in the matter of assessment framed by Ld. AO u/s 143(3) on 29.12.2010. 1.3 All these orders are under challenge before us. 1.4 First of all, we take up revenue’s appeal ITA No.580/Chny/2018 for AY 2007-08 wherein the grounds raised by revenue read as under: - 1. The Order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts and circumstances of the case and in law. 2. The Id. CIT(A) erred in deleting the disallowance u/s.40A(3) amounting to 153A of the IT Act, 1961 for the AY 2007-08. 3. The Id. CIT(A) erred in deleting the disallowance u/s.36(l)(iii) amounting to 1961 for the AY 2007-08. 4. The Id. CIT(A) has failed to appreciate the fact that, Sec.153A of the IT Act, 1961 states with non obstante clause and the AO u/s.153A has been entrusted with the 3 ITA 537 to 539 & 580 to 583/Chny/2018 & ITA 3053/Chny/2017 duty of bringing to tax the total income of an whose case is covered by Sec.153A. Hence, even if an assessment order had already been passed u/s.!43(1)/143(3), the AO is empowered to reopen those proceedings and re-assess the total income in addition to the undisclosed income, if any, unearthed during the search. 4.1. The Id. CIT(A) erred in holding that addition in assessment u/s 153A of the IT Act 1961 can be made only on the basis of incriminating documents seized when as per section 153A of the IT Act, the Assessing officer is required to assess the total income of the assessee for each assessment year falling within the six assessment years, immediately preceding the previous year, in which search was conducted. 4.2. The Id. CIT(A) ought to have noted the fact that, for framing assessment under any of these sections, normal provisions of the Act are applicable in all the cases. Sec. 153A gives the overriding power to the AO to reopen the cases of preceding six years without fulfilling any requirement for recording satisfaction or forming reason to believe regarding income having escaped assessment as required u/s.147/148 of the Act. 4.3. The Id. CIT(A) erred in holding that, it was not possible for the Assessing Officer to reopen the issues concluded in the original assessments and make additions of those amounts in the assessments completed under section 153A, when the Assessing Officer has rightly followed the provisions of the Act, in accordance with the legal mandate under section 153A of the I.T. Act, 1961. 5. The Id. CIT(A) having relied on the decision of Hon'ble ITAT Special Bench Mumbai in the case of All Cargo Global Logistics Ltd. Vs DCIT(2012) 137 ITD 287 (Mum) (SB) erred in not following the decision of the Hon'ble Karnataka High court in ITA No. 38/2014 dated 25.07.2014 in the case of M/s Canara Housing Development Company vs DCIT, Central Circle-l(l),Bangalore and the decision of the Hon'ble Delhi High court in 352 ITA 493Delhi in the case of M/s CIT Vs Anil Kumar Bhatia and the decision of Hon'ble Kerala High Court in the case of CIT, Thrissur Vs St. Francis Clay Decor Tiles(2016) 385 ITR 624 5.1. The Id. CIT(A) ought to have taken cognizance of the decision of the Hon'ble ITAT 'D' Bench, Chennai, in the case of M/s. K.I. (International) Ltd., wherein, the Id. CIT (A)- 18 in his order dated 09-01-2017 for the assessment years 2007-08 and 2008-09 allowed the appeal of the assessee by observing that no incriminating materials were found during the course of search proceedings. On the appeal filed by the department the Hon'ble ITAT, Chennai had set aside the order of the Id. CIT (A) and directed him to adjudicate the grounds raised by the assessee on merits in accordance with law, vide Its order in ITA No, 897 & 898/Mds/2017 dated -24-08-2017 for the assessment years 2007-08 & 2008-09. 5.2. The Id. CIT(A) ought to have considered the decision of the Hon'ble Kerala High Court in the case of E.N. Gopakumar Vs CIT, Central, 75 Taxmann.com 250, wherein it has been held that assessment proceedings generated by issuance of a notice under section 153A(l)(a) can be concluded against the interest of assessee including making additions even without any incriminating material being available against assessee in search u/s.132 on the basis of which notice was issued u/s.153(1)(a). 5.3. The Id. CIT(A) erred in not following the decision of the Hon'ble Delhi High Court in the case of CIT Vs Anil Kumar Bhatia (2012) 82 CCH 113 (Del) wherein it has been held that, even if an assessment order is passed u/s.143(1)/143(3) the AO is empowered to reopen those proceedings and reassess the total income taking note of the undisclosed income, if any, unearthed during search. 6. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored. 4 ITA 537 to 539 & 580 to 583/Chny/2018 & ITA 3053/Chny/2017 1.5 Having heard rival submissions and after going through relevant material on record including judicial pronouncements as cited before us during the course of hearing, our adjudication would be as given in succeeding paragraphs. Assessment Proceedings 2.1 The assessee being resident corporate assessee stated to be engaged in granite products, edible oils and shares was subjected to search action u/s 132 on 11.05.2012. In response to notice u/s 153A, the assessee offered return of income on 26.03.2013 declaring income of Rs.25.41 Lacs. The original return of income filed by the assessee was already processed u/s 143(1) and on the date of search, no proceedings, whatsoever, were pending for AY 2007-08. Upon analysis of books of accounts, it transpired that the assessee made payment in cash for business expenses, insurance and interest, clearing & forwarding, labor charges, legal fees, lorry freight, power, purchases, rates & taxes, repairs etc. The same has been tabulated in para-3 of the order. These expenditure aggregated to Rs.257.24 Lacs. Though the assessee justified the payments in cash, however, Ld. AO, invoking the provisions of Sec.40A(3) disallowed these expenditures and added the same to the income of the assessee. 2.2 It also transpired that the assessee advanced interest frees loans to certain parties. The Ld. AO, computed proportionate interest disallowance u/s 36(1)(iii) for Rs.61.85 Lacs and added the same to the income of the assessee. 2.3 In other words, the assessment was finalized after adding back disallowance u/s 40A(3) for Rs.257.24 Lacs and interest disallowance u/s 36(1)(iii) for Rs.61.85 Lacs. Upon perusal of assessment order, it could 5 ITA 537 to 539 & 580 to 583/Chny/2018 & ITA 3053/Chny/2017 be gathered that while making the additions, Ld. AO has not referred to any incriminating material as found during the course of search operations with respect to these two disallowances. Appellate Proceedings 3.1 During appellate proceedings, the assessee, inter-alia, raised a plea that no incriminating material was found or seized during the course of search operation which was evident from the copy of Panchnama. Accordingly, no addition could be made in respect of completed assessment in respect of which the time limit for issuance of scrutiny notice had expired since there was no incriminatingmaterial found by the revenue authorities. For the same. Reliance was placed on the various decisions, notable amongst the same was the decision of Hon’ble High Court of Delhi in CIT V/s Kabul Chawla (380 ITR 573) as well as the decision of Hon’ble High Court of Bombay in CIT V/s Continental Warehousing (Nhavasheva) Ltd. (374 ITR 645) and also the decision of special bench of Mumbai Tribunal in All Cargo Global Logistics Ltd. V/d DCIT (137 ITD 287). 3.2 The assessment position was summarized by the assessee for various years as under: - Asst year Asst completed Notice U/s 143(2) U/s. Order Date Tax return filed on Due date to issue Issued on 2007-08 24.11.2007 30.09.2008 01.08.2014 2008-09 143(3) 29.12.2010 20.10.2008 30.09.2009 01.08.2014 2009-10 143(3) 22.12.2011 30.09.2009 30.09.2010 01.08.2014 2010-11 11.02.2011 30.09.2011 01.08.2014 2011-12 27.11.2011 30.09.2012 01.08.2014 2012-13 27.10.2012 30.09.2013 01.08.2014 2013-14 30.09.2013 30.09.2014 01.08.2014 At the same time, the assessee also contested both the additions on merits. 6 ITA 537 to 539 & 580 to 583/Chny/2018 & ITA 3053/Chny/2017 3.3 The Ld. CIT(A) concurred with legal submissions made by the assessee and held that disallowance was based merely on the return of income and not based on any incriminating material found during the course of search operations. The additions were without any back up incriminating material and therefore the additions could not be sustained as per the ratio of various judicial pronouncements as cited by the assessee. The relevant findings of Ld. CIT(A) were as under: - 7.1 In the impugned Orders, the AO while embarking on making the said disallowances or additions has not roped in any incriminating documents seized during the course of search. The disallowance/additions made in the order are only based on the return of income filed along with P&L and Balance Sheet and not based on any incriminating materials found during the course of search. Hence, the addition/disallowance made without any back up of incriminating documents seized is hereby deleted. 7.2 Further, as per the decision of the Special Bench of the ITAT Mumbaiin the case of All Cargo Global Logistics Ltd. v. DCIT [2012] 137 ITD 287 [Mum] (SB) wherein it is held that, where the assessments are completed and no assessment is pending at the time of assessment u/s 153A, reassessment can be made only if incriminating materials are collected in the course of search and the items included in the earlier AYs cannot be reconsidered through re-assessment. The co-ordinate bench of the Tribunal in the case of A.B.S.SanjayVs.ACIT (supra) has followed the decision in the case of All cargo Global Logistics Ltd., Vs. DCIT (Supra), and the judgment of the Hon'ble Rajasthan High Court in the case of Jai Steel (India) Vs. ACIT reported as 88 DTR(Raj) 1 and deleted the additions made on similar grounds. The Hon'ble High Courts and different benches of the Tribunal have been consistently taking a view that in case nothing incriminating is found on account of search of requisition, the question of re-assessment of the concluded assessment does not arise. Now, it is a well settled law that reassessment of the concluded assessment is permitted in assessment u/s 153A only if incriminating materials are found in the course of search. 7.3. In the present case, I do not find from the discussion of the AO in the assessment order that, additions/disallowances were made based on any incriminating material found during search operation. This being so, I direct the AO to delete the addition. 7.4. Reliance is placed on the following judgments wherein the invariable decision is that no addition or disallowance can be made to the income returned in case of assessments which have been completed and in case where no incriminating materials have been found during the course of search. i) Jai Steel (India) vs. ACIT [2013] 88 DTR 1 (Raj.) ii) Marigold Merchandise Pvt. Ltd. vs. DCIT ITA No.2666 & 2667/Del/2013 iii) AB Sudarsanam vs. ACIT ITA No. 1694 & 1695/Mds/2013 iv) MGF Automobiles Ltd. vs. ACIT ITA No. 4212 & 4213/Mds/2014 7 ITA 537 to 539 & 580 to 583/Chny/2018 & ITA 3053/Chny/2017 Accordingly, the additions were deleted against which the revenue is in further appeal before us. Our findings & Adjudication 4. Upon careful consideration of factual matrix as enumerated in preceding paragraphs, the undisputed position that emerges is that both the disallowances as made by Ld. AO are only based on the return of income filed by the assessee without there being any incriminating material on record to justify these disallowances. The Ld. AO has not referred to any incriminating material and the revenue is unable to demonstrate that there was any incriminating material found from the assessee during the course of search operations. This being so, the ratio of decisions as relied upon by Ld. CIT(A) was squarely applicable to the facts of the case. It is discernible that no assessment proceedings were pending against the assessee for AY 2007-08 on the date of search and it was a case of non-abated assessment and therefore, the additions, which could have been made by Ld. AO, was to be strictly based on incriminating material found during the course of search operations. No notice u/s 143(2) was ever issued to the assessee till the date of search. The time limit for issuance of such notice had already expired on 30/09/2008 i.e. within 6 months from the end of relevant assessment year. Thus, AY 2007-08 was a non-abated year. In such a case, the additions, which could be made, has to be on the basis of incriminating material found by the department during the course of search operations v) Gurinder Singh Bawa vs. DCIT ITA Nos. 2075 & 2669 (Mum) of 2010 vi) Rm.K.ViswanathaPillai& Sons vs. DCIT ITA No. 1065, 1066 & 1067/Mds/2014 vii) AR Murugadoss vs. ACIT ITA No. 559, 560, 561, 562, 563 & 564/Mds/2014 viii) Joseph Prince and Others vs. ACIT ITA No.2739, 2740 & 2741/Mds/2014 ix) Jignesh P. Shah vs. DCIT ITA No. 1553 & 3173/Mum/2010 8 ITA 537 to 539 & 580 to 583/Chny/2018 & ITA 3053/Chny/2017 as held by Hon’ble Bombay High Court in CIT V/s Continental Warehousing Corporation [2015; 374 ITR 645]. In other words, unless any incriminating material was unearthed, no additions could be sustained in the hands of the assessee. So far as the arguments of revenue that intimation u/s 143(1) would not constitute an assessment, is concerned, we find that the factual matrix in decision rendered by Hon’ble Bombay High Court in CIT V/s Gurinder Singh Bawa (79 taxmann.com 398 05/10/2015) was similar wherein the original return was processed u/s 143(1) and the time limit for issuing notice u/s 143(2) had already expired. The Hon’ble Court chose to follow its own decision rendered in CIT Vs. Continental Warehousing Corporation [2015 374 ITR 645]. Therefore, this argument would not hold much water which is also fortified by subsequent decision of Hon’ble Bombay High Court in CIT V/s Deepak Kumar Agarwal (398 ITR 586 11/09/2017) which held as under:- 20. At the outset, and since heavy reliance is placed by the Revenue on the Supreme Court judgment in Rajesh Jhaveri Stock Brokers (P.) Ltd. (supra), it would be proper to note the facts in the same. 21. There, the Assistant Commissioner of Income Tax challenged the correctness of the decision rendered by a Division Bench of the Gujarat High Court. That Division Bench judgment allowed the Writ Petition/Special Civil Application of the assessee. 22. The respondent-assessee, a private limited company, filed its return of income for the assessment year 2001-2002 on October 30, 2001, declaring total loss of Rs.2,70,85,105/-. That return was proposed under Section 143(1) of the IT Act accepting the loss returned by the respondent. A notice was issued under Section 148 of the IT Act on the ground that the claim of bad debts as expenditure was not acceptable. On 12th May, 2004, a return of income declaring the loss at the same figure as declared in the original return was filed by the respondent-assessee under protest. A copy of the reasons recorded was furnished by the Revenue on the request of the assessee sometime in November, 2004. The assessee raised various objections, both on jurisdiction and the merits of the subject matter recorded in the reasons. The Revenue disposed of these objections on 4th February, 2005 holding that the initiation of reassessment proceedings was valid and it had jurisdiction to undertake such an exercise. The notice under Section 148 of the IT Act dated 12th May, 2004 was challenged by the respondent-assessee. 23. That Writ Petition was allowed and hence, the Revenue was in Appeal. 9 ITA 537 to 539 & 580 to 583/Chny/2018 & ITA 3053/Chny/2017 24. Mr. Ahuja's argument overlooks this factual aspect and when he relies upon the observations of the Hon'ble Supreme Court, and particularly in paragraph 13, he forgets that they were made in the context of a challenge to the notice under Section 148 of the IT Act. The Supreme Court, in paragraph 13 of this judgment, noted that intimation under Section 143(1)(a) was given without prejudice to the provisions of Section 143(2). Though technically this intimation issued was deemed to be a demand notice issued under Section 156, that did not per se preclude the Assessing Officer to proceed under Section 143(2). The right preserved was not taken away. The Hon'ble Supreme Court referred to the period between April 1, 1989 and March 31, 1998, and the second proviso to Sub-section (1) Clause (a) of Section 143 and its substitution with effect from 1st April, 1998. The sending of intimation between 1st April, 1998 and 31st May, 1999 under Section 143(1)(a) was mandatory. That requirement continued until the second proviso was substituted by the Finance Act, 1997, which was operative till 1st June, 1999. 25. The Hon'ble Supreme Court therefore, relied upon these amendments and, tracing their history, held that the intimation under Section 143(1)(a) cannot be treated to be an order of assessment. That is how it referred to the Division Bench Judgment of the High Court at Delhi and explained the legal position. There was thus no assessment under Section 143(1)(a) and therefore, the question of change of opinion did not arise. A reference to Section 147 therefore, was made in the context of the Assessing Officer being authorized and permitted to assess or re-assess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. Before us, such is not the position, and even if this judgment of the High Court had been brought to the notice of the Division Bench deciding the Continental Warehousing Corpn. and All Cargo Global Logistics (supra), there would not have been any difference. It was finally held by Hon’ble Court as under: - 31. We, therefore, hold that the Special Bench's understanding of the legal provision is not perverse nor does it suffer from any error of law apparent on the face of the record. The Special Bench in that regard held as under:- “48. The provision under section 153A is applicable where a search or requisition is initiated after 31.5.2003. In such a case the AO is obliged to issue notice u/s 153A in respect of 6 preceding years, preceding the year in which search etc. has been initiated. Thereafter he has to assess or reassess the total income of these six years. It is obligatory on the part of the AO to assess or reassess total income of the six years as provided in section 153A(1)(b) and reiterated in the 1st proviso to this section. The second proviso states that the assessment or reassessment pending on the date of initiation of the search or requisition shall abate. We find that there is no divergence of views in so far as the provision contained in section 153A till the 1st proviso. The divergence starts from the second proviso which states that pending assessment or reassessment on the date of initiation of search shall abate. This means that an assessment or reassessment pending on the date of initiation of search shall cease to exist and no further action shall be taken thereon. The assessment shall now be made u/s 153A. The case of Ld. Counsel for the assessee is that necessary corollary to this provision is that completed assessment shall not abate. These assessments become final except in so far and to the extent as undisclosed income is found in the course 10 ITA 537 to 539 & 580 to 583/Chny/2018 & ITA 3053/Chny/2017 of search. On the other hand, it has been argued by the Ld. Standing Counsel that abatement of pending assessment is only for the purpose of avoiding two assessments for the same year, one being regularassessment and the other being assessment u/s 153A. In other words these two assessments coalesce into one assessment. The second proviso does not contain any word or words to the effect that no reassessment shall be made in respect of a completed assessment. The language is clear in this behalf and therefore literal interpretation should be followed. Such interpretation does not produce manifestly absurd or unjust results as section 153A (i)(b) and the first proviso clearly provide for assessment or reassessment of all six years. It may cause hardship to some assesses where one or more of such assessments has or have been completed before the date of initiation of search. This is hardly of any relevance in view of clear and unambiguous words used by the legislature. This interpretation does not cause any absurd etc. results. There is no casus omissus and supplying any would be against the legislative intent and against the very rule in this behalf that it should be supplied for the purpose of achieving legislative intent. The submissions of the Ld. Counsels are manifold, the foremost being that the provision u/s 153A should be read in conjunction with the provision contained in section 132(1), the reason being that the latter deals with search and seizure and the former deals with assessment in case of search etc, thus, the two are inextricably linked with each other. 49. Before proceeding further, we may now examine the provision contained in subsection (2) of section 153, which has been dealt with by Ld. Counsel. It provides that if any assessment made under subsection (1) is annulled in appeal etc., then the abated assessment revives. However, if such annulment is further nullified, the assessment again abates. The case of the Ld. Counsel is that this provision further shows that completed assessments stand on a different footing from the pending assessments because appeals etc. proceedings continue to remain in force in case of completed assessments and their fate depends upon subsequent orders in appeal. On consideration of the provision and the submissions, we find that this provision also makes it clear that the abatement of pending proceedings is not of such permanent nature that they cease to exist for all times to come. The interpretation of the Ld. Counsel, though not specifically stated, would be that on annulment of the assessment made u/s 153(1), the AO gets the jurisdiction to assess the total income which was vested in him earlier independent of the search and which came to an end due to initiation of the search. 50. The provision contained in section 132 (1) empowers the officer to issue a warrant of search of the premises of a person where any one or more of conditions mentioned therein is or are satisfied, i.e. - a) summons or notice has been issued to produce books of account or other documents but such books of account or documents have not been produced, b) summons or notice has been or might be issued, he will not produce the books of account or other documents mentioned therein, or c) he is in possession of any money or bullion etc. which represents wholly or partly the income or property which has not been and which would not be disclosed for the purpose of assessment, called as undisclosed income or property. We find that the provision in section 132 (1) does not use the word "incriminating document". Clauses (a) and (b) of section 132(1) employ the words "books of account or other documents". For harmonious interpretation of this provision with 11 ITA 537 to 539 & 580 to 583/Chny/2018 & ITA 3053/Chny/2017 provision contained in section 153A, all the three conditions on satisfaction of which a warrant of search can be issued will have to be taken into account. 51. Having held so, an assessment or reassessment u/s 153A arises only when a search has been initiated and conducted. Therefore, such an assessment has a vital link with the initiation and conduct of the search. We have mentioned that a search can be authorised on satisfaction of one of the three conditions enumerated earlier. Therefore, while interpreting the provision contained in section 153A, all these conditions will have to be taken into account. With this, we proceed to literally interpret to provision in 153A as it exists and read it alongside the provision contained in section 132(1). 52. The provision comes into operation if a search or requisition is initiated after 31.5.2003. On satisfaction of this condition, the AO is under obligation to issue notice to the person requiring him to furnish the return of income of six years immediately preceding the year of search. The word used is "shall" and, thus, there is no option but to issue such a notice. Thereafter he has to assess or reassess total income of these six years. In this respect also, the word used is "shall" and, therefore, the AO has no option but to assess or reassess the total income of these six years. The pending proceedings shall abate. This means that out of six years, if any assessment or reassessment is pending on the date of initiation of the search, it shall abate. In other words pending proceedings will not be proceeded with thereafter. The assessment has now to be made u/s 153A (1)(b) and the first proviso. It also means that only one assessment will be made under the aforesaid provisions as the two proceedings i.e. assessment or reassessment proceedings and proceedings under this provision merge into one. If assessment made under subsection (1) is annulled in appeal or other legal proceedings, then the abated assessment or reassessment shall revive. This means that the assessment or reassessment, which had abated, shall be made, for which extension of time has been provided under section 153B. 53. The question now is - what is the scope of assessment or reassessment of total income u/s 153A (1) (b) and the first proviso? We are of the view that for answering this question, guidance will have to be sought from section 132(1). If any books of account or other documents relevant to the assessment had not been produced in the course of original assessment and found in the course of search in our humble opinion such books of account or other documents have to be taken into account while making assessment or reassessment of total income under the aforesaid provision. Similar position will obtain in a case where undisclosed income or undisclosed property has been found as a consequence of search. In other words, harmonious interpretation will produce the following results: - a) In so far as pending assessments are concerned, the jurisdiction to make original assessment and assessment u/s 153A merge into one and only one assessment for each assessment year shall be made separately on the basis of the findings of the search and any other material existing or brought on the record of the AO, (b) in respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search.” 12 ITA 537 to 539 & 580 to 583/Chny/2018 & ITA 3053/Chny/2017 It was thus held by Hon’ble Court that in respect of non-abated assessment, the additions are to be strictly based on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered during search. 5. We find that similar view has been expressed by Hon’ble Delhi High Court in CIT Vs. Kabul Chawla (380 ITR 573)which has summarized the legal position as under: - 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 AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO 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 AYs 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 information available with the AO 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 seized material. v. In 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 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as 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 AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. 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. 13 ITA 537 to 539 & 580 to 583/Chny/2018 & ITA 3053/Chny/2017 It was thus held that completed assessments could be interfered with by the AO while making the assessment under Section 153A 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. Nothing has been shown to us that the aforesaid decisions have subsequently been reversed or stayed in any manner by any higher judicial forum. 6. We find that similar is the view of Hon’ble Delhi High Court in Pr. CIT V/s MeetaGutgutia (82 Taxmann.com 287) which has primarily followed the decision of Kabul Chawla (supra). We also find that Special Leave Petition (SLP) filed by the revenue against this decision has already been dismissed by Hon’ble Supreme Court on 02.07.2018 which is reported at 96 Taxmann.com 468. The decision of Hon’ble Court was as under: - 1. Delay condoned. 2. We do not find any merit in this petition. The special leave petition is, accordingly, dismissed. 3. Pending application stands disposed of. 7. During the course of hearing before us, the Ld. CIT-DR has relied on the decision of Hon’ble Kerala High Court in the case of E.N.Gopakumar V/s CIT (75 Taxmann.com 215; 03.10.2016) which has taken a contrary view by relying upon its earlier decision in CIT V/s St. Francis Clay Décor Tiles (70 Taxmann.com 234; 22.03.2016). However, upon perusal of decision of Hon’ble Court in CIT V/s St. Francis Clay Décor Tiles (supra), we find that the said case is factually 14 ITA 537 to 539 & 580 to 583/Chny/2018 & ITA 3053/Chny/2017 distinguishable. In that case, the admitted facts were that the Managing Partner of the assessee had given voluntary statement to the Assessing Officer that there was undisclosed income of Rs.2.75 Crores. The admission was retracted by the Managing Partner subsequently. On the basis of these facts, it was concluded by Hon’ble Court that since there was a disclosure made by giving a statement during the course of search and therefore, the Assessing Officer, by virtue of the power conferred on him under section 153A, was competent to issue notice under the said provision and require the assessee firm to furnish the returns as provided there-under. It was further held that neither under section 132 nor under section 153A, the phraseology "incriminating" is used by the Parliament.Therefore, any material which was unearthed during search operations or any statement made during the course of search by the assessee is a valuable piece of evidence in order to invoke the provisions of Section 153A of the Income Tax Act, 1961. In the present case, no such admission is shown to have been made by the assessee.The revenue could not place any incriminating material before us. Therefore, these case laws are distinguishable on facts. 8. The revenue has also referred to the Special Leave Petition (SLP) filed by the revenue and accepted by Hon’ble Supreme Court in the case of Pr. CIT V/s Gahoi Foods Pvt. Ltd. (117 Taxmann.com 118). We find that SLP has been filed by the revenue against the decision of Hon’ble High Court of Madhya Pradesh as reported at 117 Taxmann.com 117. In this case, Hon’ble Court chose to follow the decision of Hon’ble Delhi High Court in CIT V/s Kabul Chawla (380 ITR 573) and concurred with the views expressed therein. The revenue preferred SLP against the same which has been admitted and tagged with other appeals. However, 15 ITA 537 to 539 & 580 to 583/Chny/2018 & ITA 3053/Chny/2017 there is no stay by Hon’ble Supreme Court on the operation of the order of Hon’ble High Court. 9. The Ld. DR has also referred to the decision of Hon’ble Delhi High Court in Filatex India Ltd. V/s CIT (49 Taxmann.com 465). Upon perusal of para-2 of this decision, we find that in that case Ld. AO, in the proceedings u/s 153A, had made several additions, relying upon the incriminating material found in the course of search. It was undisputed fact that there was incriminating material unearthed by the revenue including statement of Shri Sanjay Agrawal, GM (Marketing). It was never the case of the assessee that the initiation of proceedings u/s 153A was bad or unwarranted in law as no incriminating material was found during the search. Therefore, this decision, in our opinion, has no application to the present case before us. 10. The Ld. DR has also referred to the decision of Delhi Tribunal in Amit Arora V/s ACIT (122 Taxmann.com 78). We find that this case deal with a situation where the original return was filed by the assessee after the date of search only and no return was filed prior to the search. In this context, the bench held that when the assessee has filed original return after the date of search, the AO has the jurisdiction to make additions in the Assessment Order under section 153A of I.T. Act, regardless of whether any incriminating materials were found/seized in the course of search action under section 132 of I.T. Act. There is nothing in law u/s 153A to prohibit the AO from making additions in Assessment Order u/s 153A even if no incriminating materials were found/seized during search action u/s 132 when the original return u/s 139 has been filed after the date of search. Therefore, this case law is factually distinguishable. 16 ITA 537 to 539 & 580 to 583/Chny/2018 & ITA 3053/Chny/2017 11. Another decision referred to by Ld. DR is the decision of Chennai Tribunal in ACIT V/s KI International Ltd. (ITA Nos.897 & 898/Mds/2017 dated 24.08.2017). After perusal of this decision, we find that in that case the assessee was searched on 18.12.2012 and another search action was carried out by revenue in the case of alleged accommodation entry provider Shri Praveen Kumar Jain on 01.10.2013 wherein in statement u/s 132(4), Shri Praveen Kumar Jain admitted to have indulged in providing accommodation entry and explained the modus operandi of providing such entries. The assessee did not furnish the specific details of the allotment of shares. Going by the factual matrix, the bench upheld the validity of assessment proceedings u/s 143(3) r.w.s. 153A & 153C of the Act. However, none of the case laws as enumerated by us in the preceding paragraphs has been considered rather the adjudication is purely based on factual matrix of the case. Therefore, the ratio of this decision could not be applied to the facts of the present case before us. 12. The Ld. CIT-DR has drawn attention to the assessment order for the submissions that the additions have been made on the basis of ‘deposition’ made by the assessee and after analysis of the books of accounts and therefore, it would be incorrect to say that the additions were not based on incriminating material. However, after going through complete assessment order, we find that Ld. AO has not referred to any incriminating material as unearthed during the search operations while making the additions. No incriminating material has been shown to us during hearing before us. 17 ITA 537 to 539 & 580 to 583/Chny/2018 & ITA 3053/Chny/2017 13. Therefore on the given facts and circumstances, we do not find any infirmity in the impugned order which has deleted the impugned additions / disallowances on the ground that there was no incriminating material found from the assessee during the course of search operations. Concurring with the adjudication of Ld. CIT(A) in the impugned order, we dismiss the appeal. Revenue’s Appeal for AYs 2008-09 to 2010-11 14.1 We find that the facts as well as issues in revenue’s appeal for AYs 2008-09, 2009-10 & 2010-11 are quite identical. In AY 2008-09, similar disallowances have been made. In this year, the assessee was already assessed u/s 143(3) on 29.12.2010. The legal grounds raised by the assessee has been allowed by Ld. CIT(A) since there was no incriminating material unearthed during the course of search operations. Aggrieved, the revenue is in further appeal before us. 14.2 In AY 2009-10 also, similar disallowances have been made. In this year, the return of income was processed u/s 143(1). The legal grounds raised by the assessee has been allowed by Ld. CIT(A) since there was no incriminating material unearthed during the course of search operations. Aggrieved, the revenue is in further appeal before us. 14.3 In AY 2010-11, the assessee has been saddled with disallowance u/s 40A(3), interest disallowance u/s 36(1)(iii) and disallowance of hedging loan interest. The original return of income was processed u/s 143(1) and no assessment proceedings were pending on the date of search. The legal grounds raised by the assessee has been allowed by Ld. CIT(A) since there was no incriminating material unearthed during the course of search operations. Aggrieved, the revenue is in further appeal before us. 18 ITA 537 to 539 & 580 to 583/Chny/2018 & ITA 3053/Chny/2017 14.4 We find that our adjudication to revenue’s appeal for AY 2007-08 shall apply with full force to aforesaid appeals of revenue for AYs 2008- 09, 2009-10 & 2010-11 also. Applying the same, we confirm the impugned order and dismiss all these appeals filed by the revenue. Assessee’s Appeal, ITA No.537/Chny/2018, AY 2011-12 15. In this year, the assessee is aggrieved by confirmation of disallowance u/s 40A(3), interest disallowance u/s 36(1)(iii) and disallowance of hedging loan interest.The assessee has also filed additional grounds of appeal for the submission that additions are not based on any incriminating material found during the course of search operations. Since these are legal grounds, we admit the same. In response to notice u/s 153A, the assessee filed return of income on 26.03.2013 at Rs.22.85 Lacs. 16. An assessment has been framed against the assessee u/s 143(3) r.w.s. 153A on 31.03.2015. The brief description of disallowances as made by Ld. AO isas under: - (i) Disallowance u/s 40A(3) It transpired that the assessee paid labour charges and purchases aggregating to Rs.47.26 Lacs in cash and accordingly, the provisions of Sec. 40A (3) were held to be applicable to the case of the assessee. The assessee submitted that payment to labour in any one day generally does not exceed the threshold limit. Regarding cash purchases, it was submitted that the cash payments were made out of sheer business exigencies. However, rejecting the same, Ld. AO disallowed the expenses and added the same u/s 40A(3). 19 ITA 537 to 539 & 580 to 583/Chny/2018 & ITA 3053/Chny/2017 (ii) Interest on Hedging Loss The Ld. AO made disallowance for Rs.207.90 Lacs by following assessment order as well as appellate order for AY 2009-10 on the ground that assessee indulged in speculation transactions. (iii) Interest Disallowance u/s 36(1)(iii) In earlier year, the assessee paid cash loans to M/s LVR & Dong-in Stone Ltd. which was a company under the same management. Since the loans were interest free, Ld. AO proceeded to make disallowance u/s 36(1)(iii) on loan of Rs.471.80 Lacs. Another interest loan was disbursed to Smt. L.S. Chandrika. The same was in lieu of usage of house of Smt. L.S. Chandrika as director-cum- guest house by the assessee. However, in the absence of any satisfactory details forthcoming from assessee, Ld. AO disallowed proportionate interest disallowance on loan of Rs.202.79 Lacs as given to Smt. L.S. Chandrika. The proportionate interestdisallowanceon both these loans was computed at Rs.101.68 Lacs which was disallowed u/s 36(1)(iii). 17. During appellate proceedings, the assessee questioned the jurisdiction of Ld. AO in making the assessment, inter-alia, on the plea that there was no incriminating material unearthed during the course of search proceedings. The assessee also raised a plea that satisfaction note was mandatory. However, the plea of satisfaction note was rejected whereas no findings have been rendered by Ld. CIT(A) on the plea that there was no incriminating material. 18. On merits, the Ld. CIT(A) confirmed the disallowance u/s 40A(3). The issue of disallowance of interest on hedging loan as well as disallowance of interest u/s 36(1)(iii) was also confirmed on the ground 20 ITA 537 to 539 & 580 to 583/Chny/2018 & ITA 3053/Chny/2017 that the assessee did not produce any documentary evidences. Aggrieved, the assessee is in further appeal before us. 19. So far as the legal grounds are concerned, we find that the assessee was subjected to search action on 11.05.2012. The assessee had already filed return of income on 27.11.2011. However, the time limit to issue notice u/s 143(2) for this year had not expired and Ld. AO could have issued said notice by 30.09.2012. Therefore, it is not a case of concluded assessment. Rather Ld. AO was well within his right to make any addition after examination of assessee’s books of account. The legal proposition laid down by Hon’ble Delhi High Court in Kabul Chawla (supra) also supports this view. No infirmity has been shown to us in the jurisdiction acquired by Ld. AO. Therefore, the legal grounds urged by the assessee stand dismissed. This Additional ground has been raised by the assessee in AYs 2012-13 & 2013-14 also and the same stand dismissed for both these years also on the same reasoning. 20. So far as the merits of disallowance u/s 40A(3) is concerned, Ld. AR drew attention to the proviso to Sec. 40(A)(3A) & Rule 6DD and submitted that the aspect of business expediency has not been considered by any of the lower authorities. The proviso to Sec.40A(3A) provide that no disallowance shall be made in such cases and under such circumstances as prescribed in Rule 6DD, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. The Ld. AR submitted that there was commercial expediency in making cash payment since the parties insisted on cash payment. The Ld. CIT-DR, on the other hand, submitted that there was no evidence that banking facilities were not available at the time of payment and the assessee could not demonstrate the commercial expediency of 21 ITA 537 to 539 & 580 to 583/Chny/2018 & ITA 3053/Chny/2017 making payment in cash. The Ld. DR also referred to the decision of Hon’ble Madras High Court in the case of N. Mohammed Ali V/s ITO (65 Taxmann.com 189) to support the submissions. 21. After due consideration, we find that the complete onus to demonstrate that there was commercial / business expediency to make aforesaid payment in cash was on assessee. Upon perusal of orders of lower authorities, it could be seen that the assessee failed to discharge this onus. However, keeping in view the submissions made by Ld. AR before us, we deem it fit to provide another opportunity to the assesseeto discharge this onus. Accordingly, this issue stand restored back to the file of Ld. AO for fresh adjudication with a direction to the assessee to substantiate its stand. This ground stand allowed for statistical purposes. 22. On the issue of interest on hedging loans, Ld. AR has submitted that the assessee was engaged in import and export activities. Accordingly, the assessee was exposed to foreign exchange risk. To counter this risk, the assessee entered into hedging transactions which would constitute small percentage of total turnover of the assessee. Therefore, these transactions were related to assessee’s business and could not be held to be speculative in nature. The Ld. AR also submitted that identical matter, in AY 2009-10, has already been remanded back to the file of Ld. AO by Tribunal in assessee’s own case vide ITA No.519/Mds/2013 order dated 14.08.2013. 23. As rightly pointed out by Ld. AR, this issue has been restored back by Tribunal in ITA No.519/Mds/2013 order dated 14.08.2013 for fresh adjudication. Therefore, to enable revenue to take consistent view in the matter, we restore this matter back to the file of Ld. AO for fresh 22 ITA 537 to 539 & 580 to 583/Chny/2018 & ITA 3053/Chny/2017 adjudication on similar lines after considering the submissions of the assessee. The ground stand allowed for statistical purposes. 24. Regarding interest disallowance u/s 36(1)(iii), Ld. AR, inter-alia submitted that the funds were given to associated entities for business purposes. It was also submitted that the assessee had own funds also and mixed funds were available with the assessee. The Ld. AR relied on the decision of Hon’ble Bombay High Court in CIT V/s Reliance Utilities & Power Ltd. (178 Taxman 135) and also on the decision of Hon’ble Supreme Court in the case of S.A. Builders Ltd vs CIT (288 ITR 1). Keeping in view the fact that the assessee did not satisfactorily explain its stand before lower authorities, we remit this issue to the file of Ld. AO for fresh adjudication in the light of submissions made before us.This ground stand allowed for statistical purposes.The appeal stands partly allowed for statistical purposes. Assessee’s Appeal for AYs 2012-13 & 2013-14 25. In AY 2012-13, the assessee has been saddled with similar disallowances u/s 40A(3), disallowance of interest on hedging loans as interest disallowance u/s 36(1)(iii). The appellate order is common order for AYs 2011-12 to 2013-14. The assessee’s appeal for AY 2012-13 has been dismissed by Ld. CIT(A). In AY 2013-14, the assessee has been saddled with similar disallowances u/s 40A(3), disallowance of interest on hedging loans as interest disallowance u/s 36(1)(iii). The appellate order is common order for AYs 2011-12 to 2013-14. The assessee’s appeal for AY 2013-14 has been dismissed by Ld. CIT(A). Aggrieved, the assessee is in further appeal before us with similar grounds of appeal. 23 ITA 537 to 539 & 580 to 583/Chny/2018 & ITA 3053/Chny/2017 26. Since facts as well as issues are pari-materia the same in both these years, as in AY 2011-12, our findings as well as adjudication as rendered therein shall mutatis-mutandis apply to both these years. The legal ground raised by the assessee stand dismissed. The additions, on merits, stand restored back to the file of Ld. AO on similar lines. Both these appeals stand partly allowed for statistical purposes. Assessee’s Appeal, ITA No.3053/Chny/2017, AY 2008-09 27. This appeal arises out of the order of regular assessment framed by Ld. AO u/s 143(3) on 29.12.2010. The impugned order has been passed by learned Commissioner of Income Tax (Appeals), Chennai [CIT(A)] dated on 06.07.2017. In this appeal, the assessee is aggrieved by disallowance of hedging loss for Rs.33.37 Lacs, disallowance of bad-debt for Rs.218.77 Lacs and disallowance of loss on trading of shares for Rs.19.71 Lacs. The Ld. AR has submitted that the submissions made by the assessee have not been considered by lower authorities in the right perspective. The Ld. CIT-DR, on the other hand, submitted that impugned order is an ex-parte order since none appeared for assessee during appellate proceedings. 28. Upon perusal of assessment order, it could be seen that hedging loss has been held to be speculative in nature and hence, disallowed by Ld. AO. The bad-debts claim was denied since the assessee could not show that the debts were offered to tax in earlier years. The loss in trading of shares was held to be speculative in nature. Though the assessee preferred further appeal, however, none appeared during appellate proceedings despite being provided with various opportunities. The Ld. CIT(A), after considering written submissions, confirmed disallowance of hedging loss. The denial of bad-debts claim was also 24 ITA 537 to 539 & 580 to 583/Chny/2018 & ITA 3053/Chny/2017 confirmed since the assessee could not show the fulfillment of conditions of Sec.36(2). Similarly, the loss in trading of shares was held to be speculative in nature which could be carried forward to the subsequent years. Before us, the Ld. AR has submitted that since the assessee was engaged in export and import activities, the hedging transactions were undertaken to minimize the forex risk. The Ld. AR also assailed the confirmation of other disallowances. 29. Having considered the submissions of Ld. AR, we are of the opinion that all these issues are to be restored back to the file of Ld. AO since the assessee did not make any representation before Ld. CIT(A). The other appeals of the assessee, on similar issues, have also been restored back by us to the file of Ld. AO. Accordingly, the issue of additions on merits stand restored back to the file of Ld. AO for fresh adjudication with a direction to the assessee to substantiate its claim. The appeal stand allowed for statistical purposes. Conclusion 30. The revenue’s appeals stand dismissed. The assessee’s appeal for AYs 2011-12 to 2013-14 stands partly allowed for statistical purposes. The assessee’s appeal for AY 2008-09 stands allowed for statistical purposes. Order pronounced on 05 th April, 2022 Sd/- (V. DURGA RAO) Ɋाियक सद˟ /JUDICIAL MEMBER Sd/- (MANOJ KUMAR AGGARWAL) लेखा सद˟ /ACCOUNTANT MEMBER चेɄई/ Chennai; िदनांक/ Dated : 05-04-2022 JPV आदेशकीŮितिलिपअŤेिषत/Copy of the Order forwarded to : 1. अपीलाथᱮ/Appellant 2. ᮧ᭜यथᱮ/Respondent 3. आयकरआयुᲦ (अपील)/CIT(A) 4. आयकरआयुᲦ/CIT 5. िवभागीयᮧितिनिध/DR 6. गाडᭅफाईल/GF