THE MODERN CONSTRUCTION CO. PVT. LTD.,AHMEDABAD V. ITO, WARD-2(1)(4), AHMEDABAD

ITA 432/AHD/2019

AI Insights

The case involves two separate appeals by The Modern Construction Co. Pvt. Ltd. and The United Builders Corporation against orders passed by the Commissioner of Income Tax (Appeals) under sections 250(6) and 271(1)(c) of the Income Tax Act, 1961. The appeals were consolidated due to the commonality of issues arising from a search operation under section 132 of the Act, which led to the discovery of documents indicating that both assessees had availed accommodation entries of capital gains from the sale of immovable property. The primary legal contention revolved around the validity of the jurisdiction assumed under section 153C read with section 153A of the Act, and the adequacy of the satisfaction note recorded by the Assessing Officer. The tribunal found that the satisfaction note was vague and did not adequately demonstrate how the documents impacted the determination of income, necessitating a remand for further examination and an opportunity for cross-examination.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 298940 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Other Referred Cases: National Thermal Power vs. CIT, CIT vs. Singhad Technical Education Society, PCIT vs. Abhisar Buildwell P. Ltd., PCIT vs. Saumya Construction, CIT vs. Kabul Chawla, PCIT vs. Best Infrastructure (India) Pvt. Ltd., PCIT vs. Anand Kumar Jain, CIT vs. Harjeev Aggarwal, Prashant S. Joshi vs. ITO, Kantibhai D. Narola vs. ACIT, Hindustan Lever Ltd. vs. CIT, Savesh Kumar Agarwal vs. ITO, Jay Ace Technologies Ltd. vs. CIT, M. Pirai Choodi vs. ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DA RSI SUMAN RATNAM
• Assessee Lawyers: TUSHAR HEMANI
• Keywords: Set aside; Document seized; Documents seized; Capital Gains; Principle of natural justice; Search and seizure; Accommodation entries; Loose papers; Opportunity of cross examination
• Section: 147; 143(3); 271(1)(c); 132; 153A; 139; 153C; 20

Judgement Text

"आयकर अपीलीय अिधकरण, अहमदाबाद ᭠यायपीठ ‘D’ अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER ITA No.3464/Ahd/2016 AND ITA No.432/Ahd/2019 Assessment Year :2013-14 The Modern Construction Co. Pvt. Ltd. 5th Floor, H.K. House Ashram Road Ahmedabad. PAN : AAACM 5823 E Vs. The DCIT, Cent.Cir.1(1) Ashram Road Ahmedabad. ITA No.3465/Ahd/2016 Assessment Year : 2013-14 The United Builders Corporation 23, Arjav Co-op Housing Society, Satellite Road Ahmedabad. PAN : AAAFU 6786 D Vs. The DCIT, Cent.Cir.1(1) Ashram Road Ahmedabad. (Appellant) (Respondent) Assessee by : Shri Tushar Hemani, Sr.Advocate Shri Parimalsinh B. Parmar, ARs. Revenue by : Dr. Darsi Suman Ratnam, CIT-DR सुनवाई कᳱ तारीख/Date of Hearing : 25/10/2024 घोषणा कᳱ तारीख /Date of Pronouncement: 23/01/2025 आदेश/O R D E R PER:ANNAPURNA GUPTA, ACCOUNTANT MEMBER These are appeals relating to two different assessees, filed against separate orders passed by Ld. Commissioner of Income Tax (Appeals) [in short “CIT(A))] u/s 250(6) of the Income Tax ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 2 Act,1961(hereinafter referred to as ‘Act”). The appeals in ITA No.3464 and 3465/Ahd/2016 arise against orders passed in quantum proceedings and the appeal in ITA No.432/Ahd/2019 arises against order passed in penalty proceedings conducted under section 271(1)(c) of the Act. 2. At the outset itself it was stated that the issue for adjudication in the appeals filed by the two assessees was common and identical arising from assessment framed on them u/s 153C r.w.s 153A of the Act on account of additions made to their incomes from documents found during search action undertaken u/s 132 of the Act on an alleged accommodation entry provider entity. The documents allegedly revealing both the assessees to have taken accommodation entry of capital gains earned from sale of immovable property ,adopting identical modus operandi in both the cases. The assessees being found to have not disclosed capital gains to the extent of accommodation entry availed, addition of the same was made in the hands of both the assessees. The nature/ character of addition and its basis therefore, it was common ground, was identical and so also the arguments to be made by both the sides. Therefore, both the appeals were taken up together for hearing, and are being disposed of by way of this commonconsolidated order. 3. The penalty appeal, it was stated was filed only in the case of one assesse i.e. The Modern Construction Co. P. Ltd. and was levied on account of addition made to the income of the said assessee in the quantum proceedings. Being related to the appeal filed by the ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 3 assessee in quantum proceedings, the same was also heard along with other two appeals. 4. The ld. counsel for the assessee stated that he shall be making arguments dealing with the facts in the case of the assessee, M/s. Modern Construction Co. P. Ltd. in ITA No.3464/Ahd/2016. Therefore, we shall be adjudicating the appeal of the assessee in ITA No.3464/Ahd/2016 and our decision rendered therein shall apply pari passu to other appeal in ITA No.3465/Ahd/2016. ITA NO.3464/AHD/2016 – Asst.Year 2013-14 5. Brief background of the case is that searchaction under section 132 of the Act was undertaken in the case of Sarang Chemical Ltd. (“SCL” for short) alongwith cases of Amrapali Group on 26.10.2012. During the course of search certain documents belonging/pertaining to the assessee were found. Based on these documents the Assessing Officer( AO)of the assessee recorded satisfaction to assume jurisdiction in terms of the provisions of section 153C of the Act for framing assessment in the case of the assessee. Due notices were issued to the assessee who was confronted with all the material available with the AO. The assessment order reveals that the case of the Revenue was that the documents found during search on “SCL”, along with the statements recorded of the Director of the said company and others, revealed that the assessee had colluded with SCL, who had admitted to be an accommodation entry provider ,for routing through “SCL” a portion of the sale consideration received by it, in cash, on transfer of immovable property owned by it. Thus, in this manner, the assesseeallegedly had managed to show the transfer of ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 4 immoveable property to have been effected at a consideration less than the actual consideration. The assessee, as per the AO, therefore had disclosed less capital gain to tax . The AO, after considering the submissions made by the assessee, proceeded to add thesale consideration routed by the assessee through “SCL”, to the capital gains returned by the assessee from the sale of the said immovable property. Therefore, in the assessment framed under section 153C read with section 153A of the Act, the addition made to the income of the assessee was on account of capital gains short disclosed on sale of immovable property. The quantum beingRs.3,42,41,628/-. This addition was challenged before the ld.CIT(A) who confirmed the order of the AO, and thus, the present appeal before us. 6. The assessee has raised the following grounds in its appeal before us: “1. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO in making an addition of Rs.3,42,41,628/- to the Capital Gain of the appellant 2. Both the lower authorities failed to appreciate that the said amount of Rs.3,42,41,628/- was never received by the appellant and hence the same cannot be said to have accrued as income in the hands of the appellant. 3. Ld. CIT(A) has further erred in not allowing opportunity to cross examine persons whose statements were used against the appellant. 4. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 5. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s.234A/B/C of the Act. 6. The ld.CIT(A) has erred in law and on facts of the case in confirming action of the ld.AO in initiating penalty u/s.271(1)(c) of the Act. ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 5 7. Further, the assessee has filed an application raising additional grounds, vide application dated 19.9.2016, which are as under: “The appellant, through oversight, could not raise in the original appeal memo, the following legal ground of appeal and therefore, appellant now craves leave to raise this additional ground of appeal before this Hon'ble ITAT. This, being a legal ground, can be raised before Hon'ble the ITAT as per decision of Hon'ble Supreme Court in the case of \"National Thermal Power - 229 ITR 383. 