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ITAT Bangalore Upholds Assessee's Appeal, Deletes Additions

This case involves a dispute between the Income Tax Department and M/s. S. Ramachandra Setty & Sons, a partnership firm engaged in the business of trading gold jewelry and silver articles. The Income Tax Department had made additions to the firm's income based on statements recorded during a search operation and seized documents. However, the Income Tax Appellate Tribunal (ITAT) in Bangalore has largely ruled in favor of the assessee, deleting the additions made by the tax authorities.

Case Name:

M/s. S. Ramachandra Setty & Sons vs. ITO

Key Takeaways:

1. The ITAT held that additions cannot be made solely based on statements recorded under Section 132(4) (of Income Tax Act, 1961) without any corroborating evidence.

2. The ITAT ruled that excess stock found during the search, which was offered as business income by the assessee, should be taxed as regular business income and not under the provisions of Section 69B (of Income Tax Act, 1961) read with Section 115BBE (of Income Tax Act, 1961).

3. The ITAT emphasized the importance of providing the assessee an opportunity for cross-examination of witnesses, in line with the principles of natural justice.

Issue:

Whether the additions made by the tax authorities to the assessee's income based on statements recorded during the search and seized documents were justified, or should they be deleted?

Facts:

- M/s. S. Ramachandra Setty & Sons is a partnership firm engaged in the business of trading gold jewelry and silver articles.

- The Income Tax Department conducted a search operation at the firm's premises on June 24, 2016.

- During the search, the Department recorded statements from the firm's managing partner, Mr. R. Ravish, under Section 132(4) (of Income Tax Act, 1961).

- The Department also seized certain documents, including loose sheets containing estimates of sales figures.

- Based on the statements and seized documents, the Department made additions to the firm's income for the assessment years 2013-14 to 2017-18.

- The firm challenged the additions before the Commissioner of Income Tax (Appeals) [CIT(A)], who largely ruled in favor of the assessee.

- The Income Tax Department then appealed the CIT(A)'s orders before the Income Tax Appellate Tribunal (ITAT) in Bangalore.

Arguments:

- The Department argued that the additions were justified based on the statements recorded under Section 132(4) (of Income Tax Act, 1961) and the seized documents, which showed undisclosed sales and purchases.

- The assessee firm contended that the statements were made under pressure and coercion, and the seized documents did not constitute incriminating evidence to support the additions.

Key Legal Precedents:

- The ITAT relied on the Supreme Court's decision in CIT v. Abhisar Buildwell (P) Ltd. (2023), which held that in the absence of any incriminating material found during a search, the tax authorities cannot make additions to the assessee's income.

- The ITAT also cited the Delhi High Court's rulings in CIT v. Harjeev Aggarwal (2016) and Pavitra Realcon Pvt. Ltd. v. PCIT (2018), which established that statements recorded under Section 132(4) (of Income Tax Act, 1961) cannot be the sole basis for making additions.

Judgment:

- The ITAT largely ruled in favor of the assessee firm, deleting the additions made by the tax authorities.

- The ITAT held that the statements recorded under Section 132(4) (of Income Tax Act, 1961) cannot be the sole basis for making additions, and they must be corroborated by independent evidence.

- Regarding the excess stock found during the search, the ITAT ruled that it should be taxed as regular business income and not under the provisions of Section 69B (of Income Tax Act, 1961) read with Section 115BBE (of Income Tax Act, 1961).

- The ITAT emphasized the importance of providing the assessee an opportunity for cross-examination of witnesses, in line with the principles of natural justice.

FAQs:

1. What was the main issue in this case?

The main issue was whether the additions made by the tax authorities to the assessee's income based on statements recorded during the search and seized documents were justified, or should they be deleted.

2. What were the key legal principles established in this case?

The key legal principles established in this case are:

- Statements recorded under Section 132(4) (of Income Tax Act, 1961) cannot be the sole basis for making additions to the assessee's income; they must be corroborated by independent evidence.

- Excess stock found during a search, which is offered as business income by the assessee, should be taxed as regular business income and not under the provisions of Section 69B (of Income Tax Act, 1961) read with Section 115BBE (of Income Tax Act, 1961).

- Providing the assessee an opportunity for cross-examination of witnesses is crucial in line with the principles of natural justice.

3. How did the ITAT rule in this case?

The ITAT largely ruled in favor of the assessee firm, deleting the additions made by the tax authorities. The ITAT held that the statements recorded under Section 132(4) (of Income Tax Act, 1961) and the seized documents did not constitute sufficient evidence to justify the additions.

4. What are the key takeaways from this case?

The key takeaways from this case are:

- The tax authorities cannot make additions solely based on statements recorded under Section 132(4) (of Income Tax Act, 1961) without any corroborating evidence.

- Providing the assessee an opportunity for cross-examination of witnesses is crucial in line with the principles of natural justice.

ITA Nos.1163 to 1165/Bang/2023 filed by the revenue are against the orders of CIT(A)-2, Panaji dated 30.10.2023 for the assessment years 2013-14 to 2015-16 passed u/s 250 (of Income Tax Act, 1961) (in short “The Act”). ITA No.1156/Bang/2023 & ITA No.1166/Bang/2023 are cross appeals against different orders of CIT(A)-2, Panaji dated 30.10.2023 & 31.10.2023 respectively for the assessment year 2017-18 passed u/s 250 (of Income Tax Act, 1961).

2. In first three appeals, the grounds are common except figures. Hence, we extract the grounds raised by the revenue in ITA No.1163/Bang/2024 as follows:

1. The Order of the Learned CIT(A) is opposed to law and facts of the

case

2. The CIT(A) erred in deleting the addition of Rs.2,00,00,000/- made

by the assessing officer ignoring the fact that the additions made are

based on admission of income in the statement given during the

course of search U/s. 132(4) (of Income Tax Act, 1961).

3. The CIT(A) erred in deleting the addition ignoring the fact that the

additions made was based on estimate slips found during the course

of search which means that there was material found during the

search proceedings.

4. The CIT(A) erred in deleting the addition ignoring the fact that the

assessee offered the additional income of Rs.2,00,00,000/- to tax in

the statement U/s. 132(4) (of Income Tax Act, 1961) only after being confronted with the

evidences found during the course of search.

5. The CIT(A) erred in giving relief to the assessee without going into

the merits of the case.

6. For these and other grounds that may be urged upon, the order of

the CIT(A) may be reversed and that assessment order to be

restored.

2.1 Thus, the revenue challenged the deletion of addition in these

three assessment years as follows on the basis of judgement of

Hon’ble Supreme Court in the case of PCIT Vs. Abhisar Buildwell

Pvt. Ltd. reported in (2023) 149 taxmann.com 399 (SC) as follows:

Asst. Year Amount (Rs.)

2013-14 2 Crores

2014-15 3.5 Crores

2015-16 4 Crores

3. In ITA No.1166/Bang/2023, the revenue has raised following

grounds of appeal:

1. The Order of the Learned CIT(A) is opposed to law and facts of the

case

2. The CIT(A) erred in deleting the addition of Rs.4,11,86,426/- made

by the assessing officer ignoring the fact that the additions made are

based on admission of income in the statement given during the

course of search U/s. 132(4) (of Income Tax Act, 1961).

3. The CIT(A) erred in deleting the addition ignoring the fact that the

additions made was based on estimate slips found during the course

of search which means that there was material found during the

search proceedings.

4. The CIT(A) erred in deleting the addition ignoring the fact that the

assessee offered the additional income of Rs.4,11,86,426/- to tax in

the statement U/s. 132(4) (of Income Tax Act, 1961) only after being confronted with the

evidences found during the course of search.

5. The CIT(A) erred in giving relief to the assessee without going into

the merits of the case.

6. For these and other grounds that may be urged upon, the order of

the CIT(A) may be reversed and that assessment order to be restored.

4. In ITA No.1156/Bang/2023, the assessee has raised following

grounds of appeal for the AY 2017-18.

1. The order of the learned Commissioner of Income Tax (Appeals)-2,

Panaji, Goa is opposed to the facts of the case and law applicable to

it.

2. The learned Commissioner of Income Tax (Appeals)-2, Panaji, Goa

erred in holding that, stock of jewellery valued at Rs.1,36,73,613/-

found at the residence of partners has to be considered as

undisclosed investment U/s.69B (of Income Tax Act, 1961) and tax at the rate of 60%

U/s.115BBE (of Income Tax Act, 1961), ignoring the fact that, these items were

excess stock of the business but was kept at the residence and the

said stock was offered to tax in the hands of firm and assessed as

business income in the assessment and therefore should have been

taxed as income under the provisions of section 28 (of Income Tax Act, 1961).

3. The learned Commissioner of Income Tax (Appeals)-2, Panaji, Goa,

has erred in ignoring the position of law that, as far as the

provisions of section 115BBE (of Income Tax Act, 1961) is concerned the rate of

taxation was at 30% upto 05.12.2016 and therefore the taxes

payable on unexplained investment assessable U/s.69A (of Income Tax Act, 1961)

was at 30% upto that date and under the circumstances in respect of

unaccounted investments quantified as on 24.06.2016 the taxes

payable were at 30% and not at 60% as determined by the Assessing

Officer.

5. First, we adjudicate the revenue appeals in ITA Nos.1163 to

1166/Bang/2023. We will consider the facts in ITA No.1163/Bang/2023 which are follows:

6. The ld. D.R. submitted that for the A.Y.2013-14 to A.Y. 2015-

16, the of Ld. CIT(A) decided the appeal "ONLY ON QUESTION OF

LAW" and "NOT ON MERITS" Reliance placed by ld. CIT(A) on the

decision of Hon’ble Supreme Court in the case of Pr. CIT, Central-3,

Vs. Abhisar Buildwell (P) Ltd. (2023) is patently wrong as erroneous

facts are stated in his orders in para 4.7 (AY 2013-14), para 4.8 (AY

2014-15) & para 4.8. (AY 2015-16). The Ld. CIT(A) has made

similar erroneous statements in para 4.7 (AY 2013-14), para 4.8 (AY

2014-15) & para 4.8. (AY 2015-16) and the same is reproduced below:

"In view of the fact above, the claim of the appellant is accepted because 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 u/s 132 (of Income Tax Act, 1961).

This stand has been confirmed by Hon'ble Supreme Court of India in the case of Principal Commissioner of Income tax, Central-3 vs Abhisar Buildwell (P) Ltd. (2023) 149 Taxmann.com 399 (SC).

( Emphasis supplied)”

6.1 She submitted that the decision of Hon'ble Supreme Court in

the case of Principal Commissioner of Income-tax, Central-3 vs

Abhisar Buildwell (P) Ltd. (2023) 149 Taxmann.com 399 (SC)" is on

completed/unabated assessment

6.2 In this regard, the ld. D.R. reproduced the relevant Para 5, 8,

13 & 14(v) from the decision of Hon'ble Supreme Court as below:

• PARA 5

"5. We have heard learned counsel for the respective parties at length.

The question which is posed for consideration in the present set of appeals is, as to whether in respect of completed assessments/unabated assessments, whether the jurisdiction of AO to make assessment is confined to incriminating material found during the course of search under Section 132 (of Income Tax Act, 1961) or requisition under Section 132A (of Income Tax Act, 1961) or not, i.e., whether any addition can be made by the AO in absence of any incriminating material found during the course of search under section 132 (of Income Tax Act, 1961) or requisition under Section 132 (of Income Tax Act, 1961) A of the Act, 1961 or not."

• PARA 8

"8. For the reasons stated hereinbelow, we are in complete agreement with the view taken by the Delhi High Court in the case of Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra), taking the view that no addition can be made in respect of completed assessment in absence of an incriminating material.

• PARA 13

"13: for the reasons stated hereinabove, we are in complete agreement with the view taken by the Delhi High Court in the case of Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra) and the decisions of the other High Courts taking the view that no addition can be made in respect of the completed assessments in absence of any incriminating material. "

• PARA 14(v)

"14. In view of the above and for the reasons stated above, it is concluded as under:

v) in case no incriminating material is unearthed during the search, the AO

cannot assess or reassess taking into consideration the other material in respect 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 (of Income Tax Act, 1961)

or requisition under section 132A (of Income Tax Act, 1961). However, the

completed/unabated assessments can be re-opened by the AO in exercise of

powers under Sections 147 (of Income Tax Act, 1961)/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147 (of Income Tax Act, 1961)/148 of the Act and those powers are saved."

( Emphasis supplied)

(iv) Whereas, in the case of the appellant, from A.Y.2013-14 to A.Y. 2015-16, no assessment was done. All original ROIs from A.Y.2013-14 to A.Y. 2015-16 WERE ONLY PROCESSED u/s 143(1) (of Income Tax Act, 1961).

(v) PROCESSING OF ROI u/s143(1) (of Income Tax Act, 1961) IS HELD NOT TO BE ASSESSMENT

AS IT IS ONLY "AN INTIMATION".

In this regard, reliance is placed on the decision of Hon'ble Supreme Court of India in the case of Assistant Commissioner Of Income Tax vs Rajesh Jhaveri Stock Brokers Pvt. Ltd on 23 May, 2007 291 ITR 500, (2007). The relevant Para 13 from the decision of Hon'ble Supreme Court is reproduced below:

“13…may be noted above that under the first proviso to the newly substituted

section 143(1) (of Income Tax Act, 1961), with effect from June 1, 1999, except as provided in

the provision itself, the acknowledgment of the return shall be deemed

to be an intimation under section 143(1) (of Income Tax Act, 1961) where (a) either no sum is

payable by the assessee, or (b) no refund is due to him. rt is significant

that the acknowledgment is not done by any Assessing Officer, but

mostly by ministerial staff. Can it be said that any assessment is done

by them? The reply_ is an emphatic no. The intimation under section

143(1)(a) was deemed to be a notice of demand under section 156 (of Income Tax Act, 1961), for

the apparent purpose of making machinery provisions relating to

recovery of tax applicable. By such application only recovery

indicated to be payable in the intimation became permissible. And

nothing more can be inferred from the deeming provision. Therefore

there being no assessment under section 143 (of Income Tax Act, 1961)(1 )(a), the question of

change of opinion, as contended, does not arise."

( Emphasis supplied)

(vi) Therefore, as the Ld.CIT(A), in his orders for A. Y. 2013-14 to A.Y. 2015-

16 has The Ld. CIT(A) has made SIMILAR ERRONEOUS STATEMENTS IN

PARA 4.7 (A.Y.2013-14). PARA 4.8 (A.Y.2014-15) & PARA 4.8 (A.Y.2015-16)

and MISPLACED HIS RELIANCE on the decision of Hon'ble SC, as the decision

of Hon'ble Court of India in the case of Principal Income-tax, Central-3 vs

Abhisar Buildwell (P) Ltd. (2023) 149 Taxmann.com 399 (SC)" IS ON

completed/unabated assessments and as NO assessments were made by the A.O

in the case of appellant for the A. Y. 2013-14 to A.Y. 2015-16, the order of Ld.

(A) BEING BAD IN LAW AND ON ERRONEOUS FACTS IS TO BE S ASIDE

and order of A.O be restored.”

ITA Nos.1156 & 1163 to 1166/Bang/2023

M/s. S. Ramachandra Setty & Sons, Hassan

Page 7 of 104

7. The ld. A.R. for the assessee submitted briefly explaining the

facts of the case stated that the assessee M/s. S. Ramachandra

Setty & Sons, a partnership firm carrying on business of trading in

gold jewellery and also silver articles. Action U/s.132 (of Income Tax Act, 1961)

was conducted in the case of the assessee on 24.06.2016. For the

A.Y.2013-14, there were no material seized evidencing any

escapement of income. However, during the course of search a

statement was recorded from Mr. R. Ravish, Managing Partner of

the firm under the provisions of section 132(4) (of Income Tax Act, 1961). Though

there were no evidences relevant to A.Y.2013-14, the search party

has taken a statement U/s.132(4) (of Income Tax Act, 1961), wherein a declaration

of Rs.2,00,00,000/- was recorded as undisclosed sales for the

A.Y.2013-14, even though no incriminating material was found.

The assessee, however has retracted his statement, vide letter dated

09.10.2018 filed on 12.10.2018 during the course of assessment

proceedings for the reason that, there were no evidences or

incriminating material in support of the declaration and hence no

such income accrued for the A.Y. 2013-14. Further, the legal

position in regard to the reliability of statement U/s.132(4) (of Income Tax Act, 1961) of the

Act and also the justification for retraction have been brought out

in a letter dated 02.11.2018 filed before the Assessing Officer.

7.1 The ld. A.R. for the assessee further submitted that, though

the statement was recorded during the course of search on

24.06.2016, the retraction was only on 09.10.2018 during the

course of the assessment proceedings for the reason that, the

statement itself was recorded under pressure and coercion and

declaration was quantified and obtained without any evidences, and

under the circumstances the assessee apprehended that, if

retraction is made immediately there could be further harassment

and coercion from the department resulting in hinderance to the

day to day activities of the business. Accordingly in the return filed

ITA Nos.1156 & 1163 to 1166/Bang/2023

M/s. S. Ramachandra Setty & Sons, Hassan

Page 8 of 104

in response to notice U/s.153A (of Income Tax Act, 1961) on 22.10.2017, no income

was declared in regard to this declaration which was under duress

and there was no material evidence in support of the same.

7.2 The ld. A.R. submitted that the Assessing Officer has

concluded the assessment U/s.143(3) (of Income Tax Act, 1961) r.w.s 153A (of Income Tax Rules, 1962) of the Act on

21.12.2018 wherein an addition of Rs.2,00,00,000/- has been made

to the income declared. The Assessing Officer has made this

addition relying solely on the statement recorded U/s.132(4) (of Income Tax Act, 1961) of the

Act and without any supporting evidence to corroborate or any

incriminating material for such quantification. The evidence relied

upon for declaration U/s.132(4) (of Income Tax Act, 1961) by the search party

relates to F.Y.2016-17 relevant to A.Y.2017-18 and not F.Y.2012-13

relevant to A.Y.2013-14. There was no incriminating material

found during the course of search for the A.Y.2013-14.

7.3 The ld. A.R. submitted that the ld. CIT(A) has deleted the

addition with elaborate discussions in paras 4.6 & 4.7 of his order

which is extracted hereunder: -

“4.6 The rival submissions have been considered. It is a fact that the

return for assessment year 2013-14 falls under the category of unabated

assessment case as there were no pending assessment proceedings when

the search was initiated on 24.06.2016. It is also a fact that there were

no incriminating material relevant to A.Y.2013-14 found during the

course of search. All the seized materials belong to A.Y.2017-18 based

on which the admission was made by the appellant for A.Y.2013-14 on

account of unaccounted sales. However, this statement was retracted

later.

4.7 In view of the fact above, the claim of the appellant is accepted

because in respect of completed/unabated assessments, no addition can

be made by the AO in the absence of any incriminating material found

during the course of search U/s.132 (of Income Tax Act, 1961). From the assessment

order, it is clear that neither the assessment for AY.2013-14 was pending

and was abated nor any incriminating material was found and nor that

the search assessment was made on that basis. This stand has been

confirmed by several judicial decisions highlighted by the appellant. The

above position has been re-affirmed by the Hon’ble Supreme Court of

ITA Nos.1156 & 1163 to 1166/Bang/2023

M/s. S. Ramachandra Setty & Sons, Hassan

Page 9 of 104

India in the case of Principal Commissioner of Income Tax, Central-3, V.

Abhisar Buildwell (P) Ltd (2023) 149 Taxmann.com 399 (SC), the

conclusion of which is reproduced as under:

As per the provisions of Section 153A (of Income Tax Act, 1961), in case of a search under section

132 or requisition under section 132A (of Income Tax Act, 1961), the AO gets the jurisdiction to

assess or reassess the 'total income' in respect of each assessment year

falling within six assessment years. However, it is required to be noted

that as per the second proviso to Section 153A (of Income Tax Act, 1961), the assessment or reassessment, if any, relating to any assessment year falling within the

period of six assessment years pending on the date of initiation of the

search under section 132 (of Income Tax Act, 1961) or making of requisition under section 132A (of Income Tax Act, 1961), as

the case may be, shall abate. As per sub-section (2) of Section 153A (of Income Tax Act, 1961), if

any proceeding initiated or any order of assessment or reassessment

made under sub-section (1) has been annulled in appeal or any other

legal proceeding, then, notwithstanding anything contained in subsection (1) or section 153 (of Income Tax Act, 1961), the assessment or reassessment relating to any

assessment year which has abated under the second proviso to subsection (1), shall stand revived with effect from the date of receipt of the

order of such annulment by the Commissioner. Therefore, the intention of

the legislation seems to be that in case of search only the pending

assessment/reassessment proceedings shall abate and the AO would

assume the jurisdiction to assess or reassess the 'total income' for the

entire six years period/block assessment period. The intention does not

seem to be to re-open the completed/unabated assessments, unless any

incriminating material is found with respect to concerned assessment

year falling within last six years preceding the search. Therefore, on true

interpretation of Section 153A (of Income Tax Act, 1961), in case of a search under

section 132 (of Income Tax Act, 1961) or requisition under section 132A (of Income Tax Act, 1961) and during the search any

incriminating material is found, even in case of unabated/completed

assessment, the AO would have the jurisdiction to assess or reassess the

'total income' taking into consideration the incriminating material

collected during the search and other material which would include

income declared in the returns, if any, furnished by the assessee as well

as the undisclosed income. However, in case during the search no

incriminating material is found, in case of completed/unabated

assessment, the only remedy available to the Revenue would be to initiate

the reassessment proceedings under sections 147 (of Income Tax Act, 1961)/48 of the Act, subject to

fulfilment of the conditions mentioned in sections 147/148, as in such a

situation, the Revenue cannot be left with no remedy. Therefore, even in

case of block assessment under section 153A (of Income Tax Act, 1961) and in case of

unabated/completed assessment and in case no incriminating material is

found during the search, the power of the Revenue to have the

reassessment under sections 147 (of Income Tax Act, 1961)/148 of the Act has to be saved,

otherwise the Revenue would be left without remedy. If the submission on

behalf of the Revenue that in case of search even where no incriminating

material is found during the course of search, even in case of

unabated/completed assessment, the AO can assess or reassess the

income/total income taking into consideration the other material is

ITA Nos.1156 & 1163 to 1166/Bang/2023

M/s. S. Ramachandra Setty & Sons, Hassan

Page 10 of 104

accepted, in that case, there will be two assessment orders, which shall

not be permissible under the law.

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

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 (of Income Tax Act, 1961) or requisition under section 132A (of Income Tax Act, 1961)

of the Act, 1961. However, the completed/unabated assessments can be

re-opened by the AO in exercise of powers under sections 147 (of Income Tax Act, 1961)/148 of the

Act, subject to fulfilment of the conditions as envisaged/mentioned under

sections 147/148 of the Act and those powers are saved.”

7.4 He submitted that the ld. Commissioner of Income Tax

(Appeals) has basically highlighted the fact that, for the A.Y.2013-

14 there was no assessment pending which got abate and therefore

in the absence of any incriminating material seized during the

course of search no additions can be made and no assessment

order could have been made under the provisions of section 143(3) (of Income Tax Act, 1961)

r.w.s 153A (of Income Tax Rules, 1962) of the Act.

7.5 Without prejudice to the above, the ld. A.R. submitted that for

the assessment year 2013-14 & 2014-15, the assessment is already

completed and it is not pending as on date of search i.e. on

24.6.2016 and he furnished the details as follows:

7.6 According to him, though there was no assessment u/s

143(3) of the Act by issuing notice u/s 143(2) (of Income Tax Act, 1961), the time

limit to issue notice u/s 143(2) (of Income Tax Act, 1961) has already lapsed as

above for these two assessment years so as to issue notice u/s

143(2) of the Act. Consequently, no assessment could be framed

u/s 153A (of Income Tax Act, 1961) as there was no seized material to reopen or

reassess the assessment of the assessee for the assessment year

2013-14 & 2014-15. As such, these assessments to be quashed as

ab-initio to assume jurisdiction u/s 153A (of Income Tax Act, 1961).

8. We have heard the rival submissions and perused the

materials available on record. There was a search in this case on

24.6.2016. Consequently, the assessment for the assessment year

2013-14 & 2014-15 are reopened by issuing notice u/s 153A (of Income Tax Act, 1961) of the

Act on 13.3.2017 and the assessment for the assessment years

2013-14 & 2014-15 were framed u/s 143(3) (of Income Tax Act, 1961) r.w.s. 153A (of Income Tax Rules, 1962) of the Act.

The primary contention of the ld. A.R. is that in these two

assessment years, the ld. AO made addition of Rs.2 Crores in the

assessment year 2013-14 and Rs.3.5 Crores in the assessment year

2014-15 and these are not based on any seized material unearthed

during the course of search u/s 132 (of Income Tax Act, 1961) and the addition is

not supported by any material other than statement recorded u/s

132(4) of the Act. In the assessment year 2013-14, the ld. AO

observed that an addition of Rs.2 Crores has been made on the

basis of admission made by assessee u/s 132(4) (of Income Tax Act, 1961) on

24.6.2016. It is pertinent to reproduce the observations of the ld.

AO as follows:

“During the course of assessment proceedings on verification of the

copies of the VAT assessment order for the financial year submitted

by the VAT authorities u/s. 133(6) (of Income Tax Act, 1961) the additional turnover assessed

for the month of July as per VAT order dated 24.04.2014 was

determined at Rs.1,74,49,842/- as against Rs.1,52,97,186/-.

According to the assessee the addition was an estimated addition on

account of discrepancy in stock. Which means that there existed a

discrepancy. Though the assessee has objected to the proposal to

ITA Nos.1156 & 1163 to 1166/Bang/2023

M/s. S. Ramachandra Setty & Sons, Hassan

Page 12 of 104

include the aforesaid amount as undisclosed turnover for A.Y 2013-

14 without prejudice to the findings detected during search, it is

noteworthy to mention that the partner Mr.Ravish was well aware of

this order passed by the VAT authority on 29/04/2104 and he

himself agreed to the discrepancy detected during search

proceedings. Hence the declaration has been made on sound footing

and the retraction is therefore totally baseless.

On the basis of the above discussion on the modus operandi

observed to be followed by the said assessee’s and discovery of

authentic evidences as mentioned in the preceding paragraphs, a

substantial amount of undisclosed/unaccounted income has been

detected. The basis of arriving at the undisclosed income detected

and admittance thereof has been discussed elaborately above.

Accordingly, the income of Rs.2,00,00,000/- on account of

undisclosed sales is treated as the assessee's undisclosed income

from business as per the findings during search and as declared u/s.

132(4).

Addition: Rs.2,00,00,000/-

Penalty proceedings u/s 271(1)(c) (of Income Tax Act, 1961) is initiated separately on the

concealed income as detected above.”

8.1 Similarly, for the assessment year 2014-15, the ld. AO made

similar findings and finally made addition by stating as follows:

“On verification of the copies of the VAT assessment order for the

financial year submitted by the VAT authorities u/s. 133(6) (of Income Tax Act, 1961) the total

turnover assessed was Rs.23,30,63,402/- inclusive of VAT collected

amounting to Rs.19,26,146/- as per the order u/s 39(1) (of Income Tax Act, 1961), 72(2) and 36

of the KVAT Act, 2003 dated 30.08.2017 as against the declared

turnover of Rs.19,29,19,969/-. The assessee submitted that the

order of the Commercial Tax Officer for the AY 2013-14 was

appealed against the Joint Commissioner of Commercial Taxes

(Appeals), Malnad Division, Shivamogga has passed an order in

appeal No.KVAT/AP-65/2017-18, dated 02.11.2017 setting aside the

enhanced assessed turnover. In this context it is worthwhile to

mention that though the assessee has objected to the proposal to

include the aforesaid amount as undisclosed turnover for AY 2014-

15 without prejudice to the findings detected during search, it is

noteworthy to mention that to mention that in this case the income

Tax authorities had conducted a search prior to the passing of the

asst order and the incriminating material on the basis of which the

partner Mr. Ravish had voluntarily declared the undisclosed income,

was seized by the department and not available with the commercial

Tax authorities while passing the VAT order. Hence the setting

aside of the VAT appellate authority is not applicable in this case.

ITA Nos.1156 & 1163 to 1166/Bang/2023

M/s. S. Ramachandra Setty & Sons, Hassan

Page 13 of 104

The declaration has been made on sound footing and the retraction

is therefore totally baseless.

On the basis of the above discussion on the modus operandi

observed to be followed by the said assessee's and discovery of

authentic evidences as mentioned in the preceding paragraphs, a

substantial amount of undisclosed/unaccounted income has been

detected. The basis of arriving at the undisclosed income detected

and admittance thereof has been discussed elaborately above.

Accordingly, the income of Rs.2,00,00,000/- unaccounted sales - is

treated as the assessee's undisclosed income from business as per

the findings during search and as declared u/s. 132(4) (of Income Tax Act, 1961).

Addition:2,00,00,000/-

Similarly the income of Rs.1,50,00,000/- being unaccounted URD

purchases is treated as the assessee's undisclosed income from

business as per the findings during search and as declared u/s.

132(4).

Addition: Rs.1,50,00,000/-“

8.2 As seen from the above, the above addition is not based on

any cogent material other than the statement recorded u/s 132(4) (of Income Tax Act, 1961)

of the Act. The placing reliance by ld. AO on the VAT records is

misplaced without verifying the above figures independently.

8.3 At this stage, it is appropriate to analyse the scope of section

153A of the Act. The scope of provisions of section 153A (of Income Tax Act, 1961)

could be summarized as follows as per the order of the Mumbai

Special Bench in the case of All Cargo Global Logistics Ltd. Vs.

Deputy Commissioner of Income-tax (23 taxmann.com 103):-

8.4 In the light of above, it is to be noted that these two

assessment years falls under category (4) in the above chart. Thus,

it is appropriate to observe the facts of present case. As seen from

the assessment order, the seized materials found during the course

of search do not reflect any undisclosed income made by ld. AO and

it is solely based on the statement recorded u/s 132(4) (of Income Tax Act, 1961)

and unverified VAT records. In the case of assessment u/s 153A (of Income Tax Act, 1961) of

the Act, the completed assessment can be tinkered if there is

incriminating material found during the course of search.

Therefore, in these two assessment years i.e. 2013-14 & 2014-15,

there was no incriminating material suggesting these additions

ITA Nos.1156 & 1163 to 1166/Bang/2023

M/s. S. Ramachandra Setty & Sons, Hassan

Page 16 of 104

made by ld. AO. Though the ld. AO is justified in issuing notice u/s

153A of the Act consequent to search action u/s 132(4) (of Income Tax Act, 1961)

on 24.6.2016 to make an addition in case of completed assessment

year, there should be a positive seized material/incriminating

material found during the course of search action. In the absence

of such seized material/incriminating material, ld. AO is precluded

from making any additions.

8.5 Further, jurisdictional High Court in the case of Delhi

International Airport Pvt. Ltd. In ITA No.322/2018 vide judgement

dated 29.9.2021, wherein it was held as under:-

“30. Thus, it is clear that the Assessing Office: while passing the

order under Section 153A (of Income Tax Act, 1961) read with Section 143 (of Income Tax Act, 1961)[3] of the Act, ordinarily

cannot disturb the assessment/reassessment order which has attained

finality, unless the materials gathered in the course of the proceedings

establishes that. the finalized assessments are contrary to the material

unearthed during the, course of 153A proceedings, as held by the Coordinate Bench of this Court in the case of IBC Knowledge Park (P) Ltd.,

supra. A concluded assessment could not be disturbed without there being

any basis for doing so which is impermissible in law. Even in case of a

searched person, the same reason would hold good. As observed in

Canara Housing Development Company supra, the Assessing Officer is

empowered to assess or reassess the total income of six assessment years

i.e., the income which was returned in the earlier return, the income which

was unearthed during search and also any income which was not

disclosed in the earlier return or which was not unearthed during the

search by separate assessment orders but in our considered view the

completed assessments should be subject to the safeguards provided in

IBC Knowledge Park (P) Ltd. supra.

"54. On a consideration of the relevant sections as well

as judicial precedent referred to above, what emerges is that,

Section 158BD (of Income Tax Act, 1961) deals with undisclosed income of a

third party. However, insofar as the incriminating material of the

searched person or other person detected during the course of

search is concerned, the same can be considered during the

course of assessment. Further, such incriminating material must

relate to undisclosed income which would empower the Assessing

Officer to upset or disturb a concluded assessment of the other

person. Otherwise, a concluded assessment would be disturbed

without there being any basis for doing so which is impermissible in

law. Even in case of a searched person, the same reason would hold

good as in case of any other person as observed by us, detection

or the existence of incriminating material is a must for disturbing

ITA Nos.1156 & 1163 to 1166/Bang/2023

M/s. S. Ramachandra Setty & Sons, Hassan

Page 17 of 104

the assessment already made and concluded. But, at the same

time, such can be at three stages: one, at the stage when. the reassessment is initiated, the second, at the stage during the course

of reassessment and third, at u stage where the reassessment is

altered by a different assessment in respect of searched person or

in respect of third party. In this regard, reference may be made

to the decision of Apex Court in case of M/ s. Calcutta Knitwear

(supra) and based on the said decision, the CJ3DT has also

issued circular dated 31.12.2015 vide No.24/ 2015.The relevant

extract of the circular for ready reference can be extracted as

under:

“…………………..””

As regards the pending assessments are concerned only one assessment

shall be made separately for each assessment year on the basis of the income

unearthed during search and any other material existing or brought on the

record of the Assessing Officer. Even in the absence of any incriminating

material abated „Assessment or reassessment could be done. The returns filed

under Section 139 (of Income Tax Act, 1961) gets replaced by the returns filed under Section.

15:3A[I] of the Act. Pending proceedings in appeal, revision/application shall

not abate subsequent to initiation of Section 153A (of Income Tax Act, 1961) proceedings. Further,

recording of satisfaction under Section 153A (of Income Tax Act, 1961) may not be necessary unlike

Section 153C (of Income Tax Act, 1961) which mandates recording of satisfaction.

For the reasons aforesaid, substantial question of law in ITA

Ncs.322/2018 to 324/2018, 354/2018 and 355/2018, substantial question of

law No.1 in ITA Nos.380/2018, 382/2018 to 385/2018 and 197/2021 to

199/2021 and substantial question of law Nos.1 and 2 in ITA No.381/2018 are

answered in favour of the assessee and against the Revenue.

Substantial question of Law No.2 in ITA Nos.380/2018, 383/2018 to

385/2018 is squarely covered by the ruling of the coordinate Bench of this

'Court in ITA No.352/2018 and connecter? matters (DI) 25.05.2021) wherein

the said substantial question of law has been answered ir favour of the

assessee and against the Revenue.

Substantial question of law No.2 in ITA No.382/2018 and substantial

question of law No.3 in ITA Nos.380/2018, 383/2018 to 385/2018 does not

arise for our consideration since the same are not pressed by the Revenue.

Appeals stand disposed of accordingly.”

8.6 Being so, in assessment year 2013-14 & 2014-15, the

additions made by AO not based on any seized material found

during the course of search action in the case of assessee. The

ITA Nos.1156 & 1163 to 1166/Bang/2023

M/s. S. Ramachandra Setty & Sons, Hassan

Page 18 of 104

assessee in these cases filed original returns of income on

24.09.2013 & 27.9.2014 respectively. Time limit to issue a notice

u/s 143(2) (of Income Tax Act, 1961) was on or before 13.09.2014 & 30.09.2015

respectively. No notice u/s 143(2) (of Income Tax Act, 1961) was issued to the

assessee on or before 30.4.2014 & 30.9.2015 for AY 2013-14 &

2014-15 respectively. Being so, framing of assessment u/s 143(3) (of Income Tax Act, 1961)

of the Act has already been concluded by operation of law on the

date of search action i.e. on 24.6.2010. As held by Special bench in

the case of All Cargo Global Logistics Ltd. Vs. DCIT (2012) 18 ITR

(Trib) 106 (Mumbai)(SB) that in case of assessments that are

abated, the AO retains the original jurisdiction as well as

jurisdiction conferred on him u/s 153A (of Income Tax Act, 1961) for which

assessment shall be made for each of 2 assessment years

separately if there is seized/incriminating material, if any. In other

cases, in addition to the income that has already been assessed, the

assessment u/s 153A (of Income Tax Act, 1961) will be made on the basis of

incriminating material, which in the context of relevant provisions

means (i) books of accounts, other documents, found in the course

of search but not produced in the course of original assessment,

and (ii) undisclosed income or property discovered in the course of

search. The argument of the Ld. Counsel is that in this assessment

year, notice to issue u/s 143(2) (of Income Tax Act, 1961) was already lapsed as on the date of

search, no assessment could be made without basis of

incriminating material found during the course of search. We find

force in the argument of Ld. Counsel for the assessee in this AY

2013-14 & AY 2014-15, the addition made by AO is not based on

any seized material and the AO made additions in a routine manner

which were disclosed to the department by way of regular return of

income filed by the assessee and no incriminating material was

found during the course of search and to come to conclusion that

the expenses or allowances claimed by the assessee could be

disregarded or income disclosed by the assessee could be

ITA Nos.1156 & 1163 to 1166/Bang/2023

M/s. S. Ramachandra Setty & Sons, Hassan

Page 19 of 104

considered as taxable. Further, Hon’ble Karnataka High Court in

the case of IBC Knowledge Park Pvt. Ltd. Vs. CIT (382 ITR 346) had

held that “unless material seized during the course of search which

suggest undisclosed income and are incriminating in nature,

jurisdiction u/s 153C (of Income Tax Act, 1961) cannot be assumed. Further, in

the case of Principal CIT Vs. Delhi International Airport Pvt. Ltd. in

ITA No.322/2018 vide judgement dated 29.9.2021, the

jurisdictional High Court followed the earlier judgement in the case

of IBC Knowledge Park Pvt. Ltd. (supra). It is relevant to refer para

10 of the above judgement in the case of Delhi International Airport

Pvt. Ltd. (supra) which reads as follows:-

“30. Thus, it is clear that the Assessing Officer while

passing the order under Section 153A (of Income Tax Act, 1961) read with Section

143(3) of the Act, ordinarily cannot disturb the assessment /

reassessment order which has attained finality, unless the

materials gathered in the course of the proceedings

establishes that the finalized assessments are contrary to the

material unearthed during the course of 153A proceedings,

as held by the Coordinate Bench of this Court in the case of

IBC Knowledge Park (P) Ltd. supra. A concluded

assessment could not be disturbed without there being any

basis for doing so which is impermissible in law. Even in

case of a searched person, the same reason would hold

good…………………..”

8.7 Same view has been taken by Hon’ble Supreme Court in the

case of Abhisar Buildwell (P) Ltd cited (supra). Accordingly, we

quash the assessment for the assessment years 2013-14 & 2014-15

and the revenue appeals in ITA Nos.1163 & 1164/Bang/2024 are

dismissed.

ITA Nos.1156 & 1163 to 1166/Bang/2023

M/s. S. Ramachandra Setty & Sons, Hassan

Page 20 of 104

ITA No.1165/Bang/2023 (AY 2015-16):

9. In this appeal the revenue has raised the following revised

grounds of appeal:

1. The order of the Learned CIT(A) is opposed to law and facts of the

case.

2. The CIT(A) erred in deleting the addition of Rs.4,00,00,000/- made by

the Assessing Officer ignoring the fact that incriminating material was

found during the course of search and a part of the same was shown

and confronted to the assessee while recording his statement u/s 132(4) (of Income Tax Act, 1961)

of the Act and the additions made are based on the response given by

the assessee when confronted with the incriminating materials.

3. The CIT(A) erred in deleting the addition of Rs.4,00,00,000/- made by

the assessing officer ignoring the fact that the additions made are

based on undisclosed income admitted by the assessee when confronted

with the incriminating material found during the course of search.

4. The CIT(A) erred in deleting the addition ignoring the fact that the

assessee has offered additional income of Rs.4,00,00,000/- to tax in his

sworn statement recorded u/s.132(4) (of Income Tax Act, 1961) after seeing the

incriminating material found during the course of search which was

shown and confronted to him.

5. The CIT(A) has placed reliance on decision of the Hon'ble Supreme

Court in the case of Principal Commissioner of Income-tax Central-3

vs. Abhisar Buildwell (P) Ltd (2023) 149 Taxmann.com 399 (SC),

wherein it is held that 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, that no addition

can be made in the absence of any incriminating material found during

the search. Additions have been made in this case based on the

incriminating material found during the course of search. The

CIT(Appeals) has, without getting into the merits of the case, held that

the assessee is entitled to relief and has allowed the appeal of the

assessee.

6. For these and other grounds that may be urged upon, the order of the

CIT(A) may be revered and that assessment order to be restored.

9.1 The crux of above grounds is deletion of addition of Rs.4

Crores by ld. CIT(A) on the reason that there was no seized material

and the addition was solely based on the statement recorded u/s

132(4) of the Act is not proper and the judgement of Hon’ble

Supreme Court in the case of PCIT Vs. Abhisar Buildwell (P) Ltd

ITA Nos.1156 & 1163 to 1166/Bang/2023

M/s. S. Ramachandra Setty & Sons, Hassan

Page 21 of 104

(2023) 149 Taxmann.com 399 (SC), is not applicable to the facts of

the case.

10. The contention of the ld. D.R. is that in this case, assessee

had filed Return of Income for the assessment year 2015-2016 on

20.09.2015 declaring total income of Rs.89,39,000/-. A Search and

Seizure action u/s.132 (of Income Tax Act, 1961) was carried out

in the case of the assessee on 24.06.2016. Subsequent to the notice

u/s.153A (of Income Tax Act, 1961), the assessee filed Return of Income on 22.10.2017

declaring total income of Rs.89,39,000/-. Assessment was

completed u/s.143(3) (of Income Tax Act, 1961) rws 153A (of Income Tax Rules, 1962) on 21.12.2018, determining total

income at Rs.4,89,39,000/-. A sum of Rs.3,00,00,000/- was added

to the returned income on account undisclosed sales and a sum of

Rs.1,00,00,000/- was added on account of unaccounted URD

purchases.

10.1 She submitted that during the course of search, various

incriminating documents and material were found and seized.

Loose sheets inventorised and marked as 'A/SRS/04' contain loose

sheets 113 in number. These loose sheets are actually estimate of

sale figures given to customers who wish to purchase gold jewellery.

The estimate itself serves as a proof of purchase of jewellery from

the assessee in case the customer does not insist for a proper bill.

The assessee was confronted with the evidence found. The assessee

admitted unaccounted sales that are being made and accordingly

voluntarily offered additional income as under —

On account of undisclosed sales —

10.2 In the Statement recorded u/s.132(4) (of Income Tax Act, 1961), the assessee admitted

that a part of the sales is made through the estimate slips without a

proper bill and corresponding entry into the sales register and

voluntarily offered the undisclosed sales to tax. The assessee,

however, retracted from the declaration made u/s.132(4) (of Income Tax Act, 1961) and no

income was offered to tax on account of either undisclosed sales or

unaccounted URD purchases in the Return of Income filed

22.10.2017. The retraction was rejected on the ground that the

assessee had confirmed the declaration on three occasions vide

statements recorded u/s.131 (of Income Tax Act, 1961) on 27.6.2016, 25.7.2016 and on

03.08.2016. The Assessing Officer proceeded to treat the

undisclosed sales of Rs.3.0 crores and unaccounted URD

purchases of Rs.1.0 crores as business income of the assessee as

per findings during the search and as declared u/s.132(4) (of Income Tax Act, 1961).

10.3 She submitted that the assessee challenged the addition in

appeal and the CIT(Appeals) has allowed the assessee's appeal. The

CIT (Appeals) has held that the return for assessment year 2015-

2016 falls under the category of unabated assessment case as there

were no pending assessment proceedings when the search was

initiated and that no incriminating material relevant to assessment

year 20152016 was found during the course of search. The

CIT(Appeals) has also observed that all the seized material belongs

to assessment year 2016-2017 based on which the admission was

made by the assessee for the assessment year 2015-2016 on

account of undisclosed sales and unaccounted URD purchases and

that the statement was also later retracted.

ITA Nos.1156 & 1163 to 1166/Bang/2023

M/s. S. Ramachandra Setty & Sons, Hassan

Page 23 of 104

10.4 She further submitted that the CIT(Appeals) has relied upon

the judicial decision of the Hon'ble Supreme Court in the case of

PCIT, Central-3 Vs. Abhisar Buildwell (P) Ltd (2023) 149 Taxmann

399 (SC) wherein it is held that 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 u/s.132 (of Income Tax Act, 1961) or requisition u/s.132A (of Income Tax Act, 1961). The

CIT (Appeals) has, without getting into the merits of the case, held

that the assessee is entitled to relief and has allowed the appeal of

the assessee.

10.5 She submitted that the order of the CIT (Appeals) is not

acceptable for the following reasons -

(a) Various incriminating documents and material were found

and seized during the course of search action. Loose sheets

inventoried and marked as 'A/SRS/04' contain loose sheets 113 in

number. These 100 sheets are actually estimate of sale figures

given to customers who wish to purchase gold jewellery. The

estimate itself serves as a proof of purchase of jewellery from the

assessee in case the customer does not insist for a proper bill.

(b) When confronted with the findings and the incriminating

material found, which clearly evidenced that sales were being

affected and a part of the sales were not at all accounted, the

assessee admitted unaccounted sales that are being made and

accordingly voluntarily offered additional income on account of

undisclosed sales.

the statement was not given under any stress and that the claim

of the assessee that the assessee had no time to look for evidences

ITA Nos.1156 & 1163 to 1166/Bang/2023

M/s. S. Ramachandra Setty & Sons, Hassan

Page 24 of 104

is also not acceptable. The retraction is totally an afterthought as

the declaration given was confirmed on three different occasions

by Sri Ravish, before the DDIT(Inv), Unit-I, Mangalore vide

statement recorded u/s.1312 (of Income Tax Act, 1961) on 27.06.2016, 25.07.2016 and

again on 03.08.2016.

(d) The incriminating material found in the form of estimate

slips was the basis on which the assessee voluntarily declared

income on account of undisclosed sales. The estimates slips were

also the basis on which the declaration on accounted purchases

was made by the assessee.

(e) Section 153A (of Income Tax Act, 1961) empowers the Assessing Officer to assess or

reassess the total income of six assessment years in question in

separate assessment orders.

(f) Once the assessment is reopened, the Assessing Officer can

take note of the income disclosed in the earlier returns, any

undisclosed income found during search or any other income

which is not disclosed in the earlier return which is not unearthed

during the search, in order to find out the total income of each of

the six assessment years and then pass the assessment order.

11. Further, she submitted that the assessment is pending and

not completed as on the date of search. She submitted that for the

assessment year 2015-16, assessee filed a return of income on

29.9.2015 and the same was processed u/s 143(1) (of Income Tax Act, 1961) vide

intimation dated 5.5.2016. There was a time limit to issue a notice

u/s 143(2) (of Income Tax Act, 1961) up to 30.9.2016 and the search took place on

24.6.2016. As such, time limit to issue a notice u/s 143(2) (of Income Tax Act, 1961) is

available to the ld. AO. As such, it cannot be considered that

intimation sent u/s 143(1) (of Income Tax Act, 1961) dated 5.5.2016 cannot be

considered as an assessment as held by Hon’ble Supreme Court in

the case of ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (291

ITA Nos.1156 & 1163 to 1166/Bang/2023

M/s. S. Ramachandra Setty & Sons, Hassan

Page 25 of 104

ITR 500). Accordingly, she submitted that there was no error in

framing assessment u/s 153A (of Income Tax Act, 1961). According to her, once

the search took place u/s 132 (of Income Tax Act, 1961), assessment has to be

completed u/s 153A (of Income Tax Act, 1961) and ld. AO under statutory

obligation to consider entire material in his possession whether it is

seized material or the material produced by the assessee in the

course of assessment so as to frame the assessment u/s 153A (of Income Tax Act, 1961) of

the Act.

12. The ld. A.R. for the assessee submitted that the assessee

M/s. S. Ramachandra Setty & Sons, a partnership firm carrying on

business of trading in gold jewellery and also silver articles. Action

U/s.132 (of Income Tax Act, 1961) was conducted in the case of the assessee on

24.06.2016. For the A.Y.2015-16 there were no material is seized

evidencing any escapement of income. However, during the course

of search a statement was recorded from Mr. R. Ravish, Managing

Partner of the firm under the provisions of section 132(4) (of Income Tax Act, 1961).

Though there were no evidences relevant to A.Y.2015-16, the search

party has taken a statement U/s.132(4) (of Income Tax Act, 1961) wherein the

following income was allegedly disclosed even though there was no

incriminating material found.

Undisclosed sales Rs.3,00,00,000/-

Unaccounted URD purchases Rs.1,00,00,000/-

-----------------------

Rs.4,00,00,000/-

-----------------------

12.1 The ld. A.R. submitted that the assessee however has

retracted this statement for the reason that, there were no

evidences or incriminating material in support of the declaration

and hence no such income accrued for the A.Y.2015-16.

Accordingly in the return filed in response to notice U/s.153A (of Income Tax Act, 1961) of the

act on 22.10.2017, no income was declared in regard to this

declaration which was under duress and there was no material

supporting the same.

ITA Nos.1156 & 1163 to 1166/Bang/2023

M/s. S. Ramachandra Setty & Sons, Hassan

Page 26 of 104

12.2 The ld. A.R. submitted that the Assessing Officer has

concluded the assessment U/s.143(3) (of Income Tax Act, 1961) r.w.s 153A (of Income Tax Rules, 1962) of the act on

21.12.2018 wherein a total addition of Rs.4,00,00,000/- has been

made to the income declared. The Assessing Officer has made this

addition relying solely on the statement recorded U/s.132(4) (of Income Tax Act, 1961) of the

act and without any supporting evidence to corroborate or any

incriminating material such quantification.

12.3 The ld. A.R. submitted that the ld. CIT(A) has deleted the

addition with the following finding in paras 4.7 & 4.8 of the order

which is extracted hereunder: -

“4.7 The rival submissions have been considered. It is a fact that the

return for assessment year 2015-16 falls under the category of unabated

assessment case as there were no pending assessment proceedings when

the search was initiated on 24.06.2016. It is also a fact that there were

no incriminating material relevant to A.Y.2015-16 found during the

course of search. All the seized materials belong to A.Y.2017-18 based

on which the admission was made by the appellant for A.Y.2015-16 on

account of unaccounted sales. However, this statement was retracted

later.

4.8 In view of the fact above, the claim of the appellant is accepted

because in respect of completed/unabated assessments, no addition can

be made by the AO in the absence of any incriminating material found

during the course of search U/s.132 (of Income Tax Act, 1961). From the assessment

order, it is clear that neither the assessment for AY.2015-16 was pending

and was abated nor any incriminating material was found and nor that

the search assessment was made on that basis. This stand has been

confirmed by several judicial decisions highlighted by the appellant. The

above position has been re-affirmed by the Hon’ble Supreme Court of

India in the case of Principal Commissioner of Income Tax, Central-3, V.

Abhisar Buildwell (P) Ltd (2023) 149 Taxmann.com 399 (SC),