THE HIGH COURT OF MADHYA PRADESH I.T.A.No. 21/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Dal & Oil Mills) I.T.A.No.31/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) I.T.A.No.32/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) Gwalior, Dated:-12.07.2019 Mr. D.P.S. Bhadouria, learned counsel for appellant (s). 1. Heard on admission. 2. Common issue which arises for consideration in these batch of Appeals under Section 260A of Income Tax Act, 1961 directed against common order dated 08.06.2018 passed by Income Tax Appellate Tribunal Agra Bench, Agra is as to whether in absence of any incriminating documents seized during course of search, Assessing Officer is justified in making addition in non abated assessment orders under Section 153 read with Section 143 (3) of Act of 1961 . 3. Assessment years are 2005-2006 to 2011-2012. 4. Tribunal was in seisin with appeals and cross appeals arising from respective orders passed by Commissioner Income Tax (Appeals). appeals before CIT (Appeals) were directed against addition of income by Assessing Officer taking production on presumptive basis and working out estimated income. 5. factum of addition not being based on any incriminating material found during search is not disputed. 6. This aspect is borne out from record duly taken note of by 2 HIGH COURT OF MADHYA PRADESH I.T.A.No.21/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Dal & Oil Mills) I.T.A.No.31/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) I.T.A.No.32/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) CIT (Appeals), reproduced below : In I.T.A.No.21/2019 4.1.4. DECISION: I have carefully considered facts of case, finding of Assessing Officer, written submissions of appellant, remand report and rejoinder thereon as well as material placed on record. impugned addition of Rs.13,74,332/- has been made by Assessing Officer with observation that 'despite giving so many opportunity, assessee company has failed to furnish bills vouchers, name, address, PAN & nature of credits, confirmation of creditor, TDS details etc. assessee company has only filed copy of ledger accounts of various creditors in its books of accounts. Therefore assessee company has failed to prove creditors and same is added in total income of assessee . Now, in remand report, Assessing Officer has reported that it is verified from assessment record that appellant has furnished details of all sundry creditors for Rs.13,74,332/- including for dalali Rs.7,54,521/-. All these were furnished during assessment proceedings. It seems that due to many time barred assessments under Section 153A pending before Learned ACIT such reference has been made in order. However in this remand these facts as mentioned by appellant are confirmed and therefore addition of Rs.13,74,332/- may kindly be deleted. 4.1.5. addition of Rs.13,74,332/- on account of unproved sundry creditors has been made with general observations without bringing any material on record. fact that it is not based on any incriminating document or material found or seized during search proceedings is evident from record. Further, fact that addition is based on conjectures and surmises and not based on any corroborative material placed on record is 3 HIGH COURT OF MADHYA PRADESH I.T.A.No.21/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Dal & Oil Mills) I.T.A.No.31/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) I.T.A.No.32/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) evident from remand report. It is case where appellant had furnished requisite details regarding sundry creditors during assessment proceedings, but Assessing Officer has not recorded proper findings and made addition in casual manner. Therefore, addition made by Assessing Officer on account of unproved sundry creditors at Rs.13,74,332/- is deleted. In I.T.A.No.31/2019 & I.T.A.No.32/2019 6. It is seen that assessee company is engaged in production of 'Gutka'. assessing Officer, mainly relying upon Notification No.30/2008 Central Excise (NT) dated 01.07.2008 and statement of Shri Gulzarilal Gupta dated 07.10.2010 has come to conclusion that assessee was engaged in unaccounted production and sale of 'Gutka'. On going through written submissions and assessment carefully, following facts/points have been observed by me:- (i) appellant is maintaining regular books of account. books of account are audited under Section 44AB. Auditor has not made any qualifying remark about production/sale recorded by appellant in its books of account. Assessing Officer has not pointed out any defect/deficiency in books of account maintained by appellant. Assessing Officer has also not rejected book results u/s 145(3). (ii) As search u/s 132(1) was carried out on 07.10.2010 at various premises of assessee and its group concerns/persons. However, no document/loose paper showing unaccounted production, suppression of sale or out of books purchases was found either 4 HIGH COURT OF MADHYA PRADESH I.T.A.No.21/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Dal & Oil Mills) I.T.A.No.31/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) I.T.A.No.32/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) at premises of appellant or its directors. There is no other positive evidence to show that assessee used 10 machines during period relevant to A.Y. 2005-06, 06-07 and 07-08 and 8 machines during period relevant to A.Y. 2008-09 for making unaccounted production of 'Gutka'. (iii) appellant has explained that 'Gutka' is exciseable goods and Excise Department has accepted production recorded by appellant in its books of account. Every year Excise Department conducts audit at premises of appellant and there is no order from Excise authorities stating that assessee has suppressed production. Excise authorities accepted production declared by appellant in its books of account. (iv) appellant has further explained that sales tax/Commercial Tax department has also accepted turnover declared by appellant its books of account. (v) Assessing Officer has relied heavily on notification No.30/2008-Central Excise (NT) dated 01.07.2008 issued by Government of India, Ministry of Finance, Department of Revenue wherein Pan Masala Packing Machine [Capacity, Determination and Collection of Duty] Rules 2008 have been notified. As per these rules, Govt. of India has notified quantity of notified goods deemed to be produced by use of one operating packaging machine per month. Assessing Officer has worked out unaccounted production on basis of 5 HIGH COURT OF MADHYA PRADESH I.T.A.No.21/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Dal & Oil Mills) I.T.A.No.31/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) I.T.A.No.32/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) deemed production notified by these rules for purpose of levying Excise duty. I have gone through notification carefully. At beginning of notification itself it has clearly mentioned that Pan Masala Packing Machine [Capacity, Determination and Collection of Duty] Rules 2008 shall come into force on first day of July, 2008. In other words, these rules are relevant for F.Y. 2008- 09 and subsequent F.Yrs. These rules have no relevance or applicability to F.Y. 2004-05, 05-06, 06-07, & 07- 08. As far as F.Y. 08-09, 09-10 & 2010-11 are concerned, Assessing Officer has accepted production declared by appellant and no addition in respect of any unaccounted production/sale has been made by A.O. Further, these rules speak about quantity of deemed production for purpose of levying Excise Duty. I am of considered opinion that by no stretch of any imagination, deemed production worked out for purpose of levying Excise duty on basis of Notification No.30/2008 dated 01.07.2008 referred above, actual production or actual turnover of appellant can be worked out. This notification is relevant only for purpose of computing Excise duty on basis of deemed production per machine given in notification. (vi) At paragraph No.4.33 of assessment order, Assessing Officer has relied upon declaration forms in Form No.1 filed by appellant in O/o Dy. Commissioner of Central Excise, Gwalior during F.Y. 2008-09 to 2010-11. As Assessing Officer himself has mentioned in assessment order that these forms have been filed in 6 HIGH COURT OF MADHYA PRADESH I.T.A.No.21/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Dal & Oil Mills) I.T.A.No.31/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) I.T.A.No.32/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) respect of F.Y. 2008-09 to 2010-11 hence I am of considered opinion that these declaration forms have no relevance to production of Gutka in F.Y. 2004-05, 2005-06, 2006-07 & 2007-08. As far as production of F.Y. 2008-09, 09-10 & 2010-2011 is concerned, A.O has also accepted production declared by appellant. Hence I am of considered opinion that these declaration forms have no relevance as far as production of F.Y. 2004-05, 05-06, 06- 07 & 07-08 is concerned. (vii) It has been explained by appellant that machinery found during course of search were all recorded in books of account and no unaccounted investment in machinery has been found by department. (viii) Assessing Officer has also relied upon statement dated 10.01.2013 of Shri Gulzarilal Gupta I have gone through statement carefully. In reply to Q. No.1 itself, Shri Gulzarilal Gupta has stated that he had been working in appellant company as Director only since June, 2009. appellant has also mentioned in written submission that Shri Gulzarilal Gupta was appointed as Director only on 09.05.2009. In support of its claim, appellant has filed copy of Form No.32 filed with Registrar of Companies for appointment of Shri Gulzarilal Gupta, as Director. Notification No.30 dated 01.07.2008 had already come into force when Shri 7 HIGH COURT OF MADHYA PRADESH I.T.A.No.21/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Dal & Oil Mills) I.T.A.No.31/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) I.T.A.No.32/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) Gulzarilal Gupta joined assessee company at Gwalior. He was not Director in company during F.Y. 2004-05, 05-06, 06-07 & 07-08, therefore, I agree with contention of appellant that statement made by Shri Gulzarilal Gupta in respect of any activities of Financial Year 2004-05, 05-06 & 07-08 has no relevance. No addition to income in respect of F.Y. In which he was not Director in appellant company can be made on basis of his statement. As far as F.Y. 2008-09, 09- 10 & 10-11, period during which Shri Gulzarilal Gupta was Director, is concerned, Assessing Officer has accepted production. No addition in respect of any unaccounted sale/production has been made in F.Y. 09-10 & 10-11. (ix) In assessment order Assessing Officer has not given working, explaining how he has arrived at sales price per pouch and production cost per pouch, adopted by him, for purpose of computing undisclosed income in form of profit on suppressed sale. 7. In view of facts discussed above in clause No. (i) to (ix) of para No.6, I am of considered opinion that addition in respect of unaccounted production/sale and profit on such production/sale has been made by A.O in mechanical manner without any basis. income has been estimated merely on basis of imagination, presumption and suspicion. addition based on imagination, presumption and suspicion. Cannot be sustained. I am of considered opinion that 8 HIGH COURT OF MADHYA PRADESH I.T.A.No.21/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Dal & Oil Mills) I.T.A.No.31/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) I.T.A.No.32/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) addition made by A.O is uncalled for any unwarranted, hence addition made by A.O is hereby deleted. 7. Section 153 (1) of Act stipulates : (1) Assessment in case of search or requisition. Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in case of person where search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after 31st day of May, 2003, Assessing Officer shall - (a) issue notice to such person requiring him to furnish within such period, as may be specified in notice, return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in prescribed form and verified in prescribed manner and setting forth such other particulars as may be prescribed and provisions of this Act shall, so far as may be, apply accordingly as if such return were return required to be furnished under section 139; (b) assess or reassess total income of six assessment years immediately preceding assessment year relevant to previous year in which such search is conducted or requisition is made : Provided that Assessing Officer shall assess or reassess total income in respect of each assessment 9 HIGH COURT OF MADHYA PRADESH I.T.A.No.21/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Dal & Oil Mills) I.T.A.No.31/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) I.T.A.No.32/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) year falling within such six assessment years. Provided further that assessment or reassessment, if any, relating to any assessment year falling within period of six assessment years referred to in this section pending on date of initiation of search under section 132 or making of requisition under section 132A, as case may be, shall abate. Provided also that Central Government may by rules made by it and published in Official Gazette (except in cases where any assessment or reassessment has abated under second proviso), specify class or classes of cases in which assessing Officer shall not be required to issue notice for assessing or reassessing total income for six assessment years immediately preceding assessment year relevant to previous year in which search is conducted or requisition is made. Provided also that no notice for assessment or reassessment shall be issued by Assessing Officer for relevant assessment year or years unless - (a) Assessing Officer has in his possession books of account or other documents or evidence which reveal that income, represented in form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more in relevant assessment year or in aggregate in relevant assessment years ; (b) income referred to in clause (a) or part thereof has escaped assessment for such year or years ; and (c) search under section 132 is initiated or requisition under section 132A is made on or after 1 st day of April, 2017. 10 HIGH COURT OF MADHYA PRADESH I.T.A.No.21/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Dal & Oil Mills) I.T.A.No.31/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) I.T.A.No.32/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) 8. Dwelling on scope of Sub-section (1) of Section 153 of Act, Division Bench of Delhi High Court in CIT Vs. Kabul Chawla; (2016) 380 ITR 573 observed: 37. On conspectus of Section 153A(1) of Act, read with provisos thereto, and in light of law explained in aforementioned decisions, legal position that emerges is as under: (i) Once search takes place under Section 132 of Act, notice under Section 153 (1) will have to be mandatorily issued to person searched requiring him to file returns for six AYs immediately preceding previous year relevant to AY in which search takes place. (ii) Assessments and reassessments pending on date of search shall abate. total income for such AYs will have to be computed by AOs as fresh exercise. (iii) AO will exercise normal assessment powers in respect of six years previous to relevant AY in which search takes place. AO has power to assess and reassess 'total income' of aforementioned six years in separate assessment orders for each of six years. In other words there will be only one assessment order in respect of each of six AYs 'in which both disclosed and undisclosed income would be brought to tax'. (iv) Although Section 153 does not say 11 HIGH COURT OF MADHYA PRADESH I.T.A.No.21/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Dal & Oil Mills) I.T.A.No.31/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) I.T.A.No.32/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) that additions should be strictly made on basis of evidence found in course of search, or other post-search material or information available with AO which can be related to evidence found, it does not mean that assessment 'can be arbitrary or made without any relevance or nexus with seized material. Obviously assessment has to be made under this Section only on basis of seized material.' (v) In absence of any incriminating material, completed assessment can be reiterated and abated assessment or reassessment can be made. word 'assess' in Section 153 is relatable to abated proceedings (i.e. those pending on date of search) and word 'reassess' to completed assessment proceedings. (vi) Insofar as pending assessments are concerned, jurisdiction to make original assessment and assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on basis of findings of search and any other material existing or brought on record of AO. (vii) Completed assessments can be interfered with by AO while making assessment under Section 153 only on basis of some incriminating material unearthed during course of search or requisition of documents or undisclosed income or property discovered in course of search which were not produced or not already disclosed or made known in 12 HIGH COURT OF MADHYA PRADESH I.T.A.No.21/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Dal & Oil Mills) I.T.A.No.31/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) I.T.A.No.32/2019 (Pr. Commissioner of Income Tax Vs. Gahoi Foods Pvt. Ltd.) course of original assessment. 9. We are in respectful agreement with view expressed. 10. In given facts of present case as no incriminating documents during course of search are found, order in appeal cannot be said to have suffered illegality as would give rise to proposed substantial question of law. 11. Consequently, appeals fail and are dismissed. No costs. (Sanjay Yadav) (Vivek Agarwal) Judge Judge bj/- BARKHA JHA Pr. Commissioner of Income-tax v. Gahoi Dal & Oil Mill