ACIT, New Delhi V. M/s. Nagar Dairy Pvt. Ltd., New Delhi

ITA 5471/DEL/2015

AI Insights

The case involves multiple appeals and cross objections related to the assessments made under section 153C of the Income Tax Act, 1961, against Nagar Dairy Pvt. Ltd. for the Assessment Years 2007-08, 2008-09, and 2009-10. The assessments were based on documents seized during a search operation at the premises of Sanya Group, which were alleged to be linked to Nagar Dairy Pvt. Ltd. The primary legal contention was whether the assessments were validly made under section 153C, given that the seized documents did not pertain to the years under assessment and lacked incriminating evidence. The Tribunal examined the procedural compliance with section 153C and the substantive evidence used for the assessments.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 122107 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 16-10-2022
• Assessment Year: misc
• Appeal Filed On: 06-05-2017
• Other Referred Cases: Pr. Commissioner of Income Tax, Delhi Vs. N. S. Software (Firm), CIT Vs. Calcutta Knitwears, Super Malls Pvt. Ltd. Vs. ACIT, ACIT Vs. Anush Finlease & Construction (P.) Ltd., PCIT Vs. Index Securities (P.) Ltd., CIT Vs. Kabul Chawla
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Search and seizure; Document seized; Deemed dividend; Assessment record; Documents seized
• Section: 40A(3); 133A; 153A; 2(22)(e); 250; 274; 191; 264; 43; 13; 153; 153C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘A’ NEW DELHI BEFORE DR. B. R. R. KUMAR, ACCOUNTANT MEMBER AND SH. YOGESH KUMAR U.S., JUDICIAL MEMBER I.T.A. No. 5471/DEL/2015 (A.Y 2007-08) ACIT Central Circle-15, Room No. 353, E-2, ARA Centre, Jhandewalan Extension, New Delhi (APPELLANT) Vs Nagar Dairy Pvt. Ltd. D-3/10, Paschim Marg Vasant Vihar, New Delhi AABCN7304C (RESPONDENT) I.T.A. No. 5472/DEL/2015 (A.Y 2008-09) ACIT Central Circle-15, Room No. 353, E-2, ARA Centre, Jhandewalan Extension, New Delhi (APPELLANT) Vs Nagar Dairy Pvt. Ltd. D-3/10, Paschim Marg Vasant Vihar, New Delhi AABCN7304C (RESPONDENT) I.T.A. No. 5473/DEL/2015 (A.Y 2009-10) ACIT Central Circle-15, Room No. 353, E-2, ARA Centre, Jhandewalan Extension, New Delhi (APPELLANT) Vs Nagar Dairy Pvt. Ltd. D-3/10, Paschim Marg Vasant Vihar, New Delhi AABCN7304C (RESPONDENT) C.O No. 26/Del/2016 (In I.T.A. No. 5471/DEL/2015 (A.Y 2007-08) Nagar Dairy Pvt. Ltd. D-3/10, Paschim Marg Vasant Vihar, New Delhi AABCN7304C (APPELLANT) Vs ACIT Central Circle-15, Room No. 353, E-2, ARA Centre, Jhandewalan Extension, New Delhi (RESPONDENT) 2 ITA Nos. 5471 to 5473/Del/2015 C.O. Nos. 26 to 28/Del/2016 Nagar Dairy Pvt. Ltd. C.O No. 27/Del/2016 (In I.T.A. No. 5472/DEL/2015 (A.Y 2008-09) Nagar Dairy Pvt. Ltd. D-3/10, Paschim Marg Vasant Vihar, New Delhi AABCN7304C (APPELLANT) Vs ACIT Central Circle-15, Room No. 353, E-2, ARA Centre, Jhandewalan Extension, New Delhi (RESPONDENT) C.O No. 28/Del/2016 (In I.T.A. No. 5473/DEL/2015 (A.Y 2009-10) Nagar Dairy Pvt. Ltd. D-3/10, Paschim Marg Vasant Vihar, New Delhi AABCN7304C (APPELLANT) Vs ACIT Central Circle-15, Room No. 353, E-2, ARA Centre, Jhandewalan Extension, New Delhi (RESPONDENT) ORDER Per Yogesh Kumar U.S, Judicial Member: These appeals have been filed by the Revenue and the Cross Objections have been filed by the assessee against the order dated 12/06/2015 passed by the Ld.CIT(A) –XVI, New Delhi for Assessment Years, 2007-08, 2008-09 & 2009-10 respectively. Since, the issue involved in all the appeals and the Cross Objections are identical, they were heard together and being adjudicated by a common order. Assessee by Sh. Rajat Jain, CA & Sh. Akashat Jain, CA Revenue by Sh. P Praveen Sidharth, CIT DR Date of Hearing 17 & 18.10.2022 Date of Pronouncement 23.11.2022 3 ITA Nos. 5471 to 5473/Del/2015 C.O. Nos. 26 to 28/Del/2016 Nagar Dairy Pvt. Ltd. 2. In ITA No. 5471/Del/2015, following grounds have been raised by the Revenue: “1. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting the addition of Rs. 59,37,13,167/- on account of unexplained purchases while holding that the books of accounts of the assessee were defective. 2. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting the addition on account of unexplained purchases of Rs. 59,37,13,167/- and substituting the same with GP addition of 0.20% amounting to Rs. 12,53,273/- only, which was without any basis. 3. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in not upholding the action of the AO in disallowance of Rs.36,67,44,756/- u/s 40A(3) of the Act and in holding that no addition was made by the AO u/s 40A(3) whereas the AO had categorically mention this addition in the order and also initiated penalty u/s 271(1)(c); though no separate addition was made considering the disallowance of higher amount on account of bogus purchases. 4. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in adjudicating the addition made under section 40A(3) of the Act when the assessee had not taken any ground in this respect. 5. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in misinterpreting the provisions of Rule 6DD of the I.T. Rules read with section 40A(3) of the Act and in observing that no disallowance u/s 40A(3) can be made in case of GP addition, when the AO had not made any GP addition. 6. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in restricting the disallowance of 30% of transportation expense to 10% only without appreciating that the assessee had itself agreed to disallowance of 20% of transportation expense in the regular assessment of A.Y. 2005-06.” 4 ITA Nos. 5471 to 5473/Del/2015 C.O. Nos. 26 to 28/Del/2016 Nagar Dairy Pvt. Ltd. C.O No. 26, 27, 28 /Del/2016 3. Grounds in CO No.26/Del/2016 for ready reference: “1. That in the facts and circumstances of the case, the Ld. CIT(A) erred in law in upholding the validity of assumption of jurisdiction by the AO under section 153C of the Income tax Act, 1961 (hereinafter referred as the “Act”) even without complying with the mandatory requirement of recording of satisfaction by the AO of the searched person as envisaged under section 153C of the “Act” and therefore, the assessment is bad in law and deserves to be quashed. 2. That in the facts and circumstances of the case, the Ld. CIT(A) erred in not appreciating the fact that it is apparent from the satisfaction recorded under section 153C by the AO of the assessee and the appellate order that no document belonging to the assessee, which is relevant for Assessment Year 2007 - 08 has been seized and therefore, initiation of proceedings under section 153C of the “Act” itself is bad in law and deserves to be quashed. 3. That in the facts and circumstances of the case, the Ld. CIT(A) erred in fact and in law as the seized document / assets do not reflect any undisclosed income of the respondent for the impugned Assessment Year, for which the assessment had already been concluded and was not pending on the date of recording satisfaction under section 153C, therefore the assessment order passed under section 153C of the Act is bad in law and deserves to be quashed. 4. That in the facts and circumstances of the case, the Ld. CIT(A) erred in law that it is beyond the scope of provisions of Section 153C read with Section 153A of the “Act” to make / confirm GP Addition 5 ITA Nos. 5471 to 5473/Del/2015 C.O. Nos. 26 to 28/Del/2016 Nagar Dairy Pvt. Ltd. and also confirming additions to income on ad-hoc disallowances of certain expenditure i.e. (a) ad-hoc estimated disallowance of Rs. 2,27,000/- being 20% of transportation expenses made by the AO without there being any incriminating material on record. (b) ad-hoc estimated disallowance of Rs 90,000/- being 10% of certain administrative expenses made by the AO without there being any incriminating material on record. (c) ad-hoc estimated disallowance of Rs 8,53,084/- being 15% of paddy husk expenses made by the AO without there being any incriminating material on record.” 4. A search and seizure operation u/s 132(1) of the Income Tax Act, 1961 (‘Act’ for short) was conducted on 17/09/2010 in the case of Sanya Group. The assessee being one of the group case of M/s Nagar Dairy and the case was also covered u/s 133A of the Act. During the course of search and seizure operation at the business premises of M/s AIMS Promoters Pvt. Ltd. certain documents relating to the assessee company were found and seized which have been impact on income of the assessee. As per the A.O., the case of the assessee has been covered u/s 153C of the Act. Accordingly, notice u/s 153C was issued on 26/09/2011 and the assessment was completed on 28.03.2013 u/s 153C. 5. Aggrieved by the additions made in the assessment orders , the assessee has preferred appeals before the ld. CIT(A), wherein the assessee apart from challenging the assessment order on merit, has also challenging the validity of assumption of jurisdiction by the A.O u/s 153C of the Act. 6. The three separate assessment orders have been passed u/s 153/144 of 6 ITA Nos. 5471 to 5473/Del/2015 C.O. Nos. 26 to 28/Del/2016 Nagar Dairy Pvt. Ltd. the Act on 28/03/2013 for the Assessment Year 2007-08, 2008-09 & 2009-10 respectively by computing the total income of the assessee as under:- S. No Particulars of the disallowance made by the A.O. A.Y 2007-08 A.Y 2008-09 A.Y 2009-10 1 Unexplained Purchases 59,37,13,167 88,69,78,986 127,31,85,097 2 Administrative & distribution exp (less: Transportation exp.) 8,74,293 11,94,805 10,57,572 3 transportation exp. 22,70,005 24,39,220 33,37,624 4 Financial Charges 27,38,767 41,27,410 44,36,556 5 Purchase & Operative expenses 45,27,027 49,09,46 1,01,24,141 6. Deemed dividend 9,56,634/- 7. As against the assessment orders for the Assessment Years 2007-08 to 2009-10 the assessee has preferred three separate appeals before the CIT(A) has partly allowed the appeal, wherein the Ld. CIT(A) has deleted the additions made under unexplained purchases and also deleted the disallowance claimed under financial charges. In so far as administrative and distribution expenses, transport expenditure, purchase and operative expenses the Ld. CIT(A) has sustained partial expenses by ad-hoc estimation. Ground No. 1 of the C.O 8. The Ld. Counsel for the assessee submitted that the assessment order has been completed without complying with the mandatory requirement of recording satisfaction by the A.O. of searched person as required u/s 153C of the Act. Therefore, the entire assessment proceedings will be vitiated. The Ld. Counsel has also taken us through the documents produced in the paper books and also relied on several judicial pronouncements. 9. Per contra, the Ld. DR has relied on the assessment orders and vehemently opposed to the argument of the Ld. AR. 10. A search and seizure operation u/s 132(1) of the Act was conducted on 17/09/2010 in the case of Sanya Group of cases. The case of the assessee was 7 ITA Nos. 5471 to 5473/Del/2015 C.O. Nos. 26 to 28/Del/2016 Nagar Dairy Pvt. Ltd. covered u/s 133A. The Ld.CIT(A) after examining the assessment records held that no satisfaction u/s 153C has been recorded by the A.O. of the searched person and the satisfaction u/s 153C has been recorded by the A.O. of the assessee on 26/09/2012. A copy of the satisfaction note for issuing notice 153C of the I.T Act for the Assessment Years 2007-08 to 2009-10 along with the covering letter of the Deputy Commissioner of Income Tax has been made available in Paper Book Page No. 58 to 59 which are reproduced hereunder:- Notice u/s 153C: 8 ITA Nos. 5471 to 5473/Del/2015 C.O. Nos. 26 to 28/Del/2016 Nagar Dairy Pvt. Ltd. Satisfaction Note 11. The Ld. CIT(A) while dealing with the appeal and on analyzing the above facts based on the material on record found that “ there was nothing on record to suggest that A.O. of the searched party did not prepare the satisfaction note u/s 153C in the case of the assessee as alleged by it.” 12. The Hon’ble Delhi High Court in the case of Pr. Commissioner of Income Tax, Delhi Vs. N. S. Software (Firm) [2018] 93 taxman.com 21 (Delhi) in an identical situation the Jurisdictional High Court held that even if the Assessing Officer of the searched person is the same as Assessing Officer person to whom document belonged, separate satisfaction notes must be recorded and since Assessing Officer failed to record specific satisfaction as to how recovered material belonged to assessee, assessment u/s 153C was unjustified. The relevant portion is reproduced as under:- 9 ITA Nos. 5471 to 5473/Del/2015 C.O. Nos. 26 to 28/Del/2016 Nagar Dairy Pvt. Ltd. “23. This court concurs with the impugned order. In the present case, the Ld. AO has not explained steps taken by him to determine that the seized material belonged to the Assessee Firm. The satisfaction note has been prepared in a standard mechanical format and it does not provide any details about the books of accounts which allegedly belong to the Assessee Firm. Most importantly, a satisfaction note was not recorded by the AO of Sh. Narendra Kumar from whose premises the documents were seized. In light of the decision in Nikki Drugs and Chemicals Pvt. Ltd. it is now a settled proposition of law that even if the Assessing Officer for the person from whose premises the documents are seized is the same as the Assessing Officer for the person to whom the document belongs, separate satisfaction notes must be recorded. Here the AO‟s note nowhere reflects whether any document seized, on application of his mind, disclosed that it belonged to the assessee, and if so, its prima facie nature. Whilst an AO of the searched party and that of the individual under Section 153C may be the same, nevertheless at the stage of sending notice under Section 153C, the AO has to record a specific reason or reasons, why the material seized from the other person has a nexus to the assessee, to whom the notice under that provision is addressed. In this case, this never happened. Thus, for the previous years, the rule in Commissioner of Income Tax v Kabul Chawla 380 ITR 573 (Del), i.e., that in the absence of any incriminating materials, the previous years‟ assessments cannot be disturbed, applies.” 13. Further, Hon’ble Supreme Court in the case of CIT Vs. Calcutta Knitwears [2014] 43 taxmann.com 446 has settled the law that “satisfaction note is sine qua non and must be prepared by the assessing officer before he transmits the records to the other assessing officer who has jurisdiction over such other person.’ 14. Even in the present case, no separate satisfaction has been recorded by the A.O. of the searched person by complying the provisions of Section 153C of the Act which has been specifically observed by the Ld. CIT(A). 10 ITA Nos. 5471 to 5473/Del/2015 C.O. Nos. 26 to 28/Del/2016 Nagar Dairy Pvt. Ltd. 15. On this issue, we have gone through the judgment of Hon’ble Apex Court in the case of Super Malls Pvt. Ltd. in CA No. 2006 to 2007 of 2020 relied upon by the ld. DR. The salient features of the judgment are as under: “S. 153C: Compliance with the requirements of s. 153C is mandatory. • If the AO of the searched person is different from the AO of the other person, the AO of the searched person is required to transmit the satisfaction note & seized documents to the AO of the other person. • He is also required to make a note in the file of the searched person that he has done so. However, the same is for administrative convenience and the failure by the AO of the searched person to make a note in the file of the searched person, will not vitiate the proceedings u/s 153C. • If the AO of the searched person and the other person is the same, it is sufficient for the AO to note in the satisfaction note that the documents seized from the searched person belonged to the other person. Once the note says so, the requirement of s. 153C is fulfilled. • In such case, there can be one satisfaction note prepared by the AO, as he himself is the AO of the searched person and also the AO of the other person. However, he must be conscious and satisfied that the documents seized/recovered from the searched person belonged to the other person. In such a situation, the satisfaction note would be qua the other person. The requirement of transmitting the documents so seized from the searched person would not be there as he himself will be the AO of the searched person and the other person and therefore there is no question of transmitting such seized documents to himself.” 11 ITA Nos. 5471 to 5473/Del/2015 C.O. Nos. 26 to 28/Del/2016 Nagar Dairy Pvt. Ltd. 16. The relevant part of the order of the Hon’ble Apex Court is as under: “6.1 It cannot be disputed that the aforesaid requirements are held to be mandatorily complied with. There can be two eventualities. It may so happen that the Assessing Officer of the searched person is different from the Assessing Officer of the other person and in the second eventuality, the Assessing Officer of the searched person and the other person is the same. Where the Assessing Officer of the searched person is different from the Assessing Officer of the other person, there shall be a satisfaction note by the Assessing Officer of the searched person and as observed hereinabove that thereafter the Assessing Officer of the searched person is required to transmit the documents so seized to the Assessing Officer of the other person. The Assessing Officer of the searched person simultaneously while transmitting the documents shall forward his satisfaction note to the Assessing Officer of the other person and is also required to make a note in the file of a searched person that he has done so. However, as rightly observed and held by the Delhi High Court in the case of Ganpati Fincap (supra), the same is for the administrative convenience and the failure by the Assessing Officer of the searched person, after preparing and dispatching the satisfaction note and the documents to the Assessing Officer of the other person, to make a note in the file of a searched person, will not vitiate