Pr. Commissioner Of Income Tax Central-2 New Delhi v. Meeta Gutgutia

$~ * IN THE HIGH COURT OF DELHI AT NEW DELHI Reserved on: 3[rd] May, 2017 Date of decision: 25[th] May, 2017 + ITA 306/2017 PR. COMMISSIONER OF INCOME TAX CENTRAL-2 NEW DELHI ..... Appellant Through: Mr. Ashok Manchanda, Advocate. versus MEETA GUTGUTIA PROP. M/S FERNS „N‟ PETALS.... Respondent Through: Mr. Piyush Kaushik, Advocate. WITH + ITA 307/2017 PR. COMMISSIONER OF INCOME TAX CENTRAL-2 NEW DELHI ..... Appellant Mr. Ashok Manchanda, Advocate. Through: versus MEETA GUTGUTIA PROP. M/S FERNS „N‟ PETALS.... Respondent Through: Mr. Piyush Kaushik, Advocate. WITH + ITA 308/2017 PR. COMMISSIONER OF INCOME TAX CENTRAL-2 NEW DELHI ..... Appellant Through: Mr. Ashok Manchanda, Advocate. ITA Nos. 306, 307, 308, 309 & 310 of 2017 versus MEETA GUTGUTIA PROP. M/S FERNS „N‟ PETALS.... Respondent Through: Mr. Piyush Kaushik, Advocate. WITH + ITA 309/2017 PR. COMMISSIONER OF INCOME TAX CENTRAL-2 NEW DELHI ..... Appellant Through: Mr. Ashok Manchanda, Advocate. versus MEETA GUTGUTIA PROP. M/S FERNS „N‟ PETALS.... Respondent Through: Mr. Piyush Kaushik, Advocate. AND + ITA 310/2017 PR. COMMISSIONER OF INCOME TAX CENTRAL-2 NEW DELHI ..... Appellant Through: Mr. Ashok Manchanda, Advocate. versus MEETA GUTGUTIA PROP. M/S FERNS „N‟ PETALS.... Respondent Through: Mr. Piyush Kaushik, Advocate. CORAM: JUSTICE S. MURALIDHAR JUSTICE CHANDER SHEKHAR % J U D G M E N T 25.05.2017 ITA Nos. 306, 307, 308, 309 & 310 of 2017 Dr. S. Muralidhar, J.: 1. These are five appeals by the Revenue under Section 260A of the Income Tax Act 1961 ('Act') directed against a common order dated 13[th] May, 2016 passed by the Income Tax Appellate Tribunal („ITAT‟) in ITA Nos. 2409 to 2412/Del/12 and 2437/Del/12 for the Assessment Years („AYs‟) 2000-01 to 2004-05. 2. The main contention of the Revenue in these appeals is that the decision of the Division Bench („DB‟) of this Court in Commissioner of Income Tax (Central-III) v.Kabul Chawla (2016) 380 ITR 573(Del) (hereafter Kabul Chawla) as regards the assumption of jurisdiction under Section 153A of the Act requires reconsideration, particularly in light of a later decision of a co-ordinate Bench of this Court in Smt. Dayawanti Gupta v. CIT (2016) 390 ITR 496 (Del) (hereafter Dayawanti Gupta). The Revenue's submission is that the invocation of Section 153A of the Act to re-open concluded assessments of the AYs earlier to the year of search is justified even in the absence of incriminating material found during the search qua each such earlier AY. For reasons to follow, the Court does not agree with the above submissions of the Revenue. 3. Since there are typographical errors in the memoranda of appeals, and the corresponding appeal numbers before the ITAT, the Court sets out in a tabulated form all the appeal numbers, the AY and the corresponding ITA Nos.: Background facts 4. The facts leading to the filing of the present appeals are that a search and seizure operation under Section 132 of the Income Tax Act, 1961 („Act‟) was conducted on 23[rd] December, 2005 in the premises of the Ferns N Petals Group at Farm No. 9, Satya Farms, Sultanpur, New Delhi (where the warrant was issued in the name of Shri Vikas Gutgutia, Smt. Meeta Gutgutia and Shri C.K. Gutgutia, Ferns & Petals India Pvt. Ltd., M/s Ferns & Petals and M/s FNP Marketing) and at J-238, Sainik Farms, Delhi (warrants in the name of Shri Vikas Gutgutia, Smt. Bina Gutgutia, Smt. Meeta Gutgutia and Sh. C.K. Gutgutia were issued), Locker No. 1125, Standard Chartered Bank, GK-1, New Delhi (warrants were issued in the name of Shri C.K. Gutgutia, Smt. Bina Gutgutia and Smt. Meeta Gutgutia). 5. According to the Revenue, a number of documents were seized apart from cash, jewellery and valuables. 6. The Ferns „N‟ Petals Group is stated to comprise of various companies, partnership firms and proprietorship concerns engaged mainly in the 5. According to the Revenue, a number of documents were seized apart from cash, jewellery and valuables. 6. The Ferns „N‟ Petals Group is stated to comprise of various companies, partnership firms and proprietorship concerns engaged mainly in the ITA Nos. 306, 307, 308, 309 & 310 of 2017 Page 4 of 49 business of flowers, decoration and events management. It is stated that the promoters' group comprises Shri Vikas Gutgutia and his wife, Smt. Meeta Gutgutia, who are the directors/partners/shareholders in the group companies/concerns. 7. The Revenue claims that the documents seized pertained to the period 2002 to 2005. On the date of the search itself i.e., 23[rd] December, 2005, the officials of the Income Tax Department („ITD‟) recorded the statement of Shri Pawan Gadia S/o Shri M.S. Gadia, a resident of Vasant Kunj. Although the statement was under Section 133A of the Act, it was recorded on oath. Shri Gadia admitted that he was working at M/s. Satya Farms as Vice-President since August, 2001. He stated that he was supervising the work of the following companies/concerns: (i) Ferns & Petal Trading Pvt. Ltd. (ii) FNP Pvt. Ltd. (iii) FNP Events & Wedding Pvt. Ltd (iv) Flowered Touch India Pvt. Ltd. & (v) FNP Petals Pvt. Ltd. 8. The Revenue‟s case is that the Respondent/Assessee, Smt. Meeta Gutgutia, is the proprietor of M/s. Ferns „N‟ Petals which is engaged in the sale of fresh flowers and other related products. On the basis of documents recovered during the search and seizure operation, a notice under Section 153A was issued to the Assessee on 12[th] December, 2006. Thereafter, notice dated 3[rd] October, 2007 along with questionnaire under Sections 143(2) and 142(1) of the Act were also issued. Page 5 of 49 ITA Nos. 306, 307, 308, 309 & 310 of 2017 Assessment orders 9. On 28[th] December, 2007, separate assessment orders were passed by the AO in respect of the AYs 2000-01, 2001-02, 2002-03, 2003-04 and 2004-05. The AO dealt with the issue of „franchisee commission‟. He noted that as per the trading and profit and loss account („P & L Account‟) for the AY 2004-05, the Assessee had claimed Rs. 60,066. It was noted that as in the preceding years, a substantial amount was claimed on account of franchisee commission which was debited to the P&L Account i.e., the franchisee commission paid to various parties, the Assessee was thus asked to furnish copies of accounts of the franchisees with their complete addresses. The AO noted that the addresses of the franchisees were not revealed and on a perusal of the copy of the accounts of the said franchisees, there were glaring discrepancies in the details filed. 10. In the assessment orders passed for AYs 2001-02 to 2003-04 also, there was a similar discussion regarding the franchisee commission payments and the AO found no justification for such payments. Consequently, the amount of the franchisee commission claimed by the Assessee in each of the years was added back to her income. For AY 2004-05, the AO made an addition on account of stock in the sum of Rs. 14,49,246. 11. During the course of search, the Assessee made a disclosure of Rs.110 lakhs on account of change in the method of accounting of franchisee fees and undisclosed franchisee fees for the Financial Year („FY‟) during which the search was conducted. On the basis of the said statement, the AO surmised that the number of outlets for which franchisee fee was received ITA Nos. 306, 307, 308, 309 & 310 of 2017 Page 6 of 49 must have more or less remained the same in all AYs from 2001-02 to 2006-07. He estimated the undisclosed income at a certain percentage of the amount of disclosure made by the Assessee in her statement under Section 132 (4) of the Act. At this stage, it must be noted that no statement was made by the Assessee herself. A statement was made under Section 133A by Shri Pawan Gadia. 12. The disclosures made of undisclosed income for various AYs were estimated by the AO as under: “(a) AY 2001-02 @ 50% of disclosed amount Rs.55,00,000/- ITA Nos. 306, 307, 308, 309 & 310 of 2017 Page 6 of 49 must have more or less remained the same in all AYs from 2001-02 to 2006-07. He estimated the undisclosed income at a certain percentage of the amount of disclosure made by the Assessee in her statement under Section 132 (4) of the Act. At this stage, it must be noted that no statement was made by the Assessee herself. A statement was made under Section 133A by Shri Pawan Gadia. 12. The disclosures made of undisclosed income for various AYs were estimated by the AO as under: “(a) AY 2001-02 @ 50% of disclosed amount Rs.55,00,000/- (b) AY 2002-03 @ 60% of disclosed amount Rs.66,00,000/- (c) AY 2003-04 @ 70% of disclosed amount Rs.77,00,000/- (d) AY 2004-05 @ 80% of disclosed amount Rs.88,00,000/- (e) AY 2005-06 @ 90% of disclosed amount Rs.99,00,000/- (f) AY 2006-07 @ 100% of disclosed amount Rs.1,10,00,000/-” 13. There was no addition made for AY 2006-07 although the disclosure was made relevant to the said year. Proceedings before the CIT (A) 14. Five separate appeals were filed by the Assessee before the CIT(A). The CIT(A) by five different orders relatable to each of the AYs in question partly allowed the appeals deleting most of the additions made by the AO. While the orders of the CIT(A) for the appeals pertaining to the AYs 2000-01 and 2001-02 were issued on 12[th] March 2012, the order in the appeal Page 7 of 49 ITA Nos. 306, 307, 308, 309 & 310 of 2017 relating to AYs 2002-03 was issued by the CIT (A) on 13[th] March, 2012. Separate orders in relation to AYs 2003-04 and 2004-05 were issued by the CIT (A) on 14[th] March, 2012. 15. Before the CIT(A), the Assessee produced additional evidence under Rule 46A of the Income Tax Rules, 1962 (Rules). This included copies of the franchisee agreements. By a letter dated 9[th] July, 2010, the CIT(A) forwarded the additional evidence to the AO for his comments. The AO then submitted a report dated 3[rd] March, 2011 opposing the request of the Assessee for permission to lead additional evidence. The additional evidence was also contested by the AO as not supporting the Assessee‟s explanation regarding the payment of franchisee commission. A rejoinder was filed thereto by the Assessee. 16. It must also be noticed at this stage that on 23[rd] September, 2010, during the pendency of the proceedings before the CIT (A) when a remand report was sought from the AO, the Assessee offered a very detailed explanation on the following topics to the AO during the remand proceedings: (i) Addition of Rs. 13,79,801/- on account of franchisee commission (rent); (rent); (ii) Addition of Rs. 88 lakhs on account of undisclosed franchisee commission; commission; (iii) Addition of Rs. 17,32,511/- on account of security deposits; (iv) Addition of Rs. 6,64,910/- on account of undisclosed income from self-controlled outlets; and self-controlled outlets; and (v) Non-submission of books of account during the assessment ITA Nos. 306, 307, 308, 309 & 310 of 2017 Page 8 of 49 proceedings under Section 153A /143(3). 17. In respect of last topic regarding non-submission of books of accounts, the Assessee stated as under: “In this context, we would like to reiterate that the assessee has been maintaining regular books of accounts on TALLY software on Computer and have filed regular Income Tax returns along with Profit & Loss Account and Balance Sheet which were audited u/s-44AB of the Act by Chartered Accountant, on the basis of the said books of accounts, prior to the Search u/s-132(1) on the Group, for the Assessment Year 2000-01 to 2005-06, and the same are being produced for your kind verification. It is informed your kind self that some of the computers have already been seized during search operation on the various premises belonging to the assessee.” proceedings under Section 153A /143(3). 17. In respect of last topic regarding non-submission of books of accounts, the Assessee stated as under: “In this context, we would like to reiterate that the assessee has been maintaining regular books of accounts on TALLY software on Computer and have filed regular Income Tax returns along with Profit & Loss Account and Balance Sheet which were audited u/s-44AB of the Act by Chartered Accountant, on the basis of the said books of accounts, prior to the Search u/s-132(1) on the Group, for the Assessment Year 2000-01 to 2005-06, and the same are being produced for your kind verification. It is informed your kind self that some of the computers have already been seized during search operation on the various premises belonging to the assessee.” 18. At the request of the Assessee that the assessment records of each of the AYs should be called for verification, the CIT(A) asked the AO to be present on the hearing on 11[th] November, 2011. On that date, the AO appeared along with the assessment records. The Assessee‟s Authorized Representative („AR‟) also appeared along with the originals of the Franchisee Agreements for the FYs 2001-02 to 2005-06. Orders of the CIT (A) 19. The CIT(A) analyzed this additional evidence thoroughly. On the issue of the franchisee commission paid by the Assessee, it was noted that the accounts of the Assessee had been tax audited and no adverse comments had been made by the Tax Auditors. The AO had also not rejected the books of accounts of the Assessee. It was accordingly held that the disallowance of the franchise commission paid was not sustainable. Accordingly, the ITA Nos. 306, 307, 308, 309 & 310 of 2017 disallowance was deleted. 20. A separate issue concerned additions on account of „undisclosed franchisee commission‟ (fee) that had been received by the Assessee. The observations of the AO that the books of accounts had not been produced by the Assessee despite specific opportunities was noted by the CIT(A). The AO‟s observation that the Assessee did not declare any income from the franchisee fee for any of the subsequent years till a search was conducted was also noted. The disclosure made on 24[th] March, 2006 regarding the admission of change in the management policy and the disclosure of Rs. 110 lakhs on account of „unrecorded franchisee fees received during the current year‟ was also noticed. 21. The CIT(A) examined in detail the basis for the AO‟s addition of the undisclosed franchisee fee for all the years in question (other than the AY 2000-01). The CIT(A) noted that in the proceedings before the CIT(A), the originals of the franchise agreements were verified by the AO contrary to what was noted by the AO that the Assessee had admitted to have 52 owned and controlled/operating franchisee outlets, the CIT(A) noted that the AR of the Assessee had submitted that there were only 21 franchisees in FY 2003- 04. In his order in the appeal for the AY 2004-05 in paragraph 6.2.3, the CIT(A) noted as under: “6.2.3 Since the appellant had made a request to call for the assessment record for verification of her contentions, the AO was asked to be present during hearing on 11/11/2011. On that date the AO Shri D.S.Rathi' appeared along with the assessment records and the appellant's AR also appeared along with originals of the Franchise Agreements Financial Year wise for ITA Nos. 306, 307, 308, 309 & 310 of 2017 F.Y 2001-02 to 2005-06 in support of the appellant's claim that she had different number of Franchise/retail outlets in different years under appeal as stated by the appellant in her affidavit The originals were verified by the AO and copies thereof have been placed on record the AR submitted that there were only 21 franchises in F Y 2003-2004 Notings have accordingly been made by undersigned in the order sheet which has been signed by Shri Rathi, the Ld. AO, Shri Rajesh Jain, the Ld. AR of the appellant and the undersigned.” ITA Nos. 306, 307, 308, 309 & 310 of 2017 F.Y 2001-02 to 2005-06 in support of the appellant's claim that she had different number of Franchise/retail outlets in different years under appeal as stated by the appellant in her affidavit The originals were verified by the AO and copies thereof have been placed on record the AR submitted that there were only 21 franchises in F Y 2003-2004 Notings have accordingly been made by undersigned in the order sheet which has been signed by Shri Rathi, the Ld. AO, Shri Rajesh Jain, the Ld. AR of the appellant and the undersigned.” 22. The additions made by the AO were found by the CIT(A) to be based on surmises and suspicion. A reference was made to the decision of the Supreme Court in Dhirajlal Girdharilal v. CIT (1954) 26 ITR 736 (SC). In each of the appeals, the CIT(A) deleted the additions. 23. It requires to be noted that on the issue of addition of undisclosed income on account of franchisee fee, even the AO did not make any such addition for AY 2000-01. It was the case of the Assessee that there was no incriminating material for any of the AYs other than the year of search. Even for that year, the material was the disclosure made by the Assessee. The specific contention of the Assessee which was accepted by the CIT(A) was that there was “no such disclosure was made for earlier years, nor was there, any evidence unearthed during the search by the Department that such franchise income was not disclosed by the appellant during these years.” 