Standard

If an entity doesn’t exist, the order that was passed is void

Fact and issue of the case

The aforesaid appeals have been filed by the assessee against separate final assessment order dated 26/05/2021 for the A.Y.2016-17 passed in pursuance of direction given by the DRP dated 17/03/2021 and 28/01/2022 for the A.Y.2017-18 passed in pursuance of direction given by the DRP dated 24/12/2021 u/s.144C(5).

In the grounds of appeal assessee has challenged transfer pricing adjustment as well as corporate additions in various grounds of appeal, which in sum and substance are; firstly, grounds pertaining to transfer pricing adjustment on account of import of goods including spares from Associated Enterprises. Secondly, disallowance of business promotion expenses; and lastly, levy of interest u/s.234B and 234C. However, in both the years, assessee has taken a legal ground that wherein not only the draft assessment order, transfer pricing order and final assessment order have been passed in the case of a non-existing entity and therefore, the entire final assessment order is null and void. The relevant petition for admission of additional ground and the ground reads as under:-

In this regard this office has received the above referred letter dated 06.02.2023 requiring this office to comments on the following ground of the assessee for AY 2016-17 in their appeal against order u/s 143(3) rws 144C(13). “Transfer pricing order, draft assessment order, directions of the Hon’ble DRP and final assessment order passed in the name of non-existent entity:

erred in passing the transfer pricing order, draft assessment order, directions of the Hon’ble DRP and final assessment order in the name of Covidien Healthcare India Private Limited, which was not in existence as on the date of passing the orders and accordingly, subsequent final assessment order passed is null and void and should be quashed.”

It is seen from the record that the assessee filed return of income in the name of M/s Covidian Healthcare India Pvt Ltd [PAN:AABCT6021C] and the assessment was done based on the CASS selection in which return of the assessee was selected for scrutiny. Secondly, while passing orders it has been duly mentioned that M/s Covidien Healthcare India Private Limited has amalgamated with M/s India Medtronics Private Limited. First page of return of Income for AY 2016-17 is hereby attached for ready reference.

In view of the above, the ground raised by the assessee does not have any substance and the assessment of income was of M/s Covidian Healthcare India Pvt Ltd was correctly done by the AO, wherein the AO had clearly taken into the aspect of amalgamation of M/s Covidien Healthcare India Private Limited with M/s India Medtronics Private Limited.

The above comments may be considered as the due compliance from this office on the matter. 3. Before us ld. Counsel for the assessee submitted that the erstwhile company, India Medtronic Pvt. Ltd. (IMPL) was incorporated on 02/05/2002 which was primarily engaged in trading and marketing of medical devices, medical equipment products and their spares and consumables and rendering related services. M/s. Covidien Healthcare India Pvt. Ltd. (CHIPL) in whose name the orders have been passed including the draft assessment order, transfer pricing order as well as final assessment order, has been merged with IMPL w.e.f. 26/08/2016 pursuant to the order of National Company Law Tribunal (NCLT) dated 10/08/2017. M/s. Covidien Healthcare India Pvt. Ltd. had filed copy of NCLT order with Registrar of companies and accordingly, effective date of merger was 01/09/2017. Thus, M/s. Covidien Healthcare India Pvt. Ltd. had ceased to exist from the appointed date on the receipt of filing of NCLT order w.e.f. 26/08/2016. Prior to its merger, M/s. Covidien Healthcare India Pvt. Ltd. had filed its return of income for A.Y.2016-17 on 30/11/2016 declaring total income under the normal provisions of Act of Rs.13,46,94,930/-. Later on the said return was revised to Rs.12,30,15,930/- on 03/08/2017. Thereafter, the return filed by M/s. Covidien Healthcare India Pvt. Ltd. was selected for scrutiny assessment proceedings and notice u/s. 143(2) dated 29/08/2017 was issued by ACIT, Corporate Circle 1(2) Chennai in the name of M/s. Covidien Healthcare India Pvt. Ltd. In response, assessee immediately vide letter dated 21/09/2017 intimated that M/s. Covidien Healthcare India Pvt. Ltd. has now been merged with IMPL. Assessee informed the ld. AO about the merger vide letter dated 26/12/2017 filed in the name of M/s. Covidien Healthcare India Pvt. Ltd. Thereafter, again assessee filed another letter dated 11/01/2018 with the same AO at Chennai and copy of the said letter was also filed to the ACIT-10(1)(1), Mumbai for transfer of records in the name of India Medtronic Pvt. Ltd. as the case was transferred from Chennai to AO Mumbai because IMPL was assessed in Mumbai. Thereafter, a follow up letter was also filed on 14/02/2018 pursuant to the same, a transfer order u/s.127 dated 14/06/2018 was received to the assessee on the same date.

Observation of the court

The Apex Court with the aforesaid observations, quashed the order of the High Court which held that the assessment order passed in the name of non-existent entity is invalid, and restored the revenue’s appeal along with assessee’s cross objections to the file of the Hon’ble Tribunal to decide the issues on merits other than nullity of assessment order.

The aforesaid judgment of Hon’ble Supreme Court in the case of Mahagun Realtors Pvt. Ltd. (supra) in our humble opinion, nowhere disagrees with the principles laid down by the Hon’ble Apex Court in the case of Maruti Suzuki India Ltd. (supra) and Spice Entertainment Ltd. (supra) of Hon’ble Delhi High Court , for the reason that:-

> Firstly, the judgment in Mahagun nowhere disagrees with the principle in Maruti and Spice. In fact, in para 33, the Court categorically held that there is no doubt that MRPL amalgamated with MIPL and ceased to exist thereafter which is an established fact and not in contention. Further the Court held that the respondent has relied upon Spice and Maruti Suzuki (supra) whereas the facts of present case can be distinguished from the facts in Spice and Maruti Suzuki.

> Secondly, the judgment by the Hon’ble Apex Court in Mahagun Realtors is rendered in peculiar facts and merely holds that the law declared in the case of Maruti Suzuki cannot be applied without looking into the overall facts, in particular the conduct of the assessee and the manner of framing of assessment.

> Thirdly, the judgment raises a pertinent point that the business of the amalgamating entity survives even after merger, though the corporate entity may have come to an end. This point is merely to emphasize that the liability of the successor and therefore, it cannot be held that merely on account of nonexistence of the predecessor, successor is not liable.

> Fourthly, in para 43, the Court categorically held that the aforesaid discussion is “having regard to the facts of this case” and the said observation is in continuation of repeated observations that the decision in Spice and Maruti are distinguishable and,

> Lastly, the Apex Court has decided the appeal on peculiar facts, without disagreeing with the decision in Maruti Suzuki India Ltd. and Spice Entertainment Ltd.

Thus, the decision of Hon’ble Apex Court in the case of Mahagun Realtors Pvt. Ltd. (supra) is not applicable on the facts of the assessee’s case albeit its facts are clearly covered by the judgment of Apex Court in the case Maruti Suzuki India Ltd. (supra). .

This has also been highlighted in detail by the ITAT Mumbai Bench in the case of Candor Renewable Energy Pvt. Ltd., Before us ld. Counsel has also stated various other decisions, however, we are not discussing of these judgments. Thus, the entire assessment order have not been passed in the case of nonexisting entity is null and void and is hereby quashed.

In A.Y.2017-18 also exactly similar facts are permeating and therefore, our finding given hereinabove will apply mutatis and mutandis for this year also and therefore, the assessment order passed for A.Y.2017-18 is also hereby declared null and void and it is quashed.

In the result appeals of the assessee are dismissed.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Read the full order from here

India-Medtronic-Private-Limited-Vs-ADDL-JT-DY-CIT-ITO-ITAT-Mumbai-2

Subscribe to WhatsApp Updates

September, 30
0
Income Tax, Income Tax Circular Notification
More

Standard

Section 263 Revision is upheld since the AO did not review the seized documents

Fact and issue of the case

These appeals by the assessee are arising out of the revision orders passed by the Principal Commissioner of Income Tax, Central-1, Chennai in C.No.1523/PCIT/C-1/5/2016-17 & 1523/PCIT/C-1/3/2016-17 dated 31.03.2017 & 29.03.2017. The assessments were framed by the DCIT, Central Circle 3(4), Chennai for the assessment years 2007-08 & 2013-14 u/s.153C r.w.s. 153A & 143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’), vide orders of even date 31.03.2015.

ITA No.1383/CHNY/2017

The only issue in this appeal of assessee is as regards to the revision order passed by the PCIT u/s.263 of the Act revising the assessment framed by the AO u/s.153C r.w.s. 153A of the Act dated 31.03.2015. For this, assessee has raised the following ground Nos.2 to 6:- Revision of orders prejudicial and erroneous to revenue

The Learned Commissioner of Income tax, erred in passing the order u/s 263 of the Act, when the pre-requisite conditions that is, the order sought to be revised is erroneous and prejudicial to the interests of the revenue is not present to justify the initiation of Revision proceeding U/s. 263.

The Learned Commissioner of Income Tax erred in passing order u/s.263, while the Assessing Officer examined the issue at the time of assessment which is clear from the questionnaire issued before completing the assessment. Inadequate Enquiry

The Learned Commissioner of Income tax, Central 1 Chennai erred in not considering the principle laid down by the Hon’ble Delhi High Court that there is a difference between lack of enquiry and adequacy of enquiry and that it is only when there is no enquiry that jurisdiction u/s.263 of the Act can be invoked.

The Learned Commissioner of Income Tax, Central I Chennai erred in not considering that he may assume jurisdiction u/s 263 of the Act only in cases of “lack of enquiry and not in cases even 1 the enquiry is considered inadequate. 6. The Learned Commissioner of Tax, Central I erred in passing the revisionary order u/s.263, since the Commissioner had not given any reason or indicated any material evidence which he was in possession so as to satisfy himself, that the assessment order was erroneous and prejudicial to the interests of the revenue. The materials gathered during the course of a search was in the possession of the Assessing officer. It was on the basis of a seized document that the questionnaire came to be issued and replies considered.

Brief facts are that the assessee is an infrastructure and real estate company and forms part of the Challani group. A search and seizure action was conducted on the premises of Indo Asian Finance Ltd., belonging to Challani Group on 19.04.2012 by the Income-tax Department u/s.132 of the Act. During the course of search, certain loose sheets and documents belonging to the assessee were seized. Consequently, a notice u/s.153C of the Act was issue and assessee furnished return of income for the relevant assessment year 200708 on 31.12.2014. Consequently, assessment was framed u/s.153C r.w.s.153A of the Act vide order dated 31.03.2015.

Subsequently, the PCIT on examination of assessment records issued a show-cause notice dated 28.03.2017 requiring the assessee to explain as to why the assessment framed by AO vide order dated 31.03.2015 u/s.153C r.w.s.153A of the Act be not revised u/s.263 of the Act for the relevant assessment year 200708. The PCIT in his show-cause notice noted that the AO has not considered the seized document vide Annexure ANN/SSK/IAFL/B&D/F found at the premises of M/s. Indo Asia Finance Ltd. It was noticed that as per an agreement for sale dated 03.06.2006, one of the directors of Saravana Foundations Ltd., now known as Saravana Global Holdings Ltd i.e, the assessee-company, Shri. Jayanthilal Challani, gave a general power of attorney to Shri T. Krishnarajan S/o Shri Thanga Nadar residing at Madurantakam, The rai Street to purchase certain land from Mr. B. Govindraj and others at Madurantakam Taluk for Saravana Foundations Ltd. It was noted that in view of the above Shri T. Krishnarajan S/o Shri Thanga Nadar residing at Maduranthakam Theradi Street, purchased the above stated land from Shri B. Govindaraj & others at Madurantakam Taluk for a consideration of Rs.2,63,000/- as per document. The PCIT noted that as per certain sale voucher dated 06.06.2006 attached to this sale agreement an amount of Rs.19,12,500/- was disbursed by Shri T. Krishnarajan to the land owners. According to PCIT, this was not considered by the AO or no clarification or details have been called for from the assessee with respect to the said transaction as per said seized document. According to PCIT, the AO not enquired into the above aspect or no verification carried out before passing the said assessment order dated 31.03.2015, the assessment is erroneous so far as to prejudicial to the interest of Revenue as the sale amount disbursed amounting to Rs.19,12,500/- remained untaxed. The assessee replied that the seized document, as pointed out in the notice u/s.263 of the Act, the AO formed the opinion that the seized material belong to the assessee company and accordingly, initiated proceedings u/s.153C r.w.s. 153A of the Act vide notice dated 28.10.2014. Further, the ld.counsel stated that the AO vide a common questionnaire dated 12.11.2014 for the assessment years 2007-08 to 2013-14 wanted to enquire about the seized material, for which the assessee’s counsel specifically answered the query that the sale agreement for purchase of land from Shri Krishnan for an amount of Rs.19,12,500/- was executed by Shri Jayanthilal without the knowledge of the Board and the payments are not made from the company and this issue can be sorted out with Shri Jayanthilal directly.

However, the PCIT was not convinced with the answer of the assessee and hence on merits, he observed as under:-

However, such contentions of the learned AR are not acceptable. As noticed, the full facts pertaining to said transaction have not been furnished by the assessee company during the present proceedings. Though it has been submitted that the sale agreement for purchase of land was executed by Shri Jayanthilal without the knowledge of the Board, from the return of income in ITR-6 pertaining to A.Y. 2007-08 filed by the assessee company earlier, it is noticed that Shri Jayathilal is shown as a Director under the relevant part relating to Boards of Managing Director and Directors etc. of the said return. The hard copy of the said return in Form ITR-6 was filed by the assessee company earlier on 31.12.2014. From the said document, ii.e. the said ITR-6, filed by the assessee company during that time, it clearly shows that Shri Jayanthilal was a working Director having control over the affairs of the Board and was also aware of the affairs of the assessee company. Under these circumstances and having regard to the said sale agreement for purchase of land for consideration of Rs. 19,12.500/-executed by T. Krishnarajan, on behalf of Shri Jayanthilal, Director of M/s. Saravana Foundations Ltd., it indicates and further shows that such transaction was made for and on behalf of the assessee company and from user of funds of the assessee company during the previous year relevant to A.Y. 2007-08 Accordingly, the PCIT held that the assessment framed by the AO for the assessment year 2007-08 u/s.153C r.w.s. 153A vide order dated 31.03.2015 is erroneous and prejudicial to the interest of Revenue. He directed the AO to re-decide the issue after conducting necessary enquiries and verification with regard to the said issue. Aggrieved, assessee is in appeal before the Tribunal.

Before us, the ld.counsel for the assessee Shri K. Ravi took us through the assessment order and argued that there cannot be any revision of the assessment framed u/s.153C r.w.s.153A of the Act in the case of search conducted by the Income-tax Department u/s.132 of the Act. He particularly drew our attention to the relevant provisions of section 153A to 153C of the Act and stated that these provisions relating to search assessment are code in itself and the assessment framed in these provisions cannot be made subject matter of revision u/s.263 of the Act. The ld.counsel argued that the assessment in case of search or requisition made on or after 01.06.2003 by inserting the provisions of section 153A or 153C of the Act and this opens with non-obstante clause and overrides other provisions of the Act. According to him, no revision can be carried out u/s.263 of the Act for assessments framed u/s.153A or 153C of the Act.

As regards to assumption of jurisdiction by PCIT for revision of the assessment order, the ld.counsel for the assessee drew our attention to the assessment order that the assessee filed complete details before the AO and he stated that the AO has already formed an opinion in regard to seized material belonging to the assessee company and accordingly initiated proceedings u/s.153C r.w.s. 153A vide notice dated 28.10.2014 to assess or reassess the total income of the assessee for the relevant assessment year 2007-08. The ld.counsel further submitted that the AO vide common questionnaire dated 12.11.2014 for the assessment years 2007-08 to 2013-14 wanted to enquire about seized material on record and assessee has subsequently answered the query that the agreement for purchase of land from Shri Krishnan for a sum of Rs.19,12,500/- was executed from one Shri Jayantilal and not by the assessee company. The ld.counsel for the assessee totally denied this transaction.

On the other hand, the ld.CIT-DR, Shri A. Sasikumar argued that the AO while framing assessment has not considered this seized document vide Annexure ANN/SSK/IAFL/B&D/F found at Indo Asia Finance Ltd. The ld.CIT-DR stated that the PCIT has only set aside the assessment order and remanded the matter back to the file of the AO for verification and accordingly, take a fresh decision.

Observation of the court

We have heard rival contentions and gone through facts and circumstances of the case. As regards to the argument of the assessee that in the case of search assessments u/s.153A or 153C of the Act, no revision proceedings u/s.263 of the Act can be initiated, we are of the view that in the provisions of section 263 of the Act, there is no exclusion or exception craved out. The provision of section 263 of the Act is very clear that any order passed by the AO if it is erroneous insofar as it is prejudicial to the interests of the Revenue, the PCIT, after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, can pass a revision order. Hence, this objection to the revision order is dismissed as such.

As regards to the merits of the case, we noted from the assessment order that the AO in his assessment order passed u/s.153C r.w.s. 153A of the Act dated 31.03.2015 made a passing reference to the filing of details as “filed the details called for” and this was with the prior approval of Joint Commissioner of Income-Tax, Central Range – 3, Chennai as required u/s.153D of the Act. We noted that the above seized document found from the premises of Indo Asia Finance Ltd., which contains the details of agreement for sale dated 13.03.2006 of Shri Jayanthilal Challani, one of the Directors of Saravana Foundations Ltd., now known as Saravana Global Holdings Ltd., i.e., assessee-company, who gave a power of attorney to Shri T. Krishnarajan to purchase certain lands from Shri B. Govindaraj and others. The seized documents are never examined by the AO as is apparent from the assessment order and to counter the same, the assessee has not filed any evidence before us. Even otherwise, there is no evidence that the transaction has been carried out by Shri Jayanthilal on his own and not behalf of the assessee company. This has to be established. Hence, we find no infirmity in the revision and hence, the same is confirmed. Accordingly, this appeal of assessee is dismissed. ITA No.1384/CHNY/2017

The only issue in this appeal of assessee is against the revision order passed by the PCIT u/s.263 of the Act revising the assessment framed by the AO u/s.143(3) of the Act vide order dated 31.03.2015 for the relevant assessment year 2013-14. For this assessee has raised following ground Nos. 3 to 5:- Revision of orders prejudicial and erroneous to revenue

The Learned Commissioner of Income tax, has erred in considering the assessment order as erroneous without establishing that there was no incorrect assumption of facts or an incorrect application of Law.

The Learned Commissioner of Income tax, erred in holding that the order was erroneous and prejudicial to revenue when all the records and details sought b y the assessing officer had been produced at the time of assessment as stated in the assessment order dated 31/03/2015 vide para 5 of the order. Inadequate Enquiry

The Learned Commissioner of Income tax, failed to recognize that inadequacy of enquiry cannot clothe him with power to exercise jurisdiction u/s.263 of the Act. 8. As regards to the ground No.2 i.e, doctrine of merger, the ld.counsel for the assessee has not argued this ground despite pointing out to him and hence, this ground is dismissed as ‘not-pressed’.

Brief facts are that the assessee company is a manufacturer of insulators and also deals in financing and real estate business. The assessee company forms part of group of companies of Challani Group, engaged in the business of jewellery, real estate and manufacturing activities. The assessee company was searched u/s.132 of the Act on 19.04.2012 at the business and residential premises of the group including the assessee company. Consequent to search conducted, notice u/s.142(1) of the Act dated 22.07.2014 was issued and in response to the same, the assessee filed its return of income on 03.02.2015. Subsequently, assessment was completed u/s.143(3) of the Act dated 31.03.2015 whereby the AO noted that the assessee’s gross turnover is at Rs.38,19,91,439/- as per the profit and loss account and net loss before tax is at Rs.35,11,45,238/-. The AO noted in the assessment order that the assessee has incurred total expenses in the profit & loss account at Rs.73,31,36,677/- but no details or evidences have been produced. Hence, the AO estimated 1% of the total expenses and disallowed the same at Rs.73,31,366/- and added to the returned income of the assessee.

Subsequently, the PCIT examined the case records and issued show-cause notice as to why the assessment framed by the AO u/s.143(3) dated 31.03.2015 be not treated as erroneous and prejudicial to the interest of Revenue for the reason that the AO framed assessment without verifying the details and expenses as the assessee failed to file details of expenses despite a query was raised vide questionnaire dated 14.11.2014 vide queries Nos.14,15,19 & 20 of the said letter issued to the assessee. The assessee has not filed requisite reply / details as required by the assessee vide questionnaire dated 14.11.2014 asking the details of sundry debtors, details of loans and advances, accounts squared off during the year, details of provisions created and details of expenses incurred and claimed in the P & L account vide queries nos.14,15,19 and 20 of the letter. The PCIT accordingly revised the assessment and directed the AO to redo the assessment for the relevant assessment year 2013-14 by observing in para 8 as under:-

In view of the foregoing discussions, the said assessment order dated 30.3.2015, passed by the AO, for A.Y.2013-14 u/s 143(3) of the Act, is thus held as erroneous and prejudicial to the interests of revenue. Hence the same is set-aside u/s 263 of the Act and the AO is directed to re-do the assessment, with regard to the various issues including those points raised under CASS, for A.Y.2013-14 in the case of the assessee, after conducting necessary enquiries and verification with regard to such issues, in accordance with law, in the preceding paras, and after giving due opportunity to the assessee.”

Aggrieved, assessee came in appeal before the Tribunal. 10. Before us, the ld.counsel for the assessee argued that the AO has examined the details in regard to sundry debtors, details of loans and advances, accounts squared off during the year, details of expenses claimed in the P & L account and various such other specific details as asked for vide queries Nos.14, 15, 19 & 20 of questionnaire dated 14.11.2014 issued by AO. He pointed out the AO has specifically disallowed 1% of total expenses by observing in para 8, that means the AO has applied his mind to the issue and adjudicated the issue and recorded this fact in the assessment order passed u/s.143(3) of the Act. Hence, ld.counsel stated that once the AO has formed an opinion and that is one of the possible opinion or view, revision power acquired by PCIT u/s.263 of the Act is without any basis because the assessment order cannot be said to be erroneous.

On the other hand, the ld.CIT-DR heavily relied on the revision order and stated that the assessee has not at all produced evidences before the AO during assessment proceedings and the same is noted by AO in his assessment order. He stated that now the CIT(A) has only directed the AO to redo the assessment after conducting necessary enquiries and verification with regard to the allowability of expenses. Hence, he stated that the revision order is as per law and he relied on the same.

After hearing rival contentions and going through the facts of the case, we noted that the AO while framing assessment has gone into the details filed by the assessee and noted that the assessee’s gross turnover is at Rs.38.19 crores whereas net loss in the profit and loss account declared is Rs.35.11 crores. The AO also examined the expenses incurred by the assessee and made disallowance of the same in the absence of details. The AO recorded this fact in para 8 of the assessment order which reads as under:-

Expenses of Rs.73,31,36,677/- have been claimed for which no details of evidences have been produced. Hence, 1% of the total expenses are hereby disallowed and added back to the total income. (Addition : Rs.73,31,366/-)” We noted that the AO himself recorded while issuing questionnaire along with notice u/s.142(1) of the Act dated 14.11.2016 and asked certain details including the details of expenses incurred and claimed in the profit & loss account. We noted that once the AO has raised a query and gone into the details, the AO has formed one of the possible views and once there is one of the possible views, the revision is not possible. Accordingly, the revision order passed by PCIT u/s.263 of the Act is quashed and the appeal of the assessee is allowed.

In the result, the appeals filed by the assessee in ITA No.1383/CHNY/2017 is dismissed and in ITA No.1384/CHNY/2017 is partly-allowed.

Order pronounced in the open court on 11th August, 2023 at Chennai.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Subscribe to WhatsApp Updates

September, 13
0
Income Tax, Income Tax Circular Notification
More

Standard

Addition u/s 69C based on a dubious document is unworkable

Fact and issue of the case

The aforesaid appeals have been filed by the assessee against orders passed by Ld. CIT (A) vide the common order dated 22.09.2014 for the A. Y. 2004-05 and A. Y. 2005-06 (i.e., Appeal Nos. 409 to 410/13-14/1560 to 1561) appeal relating to A. Y. 2006-07, is against order dated 07.12.2011 (Appeal No. 419/0809/118) for the quantum of assessment passed u/s 143(3) of the Income Tax Act. In all these appeals identical grounds of appeals have been raised against certain common issues on the additions made by the Assessing Officer, which have been upheld by the Ld. CIT (A)

In so far as Orders for A. Y. 2004-05 and A. Y. 2005-06 are concerned, the Ld. Authorized Representative Mr. Pradeep Dinodia on behalf of the assessee, at the outset, submitted that originally orders for A. Y. 2004-05 and A. Y. 2005-06 were passed u/s 153C of the Income Tax Act. These Orders passed by the Ld. AO were quashed by the Ld. CIT(A) which gave jurisdiction to Ld. AO u/s 153A(2) of Act to redo the assessments, because these assessments were pending and got abated as on the date of recording the satisfaction for the purpose of initiation of proceedings u/s 153C of the Act and as per the said provisions u/s 153A(2), the Ld. AO got jurisdiction to proceed against the assessee u/s 143(3) if the Orders earlier passed u/s 153C are annulled.

]The Ld. AR of the assessee further submitted that in the earlier round of proceedings u/s 153C of the Act, the issues arising from these appeals were decided in favor of the assessee. However, the department filed appeals before Hon’ble Delhi High Court and the matters were remitted back to the Hon’ble ITAT for re-adjudication as per the directions of Hon’ble Delhi High Court. These appeals were re-heard by Hon’ble ITAT as per the directions of Hon’ble Delhi High Court and again an order dated 14.12.2018 was passed by ‘E’ Bench of Delhi ITAT in a batch of appeals confirming the earlier findings of Hon’ble ITAT in the first round of appeal. These orders of the ITAT dated 14.12.2018 are also pending before the Hon’ble Delhi High Court on appeal by the department.

The brief facts and background of this matter are that, a search and seizure u/s 132 of the Act took place on the office premises of Radico Khaitan and Survey u/s 133A on UPDA offices. A search was also carried out at the residence of one Shri R.K. Miglani, who was the Honorary Secretary of UPDA. The statement of Shri R.K. Miglani was recorded u/s 132(4) of the Act. These documents which were seized from the residential and office premises of UPDA u/s 133A or from Sh. R. K. Miglani, and according to the department, allegedly conveyed that all the distilleries situated in U.P. were contributing certain cash based on the production, which money was allegedly being used as bribe to pay certain public servants/bureaucrats/politicians. The department initiated proceedings u/s 153C by recording an identical satisfaction based on identical documents in respect of all the distilleries and completed assessments by making additions of large amounts in respect of each of the distilleries including the assessee u/s 69C of the Income Tax Act by holding that each distillery has incurred unexplained expenditure.

It has been pointed out that basis/information/material used for making additions under the present Assessment Orders passed u/s 143(3) of the Income Tax Act as well the earlier Assessment Orders which were passed u/s 153C of the Income Tax Act were form the same set of documents which were impounded/seized from the office of UPDA. Similarly, the statement of Mr. R. K. Miglani has been heavily relied upon by the AO in the Assessment Orders which was also the basis for making assessments u/s 153C of the Act. The only difference is that, earlier assessments were framed u/s 153C of the Income Tax Act and the present Assessment Orders have been passed u/s 143(3) of the Income Tax Act.

Further, it has been submitted that the only apparent difference in the assessment orders passed u/s 143(3) of the Income Tax Act which are presently under challenge before the ITAT as compared with the orders earlier passed u/s 153C of the Income Tax Act is that, earlier the Assessing Officer used the expression belonging to and held that the documents seized /impounded from UPDA or its Secretary General Sh. R. K. Miglani belonged to the assessee, whereas in the present assessment proceedings it has been alleged that these documents pertain to assessee. It has been submitted that, this Tribunal has already rendered the findings on the nature of such documents and now it really does not matter whether the documents are held to be belonging to or pertaining to the assessee. Because all such documents have been rejected as unreliable and dumb documents by the Tribunal.

Pradeep Dinodia, submitted that in both round of proceedings undertaken at the level of ITAT were against orders passed u/s 153C of the Income Tax Act in the case of various distilleries who were members of UPDA and against whom identical proceedings had been initiated, because the documents found during search, were common and it has been categorically held by the ITAT that documents which came in the possession of the department neither belong to any of the assessee nor conveyed that any such alleged payments out of books of accounts have been made by any of the distilleries including the assessee to the UPDA. 8. At this stage, the Ld. AR took us through the various relevant portions of finding from the latest order passed by the Hon’ble ITAT Delhi Bench dated 14.12.2018, which was common order in the case of all distilleries including assessee wherein assessee’s appeals were also identified at Page 12 of the orders being ITA No. 1652/Del/2013 and ITA No. 1653/Del/2013 for A. Y. 2004-05 and A. Y. 2005-06 along with Cross Objections filed by the assessee are also identified.

He submitted that in the said Order, categorical and factual findings have been recorded that the common documents impounded during the course of search on the UPDA or its Secretary Mr. R. K. Miglani are dumb documents and no adverse inference can be drawn from these documents much less that any expenditure worth making addition u/s 69C of the Act which can be said to have been incurred by the assessee., He pointed out that similar finding has been given in assessee’s own case in the first round of proceedings that, unconfronted statement of Sh. R. K. Miglani could not be relied upon by the department, as the same is against the principle of natural justice. The relevant portion of various paragraphs which have been referred to and relied upon by the Ld. AR on this issue in ITA No. 1652/Del/2013 & ITA No. 1653/Del/2013 in order dated 14.12.2018, duly cross-referenced with the relevant page of paper book filed (paper book pages 39 to 207) on which our specific attention was drawn are as under: –

Considering the nature of each document relied upon by the Assessing Officer in the assessment order and supported by the learned CIT-DR before us, it cannot be said that these documents were ever authored by any of the distilleries and, therefore, cannot be said to be belonging to them or any of them. The documents were seized from Shri R.K. Miglani or UPDA and, therefore, any presumption under the Act is against these persons and not against any of the distilleries.

The Assessing Officer, during the course of assessment proceedings, has heavily relied upon the entries found in the impounded documents. But, there is not even a single finding by the Assessing Officer which could suggest that the corresponding entries were found in the regular books of account of any of the distillery. This shows that no independent verification/examination was done by the Assessing Officer who simply relied upon the seized material supplied to him by the Investigation Wing.

As mentioned elsewhere, the Revenue has not brought anything on record to establish that the production figures reflected in the tables were forwarded by the appellants through a fax message or on its letter head. This was clear mandate of the Hon’ble High Court when it remitted the matter to the file of the Tribunal.

Another theory propounded by the Revenue is that every distillery had to contribute Rs.20/- per case and had thus contributed such a sum is entirely unsupported by any material. It is not known who had collected the alleged sum to have been contributed and what is the destination of such sum. In none of the documents, name of the payee, any public servant or politician appears. This itself establishes that the documents are dumb.

We are of the considered opinion that the allegation of the Revenue is entirely unjustified, unsupported by any document found from the possession or control of the appellants. It is well settled rule of law that burden of proof is on the alleger and not on the person against whom the allegation is made. In the present appeals, the burden is thus on the Revenue to establish that the documents found from the third persons are reliable and authentic and also such documents belong to the distilleries which is uncorroborated by any evidence and even the author of the documents have not been identified. Therefore, it can safely been concluded that the Revenue has not discharged its burden. The mere fact that some of the distilleries are members of the association [UPDA) does not by itself lead to a conclusion that adverse inference can be drawn against members of the association since documents were found from the premises of the association and not from the distilleries. The contents of the impugned documents have to be established as genuine by leading cogent positive evidence or material and have to be supported by corroborative material. In the present appeals, no such material has been brought on record. Therefore, we have no hesitation to hold that the proceedings u/s 153C of the Act have not been validly initiated and, therefore, deserve to be quashed.”

Ld. AR submitted that, not only the documents which have been relied upon by the Ld. AO while making the assessments u/s 153C or for that matter in the present Assessment Order u/s 143(3), even the statement of Mr. R. K. Miglani which has been heavily relied upon by the Ld. AO in both these orders, whether u/s 153C or for that matter u/s 143(3) have been appropriately dealt with the concluding finding that no reliance can be placed on such statement, because no cross examination has been afforded to any of the assessees in spite of assesee’s specifically asking for such cross examination. The relevant portion of findings as given in ITAT’s order in ITA no. 1652/Del/2013 &1653/Del/2013 in said order dated 14.12.2018 in the proceedings u/s 153C of the Income Tax Act regarding the validity of the statement of Mr. R. K. Miglani are as under: –

The contention of the learned DR that since Shri R. K. Miglani was related to the member distilleries of UPDA, therefore it was not necessary to allow cross examination is not acceptable. The Hon’ble High Court of Delhi in the case of Mr. S.N. Aggarwal 293 ITR 43 has held as under:

In the present case the Assessing Officer has placed reliance on the statement of Smt. Sarla Aggarwal, daughter of the assessed while arriving at the conclusion that the entries belong to the transactions of the assessed. This statement made by Smt. Sarla Gupta, cannot be said to be relevant or admissible evidence against the assessed, since the assessed was not given any opportunity to cross examine her and even from the statement, no conclusion can be drawn that the entries made on the relevant page belongs to the assessed and represents his undisclosed income. It is also an admitted fact that the statement of the assessed was not recorded at any stage during the assessment proceedings. The only conclusion which can be drawn about the nature and contents of the document is that it is a dumb document and on the basis of the entry of nothings or figure etc. in this document, it cannot be concluded that this represents the undisclosed income of the assessee.”

The Hon’ble Supreme Court in the case of Andaman Timber Vs. CIT in Civil Appeal No. 4228 of 2006 has held as under: “According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity in as much as it amounted to violation of principles of natural justice because of which the assessee was adversely affected.”

A plain reading of the aforementioned sections would show that the presumption is available in the case of a person who was found in the possession or control i.e. the ‘searched person’. Therefore, the presumption may be good against Shri R.K. Miglani or UPDA. But not in the cases of “the other person” which are the distilleries in the present appeals. Therefore, the judicial decisions relied upon by the learned DR are misplaced and, therefore, needs no specific mention. 72. Considering the facts of the dispute in totality, we are of the opinion that the assessment framed u/s 153C of the Act is in gross violation of the principles of natural justice and deserve to be tagged as nullity.” 11. Ld. AR thereafter vehemently argued that factual findings on the nature of documents which are being relied upon by the department or for that matter the statement of Mr. R. K. Miglani have now been rendered in favor of the assessee by holding that such documents are dumb documents and cannot be relied upon for making addition u/s 69C of the Income Tax Act. The veracity and usefulness of these documents or statement of Sh. R. K. Miglani remains the same whether the assessments are to be framed u/s 153C or 143(3) of the Income Tax Act. It has been reiterated that all the documents which were relied upon in the orders earlier passed u/s 153C of the Income Tax Act have now been made the basis of making assessments u/s 143(3) of the Income Tax Act. Thus, unless the factual finding rendered by the ITAT on the validity of such documents is rendered as invalid, no adverse inference can be drawn because Tribunal has already examined all such documents after the directions from Hon’ble Delhi High Court in the first round of assessment u/s 153C of the Income Tax Act.

It has been further submitted that AO during the course of assessment proceedings had made thorough investigation by issuing notices u/s 133(6) of the Income Tax Act to all the parties/suppliers from whom the purchases/payments etc. have been made over Rs. 5.00 lacs for all these years. Relevant documents about the enquiries made by the Ld. AO during the assessment proceedings have been filed at Paper Book Pages 5 to 37 of the paper book. This attempt by the Ld. AO to have been made mainly to identify the sources of generating alleged cash for making the alleged onward payments through the UPDA. It has been submitted that eventually no discrepancy was found to exist and no unaccounted income or expenditure was found to have been incurred by the assessee. It has been submitted that under these circumstances making an addition u/s 69C of the Income Tax Act for the alleged illegal payments to any party is wholly unjustified.

Assessment Year 2005-06 ITA No. 375/Del/2013

Apart from additions made u/s 69C of the Income Tax Act, on account of alleged unexplained expenditure incurred, another Ground of Appeal has been raised in A. Y. 2005-06 in which the AO has made the addition u/s 41 of the Income Tax Act towards the waiver of principal amount of loan which the assessee got from Morgan Stanley amounting to Rs. 5,37,12,480/-. The Counsel for the assessee submitted that assessee, being a listed company in the Stock Exchange had made a public offer for the issue of debentures (NCDs) for 58.01 Crores in F. Y. 1993-94. Such public offer, as per the documents, was meant only for capital expenditure wherein the assessee wanted to expand its existing manufacturing facilities as per the offer documents. M/s. Morgan Stanley had also subscribed the public offer in the NCDs. The proceeds of NCDs were also utilized towards the capital expansion only as has also been pointed out and highlighted by referring the Audited Balance Sheet of the assessee of the F. Y. 1994-95 and also the Director’s Report from where it is noted that as against the public offer of 58.01 Crores, the assessee had spent 64.08 Crores in the capital field. Ld. Counsel submitted that, since assessee was unable to repay some of its debts and was not able to honour its liability, one time settlement took place with M/s. Morgan Stanley where against the total dues including interest towards such NCDs of amounting to Rs. 10.62 Crores, the assessee was able to settle the amount for 5.25 Crores. This settlement was mainly on account of full re-payment of interest amount which was due on such NCDs and a part of the payment was settled towards the capital/principal amount. The assessee, by referring to the submissions made to the AO, had clarified that amount which was waived by M/s. Morgan Stanley clearly represented the loan/NCDs dues towards the capital and was in the capital field. A certificate from Morgan Stanley evidencing the settlement has also been filed in Paper Book at page 294, which clearly reveals that amount settled at Rs. 5.25 Crores is towards principal. He pointed out that out of total dues of Rs. 10,62,12,480/- interest due was only 4,12,50,915/-. Hence, amount waived by Morgan Stanley for Rs. 5,37,12,480/- remains towards principal amount. He submitted that although such waiver was shown as income in its regular books of accounts, yet for the purpose of filing the Income Tax Return, such amount was treated in the capital field because waiver of loan obtained by the assessee which loan is utilized towards capital assets has been held to be non-taxable receipt. The assessee had strongly relied upon the judgment of Hon’ble Supreme Court in the case of Mahindra & Mahindra as reported in 404 ITR 1, a copy of which was filed before us. Assessment Year 2006-07 ITA No. 641/Del/2012 14. In this assessment year, the assessee raised an additional ground vide its application dated 30.03.2021 which was filed on 01.04.2021. Through this ground, the assessee has contended that assessment for A. Y. 2006-07 was required to be framed u/s 153C of the Income Tax Act. However, in absence of requisite satisfaction having been recorded for A. Y. 2006-07 u/s 153C of the Income Tax Act, the AO was not justified in passing the order u/s 143(3) of the Income Tax Act. The assessee has argued that the ground is pure legal ground and goes to the jurisdiction of making an assessment and should be decided as per the judgment of Hon’ble Delhi High Court in the case of RRJ Securities 380 ITR 612 and many other judgments on this legal proposition.

The Ld. DR, who represented the matter on behalf of the department, heavily relied upon the orders of Ld. AO as also the orders of Ld. CIT(A) wherein the additions made, against which the assessee has come up before us, have been confirmed. The Ld. DR submitted that the reliance on the order of Hon’ble ITAT dated 14.12.2018 in proceedings u/s 153C of the Act is misplaced because assessee never made these submissions before the Ld. CIT (A) and did not inform CIT(A) about such an order and all these submissions, according to Ld. DR, are fresh which don’t flow from the order of either AO or Ld. CIT(A).

At this stage, against the query from the Bench, it was clarified that the orders of Ld. CIT(A) were passed in 2014 and in fact order for A. Y. 2006-07 was passed in 2011 and therefore there was no occasion for the assessee to make any reference to the order of Hon’ble ITAT which was passed in December 2018.

As regards the issue of waiver of loan which the assessee has treated in the capital field, Ld. DR submitted that possibility of some of the proceeds from the issue of NCDs having been used in the working capital cannot be ruled out and therefore the amount written back by the assessee on account of waiver of loan should be treated as taxable u/s 41(1) of the Income Tax Act and order of AO/CIT(A) on this issue should be upheld.

Observation of the court

We have heard both the parties on the issues involved in these appeals and also perused the relevant finding and material referred to before us. First common issue involved in these appeals for all the three years relates to addition u/s 69C of the Act which has been based on the documents which were seized during a search/survey on UPDA and its Secretary General Shri R. K. Miglani. Similarly, the other basis of making the addition is the statement of Sh. R. K. Miglani which was recorded u/s 132(4) of the Income Tax Act. This being the undisputed fact for making the addition, we find that the same very aspect has been elaborately discussed by the coordinate bench of this ITAT in batch of appeals wherein common order has been passed in the case of various distilleries whose names appeared in the documents which were so seized. The Tribunal has held that, firstly, these documents don’t belong to assessee; and secondly, even the nature of documents which have been relied upon has been duly examined by the bench in these batches of appeals. Now the fact remains that the assessments which has now been framed u/s 143(3) or which were earlier made u/s 153C are based on these same very documents. The nature of documents have been duly examined in detail and factual findings have been recorded by this Tribunal that these documents are only having hearsay value or these documents are dumb documents which cannot be relied upon. This fact remains uncontroverted even during these proceedings before us. Similarly, reliance by the department on the statement of Sh. R. K. Miglani, Secretary General of UPDA, too has been rejected by the ITAT in aforesaid appeals. In fact it is noted from the said order that some of documents which were seized, based on which the additions have been made, have been made part of the order of ITAT at Pages 195 to 207. The Ld. DR has also not been able to point out any additional fact or evidence which could justify in taking a different view of the matter based on these documents or based on the statement of Sh. R. K. Miglani.

Thus, we are in tandem with the submissions of Ld. Counsel that whether the documents seized from the searched party are held as “belonging to” or “pertaining to”, it does not materially effect the findings rendered by the Tribunal, in the batch of appeals decided on this issue and categorical findings have been rendered on the evidentiary value of the documents seized/impounded wherein it has been held by the Tribunal that such documents are dumb documents. Hence no mileage can be availed on this difference between “belonging to” or “pertaining to” as has been observed by AO/CIT(A) in their orders.

We therefore, are of the considered view that since the documents relied upon by the department or the statement of Sh. R. K. Miglani remains the same having no evidentiary value as per the factual findings recorded in the said order of ITAT and already relevant paras from the said order have already been extracted above in this order, which, in our considered opinion, are very much relevant to put the issue as rest. Therefore, respectfully following findings given by Tribunal in aforesaid batch of appeals, we hold that no addition of any alleged unexplained expenditure u/s 69C can be made in the hands of the assessee and the additions made u/s 69C of the Act for A. Y. 2004-05, A.Y. 2005-06 and A.Y. 2006-07 amounting to Rs. 4,53,93,300/-, 3,13,45,000/- and 4,14,44,000/- respectively are hereby directed to be deleted.

Another issue for which additions have been made by the AO in A. Y. 2005-06 is regarding the waiver of loan amount arising out of NCDs which were allotted by the assessee to M/s. Morgan Stainley in the public offer made in F. Y. 1993-94. The facts on this issue remain undisputed that in the public offer so made for Rs. 58.01 Crores, these funds were to be utilized for the modernisation of its existing plants/manufacturing facilities. The assessee actually utilized these funds for the above purpose, which is noted from the Audited Balance Sheet for the F. Y. 1994-95 and as against issue of 58.01 Crores, assessee had actually spent 64.80 Crores. Director’s Report also certifies that the right issue of PCDs/NCDs have been utilised for the purpose as mentioned in the offer letter.

Such kind of waiver of loan on utilization of capital asset has now been set at rest by Hon’ble Supreme Court in the case of Mahindra & Mahindra (404 ITR 1), wherein Hon’ble Court, after discussing the various provisions as contained in section 41(1) of the Act and also u/s 28, held that there is a difference in trading liability and other liability. The provisions of section 41(1) are attracted only if some trading liability is written back. If the amount of loan is utilized towards acquisition of capital assets, then the provisions of section 41(1) of the Income Tax Act are not attracted. Thus, respectfully following the judgment of Hon’ble Supreme Court, we hold that no addition can be made u/s 41(1) of the Income Tax Act and the amount of Rs. 5,37,12,480/-, being the amount waived by M/s. Morgan Stanley, cannot be brought to tax. This is more so especially when factum of having utilising this amount towards the capital expansion of the assessee’s business is not in dispute and remains unchallenged. This ground of appeal is, accordingly allowed. Assessment Year 2006-07

ITA No. 641/Del/2012 23.

The assessee has raised an additional ground in A. Y. 200607 regarding the assessment framed u/s 143(3) of the Income Tax Act instead of 153C of the Income Tax Act, which according to assessee was the correct provision which should have been invoked for making the assessment. According to the assessee, the assessment order so passed is a nullity in view of the judgment of Hon’ble Delhi High Court in the case of RRJ Securities (supra).

Since the relief has already been allowed to the assessee on merits of the additions by holding that addition u/s 69C of the Income Tax Act cannot be made, we find that this issue remains of academic interest which does not require any independent adjudication.

In the result, the appeals of the assessee are disposed off as above. The appeals for A. Y. 2004-05 and 2005-06 are treated as allowed and appeal for A. Y. 2006-07 is treated as partly allowed.

The order is pronounced in the open court on 26th July, 2023.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Subscribe to WhatsApp Updates

September, 11
0
Income Tax, Income Tax Circular Notification
More

Standard

Deducting the cost of the property from the sale consideration together with any other charges

Fact and issue of the case

Feeling aggrieved by appeal-order dated 16.01.2023 passed by learned Commissioner of Income-tax (Appeal), National Faceless Appeal Centre, Delhi [“CIT(A)”], which in turn arises out of assessment-order dated 23.12.2016 passed by learned Dy. CIT, Circle 2(1), Indore, [“AO”] u/s 147 read with section 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2011-12, the assessee has filed this appeal on following grounds:

“That the Ld. CIT(A) erred in confirming the addition of Rs. 99,20,000/without considering the facts and also without considering that legal rights in the property can be extinguished by an agreement to sell as per Section 2(47) of the Income-tax Act which defines the word ‘transfer’ in relation to capital assets. The company has offered income on the basis of agreement (i.e. MOU) in A.Y. 2010-11. The income double taxed in A.Y.2011-12 is against law of natural justice.

WITHOUT PREJUDICE TO THE ABOVE:

The Ld. CIT(A) erred, not to determine, the income which has been offered in the assessment year 2010-11 on the basis of surrender of rights of purchase, as tri party MOU agreement dt. 18.03.2010 and taxed it in A.Y. 2011-12, amounts to double taxation that too after reopening the assessment u/s 148 without examining legal position and without appreciating facts.

That the Ld. CIT(A) erred to discard the additional evidence produced, confirming death of three owner of land as per the rule 46A of Income– tax Act, while the rule 46A does fetter the right of assessees to produce evidences but it does not restrain the CIT(A)’s power u/s 254(4) or 250(5).”

Brief facts culled out from assessment-order are such that a search u/s 132 was carried on “Chugh Group” of Indore wherein two documents were seized by authorities. These documents revealed details of a sale-transaction of land done by assessee. Let us familiarize ourselves with the parties to the documents, namely (i) Distinct Realty Private Limited [seller of land and also “assessee” in this appeal], (ii) KMM Real Estate and Constructions Private Limited, purchaser of land [“KMM”], (iii) Shri Ram, Shri Laxman, Shri Munna, three persons who were the original owners of land [“RLM”], and (iv) Shri Vikram Agnihotri, the attorney holder of RLM [“Vikram”]. The 1st document is a tri-party MOU dated 18.03.2010 executed among (i) assessee, (ii) KMM and (iii) Vikram, precisely mentioning that the assessee had agreed/consented to sell a land to KMM for a consideration of Rs. 1,28,50,000/-; that KMM shall pay entire consideration to assessee only and not to RLM; that the consideration shall have two components, namely Rs. 99,20,000/- towards cost of land and Rs. 29,30,000/- towards surrender of right (Clause No. 1.1, 1.4 and 1.7 of MOU). The 2nd document is again a tri-party Agreement dated 20.07.2010 executed among (i) RLM, (ii) assessee and (iii) KMM, mentioning that a MOU dated 18.03.2010 was executed; that the assessee has received full consideration from KMM; and that RLM has executed a sale-deed dated 24.06.2010 in favour of KMM as per instruction of assessee (Clause No. 2, 3 and 4 of Agreement). On the basis of corroborative contents of these two documents seized during search, the AO arrived at a conclusion that the assessee had sold the subject land on 24.06.2010 (date of sale-deed) for Rs. 1,28,50,000/- to KMM. Since the date 24.06.2010 was falling in Previous Year 2010-11 relevant to AY 2011-12, the AO verified case-records of assessee pertaining to AY 2011-12. On verification, the AO found that the assessee had filed return of income declaring income of Rs. 2,77,320/- from business but without declaring the receipt of Rs. 1,28,50,000/- and, therefore, the receipt of Rs. 1,28,50,000/- had escaped assessment. Accordingly, the AO after taking approval from JCIT, issued notice u/s 148 dated 02.11.2015 and conducted proceedings u/s 147. During proceeding, the assessee filed a reply dated 15.06.2016, re-produced by AO at Page No. 3 of assessment-order. In this reply, the assessee filed a copy of purchase-agreement dated 07.02.2008 (or 04.02.2008) as an evidence to show that the subject land was purchased in the year 2007-08 from RLM. The assessee submitted that the cost of land with expenses for exploitation on land and others in the hands of assessee was Rs. 99,20,000/- upto AY 2010-11. The assessee also submitted that as per MOU dated 18.03.2010, the assessee’s share, namely the surrender value of right over and above the cost was fixed at Rs. 29,30,000/- and the assessee had already offered it in Previous Year 2009-10, AY 2010-11 on the basis of MOU dated 18.03.2010. However, the AO held that the MOU dated 18.03.2010 was in future tense and the sale-deed was actually executed on 24.06.2010 (which is also mentioned in tri-party Agreement dated 20.07.2010), thus the transaction of sale was actually done on 24.06.2010. Accordingly, the AO insisted that the issue actually related to previous-year 2010-11, AY 2011-12 (Para No. 1 / Page No. 4 of assessment-order). The AO also accepted the assessee’s version that the receipt of Rs. 29,30,000/- had been shown in the return of income of AY 2010-11 (Para No. 2 / Page No. 4 of assessment-order). But with regard to the cost of land, on perusal of Clause No. 2 of the aforesaid purchase-agreement dated 07.02.2008, the AO found that the assessee is stated to have purchased land for Rs. 62,00,000/- and paid a sum of Rs. 12,00,000/- (partly through cheque and partly in cash) by 26.12.2007 and remaining 50,00,000/- was to be paid by 31.12.2008. But the assessee could not file any supporting document to prove the payment of Rs. 62,00,000/- to RLM. Due to this reason, the AO did not believe the cost of land at Rs. 99,20,000/-, so also did not believe that the component of Rs. 99,20,000/- (forming part of consideration of Rs. 1,28,50,000/-) was towards cost of land. Accordingly, the AO again show-caused the assessee vide notice dated 08.11.2016. In response, the assessee filed reply dated 17.11.2017 which is re-produced by AO on Page no. 7 of assessment-order. In this reply, the assessee re-iterated that the assessee sold only right in land vide MOU dated 18.03.2010 and out of total consideration of Rs. 1,28,50,000/-, the assessee’s share was only Rs. 29,30,000/- which the assessee had rightly offered in AY 2010-11 on the basis of MOU. The assessee further submitted that two parties, namely Ram and Munna (out of RLM) had expired. However, the AO was not satisfied with reply of assessee, who noted that the assessee did not file any proof of death of Ram and Munna, further the assessee did not produce even the surviving owner Laxman. Then, the AO deputed inspector to the addresses of RLM but could not find any satisfactory reply from their legal heirs/relatives. Therefore, the AO noted his dis-satisfaction with regard to the identity of RLM. Furthermore, the assessee also filed bank statement which the AO found incomplete or not substantiating the claim of assessee. Finally, the AO was not satisfied with assessee’s version with regard to Rs. 99,20,000/- and therefore made addition by concluding thus:

“As per the agreement dated 10.07.2010, sale-deed was executed in AY 2011-12 and hence in absence of verification of claim of assessee that Rs. 99,20,000/- has been received for cost of land which was paid by it to three persons Shri Ram, Shri laxman and Shri Munna in F.Y. 2007-08, Rs. 99,20,000/- is being added to total income of assessee as amount received from KMM Real Estate Private Limited as per MOU dated 18.03.2010. The transaction was completed in F.Y. 2010-11 and therefore this amount is to be taxed in A.Y. 2011-12. Rs. 29,30,000/- as mentioned in MOU has already been offered by assessee in A.Y. 2010-11. Thus, no addition is being made for this amount in this A.Y.”

Observation of the court

On perusal and comparison of two sheets, one can easily discern a total mis-match. While in the first-sheet which is audited by auditors, the breakup of receipt of Rs. 45,83,006/- shown in P&L A/c was “Misc. Receipts of Rs. 35,28,123 (+) Site maintenance/supplies of Rs. 10,54,883/-”, in the second-sheet which is signed only by assessee and not by auditors, it has changed to “Profit of transfer of rights of Piplia Kumar Land to M/s KMM Real Estate & Construction Pvt. Ltd. – Rs. 29,30,000/- (+) Income of site maintenance of Panchwati Colony & MIS income – Rs. 16,53,006/-”. We fail to understand how can it be so? It certainly requires a probe. It seems that the AO has accepted assessee’s version that the receipt of Rs. 29,30,000/-had been declared in P&L A/c of financial year 2009-10 related to AY 201011 because of this new sheet. One may empathically say that when the AO has accepted the assessee’s version, how the ITAT can raise a question on same? But it is an accepted law that the ITAT is the last fact-finding authority and we have a sacred duty to give a correct finding. Further, the observation made by us is very much relevant for proper adjudication of the controversy in hand and unless we report the same, the AO would not be able to decide the assessee’s case when the issue goes back to him.

Having said so, we now come back to the final disposal of controversy before us. We find that both of the lower authorities have made a concurrent finding that the assessee has not filed any evidence to prove the cost of Rs. 99,20,000/-. We are also aware that if the land is sold for Rs. 1,28,50,000/-the department cannot tax entire sum of Rs. 1,28,50,000/- as income of assessee; the department has to allow deduction of actual cost incurred by assessee since the impugned land actually belonged to RLM once upon a time and the assessee purchased from RLM and therefore certainly incurred cost whatever amount may be. Therefore, it is necessary to ascertain the correct cost incurred by assessee and give deduction to assessee. At the same time, we also note that it’s assessee onus to prove conclusively the amount of cost incurred. We also find that all three original owners, namely RLM from whom the land was purchased, have already expired and their death certificates are filed in the Paper-Book. We feel that the legal heirs/relatives of RLM have not co-operated the department in earlier proceeding and it would be unreasonable to expect any assistance from them at this stage for the transactions done by deceased RLM. However, as mentioned earlier, we note that the assessee is a company and maintaining books of accounts in terms of statutory provisions of Companies Act as well as Income-tax Act. Therefore, the assessee is having complete documents and information from which it can easily file documentary evidences to AO to prove cost without any difficulty. Therefore, it is most appropriate in the situation to remand this case back to the file of AO who will decide the issue afresh. Needless to mention that the AO would give adequate opportunities to assessee and the assessee shall avail those opportunities; in the event of any failure by assessee without just cause, the AO shall be free to take a decision as the situation warrants. We direct the assessee to submit all documentary evidences including production of audited balance-sheets of past years, books of accounts and accounting entries therein, as may be required by AO, to prove its claims. The assessee shall make clear submissions with documentary evidences so that there remains no ambiguity on the factual aspects and the litigation does not multiply again. The AO shall also take a decision afresh without being influenced by his earlier order.

Resultantly, this appeal of assessee is allowed for statistical purpose in terms indicated above.

Order pronounced in the open court on 07.08.2023.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Read the full order from here

Distinct-Realty-Private-Limited-Vs-DCIT-ITAT-Indore-2

Subscribe to WhatsApp Updates

September, 6
0
Income Tax, Income Tax Circular Notification
More

Standard

Addition to inexplicable credit not upheld since source of credit is properly disclosed

Fact and issue of the case

This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax(Appeals)-6, (in short “Ld. CIT(A)”), Ahmedabad in Appeal No. CIT(A)-6/297/16-17 vide order dated 31.10.2017 passed for Assessment Year 2011-12.

The assessee has taken the following grounds of appeal:-

The order passed by the Ld. CIT(A) is against law, equity & justice.

The Ld. CIT(A) has erred in law and/or facts in upholding the addition made by Ld. A.O. U/S 68 of the Act though no incriminating material found during the course of search.

The appellant Craves liberty to add, amend, alter or modify all or any grounds of appeal before final hearing.”

Further, the assessee has also taken the following additional ground of appeal before us:-

The assessment order passed by Ld. AO is without jurisdiction and in contravention to the instruction No. 08 dated 14-08-2002 of CBDT.” Application for condonation of delay

At the outset, we observe that the appeal is time-barred by 246 days. The assessee has filed application for condonation of delay along with affidavit, in which the assessee submitted that the Counsel who represented the case of the assessee before Ld. CIT(Appeals) advised the assessee not to file further appeal before ITAT. However, the assessee approach in another counsel, who advised assessee to file appeal before the Tribunal. Accordingly, since the assessee is not conversant with Income Tax Laws, he relied on the advice of the earlier counsel and did not file appeal before the Tribunal. Accordingly, the delay in filing of the present appeal is on account of incorrect advice of the earlier counsel appointed by the assessee, and therefore the same was on account of bona fide reasons. Accordingly, it was requested that the delay may kindly be condoned looking into the facts of the instant case.

It is a settled principle of law that the Tribunal, u/s 253 of the Act, may admit an appeal, or cross-objection, after the expiry of prescribed period, if it is satisfied that there was sufficient cause for not presenting it within that period. The Supreme Court in the case of State of West Bengal v. Administrator, Howrah Municipality AIR 1972 SC 749 (SC) held that the expression “sufficient cause” for condonation of delay in section 5 of Limitation Act should receive a liberal construction so as to advance the substantial justice when no negligence or inaction or want of bona fide is imputable to party. The Mumbai ITAT in the case of Sterlite Industries (India) Ltd. v. Addl. CIT/Jt. CIT [2006] 6 SOT 497 (Mum.)]laid down the following proposition on power of ITAT to condone delay:

“The expression ‘sufficient cause or reason’ as provided in sub-section (5) of section 253 of the Act is used in identical position in the Limitation Act, 1963 and the CPC. Such expression has also been used in other sections of the Income-tax Act such as sections 274, 273, etc. Keeping in mind the authoritative pronouncement of the Supreme Court, it is an admitted position that the words ‘sufficient cause’ appearing in sub-section (5) of section 253 of the Act should receive a liberal construction so as to advance substantial justice. It must be remembered that in every case of delay, there can be some lapse of the litigant concerned. That alone is not enough to turn down the plea and to shut the doors against him. If explanation does not smack of mala fide or does not put forth a dilatory strategy, the Court must show utmost consideration to such litigant. Further, the length of delay is immaterial, it is the acceptability of the explanation and that is the only criteria for condoning the delay.”

The Supreme Court in the case of Senior Bhosale Estate (HUF) v. ACIT [2019] 112 taxmann.com 134 (SC) held that where revenue did not expressly refute stand taken by assessee that they had no knowledge about passing of order of Tribunal, dated 29-12-2003, until June, 2008, assessee’s delay of 1754 days in filing appeal before Bombay High Court against Tribunal order was to be condoned. The brief facts of the case were that assessee sought condonation of delay of 1754 days in filing appeals against order, dated 29-12-2003, passed by Tribunal. The assessee pleaded that it had no knowledge about passing of Tribunal’s order, until it was confronted with auction notices in June, 2008, issued by competent authority, immediately upon which, assessee filed appeal with High Court. The High Court dismissed assessee’s appeals holding that these were not fit cases in which inordinate delay of 1754 days in filing appeals deserved to be condoned. However, it was found that respondent revenue did not expressly refute stand taken by assessee that they had no knowledge about passing of order, dated 29-12-2003, until June, 2008.The Supreme Court held that unless that fact was to be refuted by the Revenue, question of disbelieving stand taken by assessee on affidavit, could not arise and for which reason, High Court should have shown sympathy to assessee by condoning delay in filing concerned appeal(s).

The Vishakhapatnam ITAT in the case of Smt. Samanthapudi Lavanya v. ACIT [2021] 127 taxmann.com 188 (Visakhapatnam – Trib.) held that where assessee was under bona fide impression that its appeal had been filed by accountant, but came to know fact of not having filed appeal when there was pressure from department for payment of demand, delay of 492 days in filing appeal was to be condoned, in the interests of justice.

In view of the facts placed on record by the assessee and light of the judicial precedents referred to above, in the interest of justice, the delay in filing of the present appeal is being condoned. Additional ground of appeal

Before us, the counsel for the assessee has taken an addition ground which is to the effect that assessment order was passed by ACIT, Circle 6(1) Ahmedabad u/s 153A of the Act. However, according to CBDT Instruction Number 8 dated 14-08-2002, it is mandatory that search cases shall be centralised in central charges. However, despite this, the Ld. Assessing Officer passed assessment order, who is not in charge of Central Range in violation of aforesaid Instruction of CBDT. The assessee filed RTI application on 24-01-2022 to provide copy of order, if any passed by concerned authority for not assigning the case to Central Charges, however, the aforesaid information was not available on record. Accordingly, it was submitted that the aforesaid assessment order was passed without requisite jurisdiction, and hence the same is void ab initio and hence liable to be set aside.

It is a well settled law that no person can call in question the jurisdiction of the assessing officer after the expiry of time limit laid down in subsection (3) of section 124 of the Act which ensures that the objection is raised before the assessment is completed. In the case of Bhupindra Food & Malt Industries [1997] 95 Taxman 203 (HP), the High Court held that assessee not having raised objection regarding jurisdiction within a period of 30 days from receipt of notice under section 147(a), assessment related to assessment year 1964-65, ITO Simla was held to be having proper jurisdiction in the instant case. In the case of Hindustan Transport Co. 63 Taxman 246 (Allahabad), the High Court held that in view of section 124(5)(a), no objection to jurisdiction can be raised after assessment has been completed. Further, the High Court held that allocation of functions to various authorities or officers is one of procedures and any defect arising from allocation of functions is a mere irregularity which does not affect resultant action. In the case of Punjab Urban Development Authority, Mohali 42 taxmann.com 160 (Chandigarh – Trib.), the ITAT held that once a notice under section 143(2) is issued by a particular officer and if assessee wishes to object to such jurisdiction then objection has to be raised in terms of section 124(3)(a) within 30 days of issue of such notice and, in absence of such objection, assessee cannot challenge jurisdiction later on. In the case of All India Children Care & Educational Development Society 41 taxmann.com 20 (Allahabad), the High Court held that Tribunal is not a competent authority to adjudicate upon jurisdiction of Assessing Officer when it is not raised before Assessing Authority. In the case of CWT v. Ravi Malhotra 166 Taxman 253 (Allahabad), the High Court held that where up till stage of assessment no objection whatsoever was taken by assessee relating to jurisdiction of Wealth-tax Officer concerned, it would be presumed that assessee had acquiesced in jurisdiction of that Wealth-tax Officer and, therefore, he could not be permitted to raise such objection subsequently. In the case of Abhishek Jain 94 taxmann.com 355 (Delhi), the Delhi High Court held that in terms of section 124(3)(b) jurisdiction of an Assessing Officer cannot be called in question by an assessee after expiry of one month from date on which he was served with a notice for reopening assessment under section issued notice u/s 148 of the Act. In the case of Elite Pharmaceuticals 73 taxmann.com 69 (Calcutta), the High Court held that where Assessing Officer conducted survey upon assessee and thereafter issued on it a notice under section 148 dated 27-3-2015 and assessee by letter dated 29-4-2015 raised objection to territorial jurisdiction of Assessing Officer, since objection was not raised within 30 days even from date of issuance of notice under section 148, assessee had lost right to raise objection by efflux of time. In the case of Bal Chand Jain & Sons 41 taxmann.com 524 (Allahabad), the High Court held that provisions of sub-section (3) of section 124 bar an assessee from raising question of jurisdiction before first appellate authority or Tribunal if such an objection has not been raised before assessing authority at very first stage.

The brief facts of the instant case are that the assessment was completed 31-12-2016 u/s 153A of the Act and the appeal was disposed of by Ld. CIT(Appeals) vide order dated 16-08-2018. However, the assessee now before us vide application dated 17-01-2022 is seeking to challenge the jurisdiction of the assessing officer on the ground that in view of the CBDT Instruction, the concerned officer did not have requisite authority to pass the assessment order. However, the assessee did not object to the jurisdiction of the assessing officer during the course of assessment proceedings and nor any challenge was posed before Ld. CIT(Appeals) during the course of appellate proceedings. Therefore, now, after a period of substantial lapse of time of almost 6 years from completion of assessment, the appeal of jurisdiction cannot be raised at appellate stage before us. Accordingly, the additional ground raised by the assessee is dismissed.

In the result, the additional ground raised by the assessee is dismissed.

On merits

The brief facts of the case are that during the year under consideration, the assessing officer observed that there was an increase in the capital from ₹14,88,157/- to ₹ 28,77,899/-. On being requisitioned by the AO, the assessee submitted that the capital of the current year included profit of current year and gift given to the assessee by his mother. The assessee submitted the gift deed and bank statement showing gift of ₹ 11,98,025/-. The AO, however held that the gift was not genuine for the reason that the affidavit demonstrated that the stamp paper used for making deed of purchase was on 08-02-2008 and gift deed was written on 05-01-2011 i.e. the date on which the money was transferred. This clearly shows that the transaction was an afterthought. Secondly, the AO observed that normally gift is given in round figures, whereas in the instant case amount gifted was not so. In view of the above, the AO held that the gift of ₹11,98,025/- as unexplained cash credit in the hands of the assessee.

In appeal, Ld. CIT(Appeals) observed that from the copy of bank statement it is seen that the amount which was gifted to the assessee from his mother came from a joint account, in which the mother is the primary account holder and the assessee is the joint holder. The assessee however failed to explain the source of this money which was lying in the joint account, from which the gift was made by the mother of the assessee to the assessee. Accordingly, Ld. CIT(Appeals) upheld the assessment order with the following observations:

“As per plain reading of statement, the amount has been transferred by Jignesh Patel to this account by NEFT. The appellant failed to explain the source of this money. In any case, it is not understood as to how this amount of Rs. 11,98,025/- transferred to this joint account in the name of mother of appellant and the appellant himself can be/has been treated as gift from mother to son. The appellant failed to explain this.

Observation of the court

In view of discussion above, it is held that the AO was justified in treating the amount of Rs. 11,98,025/- as unexplained credit and adding the same u/s 68 of the Act. Accordingly, addition of Rs. 11,98,025/- is upheld. This ground of appeal is rejected.”

Before us, the assessee submitted that firstly, there are no was incriminating material which was unearthed during the course of search, which formed the basis for the aforesaid addition. However, we are not agreeable to this contention since we observe that the aforesaid additions were ostensibly made on the basis of incriminating material found in the course of search. The assessing officer made addition is on the basis of gift deed found during the course of search, which belonged to the assessee. According to the assessing officer, the aforesaid gift deed, belonging to the assessee was not genuine and therefore, amounting to Rs. 11,98,025/-were made in the hands the assessee under Section 68 of the Act, as unexplained cash credits. Therefore, looking into the instant facts, the additions were in fact made on the basis of incriminating material found during the course of search and therefore, it cannot be inferred that the additions were made de hors any incriminating material found during the course of search.

Now coming to the basis of addition, the assessing officer was of the view that the gift deed, which according to the assessee was the source of difference in capital of the assessee during the impugned assessment year, was not genuine and was an afterthought. However, we observe that in the instant facts, the search under Section 132 of the Act was conducted of the assessee on 19-02-2015 and notice under section 153A of the Act was issued to the assessee on the 23-02-2016. During the course of assessment, the assessing officer observed that a perusal of the balance sheet for the previous assessment year 2010-11 shows the closing capital of ₹14,88,157/- whereas in the current assessment year 2011-12, the opening capital is shown at ₹ 28,77,899/-. As per the assessee, the difference was owing to the fact that the capital of the current year includes profit of the current year and gift given to the assessee by his mother for an amount of ₹11,98,025/-. The aforesaid gift deed was discarded by the assessing officer on the ground that genuineness of the said could gift deed was in doubt. However, what also needs to be seen in the instant facts is that the aforesaid gift deed is also duly supported by bank transfer from the bank account in which the mother of the assessee is the primary holder to the account of the assessee during the year under consideration. Further, the aforesaid gift has not been transferred by way of a single transfer on a single date, but comprises of multiple transfers made to the account of the assessee on various dates though under Gift Deed gives a consolidated figure of these multiple transfers. Therefore, in our considered view, it would not be correct to conclude that the gift deed was an afterthought since the aforesaid transfers were made on dates much prior to the date when the search was carried out at the premises of the assessee and notice under section 153A of the Act was issued to the assessee. We observe that the gifted deed was on a stamp paper and the same was also duly supported by way of bank transfers. Therefore, in our view the assessee has been able to reasonably explain the source of gift from his mother.

In light of the above observations, looking into the instant facts, they addition is liable to be set aside.

In the result, the appeal of the assessee is allowed.

This Order pronounced in Open Court on 04/08/2023

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Subscribe to WhatsApp Updates

September, 6
0
Income Tax, Income Tax Circular Notification
More

Standard

Unsupportable addition under Section 68 based only on suspicion

Fact and issue of the case

These appeals have been preferred by the Assessee against the orders even dated 10-02-2023, impugned herein passed by the Ld. Commissioner of Income Tax(Appeals)/National Faceless Appeal Centre(NFAC) Delhi, u/s.250 of the Income Tax Act 1961 (in short „the Act‟) for AYs 2012-13 & 2013-14.

At the outset, we observe that there is delay of 23 days in filing of the instant appeal, for which the Assessee has claimed that though the appeal was prepared and signed and necessary appeal fee was deposited on 9th March, 2023 and handed over to Mr. Sanghavi for filing, however the same could not be filed due to death of father in law of Mr. Sanghavi. Somehow the same was filed on 2nd May 2023 with a delay of 23 days and the hence the delay of 23 days may be kindly be condoned. On the contrary the Ld. DR refuted the claim of the Assessee. We do not find any material/reason contrary to the claim of the Assessee qua occurring of delay and therefore considering the reason for delay as genuine and bonafide, we are inclined to condone the delay of 23 days in filling the instant appeal, hence the same is condoned.

Because, the facts and issues involved in these appeal are common, hence for the sake of brevity, we are inclined to decide ITA 1540/Mum/2023 as a lead case, and result of the same shall be applicable to both the appeals.

In ITA 1540/Mum/2023, the Assessee had declared its total income of Rs 4,19,950/- by filing its return of income on dated 28th Sep, 2012.Subsequently, on the basis of information received from the DDIT(Inv) unit 7(4) Mumbai, the following reasons for re-opening of the case u/s.147 of the Act, were recorded. 03. In this case the following information was received from DDIT (Investigation) Unit 7(4), Mumbai.

A Search and Seizure action u/s 132 of the Income-tax Act, 1961 was carried out in the case of Mr. Vipul Vidur Bhatt his other related entities uz (1) M/s. Sunrise Asian Limited, (ii) M/s. Sampada Chemicals Limited, (ii) M/s. P. Sajt Textile Limited, (iv) M/s. Shyam Alcohol and Chemicals Ltd, (v) M/s. Shipra Fabrics Pvt. Ltd., (vi) M/s. Victory Sales Private Limited, (vu) M/s. Lunked Textile Private Limited (viii) M/s. Eagar Corporation, (ix) M/s. Vikrant Marketing, (x) M/s. Acute Consultancy Limited and (xi) M/s. Dolex Commercial Private Limited on 05.02.2016. During the search action the statement of Mr. Vipul Vidur Bhatt was recorded u/s 132(4) of the Income-tax Act, 1961 in which he has accepted that he is an entry operator and all the above mentioned entities/ companies which are used by him for providing various bogus accommodation entries to the various beneficiaries for commission Mr. Vipul Vidur Bhatt also accepted that he is a director in these entities/companies and all other directors of these entities/companies are dummy directors appointed by him. Mr. Vipul Vidur Bhatt further accepted that he controls the entire activities/affairs of these entities/companies and these entities/companies were incorporated for providing bogus accommodation entries only. In the statement recorded u/s 132(4) of the IT Act, 1961, Shri. Vipul Vidur Bhatt also accepted that he controlled, managed and operated as many as 347 bogus entities, which are operated by lum for providing bogus accommodation entries to the various beneficiaries for commission.

During the search action u/s 132 of the Income-tax Act, 1961, the entire books of accounts, Income Tax related documents, company law matter related documents, VAT/Sales tax etc. of all the 347 bogus entities/companies were found at an undisclosed premise 1407, 14th floor, New jaiphalwadi, Police colony, Tardeo, Mumbai-400034, which is neither registered office of these bogus entities/companies nor this premise is related to these bogus entities/companies in any way. In the statement recorded on 09.02.2016 u/s 132(4) of the Income-tax Act, 1961 Shri. Vipul Vidur Bhatt was asked to explain why the books of accounts and other documents of these entities/companies are kept and maintained, in the computer, kept at the above premuse. In response, Shri. Vipul Vidur Bhatt submitted that

“Sir I am into the business of providing accommodations entries and I am managing and controlling various entities for this purpose. As this work is illegal, hence I am maintaining the books of accounts of these entities at my back office at 1407, 14th floor, new jaiphalwadi, Police colony, Tardeo, Mumbai-400034.”

Observation of the court

We also observe as noted above that the loan of Rs. 20,50,000/-was taken by the Assessee from the said entities in 2010-11 (AY:2011-12) and during the year consideration, no such amount was found credited in the books of an Assessee maintained, if any and even otherwise the Assessee has claimed the he is not maintaining any books of account . It is a settled law that mere suspicion cannot takes place for the purpose of passing an order, in fact there must be something more than suspicion in support of an assessment. The Hon‟ble Apex Court in the case of CIT vs. P. Mohankala {Civil Appeal no. 2540 of 2007 decided on dated 15.05.2007} has clearly laid down the dictum “that there has to be credited amount in the books of account of the Assessee and such credit has to be sum during the previous year and the Assessee offers no explanation. In the instant case, it is a fact that neither the Assessee has received any cash nor paid any cash and there was no real cash credit during the year under consideration, therefore the amount in question as unexplained expenditure could not arise, hence on this count also, the provisions of section 68 is not applicable and therefore addition u/s. 68 of the Act is un-sustainable. Consequently, we are inclined to delete the addition of Rs. 3 Lacs in total. Resultantly the instant appeal is allowed.

In view of our decision in ITA No. 1539 /Mum/2023, both the appeals stands allowed.

Orders pronounced in the open court on 28.07.2023.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Read the full order from here

Darshan-K-Vakharia-Mumbai-Vs-ITO-ITAT-Mumbai2

Subscribe to WhatsApp Updates

September, 1
0
Income Tax, Income Tax Circular Notification
More

Standard

No cash payment according to Section 69 Addition based only upon Seized Third-Party Ledger

Fact and issue of the case

This is an appeal by the assessee against order dated 22/05/2023 of learned CIT(A), Lucknow-3 for the assessment year 2013-14. The effective grounds raised by the assessee are as under:

In the facts and circumstances of the case and in law the Ld. CIT(A) has legally erred in confirming the action of the Ld. A.O. by sustaining the addition of Rs.17,00,000.00 in the income o f the appellant.

In the facts and circumstances of the case and in law the Ld. CIT(A) has erred in confirming the action of the Learned Assessing Officer while not setting aside assessment order as was not allowed to cross examine of Mr. Viral K. Patel (key person of the developer) who prepared the alleged systematically maintained ledger account.

In the facts and circumstances of the case and in law the Ld. CIT(A) has erred in confirming the action of the Ld. A.O. while not considering the objection of the appellant as to when the satisfaction note was recorded by the Assessing Officer.

In the facts and circumstances of the case and in law the Ld. CIT(A) has erred in confirming the action of the Ld. A.O. while not allowing the cross examination of the builder whose statement was recorded u/s 132 of the Income Tax Act, 1961.

In the facts and circumstances of the case and in law the Ld. CIT(A) has erred in confirming the action of the Ld. A.O. while not appreciating that there was no independent application o f mind by the Assessing Officer while recording satisfaction was recorded on borrowed satisfaction.”

As could be seen from the grounds raised, the assessee has challenged the addition of Rs.17,00,000/- u/s 69 of Income Tax Act, 1961. Additionally the assessee has also challenged the validity of the assessment order passed u/s 153C read with section 143(3) of the Act.

Briefly, the facts are that the assessee is a resident individual. As stated, the assessee, being a retired IPS Officer, was a salaried employee. Allegedly, a search & seizure operation u/s 132 of the Act was conducted on 06/03/2018 in the case of “SSS (Satyam, Sangini, Saligram) group of companies. During the search & seizure operation, the residential premises of one Shri Viral K. Patel, stated to be the key person of M/s Satyam Developers Limited and its Directors, was also searched and in course of search various incriminating documents and digital data were found and seized. On verification of digital data found in the computer of the said key person, it was noticed that it contained a ledger copy, wherein, in addition to cheque payment, date-wise cash payment received from the assessee towards purchase of a flat was found. It was noticed that the assessee has paid cash on different dates aggregating to Rs.48 lacs. Out of such cash payment, an amount of Rs.17 lacs was paid on 04/08/2012 falling in the previous year relevant to the assessment year under dispute. Based on such information, the Assessing Officer initiated proceeding u/s 153C of the Act in respect of the assessee. In course of assessment proceedings, the Assessing Officer confronted the seized document and called upon the assessee to explain as to why the cash payment made of Rs.17 lacs towards purchase of flat should not be treated as income of the assessee u/s 69 of the Act. In reply, though the assessee flatly denied of having made any cash payment over and above the cheque payments, however the Assessing Officer was not convinced. Ultimately, relying upon the seized material, the Assessing Officer concluded the assessment by adding back the amount of Rs.17 lacs to the income of the assessee. Though, the assessee contested the addition, both, on merits as well as on legal grounds of complete lack of recording of satisfaction in terms of section 153C of the Act, however, learned CIT(A) did not find merit in the submissions of the assessee and upheld the addition.

Before us, learned counsel appearing for the assessee submitted that except the so called ledger account seized from a third party, no other evidence was collected by the Assessing Officer to corroborate the entries in the ledger account. He submitted the bank accounts referred to in the seized document do not belong to the assessee and he submitted that though the assessee took a specific contention in this regard before the Department Authorities however, the contention was completely ignored. He submitted the assessee was not given an opportunity to cross examine the party from whom the incriminating materials were seized. Thus, he submitted, in absence of any clinching evidence, the addition on account of cash payments towards purchase of a flat could not have been made, more so, when the assessee had never accepted such cash payment. Without prejudice, the learned counsel submitted that the search & seizure operation in case of a third party took place on 06/03/2018. He submitted, there is no evidence on record that a satisfaction was recorded either by the Assessing Officer of the searched person or the Assessing Officer of the assessee as mandated u/s 153C of the Act. He submitted, despite the assessee taking a specific objection both before the Assessing Officer and learned first appellate authority regarding non recording of satisfaction u/s 153C of the Act, the Departmental Authorities have cleverly skirted the issue. Drawing my attention to the assessment order dated 29/12/2021 passed in the case of the assessee for assessment year 2014-15, the learned counsel submitted, the Assessing Officer has stated that satisfaction was recorded by him on 06/03/2018. He submitted, when the search & seizure operation itself took place on 06/03/2018, how the Assessing Officer could have recorded satisfaction on the very same day for initiating proceeding u/s 153C of the Act. Proceeding further, he drew my attention to satisfaction dated 19/02/2021 recorded u/s 153C of the Act by the Assessing Officer of the searched person. He submitted, as per the satisfaction recorded, the date of seizure of incriminating material was mentioned as 07/03/2018 and Panchnama was also drawn on 07/03/2018. Thus, he submitted, the satisfaction note itself suggests that the Assessing Officer of the assessee could not have recorded satisfaction u/s 153C of the Act on 06/03/2018, one day prior to the seizure of incriminating material. He submitted, these facts clearly establish that no satisfaction, as mandated by section 153C of the Act, was recorded by the Assessing Officer. He submitted that even assuming that the Assessing Officer has recorded satisfaction u/s 153C of the Act however, such recording of satisfaction is purely mechanical and without application of mind as he has merely copied the satisfaction recorded by the Assessing Officer of the searched person. Thus, he submitted in absence of a proper satisfaction recorded u/s 153C of the Act, the assessment order is invalid. In support of such contention, learned counsel relied upon the following decisions:

(i) Dinesh Kumar Goyal vs. UOI & Others 453 ITR 535 (Calcutta High Court)

(ii) Laxmi Narain Agency vs. Income Tax Officer & Others 450 ITR 650 (Orissa High Court)

(iii) Canyon Financial Services Ltd. vs. ITO [2017] 399 ITR 202 / 249 Taxman 493/155 DTR 73 (Delhi High Court)

(iv) Canyon Financial Services Ltd. vs. ITO 399 ITR 202 (Delhi High Court)

Learned Departmental Representative strongly relied upon the observations of the Assessing Officer and learned first appellate authority.

Observation of the court

I have considered rival submissions in the light of the decisions relied upon and perused the materials on record. At the outset, I proceed to address the grounds raised on merits of the addition made. Undisputedly, based on certain incriminating material found in course of a search & seizure operation in case of a third party, the Assessing Officer has made the disputed addition. It is evident, the incriminating material leading to the present addition is a ledger copy found in the desktop/laptop of one Shri Viral K. Patel, allegedly, the key person of M/s Satyam Developers Limited and its directors. Admittedly, the incriminating material was not seized from the assessee. On further perusal of the incriminating material i.e. the ledger copy, it is observed that it depicts certain payments in cheque and in cash. The cheque payments mentioned in the ledger copy are through Kotak Bank and AXIS Bank. It is observed, from the stage of assessment proceedings itself the assessee has flatly denied its involvement in the transactions recorded in the ledger copy seized from the third party. The assessee has specifically submitted that the bank accounts mentioned in the ledger copy do not belong to him or his wife. It is the specific case of the assessee from the very beginning that he had purchased the flat for a consideration of Rs.40 lacs and has paid it entirely through banking channel from his bank account held with State Bank of India and ICICI Bank and bank account standing in the name of his wife held with Bank of India.

It is very much evident in the face of such specific denial by the assessee not only before the Assessing Officer but before the first appellate authority, no further inquiry or investigation was made by them to rebut the contention of the assessee. No further corroborative evidence has been brought on record to establish that the entries in the ledger copy seized from a third party are genuine and correct. Surprisingly, no statement has been recorded from the third party from whom the incriminating material was seized with regard to the entries in the ledger copy. There is nothing on record to suggest that the third party from whom the ledger copy was seized admitted of having received the cash payment from the assessee. This is so because neither the Assessing Officer nor learned CIT(A) have referred to any such statement or admission by Shri Viral K. Patel with reference to the seized material. Even, assessee’s repeated request to cross examine Shri Viral K. Patal have been cold shouldered by the Department Authorities. Thus, as facts on record stand, except the ledger account stated to have been seized from the computer of Shri Viral K. Patel, no other corroborative material has been brought on record by the Departmental Authorities to establish that the entries appearing in the ledger copy are genuine and the assessee had actually made the cash payment. Merely because the payments made by cheque appearing in the ledger copy and actually made by the assessee tallied, it cannot lead to the conclusion that the assessee has also made the cash payments. More so, when from the very beginning the assessee has vehemently denied of having made the cash payments. Thus, in my considered opinion, in absence of any clinching evidence to show that the assessee had made the cash payments, the addition of so called cash payment of Rs.17 lacs could not have been made. Accordingly, the addition made, being wholly unsustainable, I direct the Assessing Officer to delete the same.

In view of my decision above, the legal grounds raised by the assessee challenging the validity of the assessment order due to lack of satisfaction have become academic, hence do not require adjudication.

In the result, the appeal of the assessee stands allowed.

(Order pronounced in the open court on 18/07/2023)

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Subscribe to WhatsApp Updates

August, 21
0
Income Tax, Income Tax Circular Notification
More

Standard

In the absence of any evidence of guilt discovered during the search, the addition under Section 68 to the share application money is unsustainable

Fact and issue of the case

The assessee has filed these appeals challenging the orders passed by Ld CIT(A)-52, Mumbai and they relate to the AY2012-13 and 2013-14. In both these appeals the assessee is challenging the validity of additions made in the assessment completed under section 153A of the I.T. Act in the absence of any incriminating material on the ground that assessments of these years do not abate u/s 153A of the Act. Accordingly, both these appeals were heard on the above said legal ground and are being disposed of by this common order, for the sake of convenience.

The facts relating to the cases are stated in brief. The assessee herein belongs to Gauti Group. The assessee along with other group concerns/family members was subjected to search operations under section 132 of the Act on 09-03-2015 by the Investigation wing of the Income tax department. Consequent thereto, the assessments were completed in the hands of the assessee for the above said years under section 143(3) read with section 153A of the Act. In the years under consideration, the assessing officer added the share application money received by the assessee as income of the assessee u/s 68 of the Act holding them to be accommodation entries. The details of share application money assessed as income in each of the years are given below:-

Assessment year	Unexplained Cash Credit
2012-13	26,00,000
2013-14	1,05,00,000

The assessee challenged the above said additions by filing appeals before Ld CIT(A), inter alia, contending that the assessing officer has made the above said additions without any concrete material available. The Ld CIT(A) confirmed the additions and hence the assessee has filed these appeals.

The Learned AR submitted that both these years fall under the category of “unabated assessment years” and hence the assessments already completed prior to the date of search do not abate. He submitted that, in the case of unabated assessments, the Assessing Officer can make any addition only on the basis of any incriminating material found during the course of search. He submitted that the additions made by the AO in these years are not based on any incriminating material found during the course of search. Accordingly, he contended that all the additions made by the AO in these years are liable to be deleted. In support of this legal contention, the Ld A.R placed his reliance on the decision rendered by jurisdictional Hon’ble Bombay High Court in the cases of Continental Corporation (Nhava Sheva) Ltd (2015)(58 com 78)(Bom) and Gurinder Singh Bawa (2017)(79 taxmann.com 398)(Bom).

We heard learned DR and perused the record. It is submitted that all these years fall under the category of unabated assessment years. We notice that the additions made by the AO in these years are related to the Share Application money received by the assessee, which were added u/s 68 of the Act. It is not the case of the revenue that these additions have been made on the basis of any incriminating material found during the course of search, i.e, the AO has entertained the belief that these are only accommodation entries availed by the assessee, on the basis of report of the investigation wing.

The contention of the assessee is that the AO could not have made this addition in these years, since the department did not unearth any incriminating material during the course of search to prove that these are only accommodation entries. All the share application money received have been duly recorded in the books of accounts and no incriminating material was found during the course of search to show that they are bogus in nature. Since these assessment years fall under the category of unabated assessment years, no addition could have been made by the AO in these years in the absence of any incriminating material. We notice that the above said legal contentions of the assessee finds support from the decision rendered by Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd (supra), wherein the High Court has upheld the view given by the Special bench of Tribunal in the case of All Cargo Logistics. The relevant observations made by Hon’ble Bombay High Court in the above said case are extracted below:-

We, therefore, hold that the Special Bench’s understanding of the legal provision is not perverse nor does it suffer from any error of law apparent on the face of the record. The Special Bench in that regard held as under :

The provision under section 153A is applicable where a search or requisition is initiated after 31.5.2003. In such a case the AO is obliged to issue notice u/s 153A in respect of 6 preceding years, preceding the year in which search etc. has been initiated. Thereafter he has to assess or reassess the total income of these six years. It is obligatory on the part of the AO to assess or reassess total income of the six years as provided in section 153A(1)(b) and reiterated in the 1st proviso to this section. The second proviso states that the assessment or reassessment pending on the date of initiation of the search or requisition shall abate. We find that there is no divergence of views in so far as the provision contained in section 153A till the 1st proviso. The divergence starts from the second proviso which states that pending assessment or reassessment on the date of initiation of search shall abate. This means that an assessment or reassessment pending on the date of initiation of search shall cease to exist and no further action shall be taken thereon. The assessment shall now be made u/s 153A.

The case of Ld. Counsel for the assessee is that necessary corollary to this provision is that completed assessment shall not abate. These assessments become final except in so far and to the extent as undisclosed income is found in the course of search. On the other hand, it has been argued by the Ld. Standing Counsel that abatement of pending assessment is only for the purpose of avoiding two assessments for the same year, one being regular assessment and the other being assessment u/s 153A. In other words these two assessments coalesce into one assessment. The second proviso does not contain any word or words to the effect that no reassessment shall be made in respect of a completed assessment. The language is clear in this behalf and therefore literal interpretation should be followed. Such interpretation does not produce manifestly absurd or unjust results as section 153A (i)(b) and the first proviso clearly provide for assessment or reassessment of all six years. It may cause hardship to some assesses where one or more of such assessments has or have been completed before the date of initiation of search.

This is hardly of any relevance in view of clear and unambiguous words used by the legislature. This interpretation does not cause any absurd etc. results. There is no casus omissus and supplying any would be against the legislative intent and against the very rule in this behalf that it should be supplied for the purpose of achieving legislative intent. The submissions of the Ld. Counsels are manifold, the foremost being that the provision u/s 153A should be read in conjunction with the provision contained in section 132(1), the reason being that the latter deals with search and seizure and the former deals with assessment in case of search etc, thus, the two are inextricably linked with each other.

Before proceeding further, we may now examine the provision contained in sub-section (2) of section 153, which has been dealt with by Ld. Counsel. It provides that if any assessment made under sub- section (1) is annulled in appeal etc., then the abated assessment revives. However, if such annulment is further nullified, the assessment again abates. The case of the Ld. Counsel is that this provision further shows that completed assessments stand on a different footing from the pending assessments because appeals etc. proceedings continue to remain in force in case of completed assessments and their fate depends upon subsequent orders in appeal. On consideration of the provision and the submissions, we find that this provision also makes it clear that the abatement of pending proceedings is not of such permanent nature that they cease to exist for all times to come. The interpretation of the Ld. Counsel, though not specifically stated, would be that on annulment of the assessment made u/s 153(1), the AO gets the jurisdiction to assess the total income which was vested in him earlier independent of the search and which came to an end due to initiation of the search. 50. The provision contained in section 132 (1) empowers the officer to issue a warrant of search of the premises of a person where any one or more of conditions mentioned therein is or are satisfied, i.e. –

a) summons or notice has been issued to produce books of account or other documents but such books of account or documents have not been produced,

b) summons or notice has been or might be issued, he will not produce the books of account or other documents mentioned therein, or

c) he is in possession of any money or bullion etc. which represents wholly or partly the income or property which has not been and which would not be disclosed for the purpose of assessment, called as undisclosed income or property. We find that the provision in section 132 (1) does not use the word “incriminating document”. Clauses (a) and (b) of section 132(1) employ the words “books of account or other documents”.

For harmonious interpretation of this provision with provision contained in section 153A, all the three conditions on satisfaction of which a warrant of search can be issued will have to be taken into account.

Having held so, an assessment or reassessment u/s 153A arises only when a search has been initiated and conducted. Therefore, such an assessment has a vital link with the initiation and conduct of the search. We have mentioned that a search can be authorised on satisfaction of one of the three conditions enumerated earlier. Therefore, while interpreting the provision contained in section 153A, all these conditions will have to be taken into account. With this, we proceed to literally interpret to provision in 153A as it exists and read it alongside the provision contained in section 132(1).

The provision comes into operation if a search or requisition is initiated after 31.5.2003. On satisfaction of this condition, the AO is under obligation to issue notice to the person requiring him to furnish the return of income of six years immediately preceding the year of search. The word used is “shall” and, thus, there is no option but to issue such a notice. Thereafter he has to assess or reassess total income of these six years. In this respect also, the word used is “shall” and, therefore, the AO has no option but to assess or reassess the total income of these six years. The pending proceedings shall abate. This means that out of six years, if any assessment or reassessment is pending on the date of initiation of the search, it shall abate. In other words pending proceedings will not be proceeded with thereafter. The assessment has now to be made u/s 153A (1)(b) and the first proviso. It also means that only one assessment will be made under the aforesaid provisions as the two proceedings i.e. assessment or reassessment proceedings and proceedings under this provision merge into one. If assessment made under sub-section (1) is annulled in appeal or other legal proceedings, then the abated assessment or reassessment shall revive. This means that the assessment or reassessment, which had abated, shall be made, for which extension of time has been provided under section 153B.

The question now is – what is the scope of assessment or reassessment of total income u/s 153A (1)(b) and the first proviso ? We are of the view that for answering this question, guidance will have to be sought from section 132(1). If any books of account or other documents relevant to the assessment had not been produced in the course of original assessment and found in the course of search in our humble opinion such books of account or other documents have to be taken into account while making assessment or reassessment of total income under the aforesaid provision. Similar position will obtain in a case where undisclosed income or undisclosed property has been found as a consequence of search. In other words, harmonious interpretation will produce the following results :-

a) In so far as pending assessments are concerned, the jurisdiction to make original assessment and assessment u/s 153A merge into one and only one assessment for each assessment year shall be made separately on the basis of the findings of the search and any other material existing or brought on the record of the AO,

(b) in respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search. 54. It may be mentioned here that Ld. Counsel for All Cargo Global Logistics Ltd. was questioned about the scope of pending assessments as it was his contention that all six assessments are to be made, if necessary, on the basis of undisclosed income discovered in the course of search. He was specifically questioned about the jurisdiction of the AO to make original assessment along with assessment u/s 153A, merging into one. However he took an evasive view submitting that this question need not be decided in his case although the question of jurisdiction u/s 153A was vehemently pressed on account of which ground No.1 in the appeal for assessment year 2004-05 was admitted as additional ground. He also wanted the additional ground to be retained in case of any future contingency.”

The view expressed by Hon’ble jurisdictional Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd (supra) was reiterated by the Hon’ble Bombay High Court in yet another case of Gurinder Singh Bawa (2017)(70 taxmann.com 398) as under:-

On further appeal before the Tribunal, the assessee interalia challenged the validity of the assessment made under Section 153A of the Act. This on account of the fact that no assessment in respect of the six assessment years were pending so as to have abated. The impugned order accepted the aforesaid submission of the respondent-assessee by interalia placing reliance upon the decision of the Special Bench of the Tribunal in Al-Cargo Global Logistics Ltd. rendered on 6 July 2012. The Tribunal in the impugned order further held that no incriminating material was found during the course of the search. Thus the entire proceedings under Section 153A of the Act were without jurisdiction and therefore the addition made had to be deleted on the aforesaid ground. The impugned order also thereafter considered the issues on merits and on it also held in favour of the respondent-assessee.

Mr. Kotangale, the learned Counsel for the revenue very fairly states that the decision of the Special Bench of the Tribunal in Al-Cargo Global Logistics Ltd. was a subject matter of challenge before this Court as a part of the group of appeals disposed of as CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd. [2015] 374 ITR 645/58 taxmann.com 78/232 Taxman 270 (Bom.) upholding the view of the Special Bench of the Tribunal in Al- Cargo Global Logistics Ltd. Consequently, once an assessment has attained finality for a particular year i.e. it is not pending then the same cannot be subject to tax in proceedings under Section 153A of the Act. This of course would not apply if incriminating materials are gathered in the course of search or during proceedings under Section 153A of the Act which are contrary to and/or not disclosed during regular assessment proceedings.

In view of the above, on issue of jurisdiction itself the issue stands concluded against the revenue by the decision of this Court in Continental Warehousing Corpn. (Nhava Sheva) Ltd. (supra). In the appeal before us, the revenue has made no grievance with regard to the impugned order of the Tribunal holding that in law the proceedings under Section 153A of the Act are without jurisdiction. This in view of the fact that no assessment were pending, so as to abate nor any incriminating evidence was found. The grievance of the revenue is only with regard to finding in the impugned order on the merits of the individual claim regarding gifts and deemed dividend. However once it is not disputed by the revenue that the decision of this Court in Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra) would apply to the present facts and also that there are no assessments pending on the time of the initiation of proceedings under Section 153A of the Act. The occasion to consider the issues raised on merits in the proposed questions becomes academic.

Observation of the court

In the above view, the questions as framed in the present facts being academic in nature, do not give rise to any substantial question of law. Thus not be entertained.” 6.3 The co-ordinate bench has followed the above said binding decisions of jurisdictional High Court in the cases of Smt Anjali Pandit vs. ACIT (supra) and held as under:-

From the propositions in the above mentioned decisions, we find that the case of the assessee is squarely covered by the ratio laid down in the decisions cited supra. We therefore respectfully following the same hold that the AO has not jurisdictional to assess the long term capital gain as income from other sources as the same is not based upon the seized or incriminating materials found during the search proceedings qua the long term capital gain. Similarly the CIT(A) enhancing the assessment is also not based upon any seized or incriminating materials found during the search and therefore the enhancement is also without jurisdiction u/s 153A. Accordingly, the additional grounds no. 1A and 1B raised by the assessee stand allowed in favour of the assessee and AO is directed accordingly.”

We may also gainfully refer to the decision rendered by Hon’ble Delhi High Court in the case of Kabul Chawla, wherein identical view was expressed. The Hon’ble Delhi High Court has summarized the legal position with regard to the provisions of sec.153A as under:-

“Summary of the legal position 37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:

i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.

ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.

iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the ‘total income’ of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs “in which both the disclosed and the undisclosed income would be brought to tax”.

iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material.”

v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word ‘assess’ in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word ‘reassess’ to completed assessment proceedings.

vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.

vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.”

The decision rendered in the above said cases by Hon’ble Bombay High Court and Hon’ble Delhi High Court has been upheld by Hon’ble Supreme Court in the recent decision rendered in the case of PCIT vs. Abhisar Buildwell P Ltd (Civil Appeal No.6580 of 2021 dated 24th April, 2023). The relevant observations made by Hon’ble Supreme Court are extracted below:-

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

In view of the above and for the reasons stated above, it is concluded as under:- i) to iii) iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Section 147/148 of the Act, subject to fulfillment of the conditions as envisaged/mentioned under section 147/148 of the Act and those powers are saved.”

In view of the foregoing discussions, following binding decision rendered by Hon’ble Supreme Court in the case of Abhisar Buildwell P Ltd (supra), which in turn has approved the decision rendered by Hon’ble Jurisdictional Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd (supra) and the decision of Hon’ble Delhi High Court rendered in the case of Kabul Chawla (supra), we hold that the additions made by the Assessing Officer under section 68 of the Act towards Share Application money received by the assessee are liable to be deleted, since they are not based on any incriminating material found during the course of search. Accordingly, we set aside the orders passed by the Ld CIT(A) and direct the Assessing Officer to delete the impugned additions made in both these years.

In the result, both the appeals filed by the assessee are allowed.

Order pronounced in the open court on 23rd June, 2023.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Subscribe to WhatsApp Updates

July, 21
0
Income Tax, Income Tax Circular Notification
More

Standard

It is unsustainable to reject books of accounts solely because the gross profit rate is lower

Fact and issue of the case

These appeals of the Revenue and Cross Objection thereagainst of the assessee are directed against the consolidated order of Commissioner of Income Tax (Appeals)-12, Pune [‘CIT(A)’ hereinafter] dt. 30/03/2022 passed u/s 250 of the Income-tax Act, 1961 [‘the Act’ hereinafter], which in turn emanated from separate orders of assessment dt. 07/03/2016 framed u/s 143(3) r.w.s. 153(A) of the Act by the Asstt. Commissioner of Income Tax, Central Circle-2, Nashik [‘AO’ hereinafter] for assessment years [‘AY’ hereinafter] 2009-10 to 2014-15.

Since issues in all these appeals and cross-objections are based on similar, identical facts and further based on a search action conducted on ‘Omshree Group’ therefore, on agreement between rival parties, for the sake of brevity and convenience, we proceeded to hear these matters together for being disposed of by this common and consolidated order

Succinctly stated undisputed facts borne out of case records are;

The respondent assessee is a private limited company engaged in manufacturing and trading of edible & non-edible oils etc. Whereupon a search action u/s 132 of the Act on ‘Omshree Group’ [‘Searched Party’ hereinafter] was conducted on 20/11/2013, wherein as many as seven residential premises, three factory premises and a locker maintained at treasury branch of SBI Bank, Dhule were also covered.

Beside aforestated search action on the assessee group, a simultaneous survey action u/s 1 33A of the Act were also conducted at the factory premise of M/s Shree Gajanan Oil Mills, M/s Om Industries and at the business premises of M/s Sunil Traders [‘Other Party’ hereinafter].

Consequent to search action u/s 132 of the Act, a proceedings u/s 153A of the Act were initiated against the assessee by service of notice thereunder and in response thereto, the assessee company filed its returns of income [‘ITR’ hereinafter] for six assessment years comprised of AY 2008-09 to AY 20 13-14 on 29/09/20 14 and an ITR for the year of search i.e. AY 2014-15 was filed on 18/11/2014.

The income returned in these ITR filed under 153A proceedings, in ,the opinion of the Ld. AO did not reflect the true income of the respondent, for the reason subjecting them to a scrutiny by notice u/s 143(2) culminated these assessment by separate orders u/s 143(3) r.w.s. 153A of the Act with several additions as adumbrated hereinafter;

AY	As per ROI filed u/s 139	As per ROI filed u/s 153A	Additions made by the AO			Determined u/s 143(3) rws 153A
AY	As per ROI filed u/s 139	As per ROI filed u/s 153A	Est. G/P	Commission	Unexplained	Determined u/s 143(3) rws 153A
2008-09	45,40,990	75,40,990	1,13,86,236	60,000	–	1 ,89, 87,226
2009-10	82,18,800	1,52,18,800	2,31,23,099	1,40,000	–	3 ,84, 81,899
2010-11	36,98,340	36,98,340	3,17,21,408	–	–	3 ,54, 19,748
2011-12	70,65,400	1,02,87,510	3,17,70,387	1,11,500	7,39,000	4 ,29, 08,397
2012-13	1,60,25,256	1,63,75,260	2,22,83,729	–	1,27,889	3 ,87, 86,878
2013-14	3,12,18,280	3,12,18,280	4,73,89,101	–	–	7 ,86, 07,381
2014-15	3,16,23,321	(51,56,194)	4,08,19,531	–	3 ,63, 55,440	7 ,27, 69,081
2014-15	3,16,23,321	(51,56,194)	4,08,19,531	–	7,59,304	7 ,27, 69,081

In capping the aforestated assessment u/s 143(3) r.w.s. 153A of the Act, the Ld. AO invoking the provisions of section 145(3) of the Act has first rejected the books of account of the respondent assessee for all seven years including the year of search and made addition inter-alia differential amount of gross profit estimated @4% over the on amount of gross profit declared in the respective ITRs filed u/s 1 53A of the Act.

Aggrieved assessee contested aforestated [para 3.5] additions together with other addition toward unexplained investment [para 3.4] before the first appellate authority by separate appeals. The Ld. CIT(A) finding force in the submission of the assessee, has disapproved the action Ld. AO in rejecting books of accounts u/s 145(3) of the Act as meritless and deleted the additions made on account of lower gross profit. However Ld. FAA has confirmed other additions towards unexplained expenditure & investment etc., by his common and consolidated order dt. 30/03/2022

The Revenue aggrieved by such reversal of rejection of books and consequential deletion of addition made on account of lower gross profit and deletion of addition made on account of cash shortfall further restricting addition made towards unexplained immovable property, is before this Tribunal in present bunch of six appeals. Whereas the respondent set-up its cross objection against addition partially sustained by the first appellate authority.

In this factual background, we shall now deal first with main appeals of the Revenue i.e. IT(SS)A No. 45 to 50/PUN/2022;

As stated hereinbefore, the issues in all these appeals are based on similar & identical facts, therefore we shall take up IT(SS)A No. 45/PUN/2022 as lead case, resultantly adjudication laid in subsequent paragraphs shall mutatis-mutandis to IT(SS)A No. 46 to 50/PUN/2022.

At the outset of the physical hearing, the learned departmental representative Mr. Keyur Patel, CIT [‘DR’ hereinafter] has fairly submitted that, albeit the grounds raised in these appeals are inconsonance with rule 8 of Income Tax Appellate Tribunal Rules, 1963 [‘ITAT-Rules’ hereinafter] nevertheless they are predominantly directed against sole and substantive issue of reversal of rejection of books made u/s 145(3) of the Act and consequential deletion of addition made based on estimated gross profit which was arrived on the basis of audited financials statement of similar & comparable companies engaged into similar type of business as that of respondent assessee.

For a clarity and convenience, on a specific query from the bench, the Ld. DR adverting to impugned order has equally submitted that, in this case of respondent assessee, as on the date of search action i.e. 20/11/2013, the scrutiny assessment for AY 2008-09 & 2009-10 were already completed u/s 143(3) of the Act, whereas the time for service of notice u/s 143(2) for AY 2010-11 & 2011-12 was no longer available for initiating regular assessment proceedings. Thus admittedly these four assessment years were remained as ‘unabated or non-abated’ for the purpose of section 153A of the Act. Insofar as AY 2012-13 & 2013-14 concerned, a regular assessment proceedings u/s 143(3) by service of notice u/s 142(2) of the Act were already initiated and pending. Therefore these two pending assessments proceedings stood abated in terms of second proviso to section 153A(1) of the Act and thus were available to Ld. AO for assessment at par with search year i.e. AY 2014-15. Apparently no seized incriminating documents found referred while framing these assessment u/s 143(3) r.w.s. 153A of the Act. 4.4 During the course of physical hearing, the Ld. DR has meticulously taken us through assessment findings vis-a-vis impugned order and bolstered the action of Ld. AO in rejecting the books of the respondent on its effective failure to prove the genuineness of purchases in the absence of books and records of broker/agent who were exclusively instrumental in procuring raw-materials for the respondents. Per contra in demolishing these cases of the appellant Revenue, the learned counsel for the assessee Mr Sharad Shah [‘AR’ hereinafter] contested that, since the order of Ld. CIT(A) reversing the rejection of books and consequential deletion of addition is already accepted by the Department for AY 2008- 09, the Revenue has no case on merits, therefore all these appeals of the department deserves to be dismissed in limine. Refuting the said averments of the respondent assessee, the Ld. DR stated that, in the light of monetary restriction placed by CBDT Circular No. 17/2019, the Revenue did file no appeal against the order of Ld. CIT(A) for AY 2008- 09, therefore the contention of the respondent assessee is factually incorrect and baseless.

After hearing to rival contentions of both the parties on legal & meritorious substantive grounds; and subject to the provisions of rule 18 of ITAT-Rules, 1963, perused the material placed on records, case laws relied upon by the appellant Revenue as well the respondent assessee and duly considered the facts of the case in the light of settled legal position, which are also forewarned to respective parties to refute.

Observation of the court

We observed that, upon due verification of documents adduced by the respondent, the Ld. CIT(A) exercising his co-terminus power has restricted the said addition to the extent same remained travelled to computation of total income while filing the return u/s 1 53A of the Act. The Ld. DR hardly dispute this factual position laid para 29.2 to 29.5 placed at page 142 to 144 of the impugned order. And nothing contrary was placed before us for taking any divergent view, therefore both these grounds of the Revenue stands meritless, ergo dismissed.

In result, all the grounds of appeal raised in ITA 50/PUN/2022 are DISMISSED. IT(SSA) No. 50/PUN/2022 AY: 2014-15 ‚

On the facts and in the circumstance of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 7,59,304/- made on account of cash shortfall and unexplained expenditure thereof.

On the facts and in the circumstance of the case and in law, the learned CIT(A) erred in holding that no addition can be made on account of cash shortage. The Ld. CIT(A) has failed to appreciate the fact the assessee could not prove the expense with documentary evidences for which the cash of Rs. 7,59,304/- was claimed to be spent by the assessee.‛

In this regards, it shall suffice to state that, shortfall of cash balance revealed in the course of search action remained unexplained with cogent evidences, for the reason the Ld. AO brought this shortfall to tax as unexplained income of the respondent. During the course of first appellate proceedings however, the Ld. CIT(A) following the judicial binding precedents laid by ITAT, Pune in ITA No. 1385/PUN/2004 dt. 31/05/2007, further ITA No. 005//PUN/1997 dt. 16/05/2002 and ITA No. 72/PUN/1 996 dt. 16/05/2002, deleted the addition.

During the course of present hearing, the Revenue could hardly dispute abovestated judicial precedents. On the contrary to buttress assessee’s contention, the Ld. AR relied on the decision of Co-ordinate bench in ‘AP Refinery Pvt Ltd. Vs DCIT’ ITA No. 1279/Chd/2019.

Records perused, heard the rival contentions. In our considered opinion, the shortfall of cash represents the utilization and since such shortfall undisputedly emanated from the business premises of the respondent, the presumption always that it must have been used for the outgoing business expenditure which remained to be accounted in the books of account of the assessee. Therefore it is hard to believe by any stretch of imagination that the non-existence of cash (to the extent of shortfall) gives rise to unaccounted money. An inverse position that cash is found in excess or over what has been found recorded in the books of account, can give rise to unaccounted or unexplained money, certainly not in the present case. For the reason, respectfully following the judicial precedents (supra), we see no reasons to confirm the addition, thus these grounds of the Revenue are dismissed as unwarranted.

In result, all the grounds appeal in ITA 50/PUN/2022 are DISMISSED.

We shall now deal with Cross Objections [‘CO’ hereinafter] CO. No. 04, 05 & 07/PUN/2022 of the respondent assessee;

It is worthy to note here that, the respondent assessee initially had filed six cross objections against each of the appeals filed by the Revenue. During the course of present physical hearing the Ld. AR submitted that, these Cos are supportive to the extent relief granted by Ld. CIT(A), and concurrently agitates against sustaining the addition of expenditure made on estimation basis. It is also brought to the notice of the bench that, out of aforestated six Cos filed by the respondent assessee, three COs i.e. CO. No. 06, 08 & 09/PUN/2022 were withdrawn it by and allowed vide ordered dt. 14/03/2022, wherein similar & identical issues against appeals filed by the Revenue in ITA No. 48, 49 & 50/PUN/2022 were agitated. However it is contended that, the respondent assessee shall be pressing these present Cos for hearing alongwith the main appeals of the Revenue.

For the reasons, we have taken up all these appeals and Cos together for hearing on 11/05/2023 initially. After this bunch of six appeals are conclusively heard. Thereafter the Ld. AR argued these Cos for a considerable time, however pausing the hearing sought time for seeking instruction from the assessee as to whether these Cos are to be withdrawn or contested. In all the fairness the bench thought fit to allow reasonable time, and thus adjourned these Cos to 12/05/2023 after taking these part-heard. However on schedule day of hearing, without a letter of adjournment on record, none appeared, therefore the bench was constrained to further adjourned these part-heard Cos to 19/05/2023. 15.3 On this day of hearing 19/05/2023, the Ld. AR appearing for the assessee at the onset apologising the bench for not pressing the grounds of objection laid in these Cos, has prayed for withdrawal by placing on record an undated application. In these facts and circumstance, the bench sought explanation as to why a reasonable cost for this lackadaisical approach should not be imposed on the respondent. In the absence of any logical, convincing and bona-fide reasons forthcoming, after a heedful consideration we deem it fit, just and proper to impose a cost of ₹25,000/- in each case for wasting a valuable time & resources of appellant Revenue and court’s administrative resources as well.

In view of the aforesaid request and undated letter of withdrawal placed on record, making note of Revenue’s no-objection, we dismiss these three Cos of the assessee as withdrawn with cost. We order this dismissal with a direction to the respondent to pay the aforementioned cost by an account payee ‘Demand Draft’ to be drawn in favour of ‘National Children’s Fund’, New Delhi, within a period of 90 days from pronouncement of this order, before seeking effect hereof.

In result, all appeals of the Revenue are DISMISSED. And all cross objections of the assessee are also DISMISSED with cost in aforestated terms. In terms of rule 34 of ITAT Rules, the order pronounced in the open court on this Wednesday 28th day of June, 2023.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Read the full order from here

ACIT-Vs-Omshree-Agrotech-Private-Ltd-ITAT-Pune-2

Subscribe to WhatsApp Updates

July, 19
0
Income Tax, Income Tax Circular Notification
More

Standard

Penalty under Section 271AAB not applicable to income given up during a search

Fact and issue of the case

The assessee has filed an appeal against the order of the ld. CIT(A)-4 Jaipur dated 29-07-2022 for the assessment year 2013-14 raising therein following ground of appeal. ‘

That the ld. CIT(A) is wrong, unjust and has erred in law in confirming penalty of Rs.2.50 lacs imposed by the AO u/s 271AAB of the Act.

That the ld. CIT(A) is wrong and has erred in law in confirming the said penalty of Rs.2.50 lacs u/s 271AAB of the Act holding that it is mandatory in nature and not discretionary and so AO is correct in law while imposing penalty on assessee.

That the ld. CIT(A) is wrong and has erred in law in confirming the said penalty of Rs.2.50 lacs u/s 271AAB imposed by the AO although the notice issued by AO for initiating the penalty u/s 271AAB of the I.T. Act, 1961 is not in accordance with law and not being specifically pointing out the default for which the AO sought to impose penalty u/s 271AAB.

That the ld. CIT(A) is wrong in confirming penalty of Rs.2.50 lacs u/s 271AAB of the Act in as much the penalty was levied by AO simply on the basis that the assessee admitted the income of Rs.2.50 lacs and disclosed in the return without proving that the said income was ‘’undisclosed income” of assessee within the meaning of Section 271AAB of the I.T. Act, 1961

Brief facts of the case are that the assessee is engaged in business manufacturing, trading and export of precious &semi precious stones from last several years. A search u/s 132 of the I.T. Act, 1961 took place at residence and business premises of assessee 23-05-2013. In course of search, the assessee surrendered an income of Rs.25,00,000/-on account of land advance which he admitted as his additional business income for current year. The assessee filed original return on 29-09-2013 declaring total income of Rs. 89,40,360/- which included said additional income of Rs.25,00,000/- offered to tax in course of search. The assessment u/s 143 (3) r.w.s. 153B (1) (b) of I. T. Act, 1961 was completed on 21-03-2016 after disallowance of expenses on account of personal element/unverifiable expenses. The A.O. simultaneously initiated penalty proceedings u/s 271AAB of the Act. The A.O. thereafter took penalty proceedings initiated by him u/s 271AAB by issuing fresh show cause notice(s) to which assessee filed his explanation. The explanation filed by assessee has been held by A.O. as not sustainable at all and levied a penalty of Rs.2,50,000/- on assessee.

The assessee filed appeal before the ld. CIT (A) against said penalty order and in course of hearing filed written submissions which is reproduced in appeal order of ld. CIT (A). The Ld. CIT(A) in his order dated 29-07-2022 after considering reply filed by assessee confirmed the penalty levied by AO. The Ld. CIT (A) thus dismissed the appeal filed by assessee.

During the course of hearing, the ld. AR of the assessee prayed that the lower authorities have erred in sustaining the penalty of Rs.2.50 lacs u/s 271AAB of the Act for which the ld. AR of the assessee filed a detailed written submission concerning the issue in question.

‘’The groundwise submission of assessee are as under: –

The ground no.1and 3 are interlinked hence a combined submission is made here under:-

The Ld. A.O. has levied impugned penalty u/s 271AAB(1)(a)of the I T Act, 1961. In this connection it is submitted that the section 271AAB of Act has three limbs as specified in Section i.e. 271AAB (1) (a), (b) & (c) and the notice dated 21-03-2016 sent to assessee alongwith assessment order does not specify in which limb the penalty sought to be levied and only mentioning of Section271AAB in notice do not satisfy the requirement of law. The language of the said notice issued is“Whereas in the course of assessment proceedings before me for the A.Y. 2013-14 it appears to me that as per section 274 and 275 read with section 271AAB of the I T Act you are liable for penalty on assessed undisclosed income. The Ld. A.O. thereafter issued another show cause notice dated 17-08-2016by changing only date of notice stating the same wordings of earlier notice dated 21-032016 that “

“Whereas in the course of assessment proceedings before me for the A.Y. 2013-14 it appears to me that as per section 274 and 275 read with section 271AAB of the I T Act you are liable for penalty on assessed undisclosed income.”

Again, a third show cause notice dated 07-09-2018 was issued having the same wordings of earlier notice(s). The assessee after receiving this notice filed his explanation on 14-09-2018. The Ld. A.O. on receipt of explanation of assessee passed the penalty order on 23-03-2020. It is verifiable that all the three notices were issued in a routine manner without mentioning under which clause of section 271AAB of the Act the assessee is liable for penalty. It submitted that section 271AAB(1) has three clauses (a) to (c) and each clause of sub-section (1) to sec. 271AAB provides the circumstances and violation attracting the penalty @ 10% or 20% or 30% of undisclosed income of specified previous year. The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice are violated. On the basis of such proceeding, no penalty could be imposed on the assessee. Thus, there is no application of mind at the time of issuing the show cause notice as the show cause notice issued by the AO do not specify the undisclosed income on which the assessee is required to show cause. Even the AO has not given any ground for levy of penalty for which the assessee could put his defense. Thus, in the absence of specific charge against the assessee, he was not in a position to counter the show cause notice issued by the AO as well as his cogent reply to the show cause notice. Though the AO while passing the impugned order has imposed the penalty as per clause (a) of section 271AAB(1) of the Act, however, no such ground was specified in the show cause notice issued under section 271AAB read with section 274 of the Act. In this respect Reliance is placed on the judgement of Hon’ble Karnataka High Court in the case of CIT Vs. M/s SSA’s EMERALD MEADOWS reported in 2015 (11) TMI 1620 – , wherein Hon’ble Court has held that: –

The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under section 274 read with Section 271 (1) (c) of the Income Tax Act, 1961 (for short ‘the Act’) to be bad in law as it did not specify which limb of Section 271 (1) (c) of the Act, the penalty proceedings had been initiated i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee has relied on the decision of the Division Bench of this Court rendered in the case of COMMISSIONER OF INCOME TAX – VS – MANJUNATHA COTTON AND GINNING FACTORY (2013) 359 ITR 565.

In our view, since the matter is covered by judgement of the Division Bench of this Court, we are of the opinion, no substantial question of law arised in this appeal for determination by this Court. The appeal is accordingly dismissed.

The department has filed SLP in Hon’ble Supreme Court which has been dismissed. Therefore, Hon’ble Supreme Court has approved the findings made by Hon’ble Karnataka High Court in the case of CIT Vs. SSA’s Emerald Meadows And CIT Vs Manjunatha Cotton &Ginnign Factory & others [2013] 359 ITR 565. Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory [2013] 359 ITR 565 (Karnataka) after referring to the decision of Hon’ble Supreme Court in the case of T. Ashok Pai (Supra) held as under:

Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 292 ITR 11 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of MA NU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 171 taxman 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The Standard proforma without striking of the relevant clauses will lead to an inference as to non application of mind….. ?

The Hon’ble ITAT, Jaipur Bench, Jaipur in the case of Anuj Mathur Vs DCIT, CC-4, Jaipur (ITA No. 971/JP/17) held that “As regards the validity of notice under section 274 for want of specifying the ground and default, we find that when the basic condition of the undisclosed income not recorded in the books of accounts does not exists, then the same has to be specified by the AO in the show cause notice and further the AO is required to give a finding while imposing the penalty under section 271AAB. Even if the AO is satisfied and come to the conclusion that the assessee has not recorded the undisclosed income in the books of accounts or in the other documents / record maintained in normal course relating to specified previous year, the show cause notice shall also specify the default committed by the assessee to attract the penalty @ 10% or 20% or 30% of the undisclosed income. There is no dispute that the AO has not specified the default and charge against the assessee which necessitated the levy of penalty under section 271AAB of the Act. Consequently, the assessee was not given an opportunity to explain his case for specific default attracting the levy of penalty in terms of clauses (a) to (c) of section 271AAB(1) of the Act. In view of the above the show cause notice issued by the AO in the case of assesee is not sustainable. The appellant also relied on the following decision:-

DCIT vs. Shri R. Elangovan in ITA No. 1199/CHNY/2017 dated 05-04-2018 :

The Hon’ble Tribunal in the said case while considering the validity of show cause notice and initiation of proceedings under section 271AAB and following the decision of Hon’ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton & Ginning Factory (supra) as well as the decision of Hon’ble Supreme Court dismissing the SLP filed by the revenue in the case of CIT vs. SSA’s Emerald Meadows, 242 Taxman 150 (SC) held that the notice issued under section 274 read with section 271AAB of the Act not specifying the ground and clauses for levy of penalty was not valid and consequently the penalty order was set aside.

Hon’ble Jurisdictional High Court in the case of Sheveta Construction Co. Pvt. Ltd. in DBIT Appeal No. 534/2008 dated 06.12.2016 wherein the Hon’ble High Court at Para 9 of its order held as under: –

Taking into consideration the decision of the Andhra Pradesh High Court which virtually considered the subsequent law and the law which was prevailing on the date the decision was rendered on 27.08.2012. In view of the observation made in the said judgement, we are of the opinion that the contention raised by the appellant is required to be accepted and in the finding of Assessing officer in the assessment order it is held that the A.O. has to give a notice as to whether he proposes to levy penalty for concealment of income or furnishing inaccurate particulars. He cannot have both the conditions and if it is so he has to say so in the notice and record a finding in the penalty order ….”

(Emphasis Supplied).

Narayana Heihts& Towers, Vs. I.T.O. Ward – 2- 4 Jaipur ITA No. 1033/JP/2016 (iv). The ITAT, Jaipur Bench, Jaipur in case of La! Chand Mitta! Vs. DCIT (ITA No. 772/JP/2016 order dated 29-12-2011 and various other cases decided by it held that on the basis of such notice issued by sending printed where only all the ground of section 271 (1) (c) are mentioned or where show cause notice u/s 271 (1) (c) for imposing of penalty without specifying the limb for reasons to impose penalty whether for concealment of income or furnish inaccurate particulars of income is not as per law and assessing officer did not have any jurisdiction to impose penalty u/s 271 (1) (c). In the case(s) Radha Mohan Maheshwari Vs. DCIT (ITA No. 773/JP/2013) Mohd. Sharif Khan Vs. DCIT (ITA No. 441/JP/2014) Shankar Lal Khandelwal Vs. DCIT (ITA No. 878/JP/2013)Murari Lal Mittal (ITA No. 334/JP/2015 order dated 9-11-2016 and Mridula Agarwal (ITA No. 176/JP/2016) the Hon’ble Bench upheld the same view. (v). The Hon’ble ITAT, Jaipur Bench, Jaipur in a recent case of Gopal Das Sonkia DCIT, CC-2, Jaipur (ITA No. 306/JP/2018 ) order dated 11-04-2019 held that “it is clear that both the show cause notices issued by the AO for initiation of penalty proceedings under section 271AAB are very vague and silent about the default of the assessee and further the amount of undisclosed income on which the penalty was proposed to be levied. Even the Hon’ble Jurisdictional High Court in case of Shevata Construction Co. Pvt. Ltd in DBIT Appeal No. 534/2008 dated 06.12.2016 has concurred with the view taken by Hon’ble Karnataka High Court in case of CIT Vs. Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Karnataka) which was subsequently upheld by the Hon ’ble Supreme Court by dismissing the SLP filed by the revenue in the case of CIT Vs. SSA’s Emerald Meadows, 242 taxman 180(SC). Accordingly, following the decision of the Coordinate Bench as well as Hon’ble Jurisdictional High Court, this issue is decided in favour of the assessee by holding that the initiation of penalty is not valid and consequently the order passed under section 271AAB is not sustainable and liable to be quashed. (VI) The Hon’ble ITAT, Jaipur Bench, Jaipur in a recent case of Mukund Sharan Goyal Vs. DCIT, CC-2, Jaipur (ITA No. 293/JP/2018 ) order dated 23-09-2019 held that “On similar facts, the Tribunal has already decided this issue in favour of the assessee by holding that the initiation of penalty is not valid and consequently the order passed under section 271AAB is not sustainable and liable to be quashed. Following the earlier orders and taking a consistent view, we hold that when the AO has failed to specify the default attracting the levy of penalty in terms of clauses (a) to (c) of section 271AAB(1) of the Act, the said show cause notice suffers from illegality and consequently the order passed by the AO under section 271AAB is not sustainable and liable to be quashed.” Thus, it is submitted that notice issued u/s 271AAB by Ld. A.O. to assessee is wrong and bad in law and consequently the penalty levied u/s 271AAB (1) (a) is also wrong and bad in law which deserves to be deleted.

Observation of the court

We have heard both the parties and perused the materials available on record. Brief facts of the case are that the assessee is engaged in business manufacturing, trading and export of precious & semi precious stones from last several years. A search u/s 132 of the I.T. Act, 1961 took place at residence and business premises of assessee 23-05-2013. In course of search, the assessee surrendered an income of Rs.25,00,000/-on account of land advance which he admitted as his additional business income for current year. The assessee filed original return on 29-09-2013 declaring total income of Rs. 89,40,360/- which included said additional income of Rs.25,00,000/- offered to tax in course of search. The assessment u/s 143 (3) r.w.s. 153B (1) (b) of I. T. Act, 1961 was completed on 21-03-2016 after disallowance of expenses on account of personal element/unverifiable expenses. The A.O. simultaneously initiated penalty proceedings u/s 271AAB of the Act. The A.O. thereafter took penalty proceedings initiated by him u/s 271AAB by issuing fresh show cause notice(s) to which assessee filed his explanation. The explanation filed by assessee has been held by A.O. as not sustainable at all and levied a penalty of Rs.2,50,000/- on assessee.The assessee filed appeal before the ld. CIT (A) against said penalty order and in course of hearing filed written submissions which is reproduced in appeal order of ld. CIT (A). The Ld. CIT(A) in his order dated 29-07-2022 after considering reply filed by assessee confirmed the penalty levied by AO. The Ld. CIT (A) thus dismissed the appeal filed by assessee. It is noted from the records that the Department had carried out the search and seizure operation on the assessee group and thus did not find any evidence which could show that the assessee was having undisclosed income and the ld. AR submitted that the revenue authorities had exerted undue pressure and obtained surrender of income from the assessee. It is worthwhile to mention that CBDT Circular F.No.286/2/2003-IT(Inv.) dated 10-03-2003 indicates that practice of confession of additional income during search and seizure operation does not serve any useful purpose and there should be concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income Tax Department. The Bench noted that the Board Circular dated 10-03-2003 (supra) submitted by the ld. AR assessee through its written submission has merit. We have taken into consideration the case laws cited by both the parties and also kept in mind the citations as mentioned by the ld. CIT(A) in his order, however, we find that the recent judgement of ITAT Jaipur Bench in the case of Rajendra Kumar Gupta vs DCIT in ITA No. 359/JP/2017 dated 18-01-2019 finds favour in the case of the assessee as the Bench has discussed the issue in its order very elaborately and judiciously and the relevant extract of the same is reproduced as under:-

During the course of search, a note book (diary) has been found referred to as Ann. AS wherein there are certain notings relating to cash advances given to various persons totaling to Rs. 82,80,000. Referring to the statement of the assessee in respect of these notings recorded u/s 132 (4), Ld. CIT (A) has given a finding that the assessee has given a generalized statement without specifying the complete particulars of persons to whom loans were given and also failed to substantiate the same. The said findings have not been disputed by the Revenue and therefore, merely based on surrender and generalized statement of the assessee, in absence of anything specific to corroborate such entries, can it be said that such entries/notings represent undisclosed income of the assessee. As per the definition of undisclosed income u/s 271AAB, the said cash advances cannot be stated to be income which is represented by any money, bullion, jewellery or other valuable particle or thing. Whether it can then be said that such undisclosed cash represents income by way of any entry in books of account or other documents or transactions found in the course of a search under section 132. A cash advance per se represents an outflow of funds from the assessee’s hand and an income per se represents an inflow of funds in the hands of assessee. Therefore, once there is an inflow of funds by way of income, there can be subsequent outflow by way of an advance to any third party. Giving an advance and income thus connotes different meaning and connotation and thus cannot be used inter-changeably. In the definition of undisclosed income, where it talks about “income by way of any entry in the books of account or other documents or transactions found in the course of a search under section 132”, what perhaps has been envisaged by the legislature is an inflow of funds in the hands of the assessee which has been found by way of any entry in the books of accounts or other documents, and which has not been recorded before the date of search in the books of accounts or other documents maintained by the assessee in the normal course and not vice-versa. We are also conscious of the fact that there are deeming provisions in terms of section 69 and 69B wherein such amounts may be deemed as income in absence of satisfactory explanation. In our view, the deeming fiction so envisaged under Section 69 and Section 69B cannot be extended and applied automatically in context of section 271AAB. It is a well-settled legal proposition that the deeming provisions are limited for the purposes that have been brought on the statue book and have therefore to be applied in the context of provisions wherein they have been brought on the statue book and not otherwise. In the instant case, the deeming provisions contained in section 69 and section 69B could have been applied in the context of bringing to tax such investments to tax in the quantum proceedings, though the fact of the matter is that the A.O. has not even invoked the said deeming provisions in the quantum proceedings. Therefore, even on this account, the deeming fiction cannot be extended to the penalty proceedings which are separate and distinct from the assessment proceedings and more so, where the provisions of section 271AAB provide for a specific definition of undisclosed income. Where a specific definition of undisclosed income has been provided in Section 271AAB, being a penal provision, the same must be strictly construed and in light of satisfaction of conditions specified therein and it is not expected to examine other provisions where the same has been defined or deemed for the purposes of bringing the amount to tax. In light of the same, the undisclosed investment by way of advances can be subject matter of addition in the quantum proceedings, as the same has been surrendered during the course of search in the statement recorded u/s 132 (4) and offered in the return of income, however the same cannot be said to qualify as an undisclosed income in the context of section 271AAB read with the explanation thereto and penalty so levied thereon deserves to be set-aside.”

Respectfully following the above decision in the case of Rajendra Kumar Gupta (supra) and in view of the above deliberation that the income surrendered is not an undisclosed income as specified in Explanation © of Section 271AAB of the Act, therefore, we do not concur with the findings of the ld. CIT(A) as the ld. AR of the assessee has very explicitly narrated the case in his written submission countering the decision taken by the ld. CIT(A) in his order. Thus, the grounds of appeal raised by the assessee in his appeal are allowed

In the result, the appeal of the assesee is allowed .

Order pronounced in the open court on 22/06/2023.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Read the full order from here

Paras-Mal-Jain-Vs-DCIT-ITAT-Jaipur-2

Subscribe to WhatsApp Updates

July, 18
0
Income Tax, Income Tax Circular Notification
More

Section 132

If an entity doesn’t exist, the order that was passed is void

Fact and issue of the case

Observation of the court

Conclusion

Read the full order from here

Enter your email address:

Section 263 Revision is upheld since the AO did not review the seized documents

Fact and issue of the case

Observation of the court

Conclusion

Enter your email address:

Addition u/s 69C based on a dubious document is unworkable

Fact and issue of the case

Observation of the court

Conclusion

Enter your email address:

Deducting the cost of the property from the sale consideration together with any other charges

Fact and issue of the case

Observation of the court

Conclusion

Read the full order from here

Enter your email address:

Addition to inexplicable credit not upheld since source of credit is properly disclosed

Fact and issue of the case

Observation of the court

Conclusion

Enter your email address:

Unsupportable addition under Section 68 based only on suspicion

Fact and issue of the case

Observation of the court

Conclusion

Read the full order from here

Enter your email address:

No cash payment according to Section 69 Addition based only upon Seized Third-Party Ledger

Fact and issue of the case

Observation of the court

Conclusion

Enter your email address:

In the absence of any evidence of guilt discovered during the search, the addition under Section 68 to the share application money is unsustainable

Fact and issue of the case

Observation of the court

Conclusion

Enter your email address:

It is unsustainable to reject books of accounts solely because the gross profit rate is lower

Fact and issue of the case

Observation of the court

Conclusion

Read the full order from here

Enter your email address:

Penalty under Section 271AAB not applicable to income given up during a search

Fact and issue of the case

Observation of the court

Conclusion

Read the full order from here

Enter your email address: