The ACIT Central-1, Indore V. Shakti Pumps9 India) Ltd, Indore

ITSSA 159/Ind/2021

AI Insights

The case involves Shakti Pumps (India) Ltd., which faced multiple additions under sections 10AA and 68 of the Income Tax Act, 1961, for the assessment years 2013-14 to 2016-17. The additions were primarily based on alleged discrepancies in the company's financial statements and transactions between its units in the Domestic Tariff Area (DTA) and the Special Economic Zone (SEZ). The CIT(A) deleted these additions, leading to the revenue's appeal to the ITAT. The ITAT upheld the CIT(A)'s decision for most years, citing lack of incriminating evidence and procedural inconsistencies, but remanded the issue of unexplained investment in stock for the year 2016-17 back to the AO for re-examination.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134568 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 27-04-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 13-11-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 24-11-2021
• Other Referred Cases: CIT v. Sinhgad Technical Education Society, Mechmen, Principal CIT & Ors V/s Meeta Gutgutia, Kamta Prasad Dwivedi, CIT v. Kabul Chawla, CIT v. Anil Kumar Bhatia, CIT v. Kurele Paper Mills (P) Ltd., CIT v. MGF Automobiles Ltd., CIT v. Ram AvtarVerma, CIT v. Best Infrastructure (India) (P) Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Unexplained investment; Gift; Transfer pricing; Income from undisclosed sources; International transaction; Question of law; Tax effect
• Section: 68; 69; 145; 132; 139; 143(3); 142(1); 10AA; 153A; 113; 13; 153; 22; 153C

Judgement Text

आयकर अपीलीय अिधकरण, इंदौर ायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER IT(SS)A No.158 to 161/Ind/2021 Assessment Year: 2013-14 to 2016-17 ACIT (Central)-1 Indore बनाम/ Vs. Shakti Pumps (India) Ltd. 226, Shastri Market, M.G. Road, Indore (Appellant / Revenue) (Respondent / Assessee) PAN: AAECS 5027 L Revenue by Shri P.K. Mishra, CIT-DR Assessee by Ms. Nisha Lahoti & Vijay Bansal, ARs Date of Hearing 14.11.2022 / 22.02.2023 Date of Pronouncement 28.04.2023 आदेश / O R D E R Per B.M. Biyani, AM: Feeling aggrieved by a consolidated appeal-order dated 11.08.2021 passed by learned Commissioner of Income-Tax (Appeals)-3, Bhopal [“Ld. CIT(A)”], which in turn arises out of a consolidated assessment-order dated 07.12.2018 passed by learned ACIT, Central-1, Indore [“Ld. AO”] u/s 153A/ 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2013-14 to 2015-16 and u/s 143(3)/144C for AY 2016-17, the revenue has filed these appeals. 2. All these appeals arise out of the common assessment-order of AO and common appeal-order of first appellate authority; therefore they were Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 2 of 40 heard together and are being disposed of by this common-order for the sake of convenience and brevity. 3. Heard the learned Representatives of both sides at length and case- records perused. 4. The registry has informed that that all these appeals have been filed after a delay of 18 days; therefore time-barred. Ld. DR prayed that the delay has occurred due to Covid-19 Pandemic. Ld. DR further placed reliance on the order of Hon’ble Supreme Court in Suo Motu Writ Petition (C) No. 3 of 2020 read with Misc. Applications, by which suo motu extension of the limitation-period for filing of appeals w.e.f. 15.03.2020 under all laws has been granted and hence there is no delay in fact. We confronted Ld. AR who agreed to the submission of Ld. DR. In view of this, the appeals are proceeded with for hearing, there being no delay. 5. Briefly stated the facts are such that the assessee is company engaged in the business of manufacturing of submersible pumps, mono block pumps, control panels and trading of accessories, etc. A search u/s 132 was conducted on assessee on 21.01.2016, pursuant to which the cases of 7 assessment-years being AY 2010-11 to 2016-17 were taken up for special assessments. Out of those 7 years, first three years i.e. AY 2010-11 to 2012- 13 were completed through a separate consolidated assessment-order dated 07.12.2017. Remaining 4 years i.e. AY 2013-14 to 2016-17 were referred to Transfer Pricing Officer (TPO) at Ahmedabad and ultimately their assessments were completed through another consolidated assessment- order dated 07.12.2018 wherein certain additions were made. Presently, we are concerned with 4 years i.e. AY 2013-14 to 2016-17. Being aggrieved by additions made by AO, the assessee went in first-appeal to CIT(A) and succeeded. Now, the revenue has filed these appeals assailing the order of first-appeal. 6. The grounds raised in these appeals are as under: Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 3 of 40 IT(SS)A No. 158/Ind/2021 – Revenue’s appeal for AY 2013-14: “(1) On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in deleting the addition of Rs. 6,63,77,170/- made on account of disallowance of exemption u/s 10AA and has overlooked the findings of the AO mentioned in the assessment-order. (2) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 1,96,52,923/- made on account of unexplained cash credit u/s 68 of the Act and has not overlooked the findings of the AO mentioned in the assessment- order.” IT(SS)A No. 159/Ind/2021 – Revenue’s appeal for AY 2014-15: (1) On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in and on the facts in deleting the addition of Rs. 6,36,91,550/- made on account of disallowance of exemption u/s 10AA and has overlooked the findings of the AO mentioned in the assessment-order. (2) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 2,99,23,746/- made on account of unaccounted income and has not overlooked the findings of the AO mentioned in the assessment-order.” IT(SS)A No. 160/Ind/2021 – Revenue’s appeal for AY 2015-16: (1) On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in and on the facts in deleting the addition of Rs. 6,66,61,135/- made on account of disallowance of exemption u/s 10AA and has overlooked the findings of the AO mentioned in the assessment-order. (2) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 6,73,01,659/- made on account of unaccounted income and has not overlooked the findings of the AO mentioned in the assessment-order.” IT(SS)A No. 161/Ind/2021 – Revenue’s appeal for AY 2016-17: (1) On the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in and on the facts in deleting the addition of Rs. 39,78,677/- made on account of disallowance of exemption u/s 10AA and has overlooked the findings of the AO mentioned in the assessment-order. (2) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 14,27,22,000/- made on account of unexplained investment u/s 69 of the act and has not overlooked the findings of the AO mentioned in the assessment- order.” Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 4 of 40 Ground No. 1 of all AYs: 7. These grounds involve the issue of exemption u/s 10AA. Precisely stated the facts qua this issue are such that the assessee is having two manufacturing units, one located in Domestic Tarrif Area (DTA) and other in Special Economic Zone (SEZ). The SEZ unit is eligible for exemption u/s 10AA. Both units are independent of each other; geographically located at distinct places; managed by separate staff; books of account are separately maintained; separate financial statements are prepared and separate profitability is ascertained although the assessee has also prepared consolidated financial statements. The assessee also filed Form 56F for 10AA exemption available for SEZ unit. The assessee has maintained books of account/accounting data in SAP ERP system. During assessment- proceeding, Ld. AO analysed the financial data of assessee and observed that the profit of SEZ unit was exaggerated by assessee (i) by over- invoicing/under-invoicing of transactions of sales/transfers by/between SEZ unit and DTA units, and (ii) by making a wrong allocation of expenses between SEZ units and DTA units. Finally, the Ld. AO disallowed full exemption of Rs. 6,63,77,170/-, Rs. 6,36,91,550/-, Rs. 6,66,61,135/- and Rs. 39,78,677/- claimed by assessee in AY 2013-14, 2014-15, 2015-16 and 2016-17 respectively. 8. During first-appeal, Ld. CIT(A) made a detailed analysis of the facts/evidences in the light of various judicial rulings and ultimately reversed the action of Ld. AO and allowed the exemption as claimed by assessee. We extract the order of Ld. CIT(A) below for an immediate reference: “4.4. Ground Nos. 11 to 19 for AY 2013-14 and 2014-15 and 10 to 18 for AY 2015-16 and 2016-17:- Through these grounds of appeal the appellant has challenged the additions made by the AO on account of disallowance of claim of exemption u/s 10AA of the IT Act, 1961 as tabulated below:- S.No. AY Disallowance of claim of exemption u/s 10AA by the Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 5 of 40 AO (Rs.) 1 2013-14 6,63,77,170 2 2014-15 6,36,91,550 3 2015-16 6,66,61,135 4 2016-17 39,78,677 TOTAL 20,07,08,532 4.4.1. The grounds raised by the appellant includes grounds on assessments being made in absence of any incriminating material found during the course of search proceedings relating to the impugned disallowance in respect of claim made u/s 10AA of the Act for each of the four years. The appellant referred to Para 9.2 of the assessment order to demonstrate that the AO had extracted the data for sale and purchases which were extracted from the SAP ERP system and that there is no reference to any incriminating material found and seized during the course of search operations of the appellant relating to the disallowance of claim u/s 10AA for the years under consideration. The appellant submitted that the AO has categorically noted in his show cause notice that on having gone through sales register of SPIL (the appellant), it was found that the sale of motor by DTA unit to SEZ unit was at a lower rate. Data in SAP system is the accounted data which has been duly reported and disclosed before various regulatory authorities including SEBI – Stock Exchanges, Sales Tax Department, Income Tax Department since AY 2010-11 and AY 2011-12 were assessed u/s 143(3) prior to search wherein books of account were produced and verified by the then AO. In fact, Ld. CIT(A)-2, Indore had given relief by deleting the addition made by the AO towards claim of exemption u/s 10AA. There is no incriminating material corroborating any unaccounted / undisclosed income in the hands of the appellant. 4.4.2. The submission of the appellant is that the books of account so referred by the AO have not been rejected in the assessment proceedings. It is only on perusal of the audited financial statements furnished by the assessee in the assessment proceedings that the AO drew the table seeking explanation on the various expenditures of DTA and SEZ units in para (3) of the show cause notice reproduced in Para 9.2 of the assessment order. Further, submitted that the instance which the AO referred in Para (4) of his show cause notice is from the sales register. Importantly, the data pertains to AY 2016-17 which has been taken as the basis for making the disallowance for the three years under present appeals. The date of invoices mentioned in the said table of his show cause notice is 02.05.2015. Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 6 of 40 4.4.3. From the perusal of the factual noting in the assessment order, the appellate orders by CIT(A)-2 and CIT(A)-3, Indore in appellant’s own case, the show cause notice issued by the AO, the audited financial statements and the detailed explanation given in the written submission by the counsel of the appellant, I do agree with contentions of the appellant that the AO has based all of his enquiry in the assessment proceedings relating to claim of exemption u/s 10AA of the Act for all the years under consideration on the basis of accounted data extracted from the ERP SAP system in place with the appellant. All the references by the AO are on the data of Sales Register and various expenses in SAP system. The AO has not rejected the books of account and has accepted the book results for the purpose of making the disallowance of claim of exemption u/s 10AA of the Act in toto for all the years under consideration which do not have any nexus / reference to incriminating material relating to the claim u/s 10AA specific for these years. It is also an undisputed fact that the same books of account had been verified by the then AO at the time of making assessment u/s 143(3) for AY 2010-11 and 2011-12 for which relief was given in the first appellate stage on the merits of the case. It is also an undisputed fact that appellant is a public company listed on recognized stock exchanges of BSE and NSE regularly reporting and disclosing its financial results as per the SEBI and Stock Exchange compliance requirements from its accounting data in SAP system. Further, the appellant has replied and explained all the queries raised by the AO during the course of assessment proceedings vide questionnaire to notice u/s 142(1) and other queries as is evident from various written submissions placed on record in the voluminous Paper Books contained in fourteen volumes. All the explanations were furnished on the seized material and there is nothing incriminating found and seized in relation to the disallowance of claim of exemption u/s 10AA made by the AO for all the years under assessment. It is also factually noted that based on one instance referred by the AO in Para (4) of his show cause notice as extracted by him from the sales register which pertains to AY 2016-17, blanket disallowance has been made for all the years i.e. 2010-11 to 2016-17. I do not find any merit in the approach of the AO of making the blanket disallowance for AYs 2010-11 to 2016-17 by referring to one instance of the accounted invoices relating to AY 2016-17. 4.4.4. Further, basis of disallowance of claim u/s 10AA is that lower price is being charged while transferring motors from DTA unit to SEZ unit leading to shifting of profits from DTA to SEZ unit. For this reason, reference to TPO was made to determine the ALP of SDTs and International Transactions. As I understand, once the TPO has made upward adjustments to the transfer prices by which these are brought to arm’s length, there remains no occasion for the AO to dislodge the claim u/s 10AA in totality by holding that there is profit shifting. Grounds of appeal relating to upward adjustments made by the TPO in Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 7 of 40 respect of SDTs and International Transactions for all the four years have been sustained in Para 6 above and accordingly the very basis of making the disallowance of claim u/s 10AA no longer remains. 4.4.5. The appellant stated in its submission that the AO has referred to a letter addressed to Development Commissioner SEZ and the permission received thereon as mentioned in Para (5) of his show cause notice which is not an incriminating material. Moreover, appellant stated that permission received from the office of Development Commissioner, SEZ itself is good evidence which establishes that the AO carried misconceived notions and his finding is based solely on surmises and conjectures. The fact is that the SEZ authorities have not found anything contrary and gave the required permission to the assessee for its SEZ unit operations. 4.4.6. It is further submitted that the appellant had sought a clarification from the office of Director General of Foreign Trade (DGFT), Department of Commerce, Government of India on the aspect of ‘pump set’, ‘pump’ and ‘motor’ while claiming benefit of Focus Product Scheme Benefits. The office of DGFT clarified vide its letter dated 12.10.2012 on the matter and stated – “DEPB committee in its meeting dated 29.12.2011 has also decided that “Submersible Motor” is a part of submersible water pumpset which is covered under ITC HS 84139120 and therefore, is eligible for FPS benefits.” It noted in the said letter that clarification letter was issued with the approval of DGFT according to which ‘submersible motor’ is considered to be part and parcel of the ‘pump set’ and not as a separate product. Per this clarification from DGFT, the motor and pump are to be classified under the same classification code – ‘Primarily designed to handle water’. On perusal of the documents it is evident that there is nothing incriminating about these correspondences with the Government authorities and clarifies the correct position in relation to the line of products dealt by the appellant. From these documents it is brought out that submersible motor is a part of submersible water pumpset which the appellant has explained correctly. 4.4.7. To demonstrate absence of reference to any incriminating material by the AO on the issue of misappropriation of various expenses between SEZ and DTA units, the appellant pointed out in its submission that while dealing with this issue the AO mentioned in para 9.18 that “During the course of assessment proceedings it is noticed that the assessee has made Misappropriation of expenses, which is clear from the following table..........” and in para 9.19 that “From the above table it is evident that expenditure of DTA unit is inflating and the same for SEZ unit is reducing.” Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 8 of 40 4.4.8. It is also pointed by the appellant in this respect that the table on various expenses produced in the show cause notice pertains to one specific year i.e AY 2010-11, whereas the allegation of misappropriation of expenses between SEZ and DTA units has been imposed for all the years under consideration which is on the basis of this table for one year. Further, the appellant submitted that issue of misappropriation of various expenses was exhaustively dealt in the original assessment u/s 143(3) for AY 2010-11 and 2011-12 and Hon’ble CIT(A) – 2, Indore had deleted the additions made by the AO on this basis. Further, disallowance of claim of section 10AA for AY 2010-11, 2011-12 and 2012-13 made in the assessments completed u/s 153A have been allowed by the Hon’ble CIT(A)-3, Indore by giving objective and meritorious finding. Appellant emphasized that the disallowance is not based on reference to any incriminating material found and seized during the course of search which relates to the allegation of misappropriation of expenses between SEZ and DTA units and thereby making impugned disallowance u/s 10AA of the Act for the years under consideration. Appellant submitted with force that in the search assessment made u/s 153A of the Act, any undisclosed income, which can ultimately be added, is only to the extent of any unrecorded assets/material found or any incriminating documents found as representing undisclosed income earned. 4.4.9. On the contention of the appellant that no addition is warranted in the absence of incriminating material, the appellant laid its reliance on the decision of Hon’ble Apex Court in the case of CIT v. Sinhgad Technical Education Society [2017] 84 taxmann.com 290 (SC) wherein in Para 18, the Hon’ble Supreme Court held – “......In this behalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co- relation, document-wise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the satisfaction note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also give its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the Respondent, argued that Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 9 of 40 notice in respect of assessment years 2000-01 and 2001-02 was even time barred” [emphasis supplied] It is further submitted that Hon’ble Supreme Court in the case of CIT v. Sinhgad Technical Education Society 397 ITR 344 has upheld the decision of Hon’ble Bombay High Court wherein the Hon’ble High Court had upheld the decision of the Tribunal holding that the incriminating material which was seized has to pertain to the assessment years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with the four assessment years. 4.4.10 . I do find force in the contentions of the appellant which are verified from the documents on record and the factual observations made by the AO in the assessment order which is further strengthened by the finding given by the Hon’ble Supreme Court in the case of CIT v. Sinhgad Technical Education Society (supra) which had categorically noted in Para 18 that “................. incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co- relation, document-wise, with these four Assessment Years . Since this requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act.” The decision of Hon’ble Supreme Court relates to section 153C of the Act. Section 153C requires the Assessing Officer to issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A. Accordingly, the ratio decidendi shall apply equally on the assessments completed u/s 153A of the Act also. 4.4.11 . Hon’ble jurisdictional High Court of Madhya Pradesh in the case of Mechmen – [2015] 60 taxmann.com 484 also held in favor of the assessee by holding in Para 23 as under – “In the present case, the concurrent finding of fact recorded by the Appellate Forums is that, no satisfaction has been recorded by the Assessing Officer before issuing of notice under section 153C. Further, none of the papers seized belongs or belong to the assessee (noticee). The Appellate Forums have further found that no addition or even observations have been made by the Assessing Officer in any of the orders for the relevant assessment years in connection with any material found during the course of search. Even for that reason no action under section 153C, is justified . These findings of fact Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 10 of 40 need no interference and have not been questioned before us. Considering the above, these appeals must fail.” [emphasis supplied] 4.4.12 . The contentions of the appellant are further fortified by the decision of Hon’ble jurisdictional ITAT Bench at Indore in the case of Satish Neema in appeal nos. IT(SS)A No. 149/Ind /2016, 150/Ind/2016 and 152/Ind/2016, order pronounced on 07.02.2020. In Para 19 of the order, the Hon’ble jurisdictional Bench held - “ We therefore respectfully following the decision referred above and also considering the latest judgment of Hon’ble High Court of Delhi in the case of Principal CIT & Ors V/s Meeta Gutgutia (supra) come to the conclusion that since the assessment orders in question were concluded and non abated assessments no addition can be made in the assessment proceedings u/s 153A of the Act unless there is any incriminating material found during the course of search. We find no inconsistency in the finding of Ld. CIT(A) quashing the assessment proceedings u/s 153A of the Act since the additions were not made on the basis of any incriminating material found during the course of search . Thus revenue’s appeal for Assessment Years 2005-06, 2006-07 and 2009-10 stands dismissed.” [emphasis supplied] Appellant has placed reliance on several other decisions which have consistently ruled in favor of the appellant on the issue of no addition / disallowance can be made in absence of incriminating material relating to such addition / disallowance for the relevant year. The decisions referred are – a. Hon’ble Jurisdictional Bench of Indore ITAT in the case of Kamal Kishore Kotwani - IT(SS)A No. 186 to 190/Ind/2016 – order pronounced on 04.07.2018 b. Hon’ble Jurisdictional Bench of Indore ITAT in the case of Kamta Prasad Dwivedi – IT(SS)A No. 182 to 185/Ind/2016 – order pronounced on 19.09.2018 c. Hon’ble Delhi High Court in the case of CIT v. Kabul Chawla 380 ITR 573, the decision in the case of Pr.CIT v. Meeta Gutgutia 395 ITR 526 and various other decisions, has consistently held that in absence of any incriminating material found as a result of search, assumption of jurisdiction under section 153A is not in accordance with law. d. In the case of Meeta Gutgutia (supra), SLP was filed by the Revenue which was dismissed by the Hon’ble Supreme Court by giving a reasoning reported at [2018] 96 taxmann.com 468 (SC) as – Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 11 of 40 “2. We do not find any merit in this petition. The special leave petition is, accordingly, dismissed.” [emphasis supplied] It is a settled law that disposal of SLP with finding or reasoning gives rise to binding precedence in terms of Article 141 of the Constitution of India, though the doctrine of merger does not become applicable as held in the decision by Hon’ble Apex Court in Kunhayammed v. State of Kerala [2000] 113 taxman 470/245 ITR 360 (SC) e. In addition to the decisions of Kabul Chawla (supra) and Meeta Gutgutia (supra), reliance is also placed on several other decisions listed below– (i) Pr. CIT v. Lata Jain, 384 ITR 543. (ii) 211 Taxman 61 (Del) CIT v. Chetan Das Laxhman Das. (iii) 352 ITR 493 (Del) CIT v. Anil Kumar Bhatia. (iv) 380 ITR 571 (Del) CIT v. Kurele Paper Mills (P) Ltd., dt. 6-7-2015. (v) 241 Taxman 440 (Del) CIT v. MGF Automobiles Ltd. (vi) ITA No. 634/2015 Pr. CIT v. Smt. Kusum Gupta. (vii) W.P. (C) 8721/2014 & CM No. 20052/2014 Praveen Kumar Jolly. (viii) IT Appeal No. 810/2016 Pr. CIT v. Mahesh Kumar. (ix) IT Appeal Nos. 61 & 62/2017 Pr. CIT v. Ram AvtarVerma. (x) 397 ITR 82 Pr. CIT v. Best Infrastructure (India) (P) Ltd. 4.4.13 . Considering the contentions of the appellant which are verified from the documents on record and the factual observations made by the AO in the assessment order and the findings given in several above referred decisions including that by Hon’ble Supreme Court, Jurisdictional High Court of Madhya Pradesh, Jurisdictional ITAT Bench Indore and plethora of other Hon’ble judicial forums all of which further strengthens the contentions, I find no hesitation in deleting the addition made by the AO in respect of claim of exemption u/s 10AA of the Act for the years under consideration in absence of reference to any incriminating material found and seized during the course of search which was unaccounted and undisclosed by the appellant pertaining to the said claim for each of the respective years. The AO is accordingly directed to allow the claim of the exemption u/s 10AA of the Act as claimed in the return of income for each of the years. These grounds of appeal for all the years are accordingly allowed. Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 12 of 40 4.4.14. The appellant submitted that there is nothing unaccounted in respect of the claim of exemption u/s 10AA of the Act. Appellant made reference to factual noting made by the AO in Para 9 and Para 9.2 of the assessment order to demonstrate that the show cause notice was issued by the AO on the perusal of data for sales and purchases duly accounted in the SAP system. It is further submitted that detailed reply with all the corroborative evidences and supporting documents were furnished in the course of hearing. The reply submitted is reproduced in Para 9.3 of the impugned order. The books of account were before the then Ld. AO in the assessments made u/s 143(3) for AY 2010-11 and 2011-12. 4.4.15. The appellant highlighted certain key facts from the reply furnished before the AO which are listed below for ready reference – a. ERP system of SAP is in place with the assessee which integrates the entire business process including manufacturing, finance and accounting, inventory management, sales and debtor management, procurements and vendor management. b. For verification of books of account of the assessee, access to its SAP system was made available on computer laptop along with two SAP resources, viz. Shri Suresh Patidar and Shri Prakash Yadav, for the desired technical and accounting support with whose help the AO verified the books of account, sales and purchase registers and various accounting entries. c. Copies of data drive from the SAP server were taken during the course of search which is available with the AO. This data was compared by the AO with the live production server data on SAP system for access was made available with the help of two SAP resources of the appellant. No difference was found by the AO on such comparison. d. Product mix of manufacture at the two units of DTA and SEZ are different with SEZ unit manufacturing only Stainless Steel (SS) Submersible Pump Sets for the overseas market. e. Sub-para (1), (2) and (3) of Para 5 of the show cause notice issued by the AO and reproduced in the assessment order refers to facts and figures relating to AY 2010-11 only. Based on this one year of AY 2010-11, the AO noted in Para 8.4 that “almost in all the years there is the same position that the transfer of goods to the SEZ is lower price than that of sale price to the other parties”. f. To make technical things more clear and for better understanding of product line of the appellant in which it deals in, a technical demo was made before the Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 13 of 40 AO by the technical person of the appellant for different products manufactured by it in the two units. g. The appellant explained details relating to pump, motor and pump set with the corroborative documentary evidence of clarificatory letter dated 12.10.2012 issued by office of DGFT to the appellant. h. In view of the letter of DGFT, submersible motors are procured from the DTA unit as ‘a part’ of SS Submersible Pump Set. There is no bar on procurement of any part or component by the SEZ unit for the purpose of manufacturing the final product in which it predominantly deals in i.e. SS Submersible Pump Sets. i. Transfer of motors from DTA unit to SEZ unit are considered as deemed exports in the hands of DTA unit. Inter-unit invoices are raised in US Dollars (USD) through the SAP ERP system. SEZ unit makes payment for these forex denominated invoices of motors in forex (USD) to the DTA unit. j. Sales by the appellant are to the dealers and distributors of the products of the appellant and not to the individual end-user customer. Merely on the basis of listing of items separately in respect of motors and pumps separately in the invoice, it is concluded by the AO in Para 9.6 that there are separate sale of motors and pumps. k. The AO did not recognize the key technical differences in the product mix of the two units of the appellant as motors which are sold by DTA unit in the local market are technically different from those supplied in the overseas market, which are country specific. l. There are certain categories of submersible motors forming part of SS submersible pump sets which are sold exclusive by SEZ unit and not at all comparable with the sales made by DTA unit. Models of motors supplied by DTA unit in the local market are different from those models supplied to SEZ unit. m. The appellant demonstrated that export sales of products to one same overseas customer from DTA unit and from SEZ unit are comparable and at arm’s length. Similarly, export sale of same products to two different overseas customers products are comparable and at arm’s length. n. The AO tabulated three invoices dated 02.05.2015 relating to AY 2016-17 in the show cause notice and sought explanation on the difference in price of motor SML (C-6) 5.5HP-30-380V-50HZ which the DTA unit has transferred to Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 14 of 40 SEZ unit as well as sold in the domestic market to two parties viz. Prakash Electricals, Neemuch and Dhanlakshmi Engineering Enterprises, Bangalore. o. The appellant furnished detailed reply with corroborative supporting documentary evidences from its books of account explaining the incomparability of the sale in domestic market and transfer to SEZ unit of the same product by DTA unit. The appellant also made exhaustive quantitative analysis by taking objective parameters and applying appropriate filters to demonstrate that the prices charged on transfer to SEZ unit are at Arm’s Length. With the help of this objective and quantitative analysis verifiable from the accounting records, the appellant evidently demonstrated that there is no profit shifting in the prices charged by DTA unit to SEZ unit when compared to its domestic sale, despite they being incomparable. p. Transfer of motors by DTA unit to SEZ unit are the standalone transfer of ‘motors only’ and not as ‘pump sets’. Motors are transferred as ‘component part’ for the sale of pump sets by SEZ unit. q. Transfer from DTA unit to SEZ unit is treated as ‘deemed export’ which results into certain incentives from the Director General of Foreign Trade (DGFT) called as ‘Focus Product Scheme’ under the Foreign Trade Policy issued by Ministry of Commerce and Industry, Department of Commerce, Government of India. This incentive is not available for sale to others. r. Procurement of SS sheets is mostly through import which is subjected to import duty in the case of DTA unit. Further, purchases in DTA unit are subject to Excise/VAT / CST and Entry Tax which forms part of the input cost of DTA unit. s. Manufacturing at DTA unit is subjected to excise duty. For sale to others, excise duty forms part of the value charged on the invoice. For transfer to SEZ unit, excise duty component is not chargeable since it is considered as ‘deemed export’ except in cases where there is a rebate claim. t. Advertising, marketing and publicity (AMP) expenses are incurred by the DTA unit for reaching out to the market in the outside world. No such expenses are required to be incurred by DTA unit for transfer to SEZ unit. u. Dealers buying pump sets from DTA unit in the local market are offered discounts on achieving certain levels of business volumes at pre-determined intervals by entering into Memorandum of Understanding (MoU) for the same. In the case of transfer to SEZ unit by DTA unit, there is no such component of discount related to business volume targets. Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 15 of 40 4.4.16. All the above listed key highlights are factual and verifiable from the accounting records of the appellant with corroborative evidences which are available in the voluminous paper books placed on record. I accept the contentions of the appellant that the AO has not appreciated the details furnished and explanations given along with technical demo and live SAP accounting data in the course of assessment proceedings in proper perspective. I am satisfied and convinced with the objective and quantitative analysis done by the appellant of the one instance of three invoices taken by the AO in the show cause notice which formed the basis for making blanket disallowance of claim u/s 10AA for all the years. This analysis and other detailed explanations on various factors listed above demonstrate the incomparability of the products of the two units and their prices. Despite being incomparable, the prices charged on transfer to SEZ unit and on sales to third parties have been factually and adequately demonstrated to be at arm’s length. 4.4.17. The appellant strongly submitted that the comparisons drawn by the AO by tabulating certain invoices in Para 9.7 to 9.17 of the assessment order, data for which was extracted from the sales register in the SAP system is absurd, baseless and without any merit. These sales are already duly accounted, reported and disclosed by the appellant both in the original returns filed u/s 139 and in returns filed in response to notices u/s 153A of the Act. These sales form part of the sales turnover reported and disclosed by the appellant. The appellant has furnished several instances of invoices which prove and demonstrates the view contrary to what has been inferred by the AO. These invoices are placed on record in the voluminous Paper Books. 4.4.18. In respect of details of invoices tabulated by the AO in Para 9.7 and 9.8, the appellant has furnished another set of invoices, tabulated in its written submission, from which it is evident that sale by DTA to domestic customer is at a price lower than the transfer price charged to SEZ unit. Also, the price charged by SEZ unit on its sale to overseas buyer is lower than the transfer price it was charged by DTA unit. It is also a fact to be noted that there are certain material items (motors) which are exclusive for supply to SEZ unit by the DTA unit. These exclusive material items are not sold in the local market by the DTA unit. The appellant had furnished copies of product catalogues which are specific to domestic and overseas markets to demonstrate the exclusivity of the products in different market segments. Instances of exclusive material items specific to cater to the needs of SEZ unit for overseas market are material no. 9000006459, 9000006461, 9000006635, considered by the AO in the table produced in Para 9.7 of the order. Details furnished by the appellant in this respect evidently demonstrates that the price charged for transfer of these motors exclusive to SEZ unit supply by DTA unit and the sales price charged by SEZ unit from the overseas buyer are contrary to what is alleged by the AO. Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 16 of 40 4.4.19. Similarly in the case of details of invoices tabulated by the AO in Para 9.9 and 9.10, the comparison is made by the AO of sale by DTA in the local market with sale by SEZ in the overseas market and the inter-unit transfer from DTA to SEZ unit. For details of invoices tabulated by the AO in Para 9.14 and 9.15, the comparison made by the AO is of sale by DTA in the local market with transfer to SEZ unit which is an incomparable parameter. The AO has referred to section 80-IA(8) of the Act for taking market value of goods as on the date of the transfer. From the table itself it is evident that the dates of invoices which are compared by the AO are not same. Difference in dates of invoice makes the provisions of section 80-IA(8) inapplicable in such a case since requirement of section is to consider ‘market value as on the date of transfer’. Further, there are quantity differences in the invoices which have been compared making the comparison incomparable. 4.4.20. In respect of tabulation of details of invoices by the AO in Para 9.16 and 9.17, comparison made by the AO of export by SEZ unit to foreign subsidiaries of assessee with sale by SEZ unit to other parties. There is merit in the submission of the appellant that sale by SEZ unit in the export market whether to subsidiaries or to third parties results in profits which are exempt u/s 10AA of the Act and that the taxability of foreign subsidiaries is governed by the local jurisdiction of those foreign subsidiaries having no impact on the claim of exemption u/s 10AA by the appellant. Certain vital facts which emerge from the perusal of the details tabulated by the AO are that sale by SEZ unit to an entity in Australia has been compared with sale to an entity in Middle East or USA. There are differences on account of ‘geography’, date of sale and the quantity sold while making such a comparison by the AO. I have no hesitation in holding that these vital ingredients of sale transactions which are totally divergent cannot lead to any meaningful comparison so as to draw any rational conclusion. Such an exercise carried out by the AO is baseless, meaningless and devoid of any merit. While making the above tabulated upward adjustments, Ld. TPO noted in his orders in para 9 – “The AO should take into account this revision in the computation of deduction and computation of income for each of the four assessment years.” Also, Ld. TPO noted in concluding para at 11.2 that upward adjustment is proposed in order to make the sale prices to AEs at ALP. Accordingly, once the upward adjustments have been made by the Ld. TPO in order to make the sale prices to AEs at ALP, the very basis of making total disallowance of claim u/s 10AA by alleging shifting of profits from DTA unit to SEZ unit is rendered baseless. Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 17 of 40 4.4.21. Based on factual data duly supported by corroborative documentary evidences coupled with objective and quantitative analysis of the accounted data from SAP system, I hold that the exercise carried out by the AO of making comparisons of sales / transfer transactions of DTA and SEZ units is meaningless, irrational, ignoring the proper perspective of the business into which the appellant deals in. The meritorious and exhaustive submissions made by the appellant finds favor in my views and accordingly even on the merits of the case, I direct the AO to allow the claim of exemption u/s 10AA of the Act as claimed by the appellant in its returns of income for the years under consideration. 4.4.22. In respect of issue of misappropriation of various expenses between SEZ and DTA units, the AO tabulated various expenses for AY 2010-11 in Para 9.18 of the assessment order. On the basis of this table for one specific year i.e. AY 2010-11, the AO has adopted the adverse view for all the years under consideration. While alleging for misappropriation of various expenses between the two units, the AO has referred to one excel file found on the computer of Shri B.R. Patidar who is a practicing Chartered Accountant and is a retainer of SPIL, providing his professional services. CA B. R. Patidar was also covered in the search operations of the assessee and has been assessed for all the relevant years u/s 153A of the Act by the same AO during same time. The appellant submitted that the Department wise data of employees extracted from the excel file from the computer of CA B.R. Patidar as on 08.12.2011 was part of some exercise being carried out by CA B.R. Patidar and cannot be taken as the actual payroll data of the HR Department of the assessee to reflect on the number of employees in each of the units and their departments. Based on this data of excel file found in the computer of CA B.R. Patidar, the AO has inferred an adverse view without cross-examining CA B.R. Patidar nor giving any opportunity to the assessee to cross-examine CA B.R. Patidar in respect of this excel file so found from his computer. I find that the adverse view taken by the AO is based on surmises and conjectures devoid of any merit to make a blanket disallowance of the claim of exemption u/s 10AA for all the years under consideration. 4.4.23. The appellant pointed out certain incorrect facts noted in Para 9.2 and Para 9.5 by the AO in relation to the judicial precedents in appellant’s own case, relied upon by it, by furnishing the copy of those decisions. The AO has noted that the decisions of the Appellate Authority were given before the search in the case of the assessee. However, from the chronology of events, it is evident that the decisions both by the Hon’ble ITAT Indore Bench and by Ld. CIT(A) – 2, Indore were given after the date of search i.e. 21.01.2016. The correct chronology in this respect is – Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 18 of 40 a. Date of Search :21.01.2016 b. Date of order by Hon’ble ITAT, Indore :26.07.2016 (after search) c. Date of order by Hon’ble CIT(A)-2 Indore :30.09.2016 (after search & after ITAT order) While passing these appellate orders on 30.09.2016 for AY 2010-11 and 2011- 12 in appeal nos. IT-133/2013-14 & IT-326/2014-15 by Hon’ble CIT(A)-2, Indore, the appellant had furnished the appellate order in its own case pronounced by the Hon’ble ITAT Indore Bench on 26.07.2016 for AY 2008-09 and 2009-10 and were dealt in appropriately. 4.4.24. The appellant contends that act of the AO of negating the appellate orders of the higher authorities in appellant’s own case which covers the instant years of AY 2010-11 and 2011-12 on the same issues, tantamount to judicial impropriety when the higher judicial authorities had dealt with the subject matter objectively and meritoriously. In respect of issue of misappropriation of various expenses between SEZ and DTA units, the AO noted in Para 9.21 that “finding of search was not available to the Ld. CIT(A)”, it is submitted by the appellant that in absence of any incriminating material relating to this issue, the finding of search does not have any bearing on the subject matter. Further, appeals filed against assessment orders made u/s 143(3) rws 153A for AY 2010-11, 2011-12 and 2012-13 before the Hon’ble CIT(A) – 3, Indore on identical issue of disallowance of claim made u/s 10AA have been allowed wherein the claim of the assessee has been allowed objectively and meritoriously. The details of appellate orders is as under – a. AY 2010-11 IT-11795/2017-18 dated 14.09.2020 b. AY 2011-12 IT-11796/2017-18 dated 14.09.2020 c. AY 2012-13 IT-11797/2017-18 dated 14.09.2020 Most importantly, Ld. AO has given appeal effect to these appellate orders on 29.01.2021 resulting in the refund of tax already deposited. 4.4.25 . It is important to take note of the meritorious and fact based objective findings given in the appellate orders by Hon’ble ITAT Indore Bench in appellant’s own case for AY 2008-09 and 2009-10. The key findings relating to the issues in hand in the present appellate proceedings are reproduced for ready reference – Shakti Pumps (India) Limited AY 2008-09 and AY 2009-10 Date of order: 26.07.2016 by Hon’ble Indore Bench of ITAT Appeal No.: ITA 377/Ind/2013 & ITA 378/Ind/2013 Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 19 of 40 Page 29 para 28 – “Regarding the next observation of the Commissioner of Income Tax, we find that he has observed that material consumed in SEZ unit is 44.66% and manufacturing expenses, selling and distribution expenses and expenses on employees were only 6.36%, 2.80% & 13.48% respectively, we find that the Assessing Officer vide order sheet entry dated 01/11/2010, copy of which is placed at page No. 124 & 125 of the paper book specifically required the assessee to explain the low gross profit, net profit on domestic sales as compared to SEZ profit and the assessee filed details before the Assessing Officer explaining the same...............................The Assessing Officer being satisfied with the explanation and after examining the same from the details furnished, has accepted the explanation of the assessee. Thus, we find that the Commissioner of Income Tax was not justified in observing that the difference in proportionate of expenses and consequently in the proportion of net profit in different units were not examined by the Assessing Officer.Moreover, the assessee also pointed out that the only Submersible Pump was manufactured in SEZ unit, whereas products manufactured in non-SEZ unit were Submersible Pump, Mono block, Control Panel. Thus, the product mix manufactured in two units were different and therefore, the activities of the two units are not exactly same.Still further, separate books of accounts were maintained in respect of each unit, which were also produced before the Assessing Officer and were examined by the Assessing Officer. The Commissioner of Income Tax was not justified in speculating that either the sale of the SEZ unit was inflated or expenses of SEZ unit were suppressed without brining any cogent material on record.” [emphasis supplied] From the above fact based findings, following is noted, relevant to the present appellate proceedings – a) Issue of difference in proportionate of expenses and consequently in the proportion of net profit in different units of appellant was held to be in favor of appellant as examined by the Assessing Officer in the course of original assessment. b) Product mix manufactured in two units were different and therefore, the activities of the two units are not exactly same. c) Separate books of accounts were maintained in respect of each unit d) Commissioner of Income Tax was not justified in speculating that either the sale of the SEZ unit was inflated or expenses of SEZ unit were suppressed without brining any cogent material on record 4.4.26 . The meritorious and fact based objective findings given in the appellate orders by Hon’ble CIT(A) – 2, Indore in appellant’s own case. The extracts of Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 20 of 40 key findings relating to the issues in hand in the present appellate proceedings are reproduced for ready reference – Shakti Pumps (India) Limited AY 2010-11 and AY 2011-12 Date of order: 30.09.2016 by Hon’ble CIT(A) – 2, Indore Appeal No.: IT-133/2013-14 & IT - 326/2014-15 a. Reallocation of the expenses between the SEZ unit and DTA units of the appellant company i. AY 2010-11 Page 2 para 2.1and AY 2011-12Page 4 para 2 – “These grounds of appeal are squarely covered by the decision of the Hon’ble ITAT bench Indore in appellant own case for A.Y. 2009-10 & 2008-09 pertaining to appeal no. IT-323/14-15 & IT-322/14-15 respectively. However, in the interest of justice, a detailed order is being passed after objectively taking into account both the facts as pointed out by the Ld. AO in his assessment order as well as the detailed submissions so given during the time of appeal hearing by the appellant.” [emphasis supplied] ii. AY 2010-11 Page 5 para 2.19 and AY 2011-12 Page 6 para 4.16 – “It is seen that while adopting and concluding on such an approach, nowhere in the assessment order, the Ld. AO has doubted the correctness or completeness of the duly audited books of accounts or the method of accounting regularly followed by the assessee.” [emphasis supplied] iii. AY 2010-11 Page 5 para 2.21 and AY 2011-12 Page 6 para 4.17 – “It is further seen that the Ld. AO has nowhere recorded any finding or even raised any doubt about the completeness or reliability of books of accounts, bills, vouchers produced by the assessee.” [emphasis supplied] iv. AY 2010-11 Page 5 para 2.23 “It has been observed that no satisfaction has been recorded by the Ld. AO in terms of Section 145 to reject the book results and arrive on an adhoc basis at the reallocation ratio of 60:40 for allocating the total expenses from the Consolidated P&L between DTA and SEZ units.” [emphasis supplied] v. AY 2011-12 Page 7 para 4.19 – “It has been observed that no satisfaction has been recorded by the Ld. AO in terms of Section 145 to reject the book results and he arrived on an adhoc basis Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 21 of 40 for reallocating the total expenses from the Consolidated P&L between DTA and SEZ units.” [emphasis supplied] vi. AY 2010-11 Page 5 para 2.24 and AY 2011-12 Page 7 para 4.20 – “A perusal of the assessment order reveals that with adhoc reallocation of expenses, the claim u/s 10AA of SEZ unit was reduced and taxable total income was enhanced.” [emphasis supplied] vii. AY 2010-11 Page 6 para 2.29 and AY 2011-12 Page 7 para 4.25 - “The contention of the appellant are found to be correct in as much as that the Ld. AO has passed the assessment order u/s 143(3) but has approached on an estimation basis which is arbitrary, adhoc and devoid of any basis. The Ld. AO is free to resort to making assessment to the best of his judgment but only after following the process of law as defined u/s 145 and 144.” [emphasis supplied] viii. AY 2010-11 Page 7 para 2.33 and AY 2011-12 Page 8 para 4.29 – “...............I strongly feel that in case the Ld. AO was not satisfied about the results, nothing prevented him from exploring the possibilities of disallowance with respect to specific expenditure.However, the course of action he adopted, i.e., without rejecting the books of account, reallocating the total expenses from the Consolidated P&L between DTA and SEZ units in mechanical way cannot be given any judicial approval.” [emphasis supplied] ix. AY 2010-11 Page 7 para 2.34 and AY 2011-12 Page 8 para 4.30 – “It is seen that the onus on the assessee to produce sufficient records to show that how the profits were arrived at in the books of accounts of the two units was adequately discharged by the assessee.[emphasis supplied] x. AY 2010-11 Page 7 para 2.35 and AY 2011-12 Page 9 para 4.31 – “The assessment is made purely on the basis of surmises and conjectures and without pointing out any specific defects in the correctness or completeness of accounting of expenses in the respective books of accounts of DTA and SEZ units. There is no legally sustainable merit in this kind of approach based on sweeping generalization for making such reallocation of expenses that too without invoking provisions of section 145 of I.T.Act, 1961. The assessment so made cannot be said to proper from any angle.” [emphasis supplied] xi. AY 2010-11 Page 8 para 2.39 and AY 2011-12 Page 10 para 4.36 – Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 22 of 40 “Although discretion is vested in the AO, the discretion cannot be exercised arbitrarily or capriciously. The AO must exercise his judgment in such a manner as would make it possible for him to ascertain the profits and gains of the assessee most approximating to truth and must exercise his discretion and judgment judicially and reasonably....” [emphasis supplied] xii. AY 2010-11 Page 10 para 2.46 and AY 2011-12Page 11 para 4.42 – “Since, the facts of the case in the present assessment year are identical to the years in which the Hon’ble ITAT bench Indore has decided in favor of the appellantandbased on the above discussion especially keeping in mind the fact that the AO had reallocated the expenses without resorting to the provision of section 145 in an arbitrary and adhoc manner, this ground of appeal is allowed.” [emphasis supplied] b. Not allowing correct deduction u/s 10AA Page 10 Para 3 – “.............MAT provisions are not applicable to SEZ unit vide amendment brought in by Finance Act, 2006 w.e.f. 01.04.2006. It was further stated by the appellant that for computing the book profit of the assessee Company, the profit generated by the SEZ unit as arrived from its books of accounts needs to be reduced.” [emphasis supplied] Page 10 para 3.1 – “................In the instant case, the Ld. AO failed to consider reducing the profits of the business of SEZ Unit while calculating book profit.” [emphasis supplied] Page 10 para 3.2 – “Further, this issue is also covered in favor of the appellant in its own case for A.Y. 2009-10 & 2008-09 pertaining to appeal no. IT-323/14- 15 & IT-322/14-15 respectively. The fact based findings on this issue in favor of assessee is given in Para 27 Page 28 of the said order.................” [emphasis supplied] 4.4.27 . Meritorious and fact based objective findings given in the appellate orders by Hon’ble CIT(A) – 3, Indore in assessee’s own case for assessments made u/s 143(3) rws 153A is reproduced for ready reference – Shakti Pumps (India) Limited AY 2010-11, 2011-12 and AY 2012-13 Date of order: 14.09.2020 by Hon’ble CIT(A) – 3, Indore Appeal Nos.: IT-11795, 11796 & 11797/2017-18 Page 111 Para 10.3 – “All the above listed key highlights are factual and verifiable from the accounting records of the appellant with corroborative Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 23 of 40 evidences which are available in the voluminous paper books placed on record. I accept the contentions of the appellant that the AO has not appreciated the details furnished and explanations given along with technical demo and live SAP accounting data in the course of assessment proceedings in proper perspective. I am satisfied and convinced with the objective and quantitative analysis done by the appellant of the one instance of three invoices taken by the AO in the show cause notice which formed the basis for making blanket disallowance of claim u/s 10AA for all the years.This analysis and other detailed explanations on various factors listed above demonstrate the incomparability of the products of the two units and their prices. Despite being incomparable, the prices charged on transfer to SEZ unit and on sales to third parties have been factually and adequately demonstrated to be at arm’s length.” [Emphasis supplied] Page 114 Para 10.8 – “............Certain vital facts which emerge from the perusal of the details tabulated by the AO are that sale by SEZ unit to an entity in Australia has been compared with sale to an entity in Middle East or USA. There are differences on account of ‘geography’, date of sale and the quantity sold while making such a comparison by the AO. I have no hesitation in holding that these vital ingredients of sale transactions which are totally divergent cannot lead to any meaningful comparison so as to draw any rational conclusion. Such an exercise carried out by the AO is baseless, meaningless and devoid of any merit.”[Emphasis supplied] Page 114 Para 10.9 – “Based on factual data duly supported by corroborative documentary evidences coupled with objective and quantitative analysis of the accounted data from SAP system, I hold that the exercise carried out by the AO of making comparisons of sales / transfer transactions of DTA and SEZ units is meaningless, irrational, ignoring the proper perspective of the business into which the appellant deals in. The meritorious and exhaustive submissions made by the appellant finds favor in my views and accordingly even on the merits of the case, I direct the AO to allow the claim of exemption u/s 10AA of the Act as claimed by the appellant in its returns of income for the three years under consideration.”[Emphasis supplied] Page 115 Para 10.10 – “In respect of issue of misappropriation of various expenses between SEZ and DTA units, the AO tabulated various expenses for AY 2010-11 in Para 8.18 of the assessment order. On the basis of this table for one specific year i.e. AY 2010-11, the AO has adopted the adverse view for all the years under consideration..................................................... I find that the adverse view taken by the AO is based on surmises and conjectures devoid of any merit to make a blanket disallowance of the claim of exemption Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 24 of 40 u/s 10AA for all the years under consideration. Accordingly, I direct the AO to allow the claim of exemption u/s 10AA of the Act as claimed by the appellant in its returns of income for the years under consideration. This ground of appeal for all the three years is accordingly allowed.”[Emphasis supplied] Page 127 Para 11.7 – “I have perused the material placed on record, detailed written submissions made by the counsel of the appellant along with oral explanations and the appellate orders in appellant’s own case passed by Hon’ble ITAT Indore Bench for A.Y. 2008-09 and 2009-10 and by the Ld. CIT(A) – 2, Indore for A.Y. 2010-11 and A.Y. 2011-12. I find force in the submissions made and explanations given in the course of appellate proceedings by the counsel of the appellant which are covered by these appellate orders meritoriously and objectively. I am convinced and hold that the AO ought to have given due cognizance to the meritorious finding of these appellate orders which apply to the issues in the present appeals and have a direct bearing. Negating these appellate orders by making the casual noting that these decisions were given prior to the date of search demonstrates the casualness of the AO in dealing with appellate orders of high authorities. I strongly condemn such a misleading, casual and laxed approach on the part of the AO and hold that these meritorious and objective fact based findings given in these appellate orders in appellant’s own case do have a direct bearing in favor of the appellant, on the instant appeals before me. This ground of appeal is accordingly allowed.”[Emphasis supplied] 4.4.28 . Above fact based objective findings evidently establishes the correctness of claim of appellant for which the AO in the present proceedings have taken adverse view by negating these findings. The appellant emphasized that when the show cause notice was issued by the AO on this issue, it was submitted by the appellant that this matter was exhaustively dealt in the original assessments u/s 143(3) for AY 2010-11 and 2011-12 and the additions made by the then AO were deleted by the Hon’ble CIT(A) – 2, Indore by giving objective and fact based findings. However, the AO chose to disregard the decision of higher authority in appellant’s own case for the years relevant to instant proceedings and stated certain incorrect facts that decisions of appellate authority were prior to date of search. Such an act of AO tantamount to judicial impropriety on his part for which it placed strong reliance on the decision of Hon’ble Jurisdictional High Court of Madhya Pradesh in the case of Agrawal Warehousing & Leasing Ltd. [2002] 124 Taxman 440, order dated 11.07.2002. According to the said judgment, decisions of higher authorities carry a binding force on the lower authorities. The relevant portion from the judgment is reproduced for ready reference - Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 25 of 40 Para 8 – “Obviously, the Commissioner (Appeals) not only committed judicial impropriety but also erred in law in refusing to follow the order of the Tribunal. Even where he may have some reservations about the correctness of the decision of the Tribunal, he had to follow the order. He could and should have left it to the department to take the matter in further appeal to the Tribunal and get the mistake, if any, rectified.” [emphasis supplied] 4.4.29 . In addition to placing reliance on these appellate orders, in the interest of justice, this detailed order in the present is being passed after objectively taking into account both, the facts as pointed out by the AO in his assessment order as well as the detailed and exhaustive submissions so given during the time of appeal hearing by the appellant. 4.4.30 . I have perused the material placed on record, detailed written submissions made by the counsel of the appellant along with oral explanations and the appellate orders in appellant’s own case passed by Hon’ble ITAT Indore Bench for A.Y. 2008-09 and 2009-10 and by the Ld. CIT(A) Indore for A.Y. 2010-11 and A.Y. 2011-12. I find force in the submissions made and explanations given in the course of appellate proceedings by the counsel of the appellant which are covered by these appellate orders meritoriously and objectively. I am convinced and hold that the AO ought to have given due cognizance to the meritorious finding of these appellate orders which apply to the issues in the present appeals and have a direct bearing. Negating these appellate orders by making the casual noting that these decisions were given prior to the date of search demonstrates the casualness of the AO in dealing with appellate orders of high authorities. I strongly condemn such a misleading, casual and laxed approach on the part of the AO and hold that these meritorious and objective fact based findings given in these appellate orders in appellant’s own case do have a direct bearing in favor of the appellant, on the instant appeals before me. Therefore, these grounds of appeal are accordingly Allowed .” 9. Taking the lead on this issue, the Ld. AR representing the assessee made a preliminary submission that out of 4 years involved in present- appeal, first 2 years i.e. AY 2013-14 and 2014-15 were “unabated/ completed years” for the purposes of section 153A. He further submitted that the Ld. AO has disallowed exemption u/s 10AA on the basis of mere re- appraisal of books of account/accounting data already maintained by the assessee in SAP ERP system in the normal course of business even before the search and that data had already been subjected to regular assessments by authorities. Ld. AR submitted that SAP ERP system (or the books of Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 26 of 40 account/accounting data maintained in SAP ERP system) is not an “incriminating material”. Then, the Ld. AR submitted that it is a consistent view of Hon’ble jurisdictional High Court as well as ITAT, Indore that no addition can be made in an “unabated/completed year” without having incriminating material and the Ld. CIT(A) has also allowed relief to assessee by adopting such a legal view at length in his order. Regarding other 2 years i.e. AY 2015-16 and 2016-17, Ld. AR frankly admitted that those years were “abated years”, therefore the assessee will not have benefit of “absence of incriminating material” but still the Ld. CIT(A) has given relief on merit as well which would save the assessee. Therefore, in the subsequent paragraphs, we would break our discussion under two sub-headings, namely (i) AY 2013-14 / 2014-15 and (ii) AY 2015-16 / 2016-17. (i) AY 2013-14 / 2014-15: 10. Regarding these two years which are “unabated/completed year”, we note that the AO has made addition without recourse to any incriminating- material. Ld. DR is not able to rebut this aspect. Therefore, we straightaway observe that the position is directly covered by the decision of Hon’ble Jurisdictional High Court of Madhya Pradesh in the case of PCIT Vs. Gahoi Dal & Oil Mills (2021) 11 ITJ Online 314 (MP), ITA No. 21, 31 & 32 of 2019, order dated 12.07.2019,wherein relying upon the decision of Hon’ble Delhi High Court in CIT Vs. Kabul Chawla (2016) 2 ITJ Online 869 (Trib. – Delhi) : (2016) 380 ITR 573 : (2015) 281 CTR 45 : (2015) 234 Taxman 300, the Hon’ble jurisdictional High Court has dismissed the revenue’s appeal by holding that no addition can be made u/s 153A in a unabated assessment year in absence of incriminating material found during search. The relevant paras of the decision are reproduced below: “8. Dwelling on the scope of sub-section (1) of Section 153A of the Act, a Division Bench of Delhi High Court in CIT Vs. Kabul Chawla (2016) 2 ITJ Online 869 (Trib. – Delhi) : (2016) 380 ITR 573 : (2015) 281 CTR 45 : (2015) 234 Taxman 300 observed: Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 27 of 40 “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 153 A (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 153 A 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. In so far 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.” 9. We are in respectful agreement with the view expressed. 10. In the given facts of present case as no incriminating documents during course of search are found, the order in appeal cannot be said to Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 28 of 40 have suffered the illegality as would give rise to the proposed substantial question of law. 11. Consequently, appeals fail and are dismissed. No costs.” 11. Ld. DR representing the revenue, with due respect to all Hon’ble Courts, made a legal submission that there had been a change in the scheme for assessment of search cases from time to time. He submitted that in the case of searches conducted upto 31.05.2003, scheme of “Block- assessment” prescribed under Chapter-XIV-B consisting of section 158B to 158BH was applicable, but in respect of searches conducted after 31.05.2003, a new scheme prescribed u/s 153A to 153D is applicable. Ld. DR would further explain that while in older scheme u/s 158B to 158BH, there was assessment only of “undisclosed income”, the newer scheme u/s 153A to 153D prescribes assessment of “total income including undisclosed income”. He would further submit that due to this material change, the present scheme u/s 153A to 153D is a “full-fledged” type of assessment wherein the concept of “incriminating material” is not applicable because the AO has power to assessee full power to assess total income, which may or may not be based on incriminating material. According to him, in the present case of assessee where assessment had been made by Ld. AO u/s 153A and not u/s 158BC, the addition made, even without having incriminating material, must be viewed as legal. 12. We observe that the Hon’ble jurisdictional High Court in Gahoi Dal & Oil Mills (supra) has clearly held that in absence of incriminating material, addition cannot be made in an assessment of unabated year u/s 153A. Ld. DR is not able to demonstrate any decision of Hon’ble Supreme Court holding against the decision of Hon’ble jurisdictional High Court. 13. At this stage, we would also like to mention that in their later decision in the case of Pr. CIT and ors. Vs. Meeta Gutgutia, Prop. Ferns ‘N’ Patels and Ors. (2017) 395 ITR 526 (Delhi), the Hon’ble Delhi High Court reiterated with approval their observations in Kabul Chawala’s case (supra) Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 29 of 40 that completed assessments could be interfered with by AO while making assessment u/s 153A only on basis of incriminating material unearthed during course of search. If in relation to any assessment year, no incriminating material was found, no addition or disallowance could be made in relation to that assessment year in exercise of powers u/s 153A and earlier assessment should have to be reiterated. This later decision of Hon’ble Delhi High Court has also been affirmed by Hon’ble Supreme Court by dismissing Revenue’s SLP in PCIT vs. Meeta Gutgutia (2018) 96 taxmann. Com 468 (SC). 14. Thus, respectfully following the decision of Hon’ble jurisdictional High Court in Gahoi Dal & Oil Mills (supra), we are of the view that in the present appeal, the addition made by Ld. AO without having any incriminating material, is beyond the purview of section 153A and, therefore, clearly unsustainable. We find that the Ld. CIT(A) has also given relief to assessee by adopting such a view in Para No. 4.4.1 to 4.4.13 of his order (re-produced earlier); hence there is no infirmity in the order of first- appeal qua AY 2013-14 and 2014-15 which are “unabated years”. (ii) AY 2015-16 / 2016-17: 15. Regarding these years which are “abated years”, as agreed by Ld. AR the assessee does not have benefit of “absence of incriminating material”; therefore we do not agree to such benefit given by Ld. CIT(A) in Para No. 4.4.1 to 4.4.13 of his order. Hence, we proceed to deal with the merits of issue. Starting with assessment-order, we observe that the AO has discussed this issue in Para No. 9 of his order under the caption “Disallowance of exemption u/s 10AA of the Act”. Precisely, the AO has adopted twin-reasons, namely (i) the assessee has transferred goods from DTA unit to SEZ unit at lower prices and thereby increased the income of SEZ unit (Para No. 9.5 to 9.17 of assessment-order); and (ii) the assessee has charged higher amounts of expenses in DTA unit and lower amounts in Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 30 of 40 SEZ unit and thereby increased income of SEZ unit (Para No. 9.18 to 9.24 of assessment-order). Finally, the AO has disallowed exemption u/s 10AA fully. On perusal of appeal-order passed by Ld. CIT(A), we find that the Ld. CIT(A) has made meritorious, objective and extensive findings qua these twin-issues in Para No. 4.4.14 to 4.4.30 of his order (already re-produced earlier). After a careful consideration of the same, we crystalize the material observations made by CIT(A) with regard to the twin-issues raised by AO (we would also mention the latest status of those issues): (i) Regarding inter-unit transfers from DTA to SEZ unit at lower prices, the Transfer Pricing Officer (TPO) has already suggested upward adjustments. Once addition on account of such upward adjustments has been made while computing total income, the very basis of making disallowance of claim u/s 10AA is rendered baseless. We take note of the fact that the AO has made an addition of Rs. 25,90,749/- and 12,66,306/- in AY 2015-16 and 2016-17 respectively on account of upward adjustments suggested by TPO (Para No. 8 of assessment-order). Ld. AR submitted that the impugned adjustments are qua the sales/transfers made by DTA unit to SEZ unit. We observe that though the assessee contested these additions in first-appeal before CIT(A) but the CIT(A) has upheld the additions (Para No. 4.3 to 4.3.5 of appellate order). Thereafter, the assessee has not contested these additions in further appeal with the result that the assessee has accepted the same. Therefore, the present status is such that the additions are accepted by assessee. Thus, when the necessary additions have already been made independently in total income of assessee, any disallowance of exemption u/s 10AA for that matter would result in double taxation of same. (ii) Regarding allocation of expenses, the AO has taken finding made by him in AY 2010-11 as basis to conclude that the assessee has Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 31 of 40 made higher allocation of expenses to DTA unit and lower allocation to SEZ unit and thereby inflated the profit of SEZ unit. Firstly, on the basis of one year of AY 2010-11, such conclusion cannot be applied to other years. Secondly, the conclusion taken by AO in AY 2010-11 (and AY 2011-12) itself have been re-versed by CIT(A) in first-appeal. We take note of latest status of AY 2010-11. We find that the revenue has carried the matter to ITAT, Indore in ITA No. 1358/Ind/2016 and the said appeal stands decided by Co-ordinate bench vide order dated 26.04.2023 wherein the CIT(A)’s view has been upheld with the consequence the expenses charged by assessee to DTA unit and SEZ unit have been accepted. (The revenue’s appeal to ITAT for AY 2011-12 has been dismissed due to low-tax effect.) 16. Thus, we are of the considered view that Ld. CIT(A) has correctly examined/settled the twin-issues on the basis of exemption u/s 10AA was disallowed by AO, in Para No. 4.4.14 to 4.4.30 of his order. Therefore, we do not find any reason to interfere with the order of Ld. CIT(A). 17. In view of above discussions, we dismiss ground No. 1 raised by revenue in all assessment-years. Ground No. 2 of AY 2013-14: 18. This ground relates to the addition of Rs. 1,96,52,923/- made by AO on account of unexplained cash credit u/s 68. 19. During assessment-proceeding, Ld. AO observed that the assessee- company has received share application money of Rs. 10,56,00,000/- in different years from one M/s M.L. Securities & Finance Pvt. Ltd. [“MLSF”]; out of which a sum of Rs. 6,95,50,000/- was received during the previous year 2012-13 relevant to AY 2013-14 under consideration. Ld. AO further observed that MSLF has paid the sum of Rs. 6,95,50,000/- to assessee from two sources, viz. (i) Rs. 4,98,97,077/- by taking loan from IFCI Venture Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 32 of 40 Capital Fund, and (ii) Rs. 1,96,52,923/- by taking loan from Roulex Investment and Finance Ltd. [“Roulex”]. Ld. AO conducted certain enquiries and framed a view that both MLSF and Roulex are paper/shell companies. Although the assessee made detailed submissions to AO with documentary evidences to explain the genuineness of transactions, Ld. AO was not convinced. Finally, out of total sum of Rs. 6,95,50,000/-, Ld. AO treated a part sum of Rs. 4,98,97,077/- (relatable to IFCI Venture Capital Fund) as genuine and other part sum of Rs. 1,96,52,923/- (relatable to Roulex) as unexplained cash credit u/s 68; thus made addition of Rs. 1,96,52,923/-. 20. During first-appeal, Ld. CIT(A) deleted addition by observing several aspects, namely (i) the documents seized during search were merely financial statements, balance-sheets, profit and loss a/c, secretarial compliance documents which were not incriminating documents (Para No. 4.5.7 of appeal-order); thus the addition has been made without any incriminating material which is illegal; (ii) the AO has accepted MLSF as a genuine company for one part of the receipt (Rs. 4,98,97,077/-) and treated the same MLSF as a paper/shell company for another part (Rs. 1,96,52,923/-), which is absurd; (iii) MLSF is a registered Non-Banking Finance Company with RBI; (iv) the department has carried out simultaneous search on MLSF too and nothing incriminating was found in relation to impugned addition; and (v) the AO has stated several contradictory facts in assessment-order ignoring correct facts (Para No. 4.5.11 of appeal-order). Further, in Para No. 4.5.19 of appeal-order, Ld. CIT(A) has also mentioned the facts/evidences/documents which proved the identity and creditworthiness of MLSF & Roulex as well as genuineness of transactions. 21. Before us, Ld. DR supported the assessment-order. Per contra, Ld. AR mainly pushed two contentions, namely (i) the A.Y. 2013-14 was an unabated year and the impugned addition has been made in the proceeding of section 153A without having incriminating material which is illegal; and Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 33 of 40 (ii) In ACIT Vs. Shri Ankit Patidar, ITA No. 121/Ind/2019 & 103/Ind/2020 order dated 04.10.2021, the Co-ordinate Bench of ITAT, Indore has already dismissed the revenue’s appeal and upheld the finding of CIT(A) that MLSF & Roulex were genuine companies. On a careful consideration, we find that both of the contentions raised by Ld. AR are meritorious. Even the Ld. DR could not contradict/rebut these contentions. Therefore, without elaborating much, we suffice to conclude that the impugned addition is not sustainable and the Ld. CIT(A) has rightly deleted the same. With this, the ground of revenue is dismissed. Ground No. 2 of AY 2014-15 & 2015-16: 22. These grounds relate to the addition of Rs. 2,99,23,746/- in AY 2014- 15 and Rs. 6,73,01,659/- in AY 2015-16 made by AO on account of unaccounted income. 23. During assessment-proceeding, the AO found that one Mr. Ankit Patidar had invested money a total sum of Rs. 12 crore in “preferential warrants” of assessee-company in different years from various sources including the loans/gifts taken from (i) MLSF, (ii) Roulex and (iii) Subhash Patidar (father-in-law of Ankit Patidar). When the AO show-caused assessee, a detailed reply was submitted which is re-produced in para No. 11.1 of assessment-order. However, Ld. AO was not satisfied with assessee’s reply. Further, the AO made certain enquires and recorded statements. Finally, the AO concluded that MLSF and Roulex are paper/shell/dummy companies. AO also concluded that the credibility of Shri Subhash Patidar for giving funds to assessee is not established. Thus, in nutshell, the AO concluded that there is no real investment by Ankit Patidar in assessee- company; it is the money which originated from assessee-company and came back to its pocket. Finally, the AO made an addition of Rs. 2,99,23,746/- in AY 2014-15 and Rs. 6,73,01,659/- in AY 2015-16 in the hands of assessee-company treating the same as unaccounted income. Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 34 of 40 24. We observe that the impugned addition relates to the loans/gift taken by Ankit Patidar from 3 sources, namely (i) MLSF, (ii) Roulex, and (iii) Subhash Patidar. Regarding funds received by Ankit Patidar from MLSF and Roulex, we have already narrated in foregoing discussion that those companies have been found as genuine companies by ITAT, Indore in ACIT Vs. Shri Ankit Patidar (supra). Notably, this order of ITAT is of Ankit Patidar himself for AY 2014-15 and 2015-16 wherein the AO made additions u/s 68 in respect of corresponding loans taken by Ankit Patidar from MLSF and Roulex; the CIT(A) deleted the additions in first-appeal and thereafter ITAT also confirmed the action of CIT(A). Therefore, without elaborating further, we straightaway conclude that the loans taken by Ankit Patidar from MLSF and Roulex are adequately established and consequently the investment made by Ankit Patidar in assessee is automatically proved. Therefore, the addition made by AO in the hands of assessee qua the investment made by Ankit Patidar out of loans taken from MLSF and Roulex is not sustainable. Regarding funds received by Ankit Patidar from his father-in-law Shri Subash Patidar, the CIT(A) has granted relief by observing thus: “4.5.23 Funds received by Shri Ankit Patidar from his father-in-law Shri Subhash Patidar of Rs. 2,52,92,000/-, details are on record as reproduced at Page 70 of the impugned draft-order in para ‘q’. It is noted that no addition was made in the hands of Shri Ankit Patidar in his individual assessment made by the same Ld. AO during same time. This transaction is an assessed and accepted transaction in the assessment made of Shri Ankit Patidar for AY 2015-16 completed u/s 153(3) rws 153A. From the verifiable facts on record, I do not have any doubt in holding that addition made of Rs. 2,52,92,000/- in respect of unsecured loans received by Shri Ankit Patidar from Shri Subhash Patidar as unaccounted income in the hands of the appellant is to be deleted. I direct the AO for deleting the addition so made.” Thus, Ld. CIT(A) has granted relief on a clear finding that the assessment of Shri Ankit Patidar of the same AY 2015-16 had been completed by same AO u/s 143(3) but no addition had been made in respect of funds received from Subhash Patidar. That means, the AO has accepted the genuineness of Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 35 of 40 receipts while assessing Ankit Patidar. When it is so, the investment made by Ankit Patidar in assessee-company out of those funds is automatically established; consequently no addition can be made in the hands of assessee. Being so, we agree with the view taken by Ld. CIT(A) whereby he has deleted the addition made by AO. 25. In the final result, we do not find any merit in these grounds of revenue; the same are hereby dismissed. Ground No. 2 of AY 2016-17: 26. This ground relates to the addition of Rs. 14,27,22,000/- made by AO on account of unexplained investment u/s 69. 27. During assessment-proceeding, Ld. AO found that the closing stock as on 31.12.2015 as per books of account was Rs. 8711.99 lacs. However, the stock on the same date as per stock-statement submitted by assessee to State Bank of India, Commercial branch, Indore was Rs. 10,139.21 lacs. Thus, there was an excess stock of Rs. 14,27,22,000/- as on 31.12.2015. Ld. AO further observed that the stock found physically on the date of search i.e. 21.01.2016 matched completely with the books of account. Therefore, the AO framed a view that the assessee has made unaccounted sale of stock of Rs. 14,27,22,000/- during the period 01.01.2016 to 21.01.2016. When the AO show-caused the assessee on this issue, the assessee made following reply which is re-produced in assessment-order: “Impugned notice states that valuation of closing stock found physically as on the date of search matched completely with that in the books maintained by SPIL on SAP. There is an observation relating to difference in valuation of closing stock of the company as on 31.12.2015. Reference have been made to certain statements submitted to State Bank of India and valuation as per books as on 31.12.2015. Figures stated in the impugned notice to arrive at alleged unrecorded sales by the assessee company can be reconciled from its regular books of accounts on SAP system once copies of documents, statements referred and stock valuation report obtained from the Department Registered Valuer in this respect are made available to the assessee company. Accordingly, it is humbly Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 36 of 40 requested to provide copies of the same at the earlier after which necessary reconciliation with explanation shall be submitted.” However, Ld. AO was not satisfied with this reply of assessee. He observed that the stock-statement given to bank was assessee’s own document and not a third-party document, hence there is no question of providing documents related to stock difference to assessee for reconciliation. He concluded “The assessee is unable to substantively explain the reasons for difference in stocks as per books and that as per statement submitted to bank and has just avoided making any concrete submission in this regard. The discrepancy in stock statement submitted to bank and that as per books thus remains unexplained.” Finally, relying upon decision in B T Steels (2011) 196 Taxman 362 (P&H HC), Extee Exports (P) Ltd. (2013) 31 taxmann.com 70 (ITAT, Kolkata) and Century Foams (P) Ltd. IT Application No. 266 of 1992 (Allahabad HC), he made an addition of Rs. 14,27,22,000/- u/s 69 on account of unexplained investment in stock. 28. During first-appeal, Ld. CIT(A) deleted addition; the order of Ld. CIT(A) is extracted below for an immediate reference: “4.6. Ground nos. 20 to 22 for A.Y.2016-17:- Through these grounds of appeal the appellant has challenged the addition made by the AO amounting to Rs.14,27,22,000/- on account of difference in valuation of closing stock as on 31.12.2015. The appellant submitted that the AO made an observation on the discrepancy in valuation of stock on the date 31.12.2015 which is prior to the conduct of search on 21.01.2016 and held the Rs. 14,27,22,000 as unexplained investment in stock u/s 69 for AY 2016-17. It is stated by the appellant that the figure of closing stock as per books of account as on 31.12.2015 and those reported in stock statement furnished to State Bank of India, Commercial Branch, Indore are same. Appellant sought the details and to make available from the AO, the basis of arriving at the figure of Rs. 8711.99 lacs which has been noted by the AO as 'closing stock as per books of account as on 31.12.2015. 4.6.1. It was further submitted by the appellant that assessee is a public company whose shares are listed on BSE and NSE. As per the listing requirements, quarterly results are reported to the stock exchanges and published in the public domain. These financial data as on 31.12.2015 are for the period prior to conduct of search which occurred on 21.01.2016. In respect of valuation of stock found on the date of search 21.01.2016, AO has made a categorical factual noting in Para 13.4 of the impugned order as "It is noticed Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 37 of 40 that the valuation of stock found on the date of search completely matched with the books of accounts maintained on SAP." On this factual finding given by the AO in the impugned order, the appellant submitted that Once the valuation of stock found during the course of search completely matches with the books of account, there arise no occasion to make addition of unexplained investment towards valuation of stock for the intermittent period of the year prior to the conduct of search. 4.6.2. Appellant strongly relies on the recent decision of jurisdictional Hon'ble Indore ITAT in the case of M/s. Agrawal & Co. in ITA 416/Ind/2018 order dated 20.05.2021 wherein the Hon'ble Bench had an occasion to deal with similar matter of difference in valuation of stock as per books of account and the stock statement submitted to bank for credit facilities in the interim period of the financial year. It gave the findings in Para 8- "We have also considered the order passed by Hon'ble High Court of Gujarat as relied upon by the Ld. AR in the case of CIT Vis Arrow Exim (P) Ltd (supra) where the stock hypothecated with bank valued higher than shown in the books of accounts. When no defect is found with the accounts of the assessee explanation rendered by the assessee that the inflated statement was given to the bank to avail higher credit is to be considered in its proper perspective, no interference in deleting such addition either by Ld. CIT(A) or by the Tribunal is called for as of the observation of the Hon'ble Court. Thus, taking into consideration the entire aspect of the matter, particularly the explanation rendered by the appellant in support of the accounts maintained by the assessee for inflated statement submitted to the bank to avail higher credit, we find no justification in the order passed by Ld. CIT(A) in deleting such addition made by the Ld. A.O on account of unexplained investment without any ambiguity so as to warrant interference. Hence we find no merit in the appeal preferred by Revenue and the same is, thus, hereby dismissed." 4. 6.3. I find that it is an undisputed fact and categorically noted by the AO that valuation of stock found as on the date of search completely matched with the books of account maintained on SAP. Considering the facts and circumstances of the instant case, correct factual position noted by the AO on the date of search which is undisputed and the binding nature of decision of the Hon'ble jurisdictional Indore ITAT in the case of M/s. Agrawal & Co. (supra), the addition made by the AO of Rs. 14,27,22,000 towards unexplained investment u/s 69 is unfounded, without any corroboration and liable to be deleted. Therefore, the addition made by the AO amounting to Rs: 14,27,22,000/- on account of difference in valuation of closing stock as on 31.12.2015 is Deleted. Therefore, the appeal on these grounds is Allowed.” 29. On a careful consideration, we observe that the CIT(A) has deleted addition relying upon the decision of ITAT, Indore in M/s Agarwal & Co. ITA No. 416/Ind/2018 order dated 20.05.2021. On perusal of Para No. 8 Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 38 of 40 of the order of ITAT, which is also incorporated in the order of CIT(A) re- produced by us in preceding paragraph, it can be instantly noted that the ITAT had given relief to assessee for the reason that assessee explained that inflated statement was given to bank to avail higher credit. But in the present case, there is no such explanation given by assessee either before AO or CIT(A). In fact, in the reply submitted to AO, the assessee demanded the copy of stock-statement from AO so that a reconciliation of difference can be filed. Therefore, the reliance of CIT(A) on ITAT order in M/s Agarwal & Co. (supra) is completed mis-placed. We also note an important observation made by Ld. CIT(A) in Para No. 4.6 of his order which reads thus “It is stated by the appellant that the figure of closing stock as per books of account as on 31.12.2015 and those reported in stock statements furnished to State Bank of India, Commercial branch, Indore are same.” Thus, we take note of two vital facts in present case, namely (i) Before AO, the assessee demanded copies of stock-statements submitted to bank and also demonstrated willingness to submit reconciliation after receiving those statements, and (ii) Before CIT(A), the assessee submitted that the closing stock as per books of account and bank statement as on 31.12.2015 were same. The categorical and responsible claim of assessee before CIT(A) that the closing stock as per books of account as on 31.12.2015 and those reported in stock statement furnished to bank are same, is possible only if the assessee is having possession of those statements and has reconciled the figures. That means, at the time of arguing first-appeal, if not earlier, the assessee was having possession of stock-statements submitted to bank. Further, if there was no difference as on 31.12.2015, as claimed by assessee before CIT(A), the entire controversy would come to an end. Therefore, after a mindful consideration, we came to a conclusion that this issue should be remanded back to the file of AO for a fresh determination. While doing so, we make it clear that the entire controversy relates to the discrepancy in closing stock shown by assessee in its own books of account vis-à-vis shown in the stock- statements filed to bank; hence the AO is not obligated to provide any “stock Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 39 of 40 valuation report obtained from the Department Registered Valuer” as demanded by assessee from AO. At the cost of repetition, we make it clear that the assessee’s own submission before CIT(A) reveals very clearly that the stock-statements are available in possession of assessee. Therefore, the assessee has both documents in possession, namely (i) the books of account, and (ii) stock-statements submitted to bank. In such circumstances, the AO is only required to give sufficient opportunities to assessee to make submission/reconciliation. Accordingly, we direct the AO to give sufficient opportunities to assessee. At the same time we also direct assessee to avail those opportunities and make true and exact submission/ reconciliation so that the AO can take a final call on the issue. Needless to mention that the AO, while deciding, shall not be influenced by his earlier decision. This ground of revenue is, thus, allowed for statistical purpose in terms indicated here. 30. Resultantly, IT(SS)A No. 158 to 160/Ind/2021 for AY 2013-14 to 2015-16 are dismissed and IT(SS)A No. 161/Ind/2021 for AY 2016-17 is partly allowed for statistical purpose. Order pronounced as per Rule 34 of I.T.A.T. Rules, 1963 on 28/04/2023. Order pronounced in the open court on ....../....../2022. (CHANDRA MOHAN GARG) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore िदनांक /Dated : 28.04.2022 Patel/Sr. PS Shakti Pumps (India ) Ltd. IT(SS)A No.158 to 161/Ind/2021 Assessment years 2013-14 to 2016-17 Page 40 of 40 Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore 1. Date of taking dictation 2. Date of typing & draft order placed before the Dictating Member 3. Date on which the approved draft comes to the Sr. P.S./P.S. 4. Date on which the approved draft is placed before other Member 5. Date on which the fair order is placed before the Dictating Member for pronouncement 6. Date on which the file goes to the Bench Clerk 7. Date on which the file goes to the Head Clerk 8. Date on which the file goes to the Assistant Registrar for signature on the order 9. Date of dispatch of the Order