the entire proceedings under Section 153C of the Act against the other person. At the same time, the satisfaction note by the Assessing Officer of the searched person that the documents etc. so seized during the search and seizure from the searched person belonged to the other person and transmitting such material to the Assessing Officer of the other person is mandatory. However, in the case where the Assessing Officer of the searched person and the other person is the same, it is sufficient by the Assessing Officer to note in the satisfaction note that the documents seized from the searched person belonged to the other person. Once the note says so, then the requirement of Section 153C of the Act is fulfilled. In case, where the Assessing Officer of the searched person and the other person is the same, there can be one satisfaction note prepared by the Assessing Officer, as he himself is the Assessing Officer of the searched person and also the Assessing Officer of the other person. However, as observed hereinabove, he must be conscious and satisfied that the documents seized/recovered from the searched person 12 ITA Nos. 5471 to 5473/Del/2015 C.O. Nos. 26 to 28/Del/2016 Nagar Dairy Pvt. Ltd. belonged to the other person. In such a situation, the satisfaction note would be qua the other person. The second requirement of transmitting the documents so seized from the searched person would not be there as he himself will be the Assessing Officer of the searched person and the other person and therefore there is no question of transmitting such seized documents to himself.” 17. Hence, in keeping in view the facts of the case and the judgment of the Hon’ble Apex Court and the satisfaction recorded by the ACIT, Central Circle- 21 who is the common AO of the searched person and the other person, the ground raised by the assessee are liable to be dismissed. Ground No. 2 & 3 18. The Ld. Counsel for the assessee contended that, the search was conducted on 17/09/2010 and satisfaction u/s 153C had been recorded by the A.O. in the case of the assessee for the AY 2007-08 to 2009-10 on 26/09/2012. The Ld. A.O while framing the assessment for the AY 2007-08 to 2009-10 made additions of unexplained purchases and ad-hoc estimated allowances of expenses. The alleged documents were seized during the search are not pertaining to the assessment year 2007-08 to 2009-10 and the same is belongs to Assessment years 2010-11 & 2011-12. The assessments have already been concluded and was not pending on the date of recording satisfaction u/s 153C of the Act. Therefore, the assessment order u/s 153C of the Act is bad in law. 19. The Ld. DR who has vehemently argued and relied on the assessment orders for the years under consideration. 20. As per the seized paper 34 of Annexure A-2 and page 37 of Annexure A-3 which are containing vouchers showing payment in cash for purchase of milk for AY 2010-11 & 2011-12 pertaining to the assessee. Admittedly the alleged documents were seized during the search are not pertaining to the assessment 13 ITA Nos. 5471 to 5473/Del/2015 C.O. Nos. 26 to 28/Del/2016 Nagar Dairy Pvt. Ltd. year 2007-08 to 2009-10 and the same is belongs to Assessment years 2010- 11 & 2011-12. But the Ld. A.O. has made additions even the years under consideration i.e. 2007-08 to 2009-10. The initiation of the proceedings u/s 153C of the Act by the Assessing Officer should be related to assessment year sought to be reopened. As discussed above the additions made for the Assessment Year 2007-08 to 2009-10 is not related to the document found during the search. 21. The Co-ordinate Bench of the Tribunal in the case of ACIT, Vs. Anush Finlease & Construction (P.) Ltd. [2019] 104 taxmann.com 295 (Delhi-Trib.), relying on the judgment of Jurisdictional High Court in the case of PCIT Vs. Index Securities (P.) Ltd. [2017] 86 taxmann.com 84 held as under:- “6. Thus, it is not in dispute that the only material on the basis of which proceedings u/s 153C were initiated was the audited balance sheet and financial statements of the assessee for the year ended on 31st March, 2009. That Hon'ble Jurisdictional High Court has considered identical issue in the case of Index Securities Private Limited (supra) and held as under :- "30. In the present case, the documents seized were the trial balance and balance sheets of the two Assessees for the period 1st April to 13th September 2010 (for ISRPL) and 1st April to 4th September 2010 (for VSIPL). Both sets of documents were seized not from the respective 5 ITA-6576/D/2013 & C.O. No.300/D/2016 Assessees but from the searched person i.e. Jagat Agro Commodities (P) Ltd. In other words, although the said documents might 'pertain' to the Assessees, they did not belong to them. Therefore, one essential jurisdictional requirement to justify the assumption of jurisdiction under Section 153 C of the Act was not met in the case of the two Assessees. 31. As regards the second jurisdictional requirement viz., that the seized documents must be incriminating and must relate to the AYs whose assessments are sought to be reopened, the decision of the Supreme Court in Commissioner of 14 ITA Nos. 5471 to 5473/Del/2015 C.O. Nos. 26 to 28/Del/2016 Nagar Dairy Pvt. Ltd. Income Tax-III, Pune v. Sinhgad Technical Education Society (supra) settles the issue and holds this to be an essential requirement. The decisions of this Court in CIT-7 v. RRJ Securities (2016) 380 ITR 612 (Del) and ARN Infrastructure India Limited v. ACIT [2017] 394 ITR 569 (Del) also hold that in order to justify the assumption of jurisdiction under Section 153 C of the Act the documents seized must be incriminating and must relate to each of the AYs whose assessments are sought to be reopened. Since the satisfaction note forms the basis for initiating the proceedings under Section 153 C of the Act, it is futile for Mr Manchanda to contend that this requirement need not be met for initiation of the proceedings but only during the subsequent assessment." 7. That in paragraph 31 above, their Lordships have pointed out the document must be incriminating and it must relate to the assessment year whose assessments are sought to be reopened. In this case, admittedly, the document was relating to assessment year 2009-10 while the assessment reopened is for 2010- 11. Therefore, the requirement that the document should relate to the assessment year sought to be reopened is not fulfilled. Moreover, how the audited balance sheet and financial statements of the assessee are incriminating material has also not been proved. In view of the above, we are of the opinion that on the facts of the assessee's case, the above decision of Hon'ble Jurisdictional High Court would be squarely 6 ITA-6576/D/2013 & C.O. No.300/D/2016 applicable. Respectfully following the same, we quash the initiation of proceedings u/s 153C and consequentially, the impugned assessment order is also quashed. Once the assessment order itself has been quashed, the Revenue's appeal does not survive for adjudication.” 22. Further, in the instant case, it is a fact on record that search was conducted on 17/09/2010 and satisfaction u/s 153C has been recorded by the A.O. in the case of assessee for the Ay 2005-06 to 2010-11 on 26/09/2012. The case of the relevant AY i.e. AY 2007-08, 2008-09 & 2009-10 could not be abated on the date of search. The A.O has made the additions of the 15 ITA Nos. 5471 to 5473/Del/2015 C.O. Nos. 26 to 28/Del/2016 Nagar Dairy Pvt. Ltd. unexplained purchases and ad-hoc estimated disallowances of expenses. The said addition of unexplained purchase were made on the basis that the notices issued u/s 136(6) to the purchase parties were not complied by them, addition of expenses were made on ad-hoc estimation and were not made on the basis of any incriminating seized material. It is evident that no additions were made on the basis of incriminating material found during the course of search and seizure operation relevant to the Assessment years under consideration and the case of the assessee was already assessed which could not be abate on the date of search. 23. In the present case, the alleged documents were seized during the search are not pertaining to the assessment year 2007-08 to 2009-10 and the same is belongs to Assessment years 2010-11 & 2011-12, therefore, the addition made by the A.O. for the years under consideration i.e. 2007-08 to 2009-10 cannot be sustained by applying the ratio laid down in the case of ACIT, Vs. Anush Finlease & Construction (P.) Ltd. [2019] 104 taxmann.com 295 (Delhi-Trib.), PCIT Vs. Index Securities (P.) Ltd. [2017] 86 taxmann.com 84, CIT Vs. Kabul Chawla (380 ITR 573). Thus, it is clear that the satisfaction though recorded was not based on the material relevant to the year in question and also the additions made were not based on the incriminating material found and seized during the course of search u/s 132. 24. Accordingly, Ground No. 2 & 3 of the C.O. No. 26, 27 & 28/Del/2016 filed by the assessee are allowed. 25. In the result, the assessment order passed for the AY 2007-08, 2008-09 & 2009-10 are liable to be quashed. 26. For the sake of completeness, we have gone through the additions made by the AO and the merits of the issues. The AO has treated the purchases u/s 40A(3) but no addition has been made under this section. The same purchases 16 ITA Nos. 5471 to 5473/Del/2015 C.O. Nos. 26 to 28/Del/2016 Nagar Dairy Pvt. Ltd. have been treated as unexplained purchases owing to purported lack of identity, genuineness and creditworthiness of the parties from whom the milk purchase was made. Aggrieved with the addition on account of purchases of milk made by the AO, the assessee filed appeal before the ld. CIT(A). Disallowance of purchases u/s 40A(3) - not added by the AO. 27. The ld. CIT(A) on page 274 of the appellate order dated 12.06.2015 has observed that the provisions of Section 40A(3) of the Act is not attracted where the parties are identified and there is no material on record to doubt the genuineness of payments. - in this regard reference is made to the judgment of Hon’ble Supreme Court in the case of Attar Singh Gurmukh Singh vs. ITO (1991) 191 ITR 667, 673 (SC). The ld. CIT(A) on page 230 has observed that “the appellant has submitted the details during the course of assessment proceedings u/s 153C to substantiate its claim that all the payments in excess of Rs. 20,000/- were made on holidays, etc. as per Rule 6DD. The appellant has also furnished the total purchases of milk in cash under the exemption provided by Rule 6DD.” 28. The ld. CIT(A) on page 281 & 282 has observed that suppliers of milk has also confirmed the fact of receiving cash payments on Sundays and after the working hours of bank during their interrogation on oath in the presence of AO in the proceedings held u/s 250 and therefore covered by the provisions of Rule 6DD. It has been further observed that on reference to the calendar enclosed with the submissions in this regard the claim of the appellant was not found to be erroneous. All the cash payments made to the above parties in excess of Rs. 20,000/- were either made on Sundays or early morning or evenings when the bank remained closed. The tax auditor, who audited the appellant’s books of account, also mentioned that the payments made in excess of Rs. 20,000/- were covered by the provisions of Rule 6DD of Income tax Rules, 1962. 17 ITA Nos. 5471 to 5473/Del/2015 C.O. Nos. 26 to 28/Del/2016 Nagar Dairy Pvt. Ltd. 29. The ld. CIT(A) on page 285 & 286 has observed that AO was extremely unjust in estimating 40A(3) disallowances @ 65.14% contrary to the provisions of Law. There is no such provisions under the Income Tax Act, 1961 which confers authority on the AO to make addition u/s 40A(3) on estimated basis. Further, the ld. CIT(A) on page 224 in Para(iv) has observed that assessment made applying a flat gross profit rate, no disallowance possible invoking 40A(3). Thus when books of account of the appellant have been rejected and GP rate is applied, no addition under section 40A(3) of the Act could be survived. - CIT vs. Banwari Lal Banhidhar (1998) 229 ITR 232 (HC - All.). 30. Thus, the ld. CIT(A) has cogently brought on record about the fact of genuineness of the payment and applicability of Rule 6DD along with the relevant case laws. Under the above mentioned facts and circumstances, the CIT(A) at page no. 285 held that action of AO u/s 40A(3) is not upheld. Since, no addition has been made by the AO under this section holding that the addition has been made on account of unexplained purchases, any adjudication by the Tribunal would be only academic in nature. Addition on account of unexplained purchases: 31. The ld. CIT(A) has recorded the detailed statement of all the purchase parties on oath and came to a conclusion that the identity, genuineness and creditworthiness of the parties has been proved beyond doubt. The relevant part of the order of the ld. CIT(A) dated 12.06.2015 page no. 264 & 265 para (xvii) and (xviii) pertaining to this issue are as under: “All the parties who did not turn up during 153C proceedings were summoned u/s 131 by him and their statements were recorded in the presence of AO, Shree Rajesh Kumar, ACIT, Central Circle-15, New Delhi who failed to point out any anomalies or contradictions or falsities in their statements even though all such parties deposed on oath that they had supplied milk to the appellant both in 18 ITA Nos. 5471 to 5473/Del/2015 C.O. Nos. 26 to 28/Del/2016 Nagar Dairy Pvt. Ltd. cash as well as cheque. Thus the identity, genuineness and creditworthiness of all the parties in respect of whom sales (purchase by appellant) were held to be bogus by the AO u/s 153C became accomplished facts. Since under the overall circumstances, the correctness of the appellant’s claim had been established by furnishing relevant bills, bank statements........” 32. Hence, the identity, genuineness and creditworthiness of all the parties from whom purchases were made were proved beyond doubt. Hence, no addition is called for on this account. Ad-hoc estimation of GP @ 0.20% on sales by the CIT(A): 33. We find that the ld. CIT(A) himself held that there is no reason for doubting the purchases made and payment made in cash being the parties are identified and accepted that they have made sale to the appellant in cash and there is no doubt as regard to genuineness of corresponding sales effected by the appellant and rightly deleted the addition on account of unexplained purchases. Further, the ld. CIT(A) has verified the purchases by recording statement of suppliers of milk during the appellate proceedings in presence of AO and it is not the case of any inflation in price of the milk purchased by appellant as nothing incriminating was brought on record. Therefore, the action of the ld. CIT(A) to resort to ad-hoc estimation of GP @ 0.20% of total sales is arbitrarily and mechanical. Hence, the action of the ld. CIT(A) cannot be supported and is liable to be deleted. ITA No. 5472/Del/2015 : A.Y. 2008-09 ITA No. 5473/Del/2015 : A.Y. 2009-10 Similar to A.Y. 2007-08 34. For the sake of completeness, we have gone through the additions made by the AO and the merits of the issues. The AO has treated the purchases u/s 19 ITA Nos. 5471 to 5473/Del/2015 C.O. Nos. 26 to 28/Del/2016 Nagar Dairy Pvt. Ltd. 40A(3) but no addition has been made under this section. The same purchases have been treated as unexplained purchases owing to purported lack of identity, genuineness and creditworthiness of the parties from whom the milk purchase was made. Aggrieved with the addition on account of purchases of milk made by the AO, the assessee filed appeal before the ld. CIT(A). 35. We find that the issue is pertaining to purchases u/s 40A(3), addition on account of unexplained purchases are on the similar lines of the A.Y. 2007-08. The ld. CIT(A) has also dealt the issues in the similar manner after examination of the parties u/s 131 in the presence of the Assessing Officer concerned. Hence, we decline to interfere with the order of the ld. CIT(A) on this issue. 36. With regard to ad-hoc estimation of GP of 0.81% of the sales for the A.Y. 2008-09 and 0.50% on the sales for the A.Y. 2009-10 we hold that the adjudication and the ratio held for the A.Y. 2007-08 is applicable mutatis mutandis. ITA No. 5472/Del/2015 : A.Y. 2008-09 – Deemed dividend u/s 2(22)(e) 37. On this issue, we find that the assessee did not hold any shares in M/s AIMS Promoters Pvt. Ltd., therefore, the assessee is neither the registered nor beneficial shareholder of M/s AIMS Promoters Pvt. Ltd. 38. Further, the ld. CIT(A) has observed on page 324 & 325 of the appellate order that “.......the AO was totally unwarranted in adding the unsecured loan, treating it as deemed dividend u/s 2(22)(e) when the assessee company was not a registered shareholder in M/s AIMS Promoters Pvt. Ltd. Even otherwise the above issue was decided by me against the assessee’s company director Shri Malook Nagar, upholding the addition in the hands of Shri Malook Nagar,. Having regard to the above fact, the same amount is not considered fit for addition in two hands........” 20 ITA Nos. 5471 to 5473/Del/2015 C.O. Nos. 26 to 28/Del/2016 Nagar Dairy Pvt. Ltd. 39. In the absence of any dispute above the facts of the case that the recipient is not a registered shareholder, we decline to interfere with the reasoned order of the ld. CIT(A). 40. In the result, C.O. Nos. 26, 27 & 28/Del/2016 filed by the assessee are allowed, accordingly the Assessment Orders dated 28.03.2013 for the A.Y. 2007-08, A.Y. 2008-09 and A.Y. 2009-10 are quashed and the appeals of the Revenue in ITA No. 5471, 5472 & 5473/Del/2015 are stands dismissed. Order pronounced in the Open Court on this 23 rd Day of November, 2022 Sd/- Sd/- (Dr. B. R. R. KUMAR) (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 23/11/2022 Subodh Kumar, Sr. PS/R. Naheed * Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI