KAILASH CHAND JAIN PROP. M/S KAILASH CHAND JAIN& CO. ,LUCKNOW V. DY. COMMISSIONER OF INCOME TAX, CENTRAL, LUCKNOW

ITSSA 38/LKW/2025

AI Insights

The case involves Kailash Chand Jain, the appellant, who contested the addition of Rs.49,00,000 as unexplained unsecured loan income for the assessment year 2016-17. The addition was initially made by the Assessing Officer under section 68 of the Income Tax Act, 1961, following a search and seizure operation. The Commissioner of Income Tax (Appeals) upheld this addition. However, the ITAT reversed this decision, citing the lack of incriminating evidence found during the search and referencing Supreme Court decisions that prohibit such additions in cases of completed or unabated assessments where no incriminating material was found.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 396433 (ITAT-LUCKNOW)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 29-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2016-2017
• Other Referred Cases: Abhisar Buildwell (P.) Ltd. v. Principal Commissioner of Income tax, Central-3, Shri Adhyatm Jain vs DCIT-2, Dy. CIT vs. U. K. Paints (Overseas) Ltd., Smt. Shashi Agarwal vs. DCIT, Kabul Chawla vs. CIT, CIT vs. Saumya Construction, CIT vs. Continental Warehousing, Smt. Jami Nirmala vs. Pr.CIT, CIT vs. Veerprabhu Marketing Ltd., Pr.CIT vs. Delhi International Airport (P.) Ltd., Pr.CIT vs. Meeta Gutgutia, Dr. A. V. Sreekumar vs. CIT, Pr. CIT vs. Smt. Daksha Jain, CIT vs. Rajkumar Arora, CIT vs. Mahndipur Balaji, CIT vs. K. P. Ummer, Sunny Jacob Jewellers and Wedding Centre vs. DCIT, E. N. Gopakumar vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: REVENUE RELIED; R.K. AGARWAL
• Assessee Lawyers: KAMLESH KUMAR PANDEY
• Keywords: Gift; Principle of natural justice; Search and seizure; Block assessment
• Section: 132; 153A; 68

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH “A”, LUCKNOW BEFORE SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER AND SHRI SUBHASH MALGURIA, JUDICIAL MEMBER IT(SS)A No. 38/LKW/2025 Assessment Year: 2016-17 Kailash Chand Jain 322/34, Surangi Tola Chowk, Lucknow-226003. v. DCIT-2, Central Circle-2 Aaykar Bhawan, 5, Ashok Marg, Lucknow-226001. PAN:ADGPJ6036L (Appellant) (Respondent) Appellant by: Shri Kamlesh Kumar Pandey, Adv Respondent by: Shri R. K. Agarwal, CIT(DR) O R D E R PER ANADEE NATH MISSHRA, AM.: This appeal has been filed by the assessee pertaining to assessment year 2016-17 against impugned appellate order dated 06/01/2025 (DIN & Order No. ITBA/APL/S/250/2024- 25/1071916243(1) of Ld. Commissioner of Income Tax (Appeals)- 3, Lucknow [“CIT(A)” for short] for the A.Y. 2016-17. The grounds of appeal are as under: - “1 The Learned Commissioner of Income Tax (Appeals) has erred in confirming the addition of Rs.49,00,000/- as unsecured loan taken during the year by the appellant towards the income of the appellant on substantive basis. The addition made on presumption is illegal & void. The assessment made on the protective and substantive basis without application of mind by the learned Assessing Officer. The addition made on u/s 68 of the IT Act, 1961 on substantive basis. 2. The Learned Commissioner of Income Tax (Appeals) erred both on facts and in law confirming the addition on account of addition of Rs.49,00,000/- u/s 68 of the IT Act. 3. That no incriminating material found during the search proceedings and the order u/s 153A is bad in law. 4 That the approval u/s 153D has been given without application of mind and the impugned order passed deserves to be dropped. 5. The order passed by the learned CIT(Appeals) is arbitrary capricious, misconceived, erroneous and against the principal of natural justice. 6. The above grounds of appeal will be argued in details at the time of hearing and the appellant crave leave to submit additional grounds of appeal if any and/or amend, vary, modify, alter the grounds of appeal at or before the time of hearing.” IT(SS)A No. 38/LKW/2025 Page 2 of 8 2. In this case, assessment order dated 28.09.2022 was passed by the Assessing Officer u/s 153A of the Income Tax Act, 1961 (hereinafter referred as to “the Act”) whereby the total income was assessed at Rs.59,62,460/- as against returned income of Rs.10,62,460/-. In the aforesaid assessment order an addition of Rs.49,00,000/- was made u/s 68 of the Act. The Assessing Officer treated the unsecured loan amounting to Rs.49,00,000/- from different persons as unexplained and made the aforesaid addition. Aggrieved, the assessee filed appeal against the aforesaid assessment order in the office of the Ld. CIT(A). Vide impugned appellate order dated 06.01.2025, the assessee’s appeal was dismissed and the aforesaid addition of Rs.49,00,000/- was confirmed. On perusal of the aforesaid impugned appellate order, it is found (at page no. 21 of the impugned appellate order) that the assessee had submitted as under: - “......In the procedure of search and seizure conducted upon the appellant and his family, the AO has not reported presence of any documents or other incriminating material which suggests that the appellant is the owner or the ultimate beneficiary of the amount being transferred to him as loan and gift during the relevant A.Y. The whole judgment of the proceedings made by fine assessing officer Is based on presumption and allegations against the appellant. Even after the procedure of search and seizure, the AO is unable to issue an unambiguous and factual statement on the matter. Though no incriminating evidence was found against the appellant during the search, he had been roped into the proceedings to strengthen the assessment as a group case. The Supreme Court has adjudicated in case of Abhisar Buildwell (P.) Ltd. v. Principal Commissioner of Income tax, Central-3(Facts and judgement annexed as Annexure No. 14)\" in respect of completed assessments/unabated assessments no addition can be made by Assessing Officer in absence of any incriminating material found during course of search under section 132 or requisition under section 132A\". Thus, the assessing officer has erred while assessing the appellant under the scope of this section without the presence of any incriminating material or evidence.........” (2.1) Thus, it is observed that the Ld. CIT(A) confirmed the aforesaid addition of Rs.49,00,000/- despite that fact that the assessee had brought it to her notice that the issue was covered in favour of the assessee by order of Hon'ble Supreme Court in IT(SS)A No. 38/LKW/2025 Page 3 of 8 the case of PCIT vs Abhisar Buildwell (P.) Ltd (2023) 149 taxmann.com 399 (SC)/(2023) 293 Taxman 141 (SC)/(2023) 454 ITR 212 (SC). Aggrieved again, this present appeal has been filed by the assessee in Income Tax Appellate Tribunal (“ITAT” for short). (3) At the time of hearing before us, the Ld. Counsel for the assessee submitted that the Ld. CIT(A) caused immense injustice to the assessee by the dismissing the assessee’s appeal, completely disregarding the binding precedent of Hon'ble Supreme Court in the case of Abhisar Buildwell (P.) Ltd (supra). He submitted that the addition in respect of unsecured loans made by the Assessing Officer in the assessment order were not based on any incriminating materials found in the course of search and seizure u/s 132 of the Act in the case of the assessee, and that the additions were based on in respect of figures taken from the assessee’s disclosed books of accounts and balance- sheet. He further submitted that in identical facts and circumstances, in a related group case of Shri Adhyatm Jain vs DCIT-2 (ITA. No.787/LKW/2024), vide order dated 06.05.2025, the issue has already been decided by Co-ordinate Bench of ITAT, Lucknow Benches in favour of the assessee, relying on Abhisar Buildwell (P.) Ltd (supra), Dy. CIT vs. U. K. Paints (Overseas) Ltd. (supra) and Smt. Shashi Agarwal (2024) 167 taxmann.com 687 (Lucknow Trib.) and Instruction of Central Board of Direct Taxes (CBDT) [Instruction No.1 of 2023 (F. No.279/Misc./M-54/2023- IT)]. In view of the foregoing, the Ld. Counsel for the assessee pleaded that the aforesaid addition of Rs.49,00,000/- should be deleted. The Ld. Departmental Representative for Revenue relied on the orders passed by the Ld. CIT(A) as well as the Assessing Officer. However, he fairly conceded that the aforesaid addition of Rs.49,00,000/- was not based on any incriminating materials IT(SS)A No. 38/LKW/2025 Page 4 of 8 found in the course of search and seizure u/s 132 of the Act. He also fairly conceded that the issue was covered in favour of the assessee by precedent reported in Abhisar Buildwell (P.) Ltd (supra), Dy. CIT vs. U. K. Paints (Overseas) Ltd. (supra) and Smt. Shashi Agarwal (2024) 167 taxmann.com 687 (Lucknow Trib.) and Instruction of Central Board of Direct Taxes (CBDT) [Instruction No.1 of 2023 (F. No.279/Misc./M-54/2023-IT)]. Further, he did not bring any material facts and circumstances for our consideration to distinguish the present case from the facts in the case Shri Adhyatm Jain vs DCIT-2 (supra) (4) We have heard the rival parties and have gone through the material placed on record. In the case of Smt. Shashi Agarwal (supra), co-ordinate bench of ITAT Lucknow has decided the matter in favour of the assessee, relying in the case of Abhisar Buildwell (P.) Ltd (supra), on the issue whether additions can be made in a search assessment in the absence of any incriminating material found during search. The relevant portion of the order of Smt. Shashi Agarwal vs. DCIT (supra) is reproduced as under: - “(C) We have heard both sides. We have perused materials on record. There is no dispute regarding relevant facts. It is not in dispute that no incriminating materials were found in the course of search u/s 132 of the IT Act in respect of the various additions made by the Assessing Officer. Further it is also not in dispute that no assessment proceedings were pending in the cases of the assessee at the time of search conducted on 08/07/2016 in the case of the assessee, u/s 132 of the IT Act. Further, as no assessment proceedings were pending at the time of search & seizure operation u/s 132 of the Act on 08/07/2016, the case of the assessee falls in the category of unabated/completed assessments within the meaning of orders passed by Hon'ble Supreme Court in the cases of Principal Commissioner of Income-tax vs. Abhisar Buildwell (supra) and Dy. CIT vs. U. K. Paints (Overseas) Ltd. (supra) and within the meaning of order passed in the case of Kabul Chawla 380 ITR 573 (Delhi), which stands approved by Hon'ble Supreme Court by dint of orders of Hon'ble Supreme Court in the case of Principal Commissioner of Income-tax vs. Abhisar Buildwell (supra) and Dy. CIT vs. U. K. Paints (Overseas) Ltd. (supra). Further, in paragraph 14 of the aforesaid order of Hon'ble Supreme Court in the case of Principal Commissioner of Income-tax vs. Abhisar Buildwell (supra), the Hon'ble Supreme Court concluded as under: “14. In view of the above and for the reasons stated above, it is concluded as under: IT(SS)A No. 38/LKW/2025 Page 5 of 8 (i) that in case of search under section 132 or requisition under section 132A, the AO assumes the jurisdiction for block assessment under section 153A; (ii) all pending assessments/reassessments shall stand abated; (iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the 'total income' taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and (iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under section 132 or requisition under section 132A of the Act, 1961. However, the completed/unabated assessments can be re- opened by the AO in exercise of powers under sections 147/148 of the Act, subject to fulfillment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved. The question involved in the present set of appeals and review petition is answered accordingly in terms of the above and the appeals and review petition preferred by the Revenue are hereby dismissed. No costs.” (C.1) Hon'ble Supreme Court in the case of U. K. Paints (Overseas) Ltd. (supra) widened the application of the order in the case of Abhisar Buildwell (supra) to assessments conducted u/s 153C of the IT Act also. In both orders of Hon'ble Supreme Court i.e. in Principal Commissioner of Income-tax vs. Abhisar Buildwell (supra) and Dy. CIT vs. U. K. Paints (Overseas) Ltd. (supra), the Hon'ble Supreme Court held that in respect of the completed/unabated assessments, no additions can be made in assessment order passed u/s 153A or passed u/s 153C of the IT Act in respect of which incriminating materials were not found in the course of search action u/s 132A of the Act; although Hon'ble Supreme Court held that the completed/unabated assessments can be reopened by the Assessing Officer in exercise of powers u/s 147/148 of the IT Act subject to fulfillment of the conditions as envisaged/mentioned u/s 147/148 of the IT Act. Thus, although the powers of the Assessing Officer u/s 147/148 of the IT Act were saved by Hon'ble Supreme Court in the cases of Principal Commissioner of Income-tax vs. Abhisar Buildwell (supra) and Dy. CIT vs. U. K. Paints (Overseas) Ltd. (supra), subject to fulfillment of conditions envisaged u/s 147/148 of the IT Act; it has been categorically held that in respect of completed/unabated assessments, no additions can be made u/s 153A or under section 153C of the Act if incriminating material was not found / unearthed during the course of search u/s 132 of the IT Act in respect of the additions made. (C.2) The issue whether additions can be made in assessment orders passed u/s 153A or u/s 153C of IT Act in cases falling under unabated/completed assessments, when no incriminating material was found at the time of search u/s 132 of the IT Act, was a disputed issue in the past. While a view in favour of assessee was taken, for example, in cases such as CIT vs. Kabul Chawla (supra), Pr. CIT vs. Saumya Construction 387 ITR 523 (Guj), CIT vs. Continental Warehousing 374 ITR IT(SS)A No. 38/LKW/2025 Page 6 of 8 645 (Bom.), Smt. Jami Nirmala vs. Pr.CIT 437 ITR 673 (Orissa), CIT vs. Veerprabhu Marketing Ltd. 388 ITR 574 (Cal.), Pr.CIT vs. Delhi International Airport (P.) Ltd. 443 ITR 574 (Kar.), Pr.CIT vs. Meeta Gutgutia 395 ITR 526 (Delhi), Dr. A. V. Sreekumar vs. CIT 404 ITR 642 (Ker.), Pr. CIT vs. Smt. Daksha Jain 2019 (8) TMI 474 (Rajasthan), etc.; courts took a view in favour of Revenue in cases reported as CIT vs. Rajkumar Arora (supra), CIT vs. Mahndipur Balaji 447 ITR 517 (All.), CIT vs. K. P. Ummer 413 ITR 251 (Ker.), Sunny Jacob Jewellers and Wedding Centre vs. DCIT 362 ITR 664 (Ker.), E. N. Gopakumar 75 taxmann.com 215 (Kerala), etc. The issue has now been finally settled by decisions of Hon'ble Supreme Court in the aforesaid cases of Principal Commissioner of Income-tax vs. Abhisar Buildwell (supra) and Dy. CIT vs. U. K. Paints (Overseas) Ltd. (supra) wherein view in favour of assessee has been taken. (C.2.1) In the present appeals before us, the additions have been made by the Assessing Officer in assessment orders passed u/s 153A of the IT Act. Further, we have already noted earlier that the relevant facts are not in dispute. It is not in dispute that no incriminating materials were found in the course of search u/s 132 of the IT Act in respect of the various additions made by the Assessing Officer. Further it is also not in dispute that no assessment proceedings were pending in the cases of the assessee at the time of search conducted on 08/07/2016 in the case of the assessee, u/s 132 of the IT Act. Furthermore, as no assessment proceedings were pending in the case of the assessee at the time when (on 08/07/2016) search u/s 132 of the IT Act was conducted, the case of the assessee in the present appeals before us, falls in the category of completed/unabated assessments within the meaning of orders passed by Hon'ble Supreme Court in the case of Principal Commissioner of Income-tax vs. Abhisar Buildwell (supra) and in the case of CIT vs. Kabul Chawla (supra) which was approved by Hon'ble Supreme Court in the case of Principal Commissioner of Income Tax vs. Abhisar Buildwell (supra). In view of the foregoing, and having regard to the relevant facts and circumstances of the present case before us, and further, as representatives of both sides are in agreement with this, we are of the view that the issue in dispute is squarely covered in favour of the assessee by the orders of Hon'ble Supreme Court in Principal Commissioner of Income-tax vs. Abhisar Buildwell (supra) and Dy. CIT vs. U. K. Paints (Overseas) Ltd. (supra) and by the aforesaid instruction No. 1 of 2023 of CBDT, which is binding on Revenue authorities. Accordingly, we direct the Assessing Officer to delete the additions made amounting to a total of Rs.2,24,81,900/- for assessment year 2015-16 and addition amounting to Rs.44,25,000/- for assessment year 2016-17. (C.2.2) Since we have directed that the aforesaid additions be deleted, the other issues regarding merits of the additions made in the aforesaid two years, become merely academic in nature and do not require any adjudication. Therefore, we decline to make any order with regard to the merits of the various additions made.” (4.1) A view, in favour of the assessee, has also been taken by Lucknow Bench of ITAT, in the case of Shri Adhyatm Jain vs DCIT-2 (supa). In this case, it was held that it was irrelevant whether the addition was made on substantive basis or protective basis; and further that no additions could have been made in IT(SS)A No. 38/LKW/2025 Page 7 of 8 either situation, when no incriminating material was found at the time of search u/s 132 of IT Act. (4.2) In view of the foregoing, and respectfully following the orders of the Hon'ble Supreme Court in the cases of Abhisar Buildwell (P.) Ltd (supra) and DCIT vs U.K. Paints (Overseas) Ltd (2023) 150 Taxmann.com 108 (SC), and further, on due consideration of aforesaid Instruction of Central Board of Direct Taxes (CBDT) [Instruction No.1 of 2023 (F. No.279/Misc./M- 54/2023-IT)] directing the field authorities to implement the aforesaid orders of Hon'ble Supreme Court in the cases of Abhisar Buildwell (P.) Ltd (supra) and U.K. Paints (Overseas) Ltd (supra), in uniform manner; and also after due consideration of orders of Co-ordinate Bench of ITAT, Lucknow in the cases of Ocean Dream Infrastructures Ltd; we are of the considered opinion that the Ld. CIT(A) erred in disregarding the binding precedent of Hon'ble Supreme Court in the case of PCIT vs Abhisar Buildwell (P.) Ltd (supra) in her impugned order; and the impugned order is unsustainable. Accordingly, the Assessing Officer is directed to delete the aforesaid addition amounting to Rs.49,00,000/- for assessment year 2016-17. (5) Other issues raised in grounds of appeal are merely academic, and need not be adjudicated. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 29/05/2025. Sd/- Sd/- [SUBHASH MALGURIA] [ANADEE NATH MISSHRA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29/05/2025 Vijay Pal Singh, (Sr. PS) IT(SS)A No. 38/LKW/2025 Page 8 of 8 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. DR 5. Guard File By order // True Copy// Assistant Registrar "