1. Both, AO and CIT(A), have erred in not appreciating the fact that the satisfaction recorded for the purpose of invoking jurisdiction under section 153C of the Act is not in accordance with the satisfaction contemplated under the scheme of the Act. 2. In any case, the Assessment Order is without jurisdiction since the conditions prescribed for invoking jurisdiction under section 153C of the Act are not fulfilled.” 8. During the course of hearing on the issue of admission of the additional grounds, it was submitted by the ld. counsel for the assessee that the additional grounds are purely legal in nature, and that it is settled law that legal grounds can be raised at any time. Reference was made to the decision of the Hon’ble Supreme Court in the case of NTPC Ltd. Vs. CIT, 229 ITR 383 (SC). On the other hand, the ld. DR though objected to the admission of additional grounds ,however was unable to controvert the fact of the grounds raised being legal grounds which could be adjudicated on the basis of facts already on record. 9. Considering the same, the additional grounds raised by the assessee, being legal grounds which do not require further investigation of facts for adjudication, are therefore admitted for ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 6 adjudication following the decision of the Hon’ble Supreme Court on the issue in the case of NTPC Ltd. (supra). 10. We shall now proceed to adjudicate the present appeal dealing first with the legal grounds raised by the assessee, since the challenge raised therein is to the validity of the assessment framed in the case. As is evident from a bare perusal of the grounds raised, the challenge to the validity of the assessment framed is on the ground that the satisfaction recorded by the AO for assuming jurisdiction under section 153C of the Act was not in accordance with law. Arguments at length were made before us by both the parties. The contention of the ld. counsel for the assessee primarily was to the effect that the satisfaction recorded was vague and unclear and did not reveal any material in the possession of the AO having a bearing on the determination of the total income of the assessee, which was a necessary prerequisite for assuming jurisdiction u/s 153C of the Act. More specifically ,he stated, that the absence of clarity in the satisfaction note of the AO was with respect to how the documents in his possession from the search conducted on “SCL” had any bearing on determination of income of the assessee. His contention was that the satisfaction note only mentioned certain documents relating to the assessee which was found during the search on “SCL”, but how those documents had an impact on the determination of the income of the assessee was not coming out from the satisfaction note. His contention was that the law in this regard is settled that the satisfaction of the AO has to be a clear ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 7 objective satisfaction bringing out clearly the documents found during the search pertaining to the assessee which have a bearing on the determination of its income. That therefore merely mentioning the documents relating to the assessee found during search, without specifying how it impacted determination of income of the assessee would not suffice for a valid assumption of jurisdiction u/s 153C of the Act . 11. The ld. DR, on the other hand, vehemently opposed this contention of the ld. counsel for the assessee stating that considering the facts on record there was no case of any lack of credible satisfaction of the AO for assuming jurisdiction u/s 153C of the Act. He contended that the AO of the searched person, SCL, and the assessee was the same. That the AO of the searched person not only had documents pertaining to the assessee but inquiries conducted during search had revealed the documents to pertain to an accommodation entry taken by the assessee from the searched entity , Sarang Chemicals Ltd.(SCL).He pointed out that during search on SCL, documents relating to transfer of an immoveable property of the assessee was found. These documents were an MOU signed by the assessee with SCL for transfer of property, the subsequent cancellation of this MOU and a relinquishment deed of the property by SCL in favour of the entity to whom it was ultimately sold by the assessee , i.e. Edelweiss Precious Metals Pvt. Ltd. That the directors & associated persons of SCL, in their statement recorded, had admitted to providing accommodation entry by following the modus operandi of entering into such MOU’s for sale of property ,then cancelling them and thereafter relinquishing rights ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 8 therein for substantial sums of money received from the ultimate buyer of the property ,which amount was subsequently withdrawn in cash and handed over to the seller of property. That the AO in post search inquiries had found the entire fund trail of the money received by SCL from Edelweiss for relinquishing its rights in the immoveable property and noted the same to have returned back to the assessee. That parties involved in the process had admitted to the same in their statement recorded by the AO of the searched person. 11.1 That therefore the AO of the assessee being the same as the AO of the searched person, he was in possession of sufficient information adversely impacting the determination of income of the assessee. 11.2 His contention was that the satisfaction may not have been adequately and properly worded so as to bring out all the materials leading to his satisfaction but there could be no doubt of all material being in the possession of the AO for assuming a valid jurisdiction under section 153C of the Act to frame assessment under section 153A of the Act in the present case. 11.3 The Ld. Counsel for the assessee countered by stating that courts have consistently held that the sufficiency of satisfaction of the AO for valid assumption of jurisdiction is to be determined on the basis of the satisfaction recorded by the AO in writing alone and nothing can be added to the same. 11.4 The Ld. DR countered by reiterating that admittedly there was sufficient adverse material with the AO of the assessee for being satisfied that material found during search on SCL revealed assessee to have taken an accommodation entry relating to capital gain. And ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 9 there was no question of the jurisdiction assumed by the AO therefore u/s 153C of the Act being not in accordance with law. 12. Reference was made to various case laws by both the sides and submissions in writing were filed by both the parties. The same are being reproduced hereunder: Submissions of the assessee in this regard are as under:  Satisfaction note recorded by AO for initiating proceedings u/s 153C of the Act has been provided by Ld. DR during the pendency of the present appeal pursuant to additional grounds raised in this respect by the assessee. Following vital aspects emerge from perusal of the said satisfaction note:  Satisfaction note has been recorded by the learned AO of the “assessee” on 15.09.2014 (i.e. FY 2014-15 / AY 15-16).  Thus, it can be clearly inferred that the material collected during the course in the case of “person searched” was sent to the office of learned AO during the FY 2014-15 / AY 15-16.  Satisfaction note contains reference to the following documents found during the course of search in the case of “Sarang Chemicals Ltd” based on which, jurisdiction u/s 153C has been assumed:  Pgs.11-19 of A/1: MOU dated 20.06.2011;  Pgs.24-29 of A/1: Deed of cancellation dated 23.03.2012;  Pgs.2-10 of A/1: Relinquishment deed dated 23.03.2012;  Pgs.37-45 of A/1: Relinquishment deed dated 23.03.2012;  In view of the facts, -  AO is satisfied that “above documents seized from corporate office of Sarang chemicals Ltd at C-4/806, Anushruti, Near Jain Temple, Thaltej, belongs to the assessee Modern Construction Co. Pvt. Ltd.”;  Since the assessee, being other than the person referred to in S.153A of the Act, AO has satisfaction to proceed against the assessee namely Modern Construction Co. P. Ltd. as per the provisions of S.153C of the Act for the Assessment Years 2007-08 to 2013-14. ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 10 “Assessment Year 2013-14” would fall within the ambit of “six assessment years immediately preceding the year of search”, as envisaged u/s 153C:  Since the seized material in question has been received by the AO of the assessee in FY 2014-15 / AY 15-16, proceedings u/s 153C shall be applicable for the “Assessment Years 2009-10 to 2014-15” (six assessment year immediately preceding the year of search). Reliance is placed on the following provisions / decisions:  CIT vs. Jasjit Singh – (2023) 458 ITR 437 (SC);  1st proviso to S.153C of the Act. “Satisfaction note” is completely “vague”, “scanty” and “non-specific”:  After receipt of seized material from AO of the ‘person searched’, -  if AO of “other person’ is satisfied that such material has a bearing on determination of total income of such ‘other person’  for six assessment years immediately preceding the year in which search is conducted or requisition is made, then AO of the ‘other person’ can assume jurisdiction u/s 153C of the Act in the case of such ‘other person’.  In the present case, satisfaction note recorded by AO is completely silent on the following aspects:  How such material has bearing on determination of total income;  Income of which Assessment Year emanates from such material;  Document-wise correlation for AYs 2007-08 to 2013-14.  Thus, it is clear that the satisfaction note is absolutely “scanty”, “vague” as well as “non-specific”. Hence, the same cannot justify the assumption of jurisdiction u/s 153C of the Act. The “seized material in question” does not have bearing on determination of the “income for AY 2013-14”:  The “seized material” referred to the in the satisfaction note is as follows and the same pertain to “Assessment Year 2012-13” only:  Pgs.11-19 of A/1: MOU dated 20.06.2011;  Pgs.24-29 of A/1: Deed of cancellation dated 23.03.2012;  Pgs.2-10 of A/1: Relinquishment deed dated 23.03.2012; ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 11  Pgs.37-45 of A/1: Relinquishment deed dated 23.03.2012;  Thus, there is “no seized material” which has bearing on determination of income of the assessee for “Asst. Year 2013-14”.  It is well settled that assessment u/s 143(3) r.w.s. 153A / 153C of the Act is to be framed strictly on the basis of “incriminating material” found during the course of “search” action carried out in the case of “assessee concerned”. Reliance is placed on the following decisions: CIT v Singhad Technical Education Society – 397 ITR 344 (SC); PCIT vs. Abhisar Buildwell P. Ltd. – (2023) 454 ITR 212 (SC); PCIT vs. Saumya Construction – (2017) 387 ITR 529 (Guj); CIT vs. Kabul Chawla – (2015) 380 ITR 573 (Del.);  As regards reference to “statements recorded during search”, it is well settled that “statements recorded by revenue do not constitute incriminating material”. Reliance is placed on following decisions: PCIT v Best Infrastructure (India) (P.) Ltd – 397 ITR 82 (Delhi); PCIT v. Anand Kumar Jain – MANU/DE/0347/2021 (Delhi); CIT vs. Harjeev Aggarwal – (2016) 70 taxmann.com 95 (Delhi);  In absence of any seized material for the Asst. Year 2013-14, assumption of jurisdiction u/s 153C is not justified. “Assumption of jurisdiction u/s 153C” has to be justified “strictly” on the basis of “contents of satisfaction note”; Any material / statement coming to the knowledge of the revenue at a “later stage” (say, during “consequential assessment proceedings”) cannot be referred to / relied upon for justifying “assumption of jurisdiction u/s 153C”:  AO can assume jurisdiction under the provisions of “section 147” & “section 153C” of the Act subject to fulfillment of certain conditions prescribed by the Statute under the respective sections.  Prior to invoking “section 147” (as applicable at the relevant point in time), AO has to mandatorily record “reasons for reopening” and in a similar manner, prior to invoking “section 153C” (as applicable at the relevant point in time), AO has to mandatorily draw a “satisfaction note”.  It is well settled that –  Assumption of jurisdiction u/s 147 / 153C has to be justified strictly on the basis of contents of “reasons recorded for reopening” /“satisfaction note”. ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 12  Revenue cannot improve upon such “reasons recorded for reopening” / “satisfaction note” at a later stage.  Any material / statement coming to the knowledge of the Ao concerned at a “later stage” (say, during the “consequential assessment proceedings”) cannot be relied upon for justifying “assumption of jurisdiction u/s 153C”. Reliance is placed on following decisions:  Prashant S. Joshi vs. ITO – 324 ITR 154 (Bom) – Para 9 (Pgs.6-13);  Kantibhai D. Narola v ACIT– 436 ITR 302 (Guj) – Para 32(i) (Pgs.14-25);  Hindustan Lever Ltd. – 268 ITR 332 (Bom) – Para 20 (Pgs.26-29);  In the facts of the present case, -  Contents of the satisfaction note do not indicate that the so-called material has a bearing on determination of total income for AY 2013-14;  In fact, there is no reference to any material pertaining to AY 2013-14. Hence, there cannot be any bearing on determination of income for AY 2013-14;  Contention of learned DR to the effect that “statements of certain persons referred to in the body of the assessment order” would justify the action of initiating proceedings u/s 153C. In rebuttal to this, assessee submits as follows:  Validity of proceedings u/s 153C is to be tested strictly on the basis of ‘contents of satisfaction note’;  Scope of ‘satisfaction note’ recorded by AO for initiating proceedings u/s 153C cannot be expanded at a later stage;  Judgments of various High Courts laying down such legal proposition have been cited in the earlier part of this note.  Accordingly, ‘assumption of jurisdiction u/s 153C’ has to be tested strictly on the basis of ‘satisfaction note’ recorded by AO without being guided by “statements of certain persons referred to in the body of the assessment order”. ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 13 “Satisfaction note” recorded by AO for assumption of jurisdiction u/s 153C of the Act is subject to “judicial scrutiny”:  It is well settled that the “satisfaction note” recorded by AO for assumption of jurisdiction u/s 153C of the Ac tis subject to “judicial scrutiny” by Hon’ble the Tribunal / Courts.  In fact, it is clearly evident from decision of Hon’ble the Apex Court in the case of “CIT v. Singhad Technical Education Society – 397 ITR 344 (SC) (Para 9)” that –  Hon’ble the ITAT has permitted the said assessee to raised “additional ground” questioning the “validity of notice u/s 153C of the Act”;  Hon’ble the ITAT, thereafter, quashed the notices u/s 153C of the Act for relevant assessment years;  Hon’ble the High Court also dismissed the appeals filed by the revenue against the order of Hon’ble the High Court;  Thereafter, revenue approached Hon’ble the Apex Court pursuant to which, the aforesaid decision came to be delivered by Hon’ble the Apex Court.  Thus, it is well settled that the “satisfaction note” recorded by AO for assumption of jurisdiction u/s 153C of the Ac tis subject to “judicial scrutiny” by Hon’ble the Tribunal / Courts.  Under such facts and circumstances of the present case, assumption of jurisdiction u/s 153C of the Act by AO is not in accordance with the scheme of Act. Hence, notice issued u/s 153C of the Act deserve to be quashed. 13. Counter filed by the Department to this is as under: “The Registrar, Income Tax Appellate Tribunal D Bench ITAT Ahmedabad Sir Sub: Submission of argument of assessee and point-wise argument of the Department in the Modern Construction (ПА 3464/Abd/2015) AY 2013-14 ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 14 Kindly refer to the above as directed by Hon'ble bench with respect to written submission on point wise issues raised by Ld. A.R. , the following submission is being made on legal grounds and on merits. Legal Ground Proceedings u/s 153C have not been validly initiated Arguments by Assessee Change in Block Period i.e. Six AY immediately preceding year of Satisfaction note has been recorded by the learned AO on 15.09.2014 this inferred to the material collected during course of person searched set to the office of Ld. A.O. during the FY 2014-15 being AY 2015-16, thus proceedings 153C shall be applicable for the block assessment period of 2009-10 to 2014-15 (5x AY immediately preceding year of search) and not 2007-08 to 2013-14 Cases relied upon: CIT vs Jasjit Singh (2023) 458 ITR 437 (SC) Arguments on behalf of the Department The said argument stands no leg in the present situation sincematter what the calculation of block period is taken into consideration it has no impact on the assessment year the present appeal Satisfaction note is completely vague, scanty and non-specific It is silent as to how such material has bearing on determination of total income, come of which AY emanates from such material and document-wise correlation for AYs 2007-06 2013-14 Arguments on behalf of the Department The Satisfaction note by the learned AD clearly lists down the material that has been seized during the course of search pertaining to the Assessee The learned AD has recorded satisfaction and thereafter initiated proceedings u/s 153C. There are no mandatory particulars that need to be recorded in a satisfaction note the provision simply states to record a satisfaction for proceeding u/s 153C ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 15 In SSP Aviation Ltd. (2012) 20 taxmann.com 214 (Delhi), the Hon'ble Court held that There is no requirement that AO must be satisfied that such documents belonging to other person must conclusively reflect or disclose any undisclosed income In Savesh Kumar Agarwal (2013) 35 taxmann.com 85 (Allahabad), the Hon'ble Court had the Even if AO did not find anything adverse against assesses on examination, notice 153C could still be issued. In relation to this view, recently, in R.K.M. Powergen (P) Ltd. (2023) 146 taxmann.com 68 (Madras), the Hon'ble Court held that when there is Proper application of mind by AD at time of recording satisfaction and satisfaction contained all required references to seized materials veracity of such could not be doubted and proceedings u/s 153C is justified Thus, it stands clear from the above facts and relied case laws, that a satisfaction note need not mandatorily require to cover the questions that the assessee has put forward (C) Material Seized have no bearing to AY 2013-14 Seized material in question does not have bearing on determination of income for AY 2013-14 since the documents seized belong to FY 2011-12 Cases relied upon: CIT vs Singhad Technical Education Society 397 ITR 344 (SC) PCIT vs Abhisar Buildwell Pvt. Ltd. (2023) 454 ITR 212 (SC) PCIT vs Saumya Construction (2017) 387 ITR 529 (Guj) CIT vs Kabul Chawla (2015) 380 ITR 573 (Del) PCIT vs Best Infrastructure (India) Pvt. Ltd. 397 ITR 82 (Delhi) PCIT vs Anand Kumar Jain- Manu/DE/0347/2021 (Delhi) CIT vs Harjeev Aggarwal (2016) 70 taxmann.com 95 (Delhi) Arguments on behalf of the Department The contention of assessee that seized material in question does not have bearing on determination of income for AY 2013-14 is completely ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 16 baseless and lacks any justification for such. For the sake of clarity, brief facts about the seized material is as under: Return of income disclosed execution of Conveyance Deed between Assessee and Edelweiss Precious Metals Pvt. Ltd. dated 23.04.2012. The said deed was executed succeeding the Relinquishment deeds both dated 23.03.2012 between M/s Sarang Chemicals to M Sheetal Bio-Agro Tech Ltd and Edelweiss Precious Metals Pvt. Ltd as well as Deed of Cancellation of MOU dated 23.03.2012 undertaken between Assessee, M/s United Builders Corporation and M/s Sarang Chemicals Ltd. & M/s Sheetal Bio-Agro Tech Ltd. These documents had to be executed because of pre-existing MOU dated 20.06.2011 Assessee, M/s United Builders Corporation and M/s Sarang Chemical Ltd. & Ms. Sherta Bio-Agro Tech Ltd From the sequence of event it can be inferred that the aforementioned three preceding documents dated 23.03.2012 and 20.06.2011 are a part and parcel of the Conveyance Deed executed on 23.04.2012. The Conveyance Deed cannot be looked into isolation without referring to the afore-stated documents. In addition to that all the afore-stated documents pertaining to the same property. In view of this, the Conveyance Deed being executed on 23.04.2012 falls under the AY 2013 2014, however, the remaining three trail documents being a part and parcel of the said Deed can be taken into consideration for the purpose of Av 2013-14 The said documents form a car of Satisfaction Note recorded by the AO, thereby invoking provision of section 153C. Thus, the contention of Assessee raised with respect to Satisfaction Note lacks foundation. 2) On Merit Capital Gain Addition Arguments by Assessee (A) Confirming addition of Rs. 3,42,41,628 made in respect of capital gain Amount received in compensation by erstwhile prospective buyer from ultimate buyer, where assessee has no role to play, cannot be added under the head of ‘capital gain’. ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 17 Arguments on behalf of the Department The learned AO in his Assessment Order rightly stated that in the income tax proceedings, the surrounding circumstances are to be taken into consideration in judging the contentions raised by the assessee. The proceedings being civil in nature, evidence has to be judged by applying principles of preponderance of probability. The MoU dated 20.06.2011 was prepared on a SORS Non Judicial stamp piper and the same has neither been registered nor notarized. It is only a self-serving document prepared by assessee in connivance with two accommodation entry providers. (AO Order Para 8.8 (v) pg.23) Shri Lalit K. Rathod, director of Sarang Chemicals Ltd. & Sheetal Bio- Agro Tech Ltd. has clearly stated in his statement that cash received after discounting the cheques from Ederweiss Precious Metals Pvt. Ltd. was handed over by him to some person at HK house where the office of assessee is situated/ [AO Order Para 8.8 (viii) pg 24) It is beyond doubt that the assessee used MoU as colourable device on capital fain arising out of sale of immovable properties on the reserving the complete consideration (AO Order Para 8.9 pg 24) Considering the sequence of events and the connection between the parties d no room for any doubt that the assesses in order to reduce the capital gain over the of property, undertook the whole act (B) No Opportunity to Cross Examine Assessee was not given opportunity to cross-examine against the cores of key persons in absence of which no addition can be made solely on the basis of such material collected behind the back of assessee. No reasonable time for cross-examination was given Cases relied upon: Andaman Timber Industries 62 taxmann.com 3 (SC) Charters Spped P Ltd Tax Appeal 126 of 2015 Jay Ace Technologies Ltd. 154 taxman.com 45 (SC) JPM Tools Ltd. 154 taxmann.com 44 (Delhi) ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 18 Arguments on behalf of the Department The persons whose statements have been recorded by the Department during the proceedings have already accepted the part in the plat Since they me moved in the process transaction, and were parties to it along with the Assessee and others, there arises no question as to why assessee would want to cross-examine them then already two out of the four involved parties have accepted their doing there is no son for the Assessee to co examine them Demand of cross examination serves is purpose only when the party toes something away from the facts and not supported by any documentary evidence. However, in the interest of justice, the Assessee, was provided with the opportunity of cross-examining but he did not opt to avail the said opportunity during the proceedings, is stated in para p Pg 24 of the Assessment Order. (C) No Evidence to substantiate claim of compensation being received by assessee, same cannot be said to have accrued as income in the assessee's hands since assessee has never received any such sum. Based on mere presumption of AO and statements of various persons. Simply because cash was received at HK House which is a premise of assessee, presumption is drawn that cash must have been handed over to the assessee Arguments on behalf of the Department Replaying what has been stated earlier, the learned AO in his Assessment Order rightly stated that in the income tax proceedings, the surrounding circumstances are to be toconsideration in judging the contentions raised by the assessee. The proceedings being civil in nature, evidence has to be judged by applying principles of preponderance of probability. During the course of proceedings, it was found that the funds received by Sarang Chemicals Ltd. & Sheetal Bio-Agro Ltd. had been transferred to current account of M/s Ansh Traders bearing no. 2862, which was then withdrawn immediately by Shri Ashish A Thakkar (Manage S Control M/s Ansh Traders) who, in his statement has started that he discounted the cheques received by him from these two companies and the cash was handed over to Shi Lal Rathod director of Sarang Chemical Ltd & Sheetal Bio-Agro Tech Ltd. (AD Para B Pg 10) ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 19 It is pertinent to note here that M/s Ansh Traders is engaged in the business of these discounting wherein cheques received from clients are discounted for commission and cash paid to them and Sarang Chemicals Ltd. & Sheetal Bio-Agro Tech Ltd are also engaged providing accommodation entries of various types Further, Shri Lalit K. Rathod, director of Sarang Chemical Ltd. & Sheetal Bro-Agro Tech clearly stated in his statement that cash received after discounting the cheques from En Precious Metals Pvt. Ltd. was handed over by him to some person at HK House where the office of assessee is situated, on the instructions of Shri Pratik Shah (AO Order Para 8.8 (viii) pg 24) Shri Pratik R. Shah, who managed and controlled Sarang Chemicals Ltd. & Sheet Bo-Agro Tech Ltd., could not give any satisfactory explanation to the reasons for withdrawing amount in cash in lieu of cheque received from Edelweiss Precious Metals P. Ltd. by discounting trough M/s Ansh Traders. (CIT(A) Para 5.6 pg 4 Thus, considering the sequence of events and the connection between the parties o including the connection with the place where cash transaction took place there is no man the any doubt that the assessee in order to reduce his capital gain over the sale of property undertook the whole act.” 14. The Department’s submission regarding the AO of the assessee and AO of the searched person being the samevide letter dated 9.5.2024 is reproduced hereunder: In this regard, it is submitted that for the sake of clarification sort by the Hon'ble Tribunal vide its order dated 01.05.2024 with respect to communication between AO of the searched party with AO of the assessee, since the assessee has raised an additional ground challenging the validity of the assessment framed u/s 153C, it is humbly submitted on behalf of the Department that a search action was carried out u/s 132 of the Act at the premises of Sarang Chemicals Ltd. wherein various incriminating documents were belonging to assessee were found and seized. The case was centralised in the central circle and DDIT concerned has handed over the Appraisal Report to the AO of the Central Range. The AO of the Central Range has duly drawn the satisfaction note for initiating proceedings U/S 153 C and same was submitted before the Hon'ble Bench in the earlier hearings. Therefore the AO of the searched party and the AO of the assessee is the same person, i.e. AO central circle. Thus the requirement as to transfer of communication and subsequent drawing of satisfaction ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 20 separately is not done as per the provisions of the IT Act in this case. Hon'ble Apex Court in its judgment in Supermalls (P.) Ltd. v/s PCIT [2020] 115 taxmann.com 105 (SC) has stated the following in para 6.1 which is reproduced under: 6.1 It cannot be disputed that the aforesaid requirements are held to be mandatorily complied with. There can be two eventualities. It may so happen that the Assessing Officer of the searched person is different from the Assessing Officer of the other person and in the second eventuality, the Assessing Officer of the searched person and the other person is the same. Where the Assessing Officer of the searched person is different from the Assessing Officer of the other person, there shall be a satisfaction note by the Assessing Officer of the searched person and as observed hereinabove that thereafter the /Assessing Officer of the searched person is required to transmit the documents so seized to the Assessing Officer of the other person. The Assessing Officer of the searched person simultaneously while transmitting the documents shall forward his satisfaction note to the Assessing Officer of the other person and is also required to make a note in the file of a searched person that he has done so. However, as rightly observed and held by the Delhi High Court in the case of GanpatiFincap Services (P.) Ltd. (supra), the same is for the administrative convenience and the failure by the Assessing Officer of the searched person, after preparing and dispatching the satisfaction note and the documents to the Assessing Officer of the other person, to make a note in the file of a searched person, will not vitiate the entire proceedings under section 153C of the Act against the other person. At the same time, the satisfaction note by the Assessing Officer of the searched person that the documents etc. so seized during the search and seizure from the searched person belonged to the other person and transmitting such material to the Assessing Officer of the other person is mandatory. However, in the case where the Assessing Officer of the searched person and the other person is the same, it is sufficient by the Assessing Officer to note in the satisfaction note that the documents seized from the searched person belonged to the other person. Once the note says so, then the requirement of section 153C of the Act is fulfilled. In case, where the Assessing Officer of the searched person and the other person is the same, there can be one satisfaction note prepared by the Assessing Officer, as he himself is the Assessing Officer of the searched person and also the Assessing Officer of the other person. However, as observed hereinabove, he must be conscious and satisfied that the documents seized/recovered from the searched person belonged to the other person. In such a situation, the satisfaction note would be qua the other person. The second requirement of transmitting the documents so seized from the searched person would not be there as he himself will be the Assessing Officer of the searched person and the other person and therefore there is no question of transmitting such seized documents to himself. ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 21 However, a letter has been sent to the concerned AO for seeking the said clarification and for sending the case records, but the concerned AO being on Election duty, will need time to comply with the requirement. Thus, it is humbly requested to kindly adjourn the said matter till the first of June, 2024.” 15. Having heard the contentions of both the parties, we shall now be adjudicating the issue before us. 16. As stated above, the assessee has challenged the validity of the assessment framed in the present case on the ground that the AO of the assessee had not recorded a valid satisfaction for assuming jurisdiction under section 153C of the Act, and as per the ld. counsel for the assessee, what is missing in the satisfaction was the basis with the AO for being satisfied with the documents and evidences found during the search on “SCL” having an impact on the determination of the total income of the assessee. 17. Before proceeding further, we shall be reproducing the provision of section 153C of the Act for better understanding of the position of law in this regard . Section 153C of the Act relevant for the impugned A.Y 2013-14 read as under; “153C. [(1)] Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A:]” ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 22 17.1 As per the applicable provision of law for the impugned year once the assessing officer is handed over material belonging to the assessee found during search on another person , that was sufficient to assume jurisdiction u/s 153C of the Act for framing assessment u/s 153A of the Act. Therefore on handing over of documents itself jurisdiction u/s 153C of the Act was validly assumed. 17.2 This section was amended by Finance (No.2) Act, 2014 w.e.f 01- 10-2014 including the requirement of the AO to be satisfied that the documents handed over had an impact on the assessment of income of the assessee , for assuming jurisdiction u/s 153C of the Act. The amended provision reads as under: “153C. [(1)] Notwithstanding anything contained in section 139 section 147 section 148, section 149, section 151 and section 153, where the Assess Officer is satisfied that any money, bullion, jewellery or other valuable article thing or books of account or documents seized or requisitioned belongs belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person for that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the book of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of section 153A]” 17.3 Therefore w.e.f 01-10-2014, the AO for assuming jurisdiction u/s 153C of the Act, had to be handed over material pertaining to the assessee found during search on another person by the AO of the searched assessee and additionally he needed to be satisfied that the material impacted the determination of income of the assessee. ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 23 Ld. Counsel for the assessee has drawn our attention to the decision of the ITAT Kolkata Bench in the case of Trishul Hi-Tech Industries vs Dy.CIT IT(SS)A No.84-86/Kol/2011 , dated 24-09-2014 holding the amendment to be retrospective in nature. 17.4 Without dealing with the merits of the contention of the Ld. Counsel for the assessee and considering this to be the position of law, that for a valid assumption of jurisdiction u/s 153C of the Act, the AO has to be satisfied that the material relating to the assessee handed over to him by the AO of the searched person has a bearing on the determination of income of the assessee , we shall proceed to the adjudicate the issue . 17.5 The contents of the satisfaction note recorded by the AO of the assessee while assuming jurisdiction u/s 153C of the Act are therefore to be considered for in the light of the proposition of law to be applied. The same is as under: “During the course of search & seizure action u/s 132 of the Act on 26/27 10 2012 at the Corporate Office of Sarang Chemicals Ltd situated at C-4/806, Anushruti Apartment, Near Jain Temple, Thaltej, Ahmedabad loose papers inventorized as Annexure A-1 was found and seized as per Panchnama dated 27.10.2012 Page No 11 to 19 of Annexure Al is a Memorandum of Understanding (MoU) dated 20.06. 2011 between M/s United Builders Corporation & M/s Modern Construction Company Pvt Ltd (owner of the land) and M/s Sarang Chemicals Ltd. & M/s. Sheetal Bio-Agro Tech Ltd entered through Shri Pratik R. Shah for sale of land bearing plot No 35P 36P. 37P owned by M/s United Builders Corporation and land bearing plot No 35P. 36P. 37P. 38 & 40B owned by M/s Modern Construction Company Pvt. Ltd Page No. 24 to 29 of Annexure A-1 is a Deed of cancellation of Memorandum of Understanding dated 23.03.2012 between M/s United Builders Corporation & M/s Modern Construction Company Pvt Ltd. and M/s Sarang Chemicals Ltd & M/s Sheetal Bio-Agro Tech Ltd Page No. 75 to 83 of Annexure A-1 is a ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 24 Relinquishment Deed dated 23.03.2012 between M/s. Sheetal Bio- Agro Tech Ltd and M/s Edelweiss Precious Metal Pvt Ltd & M/s United Builders Corporation. In view of above facts, I am satisfied that the above documents seized from the corporate office of Sarang Chemcials Ltd at C-4/806, Anushruti Apartment, Near Jain Temple Thaltej, belongs to the assessee M/s United Builders Corporation. Since the assessee being other than the person referred to in Sec 153A of the Act. I have satisfaction to proceed against the assessee namely M/s United Builders Corporation as per the provisions of Section 153C of the Income Tax Act, 1961 Accordingly, the assessment proceedings in the case of the assessce for the AY 2007-08 to A.Y 2013 14 are hereby initiated u/s 153C of the Act and notices are being issued.” 17.6 Clearly the satisfaction note records only the documents found and seized during search on Sarang Chemicals Ltd. which related to the assessee. There is no recording of how the AO was satisfied that these documents had an impact on the determination of income of the assessee. Nor can anything to this effect be admittedly derived from the satisfaction recorded by the AO. 17.7 Having noted so, we find that it is an undisputed fact that the AO of the searched person and that of the assessee were the same. It is also an admitted fact that statements recorded during search and post search inquiries divulged sufficient information to prima facie show that the documents relating to the assessee found during search pertained to an accommodation entry taken by the assessee from the searched entity , M/s Sarang Chemicals Limited. The facts relating to the same noted in the assessment order are as under:  Sh Lalit Rathod ,the director of the searched entity M/s Sarang Chemicals Ltd., stated the entire activities of the company to be controlled by Sh Pratik Shah, in his statement recorded on ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 25 oath u/s 132(4) of the Act during search conducted on 26-10- 12.  Sh Pratik Shah’s statement was recorded on 13-12-2012 admitting to controlling all activities in Sarang Chemicals Ltd and also stating no activity being carried out in the said entity .He also admitted to being involved in layering of funds of Amrapali Group.  In the statement recorded of Sh Pratik Shah on 01-05-2013 he admitted to providing accommodation entries of various types in the companies controlled by him, including providing entries of confirming parties. The modus operandi of the same was also explained in detail. The modus operandi revealed by the director in his statement conformed with the documents found during search relating to the assessee.  Banking inquiries revealed the funds received by Sarang Chemicals Limited from the party to whom it relinquished its rights, i.e. Edelweiss Precious Metals Pvt .Ltd. , to have been transferred to the current account of M/s Ansh Traders with Shree Vinayak Sahkari Bank Limited , Kalupur Branch , from where cash was immediately withdrawn after receipt of funds.  Statement of the proprietor of Ansh Traders Sh Ajay Kumar Shantilal Pandey was recorded and he stated to be working for Sh Ashish Thakkar. Statement of Sh Ashish Thakker was recorded on 01-05-2013 wherein he stated to have discounted the cheques received from Sarang Chemicals Limited and handed over cash to the director of the said company Sh. Lalit Rathod. ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 26  Sh Lalit Rathod , in his statement recorded on 07-05-2013 admitted to dealing with Ashish Thakkar , a shroff. He admitted to receiving cash of Rs. 5crs from Ashish Thakkar and handing over the same at H.K House as per details provided by Pratik Shah. 17.8 Thus it is crystal clear from the above facts that the AO of the searched person had sufficient information in his possession by way of admission of directors of the searched entity’s and other connected parties, that the documents found during search relating to the assessee were in relation to a modus operandi adopted by the searched entity for providing accommodation entry to the assessee by way of confirming party to a transaction of transfer of immoveable asset. Even the Ld. Counsel for the assessee does not dispute the said fact. 17.9 The AO of the searched person being AO of the assessee also, it goes without saying that the AO of the assessee had information in his possession adversely impacting the determination of income of the assessee. The Ld. Counsel for the assessee does not dispute this fact also. 17.10 What remains therefore to the challenge of valid assumption of jurisdiction u/s 153C of the Act by the AO of the assessee is that the AO did not mention all material/information in his possession as noted above , in his satisfaction recorded in writing. The failure of the AO therefore is vis a vis failing to record in his satisfaction note ,all material in his possession which undoubtedly prima facie impacted determination of income of the assessee. 17.11 The question to be addressed therefore is would a mere failure to record all material in possession of AO while recording ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 27 satisfaction , be fatal to a valid assumption of jurisdiction u/s 153C of the Act. 17.12 It is difficult to concur with the Ld. Counsel for the assessee in this regard. There being no doubt that the AO was in possession of material which could have lead to no other satisfaction but that of the material impacting the determination of income of the assessee, the mere fact of not recording the material in entirety in the satisfaction note , we cannot agree would be fatal to a valid assumption of jurisdiction u/s 153C of the Act. The requirement of law for a valid assumption of jurisdiction is the satisfaction of the AO that the material handed over to him by the AO of the searched person impacts the determination of income of the assessee. The requirement of recording the same in writing is judicially propounded noting the satisfaction being subject to judicial scrutiny. Ld. Counsel for the assessee has referred to the decision of the Hon’ble apex court in the case of CIT vs Singhad Technical Education Society 397 ITR 344 (SC) in this regard. There is no dispute with the said proposition that satisfaction recorded by AO for assumption of jurisdiction u/s 153C of the Act is subject to judicial scrutiny. The purpose and objective of judicial scrutiny being to see whether jurisdiction has been assumed in accordance with law. 17.13 But in the facts of the present case where there is no doubt of the material in possession of the AO sufficiently demonstrating impact on the determination of the income of the assessee, even judicial scrutiny of the material being sufficient would not have lead to any other conclusion but that there was adverse material against the assessee for a valid assumption of jurisdiction u/s 153C of the ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 28 Act. Therefore even applying this proposition does not help the case of the assessee . 