DCIT (Central)-2, Indore V. M/s. Java Foods (P) Ltd., Indore

ITSSA 168/Ind/2019

AI Insights

The case involves M/s Java Foods (P) Ltd., which faced additions to their income under section 68 of the Income-tax Act, 1961, concerning unsecured loans for the assessment years 2014-15 and 2015-16. These additions were initially made by the Deputy Commissioner of Income-Tax, Central-2, Indore, following a search operation under section 132 of the Act. The additions were challenged and subsequently deleted by the CIT(A), leading to the revenue's appeal to the Income Tax Appellate Tribunal, Indore. The tribunal's decision focused on the absence of incriminating material during the search, which is a prerequisite for making additions in non-abated assessment years under section 153A of the Act.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 130358 (ITAT-INDORE)
• Duration Of Justice: 3 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 02-03-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 05-12-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 07-08-2019
• Other Referred Cases: Sumati Dayal Vs. CIT, CIT Vs. Kabul Chawla, PCIT Vs. Gahoi Dal & Oil Mills, Pr. CIT and ors. Vs. Meeta Gutgutia, Prop. Ferns \'N\' Patels and Ors.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Search and seizure; Question of law; Tangible material; Accommodation entries
• Section: 132; 143(3); 153A; 133(6); 153

Judgement Text

Page 1 of 10 आयकरअपीलीयअिधकरण,इंदौर ायपीठ,इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE MS.SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRIB.M. BIYANI, ACCOUNTANT MEMBER (Conducted through Virtual Court) IT(SS)A No.168 & 169/Ind/2019 (Assessment Year: 2014-15 & 2015-16) DCIT (Central)-2 Indore बनाम/ Vs. M/s. Java Foods (P)Ltd., 16, Khajrana Square, Ghanshyam Castle, Opp. Subhlabh, Indore (Appellant/Revenue) (Respondent/Assessee) P.A. No. AACCJ 5636 L Appellant by Ms. Richa Parwal, AR Respondent by Shri P.K. Mishra, CIT-DR Date of Hearing: 06.12.2022 Date of Pronouncement: 03.03.2023 आदेश/O R D E R Per Bench: Feeling aggrieved by a consolidated appeal-order dated 23.05.2019passed by learned Commissioner of Income-Tax (Appeals)-3, Bhopal[“Ld. CIT(A)”], which in turn arises out of a consolidated assessment-order dated 30.12.2018 passed by learned DCIT, Central-2, Indore[“Ld. AO”] u/s 153A read with section 143(3) of Income-tax Act, 1961 [“the Act”], concerning the Assessment-Year[“AY”] 2014-15 and 2015-16, the assessee has filed these appeals on following grounds: M/s Java Foods (P) Ltd. ITA No. 168 & 169/Ind/2019 Assessment year 2014-15 & 2015-16 Page 2 of 10 ITA No. 168/Ind/2019 for AY 2014-15: “(1) On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 4,25,00,000/- made by Assessing Officer u/s 68 of Income-tax Act, 1961.” ITA No. 169/Ind/2019 for AY 2015-16: “(1) On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 3,06,00,000/- made by Assessing Officer u/s 68 of Income-tax Act, 1961.” 2. Heard the learned Representatives of both sides at length and case- records perused. 3. Briefly stated the facts are such thata search u/s 132 was conducted upon assessee on 25.03.2017 in pursuance of which the assessments of different years were framed u/s 153A / 143(3) after making certain additions. Presently we are concerned with AY 2014-15 and 2015-16 wherein the Ld. AO completed assessments after making additions of Rs. 4,25,00,000/- and Rs. 3,06,00,000/- respectively assessment-year wise u/s 68 in respect of unsecured loans taken by assessee. Aggrieved by action of Ld. AO, the assessee carried matter in first-appeal and succeeded. Now, the revenue has come in these appeals assailing the orders of first-appellate authority. 4. As the solitary grievance of revenue in both of these appeals is identical i.e. the addition made by Ld. AO u/s 68 in respect of unsecured loans; and that issue emanates from a common assessment-order as well as common order of first-appeal, we heard both of these appeals simultaneously and are disposing of by this consolidated order for the sake of convenience. 5. Facts apropos to the impugned addition are such that during search- proceeding the revenue-authorities observed, on perusal of the details of unsecured loans taken by assessee, that the assessee-company had taken huge unsecured loans from Kolkata-based companies including one M/s M/s Java Foods (P) Ltd. ITA No. 168 & 169/Ind/2019 Assessment year 2014-15 & 2015-16 Page 3 of 10 Krypton Electrical Suppliers Pvt. Ltd., which appeared suspicious and mere accommodation entries. Thereafter, subsequent tocompletion of search and during assessment-proceeding, the Ld. AO issued show-cause notice to the assessee asking as to why the unsecured loans be not treated as unexplained cash credit u/s 68. In response, the assessee filed a detailed reply dated 24.12.2018 which is scanned by Ld. AO at Page No. 4 to 7 of the assessment-order. However, the Ld. AO observed that not only the lender- company M/s Krpton Electrical Suppliers Pvt. Ltd. was a Kolkata-based company but also numerous companies including the lender-company had the same single address in Kolkata and there was no business activity at such address. Ld. AO made a list of about 23 such companies having office at such single address. Ld. AO also issued notices u/s 133(6) which were returned back by postal authorities with the noting “left”. Ld. AO also made an in-depth analysis of the financial parameters of the lender-company on Page No. 10 of the assessment-order and observed that the lender-company is a mere paper-company; it has no business; it has been incorporated only to provide accommodation entries. Ld. AO further observed that the directors of lender company were only (i) Shri Jitendra Agarwal having residence at Indore, and (ii) AyushAgarwal son of Jitendra Agrawal who was a student studying in Mumbai. Taking into accountall these aspects, Ld. AO concluded that the lender-company has not advanced any loan to assessee; the transactions were just a well-managed show to convert unaccounted money into the books without paying any tax. Ld. AO relied heavily upon the decision of Hon’ble Supreme Court in SumatiDayal Vs. CIT 214 ITR 801. Finally, the Ld. AO was strongly dis-satisfied about three ingredients of section 68, namely the identity, creditworthiness and genuineness, and therefore treated the unsecured loans as unexplained and made addition. 6. During first-appeal, the assessee challenged the impugned addition on legal ground as well as merit. On legal front, the assessee claimed that the AY 2014-15 and 2015-16 were non-abated assessment-years and the Ld. AO M/s Java Foods (P) Ltd. ITA No. 168 & 169/Ind/2019 Assessment year 2014-15 & 2015-16 Page 4 of 10 has made additions in the proceeding of section 153A without having any “incriminating material”; therefore the additions made by Ld. AO are illegal. On merit side also, the assessee made a detailed submission to demonstrate that the Ld. AO had wrongly drawn adverse inferences against assessee. The Ld. CIT(A) accepted assessee’s legal stand itself and relying upon several decisions including 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, held the additions as illegal. Ld. CIT(A), however, did not decide the merits of the addition as he had given relief on the legal ground itself. 7. Before us, the Ld. DR representing the revenue strongly supported the assessment-order. Ld. DR strongly opposed the order of first-appellate authority on twin-arguments as under: (i) He drew our attention to Para No. 7.1 of the assessment-order and pointed out that the AO has mentioned “During the search proceedings u/s 132(1), on perusal of the details of unsecured loans received by the company M/s Java Foods Pvt. Ltd. in the last six years, it is found that the company has taken huge amount of unsecured loans from the Kolkata based company. These appears to be suspicious and merely accommodation entry provider concerns.”He submitted that the Ld. AO has categorically stated that “During the search-proceeding u/s 132(1)”, the details of loans were perused. Ld. DR submitted that there is no definition of “incriminating material” in Income-tax Act and a perusal/observation made during search-proceeding can also be said to be “incriminating material”. Therefore, the conclusion derived by Ld. CIT(A) that there was no “incriminating material” with the AO, is baseless and faulty. (ii) He submitted that there had been a change in the scheme for assessment of search cases from time to time. He submitted that in M/s Java Foods (P) Ltd. ITA No. 168 & 169/Ind/2019 Assessment year 2014-15 & 2015-16 Page 5 of 10 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 full power to assess the 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 viewedand held as legal. 8. Per contra, Ld. AR representing the assessee defended the order of first-appellate authority and opposed the submissions of Ld. AR as under: (i) There was absolutely no material found during search-proceeding qua the impugned loans taken by assessee. Ld. AR categorically and loudly asserted at the bar that whatever loose-papers were found during search, were duly explained to Ld. AO and they had no connection with the impugned loans. Ld. AR further contended that the Ld. AO instigatedinvestigations relating to the lender-company during assessment-proceeding and that too only when the assessee supplied details to him.Ld. AR pointed out that even the copy of the investigation-report was never supplied to the assessee. She further argued that nowhere in the assessment-order, the Ld. AO has stated as to what kind of “incriminating material” was available to him?Referring to the very same Para No. 7.1 of the assessment-order M/s Java Foods (P) Ltd. ITA No. 168 & 169/Ind/2019 Assessment year 2014-15 & 2015-16 Page 6 of 10 as relied upon by Ld. DR, the Ld. AR argued differently i.e. She submitted that the said paragraph though starts with “During search proceeding...” but ends with “These appears to be suspicious and mere accommodation entry provider concerns”. Thus, there was a mere suspicion and no iota of “incriminating material” with the Ld. AO. Ld. AR strongly contended that the whole assessment-order clearly reveals that the AO launched his action and finally made addition on mere suspicion and without recourse to any kind of incriminating material. (ii) Ld. AR submitted that it is a well-settled law that no addition in non- abated assessment years can be made in the proceeding of section 153A without having “incriminating material”. This view has been held not only by Hon’ble Delhi High Court in Kabul Chawla (Supra) but also several other decisions including the decision of Hon’ble Jurisdictional High Court of Madhya Pradesh in PCIT Vs. Gahoi Dal & Oil Mills (2021) 11 ITJ Online 314 (MP), ITA No. 21, 31 & 32 of 2019, order dated 12.07.2019. 9. We have considered rival submissions of both sides and perused the material held on record including the orders of lower authorities. On a careful consideration, we firstly observe that vide Para No. 4.1, the Ld. CIT(A) has categorically observed twin-aspects, viz. (i) there was no incriminating material available with the Ld. AO; and (ii) the AY 2014-15 and 2015-16 are non-abated assessment-years. On a careful consideration of the arguments of learned representatives of both sides, we also observe that nowhere in the assessment-order, there is any reference to incriminating material having been found qua the impugned unsecured loans. We are not in agreement with the submission of Ld. DR that a mere perusal/observation made by revenue-authorities during search- proceedings about huge loans having been taken by assessee, constitutes “incriminating material”. Admittedly there is no definition of “incriminating M/s Java Foods (P) Ltd. ITA No. 168 & 169/Ind/2019 Assessment year 2014-15 & 2015-16 Page 7 of 10 material” in the act, yet the term “incriminating material” postulates that there has to be some “tangible material” and not mere suspicion. If a mere observation/suspicion is held to be “incriminating material”, we are afraid, it would have fatal consequences unintended in the scheme of law. Therefore, we have no hesitation in agreeing with the conclusion taken by learned first- appellate authority that there was absolutely no “incriminating material” in the possession of Ld. AO. Having done so, we now agree to nextcontention raised by Ld. AR that in absence of incriminating material no addition could be validly made in the proceeding of section 153A. This proposition has been clearly upheld by 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. 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: “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 M/s Java Foods (P) Ltd. ITA No. 168 & 169/Ind/2019 Assessment year 2014-15 & 2015-16 Page 8 of 10 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 have suffered the illegality as would give rise to the proposed substantial question of law. 11. Consequently, appeals fail and are dismissed. No costs.” 10. At this stage, we would also like to mention that in their later decision in the case of Pr. CIT and ors. Vs. MeetaGutgutia, 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) 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 M/s Java Foods (P) Ltd. ITA No. 168 & 169/Ind/2019 Assessment year 2014-15 & 2015-16 Page 9 of 10 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. MeetaGutgutia (2018) 96 taxmann. Com 468 (SC). 11. In view of above discussion, 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 appeals, the additions made by Ld. AO without having any incriminating material, are beyond the purview of section 153A and, therefore, clearly unsustainable. Hence, the Ld. CIT(A) was justified in deleting the same and we uphold his action. Thus, the revenue fails in its grounds. 12. At this stage, we would also like to submit that during the course of hearing, there was a brief discussion on merits of the issues as well, but since we have already agreed to the deletion made by Ld. CIT(A) on legality itself, there is no necessity to delve into the merits. 13. Resultantly, these appeals of revenue are dismissed. Order pronounced as per Rule 34 of I.T.A.T. Rules, 1963 on 03/03/2023. Order pronounced in the open court on ....../....../2023. Sd/- Sd/- (SUCHITRA KAMBLE) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore िदनांक/Dated : 03.03.2023 M/s Java Foods (P) Ltd. ITA No. 168 & 169/Ind/2019 Assessment year 2014-15 & 2015-16 Page 10 of 10 Patel/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad Benches, Ahmedabad 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