24. Aggrieved by the order of the CIT(A), appeals were filed both by the Revenue and the Assessee before the ITAT. While the Assessee filed ITA Nos. 2409/Del/2012 to 2413/Del/2012, the Revenue filed ITA Nos. 2433/Del/2012 to 2437/Del/2012. ITA Nos. 306, 307, 308, 309 & 310 of 2017 Impugned order of the ITAT 25. A perusal of the common order of the ITAT shows that it first dealt with one common ground raised by the Assessee in all its appeals which concerned the jurisdictional issue of the validity of the invocation of Section 153A of the Act by the Revenue. It was contended that for the AYs 2000-01 to 2003-04, there was no incriminating material seized during the course of search and, therefore, the assessment order in respect of those AYs ought to be quashed. The ITAT, following the decisions of this Court in KabulChawla (supra) and Pr. CIT v. Lata Jain [2016] 384 ITR 543 (Del), accepted the above grounds urged by the Assessee and held that the assumption of jurisdiction under Section 153A for the said AYs was bad in law. 26. As regards AY 2004-05, the ITAT noted that the addition for the said AY was based on the seized documents. Accordingly, it was held that the assessment for the AY 2004-05 under Section 153A was valid. The ITAT then proceeded to examine the appeal filed by the Revenue for the said AY 2004-05 i.e., ITA 2437/Del/2012 on merits. The said appeal raised five grounds: one for each of the deletions ordered by the CIT(A) of the additions made by the AO as under: (i) Deletion of the addition of Rs. 13,79,801/- made by the AO on account of expenditure not related to business (being the payment of rent); (ii) Deletion of addition of Rs. 88 lakhs on account of undisclosed franchisee commission; ITA Nos. 306, 307, 308, 309 & 310 of 2017 (iii) Allowing relief of Rs. 14,04,175/- out of total addition of Rs.17,32,511/- on account of non-refundable security; (iv) Deletion of addition of Rs. 6,64,910/- on account of suppression of income from self-controlled outlets; (v) Allowing of relief of Rs. 12,07,705/- out of total addition of Rs. 14,49,246/- made by the AO on account of suppression of closing stock. 27. Each of the five grounds was rejected by the ITAT. Consequently, ITA No. 2437/Del/2012 filed by the Revenue for AY 2004-05 was dismissed on merits. The corresponding appeal of the Assessee for the said AY being ITA No. 2413/Del/2012 was dismissed for non-prosecution since none appeared for the Assessee before the ITAT. The present appeals ITA Nos. 306, 307, 308, 309 & 310 of 2017 (iii) Allowing relief of Rs. 14,04,175/- out of total addition of Rs.17,32,511/- on account of non-refundable security; (iv) Deletion of addition of Rs. 6,64,910/- on account of suppression of income from self-controlled outlets; (v) Allowing of relief of Rs. 12,07,705/- out of total addition of Rs. 14,49,246/- made by the AO on account of suppression of closing stock. 27. Each of the five grounds was rejected by the ITAT. Consequently, ITA No. 2437/Del/2012 filed by the Revenue for AY 2004-05 was dismissed on merits. The corresponding appeal of the Assessee for the said AY being ITA No. 2413/Del/2012 was dismissed for non-prosecution since none appeared for the Assessee before the ITAT. The present appeals 28. It must be noticed here that before this Court, there are five appeals filed by the Revenue. ITA Nos. 308/2017, 309/2017 and 310/2017 and 307/2017 are directed against the common impugned order of the ITAT in ITA Nos. 2409/Del/2012, 2410/Del/2012, 2411/Del/2012 and 2412/Del/2012 (all of which were the Assessee‟s appeals before the ITAT) pertaining to AYs 2000-01, 2001-02, 2002-03 and 2003-04 respectively. 29. The 5[th] appeal being ITA No. 306/2017 by the Revenue is against the same impugned common order of the ITAT in ITA No. 2413/Del/2012 (the Assessee‟s appeal before the ITAT) for AY 2004-05. However, this is an obvious mistake since, as noticed hereinbefore, that appeal by the Assessee ITA Nos. 306, 307, 308, 309 & 310 of 2017 i.e., ITA No. 2413/Del/2012 was dismissed by the ITAT for non-prosecution. Going by the contents of the memorandum of appeal where the Revenue has challenged only two of the deletions that were made by the CIT(A) which were sustained by the ITAT viz., on account of undisclosed receipts for franchisee income of Rs. 88 lakhs and Rs. 13.79 lakhs with respect to rent payment (franchisee commission), it is plain that what the Revenue has in fact challenged in ITA No. 306/2017 is the impugned common order of the ITAT in relation to the Revenue‟s own appeal being ITA No. 2437/Del/2012 pertaining to AY 2004-05. 30. It is also significant to note that the Revenue has not challenged the dismissal of its appeals being ITA Nos. 2433/Del/2012, 2434/Del/2012, 2435/Del/2012 and 2436/Del/2012 for AYs 2000-01, 2001-02, 2002-03 and 2003-04 concerning the deletion by the CIT(A) of the additions made by the AO. 31. On its part, the Assessee has also not challenged the order of the ITAT to the extent it holds that for AY 2004-05 there was incriminating material and to the extent the ITAT rejected the Assessee‟s appeal for that year on the ground that invocation of Section 153A of the Act was wrong. Further, the additions made by the CIT(A) for AY 2004-05 were sustained by the ITAT. To that extent, the Assessee had filed an appeal in the ITAT being ITA No. 2143/Del/2012 for AY 2004-05. However, the dismissal of the said appeal of the Assessee by the ITAT for non-prosecution by the impugned order has not been challenged by the Assessee. 32. The net result of what is in issue in the present appeals is: Page 14 of 49 ITA Nos. 306, 307, 308, 309 & 310 of 2017 (i) The validity of the invocation of Section 153A of the Act by the Revenue as regards the AYs 2000-01 up to AY 2003-04; and (ii) The validity of the order of the ITAT to the extent it has affirmed the orders of the CIT(A) for 2004-05 deleting only the following additions in respect of: (a) Franchisee Commission of Rs. 88 lakhs made by the AO on estimate basis; and (b) Deletion of addition of Rs. 13.79 lakhs made by the AO with respect to rent payment. Questions of law 33. Consequently, while admitting these appeals, the Court frames the following questions of law: (i) Was the Revenue justified in invoking Section 153A of the Act in relation to AYs 2000-01 to AYs 2003-04? 32. The net result of what is in issue in the present appeals is: Page 14 of 49 ITA Nos. 306, 307, 308, 309 & 310 of 2017 (i) The validity of the invocation of Section 153A of the Act by the Revenue as regards the AYs 2000-01 up to AY 2003-04; and (ii) The validity of the order of the ITAT to the extent it has affirmed the orders of the CIT(A) for 2004-05 deleting only the following additions in respect of: (a) Franchisee Commission of Rs. 88 lakhs made by the AO on estimate basis; and (b) Deletion of addition of Rs. 13.79 lakhs made by the AO with respect to rent payment. Questions of law 33. Consequently, while admitting these appeals, the Court frames the following questions of law: (i) Was the Revenue justified in invoking Section 153A of the Act in relation to AYs 2000-01 to AYs 2003-04? (ii) With reference to AY 2004-05, was the ITAT correct in confirming the orders of the CIT(A) to the extent it deleted the additions made by the AO to the taxable income of the Assessee of franchisee commission in the sum of Rs.88 lakhs and rent payment for the sum of Rs.13.79 lakhs? Submissions of the Revenue 34. Mr. Ashok Manchanda, learned counsel appearing for the Revenue, made the following submissions: (a) The quashing by the ITAT of the AO‟s assessment orders for the AYs ITA Nos. 306, 307, 308, 309 & 310 of 2017 2000-01 to 2003-04 by placing reliance on the decision of this Court in Kabul Chawla (supra) on the ground that no incriminating material was found or seized relatable to the said AYs was legally and factually erroneous. Apart from the seized unaccounted cash of Rs.14,50,000/-, which was surrendered as part of the undisclosed income by the Assessee, there were “bundles of seized documents some of which were confronted to the Assessee's representative Shri Pawan Gadia” during the recording of his statement on 23[rd] December, 2005. (b) As regards the AY 2004-05, the ITAT was wrong in sustaining the deletion by the CIT(A) of the addition of Rs. 88 lakhs by the AO on account of undisclosed franchisee commission on the ground that evidence found during the search for a particular AY could not be used for other AYs of the block period. It is submitted that besides the statement admitting to the undisclosed income on the basis of the seized documents, it was plain that the modus operandi of the Assessee was the same in the year of search (AY 2006-07) in which the Assessee admitted an undisclosed income of Rs. 1.10 crores as well as the earlier AYs. Reliance is placed on the decision of this Court in Dayawanti Gupta and, in particular, to paragraphs 16 to 20 and 23 thereof. It is pointed out that this judgment was delivered by the DB of this Court after duly considering the decision of this Court Kabul Chawla. (c) The statement of Shri Pawan Gadia was not retracted at any stage of the proceedings. It was the statement recorded during search. The surrendered amount of Rs.1.10 crores was not related to any particular AY at the time when the said statement was made. During the course Page 16 of 49 ITA Nos. 306, 307, 308, 309 & 310 of 2017 of the search, several other documents such as cash memos/invoices/bills of purchase/hand written papers & other documents etc. pertaining to the period from the year 2002 to 2005 were seized. It was, therefore, not as if there was no seized material for AYs other than AY 2006-07. In the memorandum of appeal in ITA No. 306/2017, it is stated that these documents were as under: i. Pages at S.No. 12 to 27 of Annexure A-1 [comprising 258 documents] pertain to AY 2003-04. documents] pertain to AY 2003-04. ii. Similarly, Page No. 28 to 34 of Annexure A-3 [comprising 96 pages) pertain to AY 2005-06. pages) pertain to AY 2005-06. iii. Similarly, Page No. 35 to 41 of Annexure A-4 [comprising 124 pages) pertain to AY 2004-05. pages) pertain to AY 2004-05. iii. Similarly, Page No. 42 to 44 of Annexure A-5 [comprising 85 pages) pertain to AY 2006-07. pages) pertain to AY 2006-07. i. Pages at S.No. 12 to 27 of Annexure A-1 [comprising 258 documents] pertain to AY 2003-04. documents] pertain to AY 2003-04. ii. Similarly, Page No. 28 to 34 of Annexure A-3 [comprising 96 pages) pertain to AY 2005-06. pages) pertain to AY 2005-06. iii. Similarly, Page No. 35 to 41 of Annexure A-4 [comprising 124 pages) pertain to AY 2004-05. pages) pertain to AY 2004-05. iii. Similarly, Page No. 42 to 44 of Annexure A-5 [comprising 85 pages) pertain to AY 2006-07. pages) pertain to AY 2006-07. (d) Despite sufficient opportunities provided to the Assessee by the AO to produce the books of accounts along with bill, vouchers etc. vide Questionnaire dated 3[rd] October, 2007 and 6[th] December, 2007, such books of accounts etc. were not produced. Therefore, it was not possible for the AO to record specific findings for each of the seized documents. A good part of the information contained in the said documents was incriminating in nature i.e., “which does not appear to have been recorded or reflected in the books of account.” It is stated that it was for this reason that the Assessee did not produce its books of accounts during the assessment proceeding in spite of several opportunities. This left the AO with no alternative but to assess and estimate the Assessee's income on the basis of evidence and produce the books of accounts along with bill, vouchers etc. vide Questionnaire dated 3[rd] October, 2007 and 6[th] December, 2007, such books of accounts etc. were not produced. Therefore, it was not possible for the AO to record specific findings for each of the seized documents. A good part of the information contained in the said documents was incriminating in nature i.e., “which does not appear to have been recorded or reflected in the books of account.” It is stated that it was for this reason that the Assessee did not produce its books of accounts during the assessment proceeding in spite of several opportunities. This left the AO with no alternative but to assess and estimate the Assessee's income on the basis of evidence and Page 17 of 49 ITA Nos. 306, 307, 308, 309 & 310 of 2017 information coming on record during the search and survey operation and the subsequent investigations on an „estimate basis‟. Reliance was placed on the decisions in CIT v. Anil Kumar Bhatia (2013) 352 ITR 493 (Del); Filatex India Ltd. v. CIT (2015) 229 Taxman 555 (Del)and CIT v. Chetan Das Lachman Das [2012] 254 CTR 392 (Del). It is submitted that in each of the said cases, there was very little seized material only for one AY and yet the Court sustained additions made in other AYs even where there was no such incriminating evidence. It is pointed out that in Filatex India Ltd. v. CIT (supra), the addition made only on the basis of the statement of a General Manager was upheld by the Court even when no incriminating material was found during the search concerning the impugned addition. It was held that the additions did not have to be restricted or limited to the incriminating material. (e) In Kabul Chawla (supra), there was no incriminating material found or seized during the search, while, in the present case, there was unaccounted cash seized, a surrender statement of Rs. 1.10 crores in the hands of the Assessee and of Rs. 2.50 crores in the hands of the Group and bundles of seized documents which formed the bases for the additions made in the different AYs. Therefore, the facts of the case were very much similar to the facts of the other 4 cases and in no manner similar to those in Kabul Chawla (supra). (f) The additions made in various AYs were relatable to the evidence uncovered during the search or the consequent search proceedings. uncovered during the search or the consequent search proceedings. ITA Nos. 306, 307, 308, 309 & 310 of 2017 Page 18 of 49 (e) In Kabul Chawla (supra), there was no incriminating material found or seized during the search, while, in the present case, there was unaccounted cash seized, a surrender statement of Rs. 1.10 crores in the hands of the Assessee and of Rs. 2.50 crores in the hands of the Group and bundles of seized documents which formed the bases for the additions made in the different AYs. Therefore, the facts of the case were very much similar to the facts of the other 4 cases and in no manner similar to those in Kabul Chawla (supra). (f) The additions made in various AYs were relatable to the evidence uncovered during the search or the consequent search proceedings. uncovered during the search or the consequent search proceedings. ITA Nos. 306, 307, 308, 309 & 310 of 2017 Page 18 of 49 For instance, the factum of the franchisee commission came to light for the first time during the search proceedings. There was no disclosure/declaration of income on this score till the search was conducted. During the submissions made on 23[rd] September,2010, the Assessee acknowledged that there were 21 franchisees for AY 2004-05. On this basis, the CIT(A) ought to have sustained at least half of the amount added by the AO since there were 42 franchisee outlets for the AY 2004-05. (g) As regards quashing of assessment for the AYs 2000-01 to 2003-04, by the ITAT, it is submitted that the additions made on account of franchisee commission for each of the AY were on account of undisclosed receipt of franchisee commission coming to light during the search. The addition was based on information revealed by Shri Pawan Gadia in his statement dated 23[rd] December, 2005 recorded at the time of search. Even otherwise, the additions were related directly or indirectly to the seized material and evidence uncovered during or after the search. by the ITAT, it is submitted that the additions made on account of franchisee commission for each of the AY were on account of undisclosed receipt of franchisee commission coming to light during the search. The addition was based on information revealed by Shri Pawan Gadia in his statement dated 23[rd] December, 2005 recorded at the time of search. Even otherwise, the additions were related directly or indirectly to the seized material and evidence uncovered during or after the search. (h) Even otherwise, the quashing of assessments on the basis of the illegality attaching to the invocation of Section 153A of the Act (as a jurisdictional issue) was unsustainable since this ground had never been raised before the CIT(A). It was raised for the first time before the ITAT. Therefore, the AO or the CIT(A) had no occasion to deal with the said issue i.e., whether there was any incriminating material for each of the AYs in question. The ITAT failed to give an illegality attaching to the invocation of Section 153A of the Act (as a jurisdictional issue) was unsustainable since this ground had never been raised before the CIT(A). It was raised for the first time before the ITAT. Therefore, the AO or the CIT(A) had no occasion to deal with the said issue i.e., whether there was any incriminating material for each of the AYs in question. The ITAT failed to give an opportunity to the AO in that regard before admitting the additional ground. The ITAT, therefore, ought to have remanded the matter to the file of AO. Submissions on behalf of the Assessee 35. Mr. Piyush Kaushik, learned counsel appearing for the Assessee, in reply, has submitted as under: opportunity to the AO in that regard before admitting the additional ground. The ITAT, therefore, ought to have remanded the matter to the file of AO. Submissions on behalf of the Assessee 35. Mr. Piyush Kaushik, learned counsel appearing for the Assessee, in reply, has submitted as under: (a) The fact of the matter was that there was no incriminating material seized during the search and seizure operations for the AYs 2000-01 to 2003-04. The action under Section 153A of the Act was a consequence of the search operations under Section 132. Section 153A should not be read in isolation from Section 132 of the Act. Only a valid search and seizure satisfying all the requirements of Section 132(1)(a),(b) and (c) could form the foundation for the assumption of jurisdiction under Section 153A of the Act. seized during the search and seizure operations for the AYs 2000-01 to 2003-04. The action under Section 153A of the Act was a consequence of the search operations under Section 132. Section 153A should not be read in isolation from Section 132 of the Act. Only a valid search and seizure satisfying all the requirements of Section 132(1)(a),(b) and (c) could form the foundation for the assumption of jurisdiction under Section 153A of the Act. (b) The search operation under Section 132 of the Act could be initiated only against a person who is considered to be in possession of undisclosed income or property. Section 153A was not meant to provide a second or a third inning to the AO so as to complete a normal scrutiny assessment. The existence of incriminating material was therefore a sine qua non for the assumption of jurisdiction under Section 153A. This would have to be seen on a year-to-year basis because under the scheme of Section 153A, every AY is to be taken separately. only against a person who is considered to be in possession of undisclosed income or property. Section 153A was not meant to provide a second or a third inning to the AO so as to complete a normal scrutiny assessment. The existence of incriminating material was therefore a sine qua non for the assumption of jurisdiction under Section 153A. This would have to be seen on a year-to-year basis because under the scheme of Section 153A, every AY is to be taken separately. (c) The decision in Kabul Chawla (supra) was concurred with in the decisions of several other High Courts including Principal Commissioner of Income Tax v. Saumya Construction Pvt. Ltd. (2016) 387 ITR 529 (Guj); Principal Commissioner of Income Tax-1 v. Devangi alias Rupa 2017-TIOL-319-HC-AHM-IT;CIT v. IBC Knowledge Park Pvt. Ltd. (2016) 385 ITR 346 (Kar); Pr. CIT-2 v. Salasar Stock Broking Ltd. 2016-TIOL-2099-HC-KOL-IT and CIT v. Gurinder Singh Bawa (2016) 386 ITR 483 (Bom). Reference was also made to the two decisions of this Court in Pr. CIT v Mahesh Kumar Gupta 2016-TIOL-2994-HC-Del and the decision dated 7[th]February, 2017 in ITA Nos. 61/2017 and 62/2017 (The Pr. Commissioner of Income Tax-9 v. Ram Avtar Verma) where the decision in Kabul Chawla (supra)was followed. (d) The decision in Dayawanti Gupta (supra) was distinguishable on facts. There, there was an admission by the Assessee that they were not maintaining regular books of accounts and the AO in those cases had specifically rejected the books of accounts. There was a confirmation in response to Question No. 11 in Dayawanti Gupta(supra) that there was no year-wise recording of transactions. In the present case, however, there was no such admission; the books of accounts were accepted by the AO. Further, in response to question No. 16 it was stated by the Assessee in the present case that there was no scope to manipulate profits. The surrender was made on the basis of a survey and that too to buy „peace of mind‟. (e) It was erroneous for the Revenue to contend that the Assessee failed to furnish books of accounts. Before the CIT(A), a remand report was sought from the AO on the additional documents submitted by the Page 21 of 49 ITA Nos. 306, 307, 308, 309 & 310 of 2017 (f) (e) It was erroneous for the Revenue to contend that the Assessee failed to furnish books of accounts. Before the CIT(A), a remand report was sought from the AO on the additional documents submitted by the Page 21 of 49 ITA Nos. 306, 307, 308, 309 & 310 of 2017 (f) Assessee. A personal hearing was also given to the AO and the original assessment records were verified by the CIT(A). The statement of Mr. Pawan Gadia was only made during a survey. It was not a statement made during search under Section 132 (4) of the Act. The statement made during a survey, even if mistakenly taken on oath, has no probative or binding value as was explained in CIT v. Dhingra Metal Works (2010) 328 ITR 384 (Del) and in the case of CIT v. S. Khader Khan Son (2008) 300 ITR 157 (Mad); CIT v Sunrise Tooling System Pvt. Ltd. 2014-TIOL-134-HC-DEL-IT and the decision dated 2[nd] January, 2013 in Tax Case No. 8/1999 of the Jharkhand High Court in Shree Ganesh Trading Co. v. Commissioner of Income-Tax. Reference was also made to the instructions issued by the Central Board of Direct Taxes („CBDT‟) on 10[th] March, 2003 and 18[th] December, 2014 emphasizing that the Department should “strictly avoid obtaining admission or undisclosed income under coercion/undue influence” during search and seizure operations. 36. Both counsel have filed written note of submissions to supplement their oral submissions. On the side of the Revenue, elaborate written submissions dated 26[th] April, 2017 (running into 26 pages) and 2[nd] May, 2017 (running into 13 pages) have been submitted. On the side of the Assessee, written submissions dated 26[th] April, 2017 (running into 11 pages) and 3[rd] May, 2017 (running into 3 pages) have been submitted. Analysis of the material recovered during search 37. At the outset, it requires to be noticed that what was actually seized from the various premises during the course of the search were the following: 38. It appears that the seized cash was added to the income during the year of search and not in relation to any of the other AYs i.e., AYs 2000-01 to 2004-05. The documents as stated by the Revenue in its Memorandum of Appeal in ITA No. 306/2017 viz., Annexures A1, A3 to A5 stated to pertain to AY 2003-04, 2005-06, 2004-05, and 2006-07 respectively have neither been described as such or in any detail by the Revenue either in these appeals. They have not been referred to or discussed in any of the orders of the AO or the CIT(A). Although it was repeatedly urged by Mr. Manchanda that there were “hundreds of seized documents”, what is necessary to examine is whether they were in fact „incriminating documents‟. Any and every document cannot be and is in fact not an incriminating document. The legal position, as will be discussed shortly, is that there can be no addition made for a particular AY without there being an incriminating material quathat AY which would justify such an addition. Therefore, the mere fact there may have been documents pertaining to the above AYs does not satisfy the ITA Nos. 306, 307, 308, 309 & 310 of 2017 requirement of law that there must be incriminating material. In any event, the aforementioned documents i.e., A1, A3, A4 and A5 pertain to only some of the AYs with which we are concerned i.e., AYs 2003-04, and 2004-05. The Court is unable to accept the submissions of Mr. Manchanda that there was incriminating material other than what has been discussed in the orders of the AO, CIT(A) and the ITAT for the AYs in question. ITA Nos. 306, 307, 308, 309 & 310 of 2017 requirement of law that there must be incriminating material. In any event, the aforementioned documents i.e., A1, A3, A4 and A5 pertain to only some of the AYs with which we are concerned i.e., AYs 2003-04, and 2004-05. The Court is unable to accept the submissions of Mr. Manchanda that there was incriminating material other than what has been discussed in the orders of the AO, CIT(A) and the ITAT for the AYs in question. 39. It requires to be noticed at this stage that for AY 2004-05, the ITAT has proceeded on the basis that there was incriminating material and that finding has become final since there is no appeal before this Court by the Assessee. It is another matter that the ITAT rejected the plea of the Revenue that for the said AY the CIT(A) wrongly deleted five of the additions made by the AO for that AY on such incriminating material. Consequently, this Court has to only examine the justification for invocation of Section 153A by the Revenue for AYs 2000-01 to 2003-04. Distinction between statements under Sections 132 (4) and 133 A 40. The main plank of Mr. Manchanda‟s submission was that the disclosure made by Mr. Pawan Gadia in his statement under Section 133A was sufficient to be construed as incriminating material qua all the aforementioned AYs, the assessment for which could be re-opened by invoking Section 153A of the Act. It is significant that while in the written submission dated 26[th] April, 2017, Mr. Manchanda termed the statement of Mr. Pawan Gadia as “the statement dated 23[rd] December, 2005 recorded under Section 132(4) of the Act”, he was careful to describe it as such in the subsequent written submission dated 2[nd] May, 2017. This was for a good ITA Nos. 306, 307, 308, 309 & 310 of 2017 reason. The statement was in fact not under Section 132(4) of the Act but under Section 133A of the Act. There is a difference between a statement made during a survey under Section 133A of the Act and that made during the course of search under Section 132 (4) of the Act. Section 132(4) of the Act states that the authorized officer may, during the course of search and seizure, “examine on oath any person who is found to be in possession or control of any books of account, documents, monies, bullion, jewellery...”and that any statement made during such examination may be used thereafter in evidence in any proceeding under the Act. On the other hand, Section 133A does not talk of the recording of any statement on oath. Under Section 133A (3) (iii), the Income Tax Authority acting under the said provision could “record the statement of any person which may be useful for, or relevant to, any proceeding under this Act.” Therefore, there is a considerable difference in the nature of the statement recorded under Section 132(4) and that recorded under Section 133A(3)(iii) of the Act. 41. This distinction was noticed by this Court in CIT v. Dhingra Metal Works (supra). The Court there referred to the decision of the Kerala High Court in Paul Mathews & Sons v. Commissioner of Income Tax (2003) 263 ITR 101 (Ker) and of the Madras High Court in CIT v. S. Khader Khan Son (supr