Income Tax Act, 1961 – Sections 153A, 153C, 132, 69C and 143(3) - A search and seizure operation was conducted under Section 132 on a real estate company as part of a larger investigation into a business group. During the search, incriminating documents were found at the assessee's premises and at the premises of a key employee, indicating unaccounted "on-money" receipts and unexplained cash expenses. The Assessing Officer (AO) completed assessments under Section 153A, making additions based on the seized materials. The Commissioner of Income Tax (Appeals) [CIT(A)] partly deleted the additions, holding that only materials found at the assessee’s premises could be relied upon and that documents found at a third party’s premises required separate proceedings under Section 153C. The Revenue appealed, arguing that Section 153A allowed the use of all relevant material, including that found at third-party premises, without requiring separate 153C proceedings - Whether the AO can rely on incriminating materials found at the premises of a third party in a Section 153A assessment, or whether such materials must be assessed separately under Section 153C - Whether additions under Section 69C (unexplained expenditure) could be made based on the notings of unaccounted cash transactions found at the key employee’s premises - Whether only the profit element of unaccounted receipts should be taxed, rather than the entire amount - Whether separate additions for unaccounted receipts and unaccounted expenses were justified, or whether a telescoping benefit (netting off) should be allowed – HELD - The ITAT, ruled in favor of the Revenue, holding that - The Tribunal held that where a search is conducted on both the assessee and a third party, incriminating materials found at either location can be used in a Section 153A assessment. The Tribunal relied on PCIT v. Abhisar Buildwell to hold that Section 153C applies only where a search is conducted on a third party without any search on the assessee. Hence, the CIT(A) was incorrect in holding that materials from the employee’s premises could not be used in the assessee’s 153A assessment - The Tribunal upheld the additions under Section 69C, ruling that unaccounted expenses recorded in seized documents were unexplained and thus taxable - The Tribunal followed CIT v. President Industries and held that only the profit component of unaccounted receipts is taxable, not the entire amount. The CIT(A)’s approach of applying a 10% profit rate was upheld - The Tribunal ruled that when unaccounted receipts and unaccounted expenses arise from the same business activity, set-off should be granted to ensure only the real income is taxed. The CIT(A)’s method of peak credit adjustment was partially upheld, but remanded to the AO for reworking in light of the total materials, including those from the third party’s premises - The Revenue’s appeal was partly allowed. The CIT(A)’s deletion of additions based on third-party materials was reversed, allowing the AO to include all seized documents in the reassessment. The profit-based taxation of on-money receipts was upheld, and the matter was remanded for recalculating peak credit adjustments

 

2025-VIL-222-ITAT-AHM

 

IN THE INCOME TAX APPELLATE TRIBUNAL

“B” BENCH AHMEDABAD

 

IT(SS)A Nos. 155 to 157/Ahd/2021

Assessment Year: 2016-17 to 2018-19

 

Date of Hearing: 19.12.2024

Date of Pronouncement: 30.01.2025

 

ASSTT. COMMISSIONER OF INCOME TAX

 

Vs

 

M/s SUJAN INFRASTRUCTURE PVT LTD

 

Assessee by: Shri Tushar Hemani, Sr. Advocate & Shri Parimalsinh B. Parmar, A.R.

Revenue by: Shri Sudhendu Das, CIT. DR

 

BEFORE

SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER

SHRI NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER

 

ORDER

 

PER SHRI NARENDRA PRASAD SINHA, AM:

 

These three appeals are filed by the Revenue against the order of the Commissioner of Income-Tax (Appeals)-11, Ahmedabad, (in short ‘the CIT(A)’), dated 19.07.2021 for the Assessment Years 2016-17, 2017-18 & 2018-19.

 

2. The facts of the case are that a search and survey operation was conducted on 30.10.2018 in Sankalp Group of Ahmedabad, which is controlled by Mr. Kailash Goenka & Mr. Robin Goenka. A warrant of authorization u/s.132 of the Income Tax Act, 1961 (in short ‘the Act’) was also issued in the name of the assessee company which is engaged in the business of Real Estate property development and construction activity. During the search, the following premises were covered from which certain incriminating materials were found and seized:

 

(i) Corporate office of assessee as well as other persons of the group situated at 4thFloor, 401, Gurukul Road, Ahmedabad.

 

(ii) Residential premises of “Jigar K. Mandaliya” (a key employee of Kailash Goenka), At: M-23/186, Azad Apartment – 2, Ambawadi, Ahmedabad.

 

3. The incriminating documents found and seized during the search contained noting of cash transactions of unaccounted receipts and payments. The assessee had received “unaccounted on-money receipts” aggregating to Rs.18,45,89,437/- on sale of flats/shops/showroom for the period from A.Y. 2013-14 to A.Y. 2019-20. Further, “unaccounted payments” aggregating to Rs.17,16,60,099/- for the same period was also found from these documents. The AO had initiated proceedings u/s.153A of the Act and completed the assessment for the various years whereby additions were made in respect of unaccounted cash receipts on account of sale of units of project named Sankalp Square II and also in respect of unaccounted expenses u/s.69C of the Act. The additions made by the AO on the basis of incriminating materials found during search for the different years were as under:

 

 

4. Aggrieved with the orders of the AO, the assessee had filed appeals before the First Appellate Authority, which was decided by the Ld. CIT(A) for all the years vide this common order dated 19.07.2021. The Ld. CIT(A) had segregated the unaccounted receipts and unaccounted payments based on materials found from the premises of the assessee. He found that the total unaccounted receipts as per these documents was Rs.58,83,050/- only and the total unaccounted payments were to the extent of Rs.84,95,975/-. On the basis of these documents, Ld. CIT(A) worked out the incremental peak negative cash balance and accordingly the addition to the extent of total negative peak of Rs.53,87,019/- was confirmed by him in the different years. The Ld. CIT(A) also worked out the profit out of on-money receipts by applying profit rate of 10% on the total on-money receipt of Rs.58,83,050/- and the addition of Rs.5,88,305/- was spread across various years in the ratio of execution of “actual sale deeds”. However, the assessee was allowed set off of GP addition with the negative cash balance. In the result, net addition of Rs.54,04,382/- was upheld by the Ld. CIT(A) in the A.Ys. 2013- 14 to 2019-20.

 

5. As regards, addition made by the AO on the basis of incriminating materials found from the premises of Jigar K. Mandaviya is concerned, the Ld. CIT(A) held that for “unabated years”, addition could not have been made on the basis of materials collected from the premise of the “third part y”. Accordingly, the Ld. CIT(A) held that the addition on the basis of documents found from the premise of the Jigar K. Mandaviya cannot be sustained.

 

6. So far as the addition made on the basis of incriminating material found from the premises of the assessee is concerned, there is no dispute. Neither the Revenue nor the assessee has challenged the addition confirmed by the Ld. CIT(A) on the basis of incriminating material found from the premises of the assessee. The Revenue is in appeal onl y against the additions deleted by the Ld. CIT(A) on the basis of incriminating material found from the premises of Jigar K. Mandaviya.

 

7. The Revenue has raised the following grounds in IT(SS)A No.155/Ahd/2021 for A.Y. 2016-17:

 

“1. On the facts and in the circumstances of the case and in law, the Ld. CI T(A) has erred in deleting the additions made by the AO in the order u/s 143 (3 ) r.w .s 153A on legal grounds that the additions should have been made u/ s 153C, without appreciating the fact that provisions of section 153C empowers the Assessing Officer to assess or re -assess the income of the person other than searched person, but the assessee being se arched person was squarely covered under section 153A.

 

2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in accepting the contention of the assessee that the assessment u/s 153A is to be made solely on the incriminating material found during the search carried out in the case of the concerned assessee and has failed to appreciate that it has added words in Section 153A, which is not permissible in law.

 

 

2.1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that any addition during the assessment u/s 153A has to be confined to the incriminating material found during the course of search u/s. 132 (1 ) of the Act, even though, there is no such stipulation in sec. 153A of the Act .

 

2.2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred by not considering the decision of Hon'ble Jurisdiction High Court in its proper perspective in the case of Pr CIT Vs. Saumya Construction P. Lt d. 387 ITR 529 (G uj ), as this judgment lay s the principle that assessment should be connected with something found during the search or requisition, viz. incriminating material which reveals undisclosed income. This decision nowhere states t ha t addition u/ s 153A can only be made if incriminating material is found during search from the premises of the concerned assessee.

 

2.3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating that sec . 153A requires a notice to be issued requiring the assessee to furnish his return of income in respect of each assessment year falling within six assessment years and to assess or re - assess the total income of those six assessment y ears, and that the scheme of assessment or re-assessment of the tot al income of a person se arched will be brought to naught if no addition is allowed to be made for those six assessment years in the absence of any seized incriminating material.

 

2.4. On the facts and in the circumstances of the case and in law , the Ld. CIT(A ) has erred in not appreciating that while computation of undisclosed income of the block period u/s. 158BB was to be made on the basis of evidence found as a result of search or requisition of books of accounts, there is no such stipulation in sec. 153A and sec. 153BI specifically states that the provisions of Chapter-XIV -B, under which sec. 158BB falls, would not be applied where a search was initiate d u/s. 132 aft e r 31/5/20 03.

 

2.5 On the facts and in the circumstances of the case and in law , the Ld. CIT(A) has erred in not appreciating that assessment in relation to cert ain issues not relate d to the search and seizure may arise in any of the said six assessment years after the search u/s. 132 is conducted in the case of the assessee, and that if the interpretation of the Id. C IT(A) w ere to hold it will not be possible to assess such income in the 153 A proceedings, while no other parallel proceedings to assess such other income can be initiated, leading to no possibility of assessing such other income, which could not have been the intention of the legislature. Further, the AO is duty bound to assess correct income of assessee as held by the Hon'ble Apex Court in the case of Mahalaxmi Sugar Mills, 160 ITR 920 (SC).

 

2.6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating that in all the assessments frame d u/s 153A, authorization u/s 132 was issued and incriminating material was found during the course of search in the premises control le d by the searched group which directly belong to the concerned assessee.

 

3. On the facts and in the circumstances of the case and in law, the Ld. C IT(A) has misinterpreted and extrapolated the judgment of Hon'ble Delhi High Court in the case of CIT Vs. Kabul Chawla, 380 ITR 573 (De l) as this judgment l ay s the principle that an assessment has to be made under this section only on the basis of seized material and the assessment cannot be arbitrary. This decision also now here states that addition u/s 153A can only be made if incriminating material i s found during search from the premises of the concerned assessee.

 

3.1. On the facts and circumstances of the case and in l aw, the Ld.CI T(A ) has erred in not appreciating the decisions of Hon'ble Delhi High court in the case of CIT Vs AnilKumar Bhat i a [211 Taxman 453, 352 ITR (493)] & Kerala High Court in the case of E.N. Gopakumar vs. Commissioner of Income-tax (Central ) [2016] 75 Taxmann.com 215 (ker. ) where in Courts held that assessments in a search case can be concluded against interest of assessee including making additions even without any incriminating material being available against assessee in search under section 132.

 

4. On the fact s and circumstances of the case and in law, whether by the order of the Ld.CIT (A), it has erred in its interpretation of Section 153A by holding that separate assessments have to be frame d u/s 153A as w ell as 153C for the same assesse e for the same assessment year who has been searched u/ s 132, depending upon the number of premises where incriminating materials were found belonging to the assessee from various premises controlled by the "assessee group"? Thus, as he ld by the Ld.CI T(A), the question is " is it permissible to have parallel assessment proceedings u/s 153A as w ell as 153C to be carried out in each case for e ac h assessment year, resulting into 'n ' number of assessment orders f or e ac h assessee for each year which is totally contrary to the provisions of the Act as Section 153A clearly states that there will be one assessment order for each year in case of an assessee subjected to search u/s 132"

 

5. On the fact s and circumstances of the case and in law, whether the Ld CI T(A ) as erred while quashing the order u/s 153A stating that no incriminating material has been found from these arched premises of the concerned assessee, without appreciating the fact that incriminating materials were found and seized from various other premises manage d and controlled by the assessee and are duly covered u/s 132 of the I.T. Act , 19617

 

6. Whether the Ld. CI T(A) has erred in law and on facts while deleting the addition of Rs.3,87,95,858/ - made towards unaccounted receipts, despite the assessee had failed to prove the genuineness of the transaction and creditworthiness of the persons/entities from whom receipts arrived.

 

7. Whether the Ld. CI T(A) has erred in law and on facts while deleting the addition of Rs.3,38,70,424/- made u/ s 69C on account of unexplained expenditure, despite the assessee had failed to prove the nature and source of such transactions.

 

8. Whether the Ld. CI T(A) has erred in law and on facts while deleting the addition of Rs.3,38,70,424/- made u/ s 69C on account of unexplained expenditure by taking peak credit, without appreciating the decision of Hon'ble Supreme Court in the case of Ananthram Veerasinghaiah & co. 123 ITR 457 ( SC), Bhaiyalal Shyam Bihari 276 ITR 3 8 (Alld ), JRD Stock brokers 40 9 ITR 346 (Delhi) wherein denying the benefit of peak credit for purpose of computing the unexplained income, the courts have held that unless the assessee provides the details of person from whom the money was received or paid and explains the details of transactions linking each outgoing s and incomings, the benefit of peak credit cannot be given. In this case also assessee has denied name and address of the counter parties in respect of notings of unaccounted cash transactions of receipts and payments found and seize d from different premise s of the Sankalp group including the case of the appellant.

 

9. Whether the Ld. CI T(A) has erred in law and on facts while deleting the addition of Rs. 3,38,70, 424/- made alternative u/s 37(1) and 43A, even though these sections have no relevance with provision of section 153C of the I. T. Act.

 

10. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought to have upheld the order of the A.O.

 

11. It is, the re fore , prayed that the order of t he Ld. C IT(A) be se t aside and that of the A.O. be restored to the above extent.”

 

8. Grounds taken by the Revenue in IT(SS)A Nos.156 & 157/Ahd/2021 are identical to IT(SS)A No. 155/Ahd/2021 except the quantum addition as mentioned in Grounds Nos. 6 to 9.

 

9. We will take up IT(SS)A No.155/Ahd/2021 for A.Y. 2016- 17 as the lead case.

 

IT(SS)A No.155/Ahd/2021

 

Legal Grounds

 

10. Ground Nos. 1 to 5 taken by the Revenue are legal in nature and are inter-connected. The Ld. CIT.DR submitted that the Ld. CIT(A) was not correct in deleting the addition made on the basis of incriminating material found from the premise of Jigar K. Mandaviya by holding that the addition on the basis of material found from the third part y could have been made only in the proceeding u/s.153C of the Act and not u/s.153A of the Act. He further submitted that the Ld. CIT(A) was also not correct in holding that in the proceedings u/s.153A of the Act, the addition can be made only on the basis of incriminating material found and seized from the premises of the assessee and not from an y third part y. According to the Ld. CIT.DR, in the assessment u/s.153A of the Act, the total income of the assessee is required to be computed and for that purpose all the evidences as available with the AO, including materials found from the premises of the third party, had to be taken into account. In this regard, he relied upon the decision of Hon’ble Supreme Court in the case of PCIT vs. Abhisar Buildwell P. LTd., [2023] 454 ITR 212 (SC). The Ld. CIT.DR further submitted that the proceeding u/s.153C of the Act is applicable only in the case where no search action u/s.132 of the Act was conducted and no proceedings u/s.153A of the Act is initiated. In the present case, since search action was conducted in the case of the assessee and the proceedings u/s.153A of the Act was already ongoing, the proceeding u/s 153C couldn’t have been initiated against the assessee as per the provisions of law. Therefore, the direction of the Ld. CIT(A) that the materials found from Jigar K. Mandaviya could have considered only after initiating proceedings u/s.153C of the Act in the case of the assessee was not correct, as there cannot be two parallel proceedings against the same person at the same time.

 

11. Per contra, Sh. Tushar Hemani, Ld. Sr. Advocate submitted that the Ld. CIT(A) had rightly held that for the unabated years the assessment u/s.153A of the Act was required to be framed only on the basis of incriminating material found and seized during search from the premises of the assessee. In this regard, he relied upon the following decisions:

 

i. PCIT vs. Abhisar Buildwell P. Ltd. (2023) 454 ITR 212 (SC);

 

ii. PCIT vs. Saumya Construction (2017) 387 ITR 529 (Guj);

 

iii. CIT vs. Kabul Chawla (2015) 380 ITR 573 (Del.);

 

iv. Priyablue Shipping P. Limited vs. DCIT-IT(SS)A 40- 41 of 2022”

 

12. The Ld. Sr. Counsel further submitted that it is a settled position that the statement recorded by the Revenue do not constitute incriminating material. Therefore, no addition could have been made only on the basis of statement of Shri Jigar K. Mandaviya. In this regard, he placed reliance on the following decisions:

 

“i. PCIT v Best Infrastructure (India) (P. Ltd. - (2017) 397 ITR 82 (Delhi);

 

ii. PCIT v Anand Kumar Jain and Ors. - MANU/DE/0347/2021 (Delhi);

 

iii. CIT v Harjeev Aggarwal- (2016) 70 taxmann.com 95 (Delhi)”

 

13. Sh. Tushar Hemani, Ld. Sr. Counsel emphasized that incriminating materials found from the third part y couldn’t have been considered/taken into cognizance while completing the assessment for the unabated year, since proceeding u/s 153C was not initiated against the assessee by the AO. He submitted that in a situation where both ‘assessee’ and some ‘other person’ are subjected to search under section 132, in case AO of the ‘assessee’ wants to take cognizance of material found and seized from the premises of such ‘other person’, then proceedings under sector 153C need to be mandatorily invoked. According to Ld. Sr. Advocate, in the absence of invoking provisions under section 153C, the AO of the assessee cannot take into account an y material seized from the premises of such other person while framing assessment in the case of the assessee, even though assessee has been subjected to search. In this regard he relied upon the following decisions of this Coordinate bench:

 

(i ) Rajesh Sundar Das Vaswani and others – IT(SS)A 95/Ahd/2019

 

(ii) Priyablue Shipping Pvt Ltd vs. DCIT- IT(SS)A 40- 41/Ahd/2022

 

14. We have considered the rival submissions. The undisputed facts of the case are that search operation under section 132 of the Act was conducted in the case of the assessee as well as Shri Jigar K. Mandaviya, a key employee of the Group. In the course of search certain incriminating materials pertaining to the assessee were found from both the premises. So far as the incriminating materials found from the premises of the assessee is concerned there is no dispute. The addition made by the AO on the basis of the materials found from the premises of the assessee was partly confirmed by the ld. CIT(A) and neither the assessee nor the Revenue is in appeal in this regard. The grounds raised in this appeal pertain to the additions made on the basis of incriminating materials found from the premises of Sh. Jigar K Mandaviya. The ld. CIT(A) had allowed relief to the assessee b y holding that the addition on the basis of materials found during search from the premises of the third party can be made only in the proceeding u/s.153C of the Act and not u/s.153A of the Act. The assessee has strongly supported this position of law enunciated by ld. CIT(A).

 

15. As per provision of section 153A of the Act, in the case of a person where a search is initiated under sect ion 132 of the Act, the proceeding under section 153A has to be mandatory initiated. Since the assessee was subjected to a search action u/s 132, the proceeding under section 153A of the Act was initiated in its case. The moot question to be decided in this case is whether the incriminating materials found during the search, from the premises of another person, can be utilized in the case of the assessee in the pending proceeding under section 153A of the Act or whether a proceeding under section 153C of the Act has to be simultaneously initiated in the case of the assessee to utilize the incriminating materials found from the premises of the third person. In order to answer this question, it will be relevant to first examine the provision of section 153C of the Act which is reproduced below:

 

Assessment of income of any other person.

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,—

 

(a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or

 

(b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates 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 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 books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A:

……..[Emphasis supplied]

 

16. It is evident from a bare reading, that the provision of section 153C of the Act is applicable only in a case where the seized assets or seized books of accounts / documents pertain to or relate to a person other than the person referred to in section 153A of the Act. In other words, the provision of section 153C of the Act is applicable onl y in the case of a person, who is not covered under search action under section 132 of the Act. Since the assessee was already covered under search action u/s 132 of the Act and the proceeding u/s 153A was already initiated in his case, the provision of section 153C of the Act was not applicable to him. Therefore, the proceeding u/s 153C of the Act could not have been initiated in the case of the assessee. The assessee has strongly relied upon the decisions of the Coordinate Bench of this Tribunal in the cases of Rajesh Sundardas Vaswani and others (supra) and in the case of Priyablue Shipping Pvt. Ltd. (supra) wherein it was held that proceeding u/s 153C need to be invoked to consider the incriminating materials seized from the premises of other person, even in a case of the assessee who was subjected to search action u/s 132 of the Act. With due regard to the decisions of the Coordinate Bench, we are unable to agree ourselves with the position of law as enunciated in those decisions. The provision of section 153C of the Act was not found anal yzed while rendering the decision in those cases. Further, those decisions are also contradictory to the judgment delivered by Hon’ble Supreme Court in the case of Abhisar Buildwell P. Ltd. (supra).

 

17. The Hon’ble Supreme Court in the case of Abhisar Buildwell (supra) has held that no addition can be made in respect of completed assessments in the absence of any incriminating material. The conclusion recorded by the Apex Court in Para 14 of the order in the case of Abhisar Buildwell (supra) is found to be as under:

 

14. In view of t he above and for the reasons stated above, it i s concluded as under:

 

 

18. The Hon’ble Apex Court has categorically held that the AO would assume the jurisdiction to assess or re-assessee the “total income” by 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. The ratio of the judgement is that the incriminating material found during the search gives the AO the jurisdiction to assess or reassess the ‘total income’ u/s 153A of the Act of the unabated/completed assessment. In the absence of an y incriminating material unearthed during the search, the AO would not have the jurisdiction to proceed in the unabated/completed year(s), only on the basis of other material. The judgment of Hon’ble Supreme Court does not fetter an y restriction that the incriminating material has to be found only from the premises of the assessee.

 

19. In the present case the search action in the case of Jigar K Mandaviya was not independently carried out by the Department. The search in the case of the assessee as well as Jigar K Mandaviya, the key employee of the Group, was carried out on the same day. Further, the search at the premises of Jigar K Mandaviya was on the suspicion of the Department that certain incriminating materials pertaining to the assessee were secreted at his place. The provision of section 132 of the Act stipulates that a warrant of authorization can be issued to enter and search any building, place or aircraft, in respect of which there is reason to suspect that books of accounts, other documents, money, bullion, jewellery or other valuable article or thing, are kept. In the present case the warrant of authorization to search the premises of Jigar K Mandaviya was given on the suspicion that the books of accounts or document s pertaining to the assessee were kept at his premises. The satisfaction for conducting search at the premises of Jigar K Mandaviya, the key employee of the Group, was vis-à-vis the documents and assets pertaining to the assessee and other entities of Sankalp Group. And in the course of search, incriminating materials pertaining to the assessee were indeed found from his premises. Thus, the incriminating materials found from the premises of Jigar K Mandaviya not only belonged to the assessee but were unearthed during the search operation conducted in the case of the assessee itself and, therefore, had to be utilized while completing its assessment under section 153A of the Act.

 

20. The addition on the basis of the documents found from the premises of Jigger K Mandaviya was also justified from another perspective. As already mentioned earlier, in the present case incriminating material was also found in the course of search at the premises of the assessee and the addition made on that basis has been partly upheld by the ld. CIT(A), regarding which there is no dispute. Once having assumed the jurisdiction on the strength of incriminating material found during the search, the AO can assess or reassess the ‘total income’ of the unabated/completed year on the basis of incriminating material found during the search and the ‘other material’ as available with him. The incriminating materials found at the premises of Jigar K Mandavia can also be considered as “other material” available with the AO and, therefore, the addition on the basis of such material was rightly made in the hands of the assessee while completing the assessment u/s 153A of the Act.

 

21. In view of the above facts and the legal position, we are of the considered opinion that the ld. CIT(A) was not correct in holding that the addition on the basis of the material seized from the premises of Jigar K Mandavia could have been made only under section 153C of the Act and not under section 153A of the Act. There cannot be two parallel proceedings under section 153A and under section 153C of the Act in the case of the same assessee at the same time. The finding of the ld. CIT(A) that the assessment under section 153A of the Act has to be confined solely to the incriminating material found in the search, is also not found correct. The law enunciated by the Hon’ble Apex Court in the case of Abhisar Buildwell (supra) makes it explicit that in case of unabated/completed assessments, the AO would assess or reassess the 'total income' taking into consideration the incriminating material unearthed during the search and also the other material available with the AO including the income declared in the returns. The legal grounds taken by the Revenue are, therefore, allowed to that extent.

 

Grounds on Merit

 

22. Ground Nos. 6 to 9 taken by the Revenue pertain to addition of Rs.3,87,95,858/- in respect of unaccounted receipts and addition of Rs.3,38,70,424/- in respect of unaccounted expenses. The AO on the basis of incriminating materials found from the premises of the assessee as well as from the premises of Shri Jigar K. Mandaviya had worked out the unaccounted on-money receipts as well as unaccounted expenses pertaining to different years, which has been reproduced earlier in para 3 of the order. The AO had made addition of Rs.3,91,73,425/- and not Rs.3,87,95,858/- as taken in the Grounds, in respect of on-money receipts during the year. The Ld. CIT(A) had considered the unaccounted receipts and unaccounted payments as appearing in the incriminating documents found from the premises of the assessee only and had ignored such entries appearing in the incriminating materials seized from the premises of Shri Jigar K. Mandaviya. As already discussed earlier, the Ld. CIT(A) had adopted a different approach and worked out the incremental peak negative cash balance, which was confirmed in different years. Further, income from on-money receipt was also worked out by applying net profit rate of 10%. The Ld. CIT(A) had also allowed set off of net profit addition with the negative peak balance.

 

23. The Ld. CIT.DR submitted that the Ld. CIT(A) was not correct in deleting the addition in respect of on money receipts and the unaccounted expenses as appearing in the seized documents found from the premises of the assessee as well as from the premises of Shri Jigar K. Mandaviya. According to the Ld. CIT.DR, these evidences were found in the course of search and could not have been ignored. He, therefore, strongly supported the order of the AO.

 

24. Per contra, Shri Tushar Hemani, Ld. Sr. Counsel submitted that the assessee was engaged in the business of real estate development and the seized materials contained noting in respect of ‘unaccounted receipts’ as well as ‘unaccounted expenses’. He explained that the unaccounted receipts were on account of right for usage of parking area and reimbursement of charges, such as AEC, AUDA & Others in relation to sale of units in a scheme developed by the assessee. The receipts were generated by the assessee in the course of its business activities and from the seized documents also, no other source of income was evident from which such receipts could have been generated. The unaccounted expenses recorded in the seized materials were also related to normal business activities of the assessee. The Ld. Sr. Counsel submitted that it was a settled legal proposition that entire unaccounted receipts cannot be added and that only profit element embedded therein has to be considered as income in the hands of the assessee. In this regard, he relied upon the following decisions:

 

– CIT vs. President Industries - (2002) 258 ITR 654 (Guj.);

 

– CIT vs. Balchand Ajit Kumar - (2003) 263 ITR 610 (MP);

 

– CIT v. Gurubachhan Singh - (2008) 302 ITR 63 (Guj);

 

– Man Mohan Sadani vs. CIT (2008) 304 ITR 52 (MP);

 

– CIT v. Samir S ynthetics Mill - (2010) 326 ITR 410 (Guj);

 

– DCIT v. Panna Corporation - Tax Appeal 323 of 2000 (Guj);

 

– Chetan C. Patel v. ACIT-IT(SS)A 522/Ahd/2011 and others;

 

– CIT v. Ja y Builders - (2013) 33 taxmann.com 62 (Guj);

 

– Greenfield Reality P. Ltd.- IT(SS)A 289/Ahd/2018 & others

 

25. The Ld. Sr. Counsel submitted that the Ld. CIT(A) had determined the quantum of income embedded in the unaccounted receipts recorded in the seized documents by applying profit rate of 10%. In addition, negative peak cash balance was found by taking into account the unaccounted receipts as well as unaccounted payments. The Ld. CIT(A) had, therefore, also considered the incremental negative peak balance as income of the assessee in the concerned years and accordingly, sustained the addition to that extent. Further, the Ld. CIT(A) had also allowed benefit of telescoping of net profit additions with the negative peak balance. The Ld. Sr. Counsel submitted that when unaccounted receipts and unaccounted expenses, both were found recorded in the seized documents, no separate addition in respect of both the heads could have been made. According to the Ld. Sr. Counsel, only the real income of the assessee was required to be taxed and the addition of both unaccounted receipts and unaccounted expenses was arbitrary, which was rightly deleted by the Ld. CIT(A). The Ld. Sr. Counsel emphasized that the methodology of determining the income by the Ld. CIT(A), by applying net profit rate and considering the negative peak balance, was absolutely scientific and had left no room for arbitrariness. He, therefore, strongly supported the order of the ld. CIT(A).

 

26. We have given a thoughtful consideration to the rival submissions. There is no dispute to the fact that both the unaccounted receipts as well as the unaccounted expenses were found recorded in the documents seized from the premises of the assessee as well as from the premises of Shri Jigar K. Mandaviya. It is a settled position that the seized material has to be read / considered in its entirety and any pick & choose methodology to interpret the seized materials cannot be allowed. When the income/receipts as per the seized materials is held as correct, the expenses as recorded in the seized documents has also to be held as correct. Therefore, the Revenue was required to give set off of the unaccounted expenses with the unaccounted receipts. The source of the unaccounted receipts and the destination of the unrecorded expenses was the same business activity carried on by the assessee. It is not the case that the unaccounted receipts were generated from one business activity and the unrecorded expenses pertained to another activity and there was no correlation between the two. The only business activity carried out by the assessee was real estate property development and all the receipts and expenses found appearing in the seized documents pertained to the same business activity. Therefore, the action of the AO to make separate addition for both unaccounted receipts as well as unaccounted expenses, without allowing setoff of the two, cannot be held as correct.

 

27. It is settled position of law that only the embedded profit element in the unaccounted transactions can be brought to tax and not the entire unaccounted receipts. Hon’ble Gujarat High Court in the case of Panna Corporation (supra) had held as under:

 

15. It can, thus, be seen that consistently , this Court and some other Courts have been following the principle that even upon detection of on money receipt or unaccounted cash receipt, what can be brought to tax is the profit embedded in such receipts and not the entire receipts themselves. If that be the legal position, what should be estimated as a reasonable profit out of such receipts, must bear an element of estimation

 

28. In the present case, both the unaccounted receipts as well as unaccounted expenses were pertaining to the normal business activity carried on by the assessee and there can be two approaches to work out the “real income” in such a case:

 

(i) Allow set off of unaccounted expenses with the unaccounted receipts and make addition for the net unaccounted income, or

 

(ii) Estimate the income of the unaccounted receipts and also make addition for unexplained investment, while ignoring the unaccounted expenses.

 

The first approach would give an anomalous result if the unaccounted expense is more than the unaccounted receipt. Therefore, the second approach is the better methodology to work out the real income from unaccounted transactions. In the present case, the Ld. CIT(A) had adopted the second methodology to work out the income out of unaccounted receipts. He has adopted this method for all the years involved i.e., from A.Y. 2014-15 to 2019-20, which was accepted by the Revenue in the other years. The present appeal filed by the Revenue pertains to 3 years only i.e., for A.Ys. 2016-17, 2017-18 & 2018-19. When the methodology adopted by the Ld. CIT(A) has been accepted by the Revenue in the other three years, we do not find an y reason to not accept the same in the three years involved in these appeals.

 

29. The Revenue has taken a ground regarding allowing benefit of peak credit to the assessee. According to the Revenue, the benefit of peak credit can be considered only in a case where the assessee provides name and address of the parties in respect of notings of unaccounted cash transactions of receipts and payments as appearing in the seized diary. The Revenue has relied upon the decision of Hon’ble Supreme Court in the case of Anantharam Veerasinghaiah & Co. v. Commissioner of Income-tax [1980] 123 ITR 457 (SC), wherein the Apex Court had held as under:

 

“There can be no escape from the proposition that the secret profits or undisclosed income of an assessee earned in an earlier assessment year may constitute a fund, even though concealed, from which the assessee may draw subsequently for meeting expenditure or introducing amounts in his account books. But it is quite another thing to say that any part of that fund must necessarily be regarded as the source of unexplained expenditure incurred or of cash credits recorded during a subsequent assessment year. The mere availability of such a fund cannot, in all cases, imply that the assessee has not earned further secret profits during the relevant assessment year. Neither law nor human experience guarantees that an assessee who has been dishonest in one assessment year is bound to be honest in a subsequent assessment year. It is a matter for consideration by the taxing authority in each case whether the unexplained cash deficits and the cash credits can be reasonably attributed to a pre-existing fund of concealed profits or they are reasonably explained by reference to concealed income earned in that very year. In each case, the true nature of the cash deficit and the cash credit must be ascertained from an overall consideration of the particular facts and circumstances of the case. Evidence may exist to show that reliance cannot be placed completely on the availability of a previously earned undisclosed income. A number of circumstances of vital significance may point to the conclusion that the cash deficit or cash credit cannot reasonably be related to the amount covered by the intangible addition but must be regarded as pointing to the receipt of undisclosed income earned during the assessment year under consideration. It is open to the revenue to rely on all the circumstances pointing to that conclusion. What these several circumstances can be is difficult to enumerate and indeed, from the nature of the enquiry, it is almost impossible to do so. In the end, they must be such as can lead to the firm conclusion that the assessee has concealed the particulars of his income or has deliberately furnished inaccurate particulars. It is needless to reiterate that in a penalty proceeding the burden remains on the revenue of proving the existence of material leading to that conclusion.”

 

30. In that case the issue involved was penalty under section 271(1)(c) of the Act and the essence of the judgment was that the true nature of the cash deficit and the cash credit must be ascertained from an overall consideration of the particular facts and circumstances of the case. In the case of JRD Stock Brokers (P.) Ltd. [2020] 113 taxmann.com 453 (Delhi) the Hon’ble Delhi High Court had dealt with the concept of peak credit as under:

 

“17. The premise underlying the concept of peak credit is the squaring up of the deposits in the account with the corresponding payments out of the account to the same person. In Bhaiyalal Shyam Bihari v. CIT (supra), the Allahabad High Court explained that benefit of peak can be given only when the assessee owns up all the cash credits in the books of account. It was further held: "For adjudicating upon the plea of peak credit the factual foundation has to be laid by the assessee. He has to own all cash credit entries in the books of account and only thereafter can the question of peak credit be raised."

 

31. In the present case, the peak credit is now required to be worked out after taking into account all the cash credit entries as appearing in the seized documents found from the premises of the assessee as well as from the premises of Jigar K Mandaviya. In other words, the assessee has to now own up all the cash credit entries appearing in the seized books of accounts/documents. It is not the case that the unaccounted income was earned by the assessee in one year and the unaccounted expenses were incurred in other years. From the nature of entries appearing in the seized documents it is evident that the assessee had consistently earned unaccounted income in the form of on-money and also made unaccounted expenditures, in cash, in all the years involved. Under such circumstances, the Revenue could not have made separate additions for both unaccounted income as well as for unaccounted expenditures as appearing in the seized documents; as the unaccounted on-money cash receipts earned previously was available with the assessee to incur the unrecorded cash expenditures. The previously earned undisclosed income (on money received in cash) was available with the assessee and the credit for same has to be allowed towards unrecorded cash expenditures. The ‘real income’ out of the unrecorded cash receipts and cash expenditures can be derived by drawing out the day-to-da y cash balance and finding the peak cash balance and by also estimating a reasonable percentage of profit. Since the assessee had not explained the nature of the cash expenditures and some of the withdrawals might be towards withdrawal of profit, the income at the rate of 10% was rightly estimated by the ld. CIT(A), and that addition has to be separately considered than the addition for peak credit. Further, the unexplained investment in the unrecorded transactions as appearing in the seized documents can be worked out onl y on the basis of peak credit of the transactions. From the analysis of the nature of entries as already discussed earlier, the true nature of the peak cash deficit and the peak cash credit in this case, is the unexplained investment and the accumulated profit of the unrecorded cash transactions.

 

32. The Ld. CIT(A) had worked out the net profit out of unaccounted receipts b y applying the net profit rate of 10% in respect of the entries as appearing in the documents seized fro m the premises of the assessee. The Revenue has not contested the profit determined on this basis in the other years. As held earlier, the assessment was required to be completed b y also considering the documents seized from the premises of Shri Jigar K. Mandaviya. Therefore, the profit in respect of unaccounted receipts, by applying net profit rate of 10%, is required to be re-worked by taking into account the unaccounted on-money receipts as appearing in the documents seized from the premises of Shri Jigar K. Mandaviya as well. Similarly, the incremental peak cash balance is also required to be reworked by considering all the receipts & payments as appearing in the documents seized from the premises of the assessee as well as from the premises of Shri Jigar K. Mandaviya. For this purpose, the matter is set aside to the file of the Jurisdictional AO who will first work out the peak balance for different years (from A.Ys. 2015-16 to 2019-20) on the basis of all the entries as appearing in the documents seized from the premise of the assessee as well as from the premises of Shri Jigar K. Mandaviya and the addition in the three years involved in this appeal would be made on the basis of incremental peak balance. Further, the AO will also work out the profit from the total unaccounted receipts as appearing in the documents seized fro m the assessee and from Shri Jigar K. Mandaviya. The AO will also allow the benefit of telescoping of profit of the preceding year(s) with the peak balance of the succeeding year. The AO is also directed to allow a proper opportunity of being heard to the assessee and confront with the working of the peak balance, profit for different years @ 10% of total receipts as well as the telescoping benefit. Accordingly, the ground taken by the Revenue is partly allowed for statistical purposes.

 

33. In the result, appeal of the Revenue is partly allowed.

 

IT(SS)A No.156/Ahd/2021 (A.Y. 2017-18)

 

34. The facts and the grounds taken by the Revenue in IT(SS)A No.156/Ahd/2021 for A.Y. 2017-18 are identical with IT(SS)A No. 155/Ahd/2021 for A.Y. 2016-17. Therefore, the decision in IT(SS)A No. 155/Ahd/2021 on all the issues will apply mutatis mutandis to IT(SS)A No.156/Ahd/2021. Accordingly, the appeal of the Revenue is partly allowed.

 

IT(SS)A No.157/Ahd/2021 (A.Y. 2018-19)

 

35. The facts involved in IT(SS)A No.156/Ahd/2021 for A.Y. 2018-19 are also identical to IT(SS)A No. 155/Ahd/2021 for A.Y. 2016-17 and the grounds taken by the Revenue in this year are same, except the quantum of addition. The assessment for A.Y. 2018-19 was, however, a case of abated assessment. Therefore, the findings and observations of Hon’ble Supreme Court in the case of Abhishar Buildwell (supra) will not be applicable to this year. As per the scheme of Section 153A of the Act, the AO is entitled to assess or re-assess the total income for the purpose of which all the materials as available with him can be considered. Therefore, the findings of the Ld. CIT(A) that the addition for this year was required to be confined only to the incriminating material found during the search from the assessee was palpably wrong. In the case of abated assessment, addition can be made even without any incriminating material found in the course of search. Further, addition can also be made in respect of issues not related to search and seizure. In view of these facts and also following the judgment of Hon’ble Supreme Court in the case of Abhisar Buildwell (supra), we are of the considered opinion that the Ld. CIT(A) was not correct in holding that addition could be made only on the basis any incriminating material seized from the premises of the assessee and all other materials couldn’t have been considered. The legal grounds taken by the Revenue are, therefore, allowed.

 

36. So far as merits of the additions are concerned, the facts are identical to IT(SS)A No. 155/Ahd/2021 for A.Y. 2016-17. Therefore, our decision in IT(SS)A No. 155/Ahd/2021 on the merit of the additions will apply mutatis mutandis to IT(SS)A No.157/Ahd/2021. Accordingly, the appeal of the Revenue is partly allowed.

 

37. In the result, all three appeals of the Revenue are partly allowed.

 

This Order pronounced on 30/01/2025.

 

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