17.14 All the arguments raised by the Ld. Counsel for the assessee and the case laws relied upon we find are of no assistance to the assessee. All arguments of the Ld. Counsel for the assessee to the effect of the satisfaction recorded being vague and the seized material having no bearing on the determination of income of the assessee are , we find, of no consequence in the light of our finding that the satisfaction recorded needed to be considered alongwith the other material and statements in the possession of the AO which admittedly prima facie were adverse to the assessee. So also the argument that assumption of jurisdiction is to be strictly justified on the basis of the contents of the satisfaction note. Moreover even the case laws referred to by the Ld. Counsel for the assessee in support of the aforestated proposition are to the effect that any material /statement coming to the knowledge of the Revenue at a later stage cannot be referred for justifying assumption of jurisdiction. The said case laws are clearly distinguishable on facts , since in the facts of the present case the satisfaction of the AO is evident from the material gathered during search itself and on basis of material gathered subsequent to recording satisfaction. 17.15 In view of the above, we do not find any merit in the additional grounds raised by the assessee challenging the validity of jurisdiction assumed by the AO u/s 153C of the Act. 17.16 The additional grounds raised by the assessee are accordingly dismissed. ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 29 17.17 Now taking up grounds raised relating to the merits of the case. We shall first give a brief outline regarding the facts of the case. 17.18 Reiterating the facts noted above in our order, search was conducted in the case of M/s. Sarang Chemical Ltd. along with cases of Amrapali Group on 20-10-2012 during which certain documents belonging to the assessee were found and seized. The same are noted to be as under:- (i) Memorandum of Understanding (MoU) dated 20-06-2011 between the two assessees before us i.e. Modern Construction Co. Pvt. Ltd. and M/s. United Builders Corporation (sister concern of the assessee), and the searched entity and its related concern i.e. Sarang Chemical Ltd. and Sheetal Bio-Agro Tech Ltd. entered into through Shri Pratik R. Shah, for purchase of land owned by M/s. United Builders Corporation Ltd. and Modern Construction Company Ltd. According to this MOU purchase price of the said was 11 crores and Rs. 10 lakhs was paid by Sarang Chemical Ltd. & Sheetal Bio-Agro Tech Ltd. as a part consideration. (ii) Deed of cancellation of the aforesaid MoU, dated 23-03- 2012. As per this deed of cancellation ,Sarang Chemical Ltd. and Sheetal Bio-Agro Tech Ltd agreed to cancel the MOU dated 20-06- 2011 and received an amount of Rs. 5 crores ( Rs. 3, 42,41,875/- to Sarang Chemical Ldt. from Modern Construction Company Pvt. Ltd. and Rs. 1,57,52,125/- to Sheetal Bio-Agro Tech Ltd from United ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 30 Builders Corporation) as compensation for forgoing their rights with respect to the MOU dated 20-06-2011 (iii)Several relinquishment deeds all dated 23-03-2012 between Sarang Chemicals Ltd./ Sheetal Bio Agro Tech Ltd. and Edelweiss Precious Metal Pvt. Ltd. and Modern Construction Co. Pvt. Ltd./United Builders Corporation confirming cancellation of MOU dated 20-06-2011 vide deed of cancellation 23-03-2012 and releasing all rights in property . The compensation agreed to be paid was paid by Edelweiss Precious Metal Pvt. Ltd. to Sarang Chemicals Ltd./ Sheetal Bio Agro Tech Ltd. The receipt of the said compensation was also attached to these relinquishment deeds. 17.19 Further, details of payment to Sarang Chemical Ltd. and Sheetal Bio-Agro Tech Ltd by Edelweiss Precious Metal Pvt. Ltd. were called under 131(1A) of the Act and it was noted that the payment of approx. 5 crores was made to the said two concerns on the 29th March, 2012. 17.20 The conveyance deed executed for the transfer of these properties by the assessee to Edelweiss Precious Metal Pvt. Ltd was dated 23-04-2012 for total consideration of Rs. 11,63,56,500/- of which Rs. 7.96 crores was paid to Modern Construction Com. Ltd. and Rs. 3.66 crores to United Builders Corporation. 17.21 Further as per the facts noted while dealing with the additional grounds raised by the assessee, statements were recorded during search on Sarang Chemical Ltd of its director and one Mr Pratik Shah who allegedly was running the entire activity in it, who ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 31 admitted to the fact that the two entities Sarang Chemicals Ltd. and Sheetal Bio-Agro Tech Ltd. were only involved in providing accommodation entries and one of the modus operandi followed was by acting as confirming parties to transactions of sale of land. The entire modus operandi was revealed as per which the MoU was first entered into between entities seeking accommodation entry of capital gain and the said two entities, Sarang Chemicals Ltd. and Sheetal Bio-Agro Tech Ltd., agreeing to sell property , ,which would subsequently be cancelled and the said entities would relinquish their rights therein to a third party for a consideration involving substantial sum which would be paid to these two entities by the ultimate buyer of the property. This consideration would in turn be withdrawn in cash through layering and returned to the seller of the property. All for a commission. In the case of assessee, the post search investigation revealed the amounts received by these two entities as consideration for cancelling the MoU to be Rs. 5 crores, which was in turn found to be transferred to another entity i.e. Ansh Traders whose proprietor and the person controlling the said entity admitted to the fact of acting only as discounting agents and having withdrawn the amount in cash and returned it to the person who controlled the entire operation of providing accommodation entries in Sarang Chemicals and Sheetal Bio-Agro Tech Ltd. This person in turn admitted to have returned the amount in cash at a place identified as H.K. House. The facts noted in this regard in our order are as under:-  Sh Lalit Rathod ,the director of the searched entity M/s Sarang Chemicals Ltd., stated the entire activities of the company to be controlled by Sh Pratik Shah, in his statement recorded on ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 32 oath u/s 132(4) of the Act during search conducted on 26-10- 12.  Sh Pratik Shah’s statement was recorded on 13-12-2012 admitting to controlling all activities in Sarang Chemicals Ltd and also stating no activity being carried out in the said entity .He also admitted to being involved in layering of funds of Amrapali Group.  In the statement recorded of Sh Pratik Shah on 01-05-2013 he admitted to providing accommodation entries of various types in the companies controlled by him, including providing entries of confirming parties. The modus operandi of the same was also explained in detail. The modus operandi revealed by the director in his statement conformed with the documents found during search relating to the assessee.  Banking inquiries revealed the funds received by Sarang Chemicals Limited from the party to whom it relinquished its rights, i.e Edelweiss Precious Metals Pvt .Ltd. , to have been transferred to the current account of M/s Ansh Traders with Shree Vinayak Sahkari Bank Limited , Kalupur Branch , from where cash was immediately withdrawn after receipt of funds.  Statement of the proprietor of Ansh Traders Sh Ajay Kumar Shantilal Pandey was recorded and he stated to be working for Sh Ashish Thakkar. Statement of Sh Ashish Thakker was recorded on 01-05-2013 wherein he stated to have discounted the cheques received from Sarang Chemicals Limited and handed over cash to the director of the said company Sh. Lalit Rathod. ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 33  Sh Lalit Rathod , in his statement recorded on 07-05-2013 admitted to dealing with Ashish Thakkar , a shroff. He admitted to receiving cash of Rs. 5crs from Ashish Thakkar and handing over the same at H.K House as per details provided by Pratik Shah. 17.22 The above facts noted by us are not disputed by either of the parties. Now, therefore, the case before us is that search on Sarang Chemicals Ltd. revealed that they were involved in providing accommodation entries which included the modus operandi of providing the same through capital gains by way of acting as confirming parties and documents relating to the assessee found during search conformed to the said modus operandi. The modus operandi admitted by the concerned persons of Sarang Chemicals Ltd. was corroborated also by post search inquiries which revealed the consideration received to have been layered through another entity and finally reached in cash at a place identified H.K. House. The primary argument of the ld. counsel before us was that other than the documents relating to the assessee found during search, the only other material with the Department for holding that the assessee had availed accommodation entries, was the statements of all the other parties associated or allegedly associated with the transaction . He contended that the assessee does not deny the existence of the documents found during search of Sarang Chemicals Ltd. and on the contrary, his contention was that these documents itself prove the genuineness of the transaction carried out by the assessee having first entered into memorandum of understanding with Sarang Chemicals Ltd. to sell its immoveable property which was subsequently cancelled and ultimately sold to ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 34 Edelweiss Precious Metal Pvt. Ltd. And Sarang Chemicals being compensated for relinquishing its rights in the property by Edelweiss Precious Metal Pvt. Ltd. He contended that firstly the parties who had admitted to the transactions having an accommodation entry were never allowed to be cross-examined despite repeated requests made by the assessee. Other than the statements, he contended, there was no other evidence found substantiating the case of the revenue and he contended that courts have repeatedly held that statements alone could not be relied upon to arrive at an adverse conclusion/finding against the assessee. 17.23 The ld. D.R. however vehemently supported the orders of the authorities below and contended that there was sufficient material with the Assessing Officer establishing the case against the assessee and all material had duly been confronted to the assessee. That having confronted all the material, there was no case for giving any opportunity of cross-examination to the assessee. 18. We have heard the rival contentions carefully. Undoubtedly, the entire case of the Revenue rests on statements recorded of various persons during search conducted on parties associated with the transaction of sale of immoveable property entered into with the assessee and all these persons admitted to have not entered into any genuine transaction with the assessee but to have provided only accommodation entries. As per the admission of these persons, the documents found were engineered for giving accommodation entry. The documents found during search admittedly ,on a stand alone basis, are not incriminating .What transpires is that while the ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 35 assessee claims the said documents were with respect to a genuinely undertaken transaction. The other parties to the transaction claimed the documents to be in relation to a modus operandi adopted for giving accommodation entry of capital gain to the assessee. It is true that the modus operandi also entails cash being withdrawn and being handed over to the assessee. Surely, there is a transfer of fund from Sarang Chemicals Ltd. to Ansh Traders and which is immediately withdrawn thereafter in cash from the bank account of Ansh Traders. But it is again the admission of the person connected with Ansh Traders and the person connected with Sarang Chemical Ltd., that Ansh Traders merely acted as discounting agent and cash withdrawn was handed over to the concerned person of Sarang Chemicals Ltd. who handed over it to a person at H.K. House. Therefore, it transpires that the entire case against the assessee is built on the basis of admission/statements of third persons connected to the transaction. There is no adverse material or document found revealing assessee to have availed accommodation entry from Sarang Chemicals Ltd. In the light of the same, we are of the considered view that these statements could not have been used against the assessee without allowing the assessee an opportunity to cross-examine the persons who had given these statements. 18.1 It is trite law that no adverse inference can be drawn against a party unless the party is put to notice of the case made out against him. He must be supplied the contents of evidence both oral and documentary so that he can prepare to meet the case against him. This necessarily also postulates that he should cross-examine the ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 36 witness hostile to him but the right to cross-examine is not necessarily a part of reasonable opportunity and it depends upon the facts of a particular case. In a number of cases, courts have recognized and held that where assessing authorities rely only on the testimony of a witness the assessee is to be afforded an opportunity to cross-examine him. In CIT vs. Eastern Commercial Enterprises (1994 )210 ITR 103 (SC), noting that purchases made by the assessee were found to be ingenuine only on the basis of statement of one party, the Hon’ble apex court held that cross examination is a sine qua non of due process of taking evidence and assessee should be given an opportunity to cross examine the hostile witness. In the case of Kishanchand Chelaram vs. CIT 125 ITR 713, the Hon’ble Supreme Court held that cross-examination is a must where Assessing Officer relies only upon the statement of a third party. The Hon’ble Supreme Court in the case of Andaman Timber Industries vs. Central Excise, Civil Appeal 4228 of 2006 order dated 02-09-2015 has held that if there was no material with the department on the basis of which it could justify its action and it was only the statement of witnesses which was relied upon, right to examination had to be given. 18.2 The above being the position of law with regard to opportunity of cross examination, We have further noted that in the case of ITO vs. M. Pirai Choodi 334 ITR 263 (SC) where the High Court had set aside the order of assessment on the ground that no opportunity of cross-examination was granted to the assessee, the Hon’ble Supreme Court held that High Court should not set aside the entire ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 37 assessment order but should direct the Assessing Officer to grant an opportunity to the assessee to cross-examine the concerned witness. Having noted so ,in the facts of the present case ,as noted above by us ,since it is only on the basis of statement of third parties that the Assessing Officer has drawn an adverse inference against the assessee ,the denial of opportunity of cross examination of the said person to the assessee was clearly in violation of the principles of natural justice. 18.3 We therefore consider it fit to restore the issue back to the Assessing Officer to provide the assessee opportunity of cross- examination and thereafter adjudicate the issue in accordance with law. 18.4 Grounds raised on merits therefore are allowed for statistical purposes in above terms. 19. In effect, the appeal of the assessee is allowed for statistical purposes. 20. Appeal of the assessee in ITA No. 3465/Ahd/2016 also accordingly stands allowed for statistical purposes. 21. The appeal in ITA No. 432/Ahd/2019 has come up before us against the penalty levied by the Assessing Officer and confirmed by ld. CIT(A) on the addition made to the income of the assessee in the case of Modern Construction Co. Pvt. Ltd. In the quantum appeal filed by the assessee in ITA No 3464/Ahd/16, the issue has been ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019 38 restored back to the Assessing Officer for examination afresh. The penalty appeal is also restored back to the Assessing Officer to be decided alongwith the quantum appeal of the assessee. Thus, this appeal of the assessee also stands allowed for statistical purposes. 22. In effect, all the appeals are allowed for statistical purposes. Order pronounced in the Court on 23rd January, 2025 at Ahmedabad. Sd/- Sd/- (SIDDHARTHA NAUTIYAL) JUDICIAL MEMBER (True Copy) (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad, dated 23/01/2025 vk* आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant 2. ᮧ᭜यथᱮ / The Respondent. 3. संबंिधत आयकर आयुᲦ / Concerned CIT 4. आयकर आयुᲦ(अपील) / The CIT(A) 5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण / DR, ITAT, 6. गाडᭅ फाईल / Guard file. आदेशानुसार/BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad "