If no incriminating material was found during course of search to prove that assessee paid over and above what was stated in its books, there no justification to assume jurisdiction u/s 153C

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If no incriminating material was found during course of search to prove that assessee paid over and above what was stated in its books, there no justification to assume jurisdiction u/s 153C

 

Short Overview  Where no incriminating material was found during course of search to prove that assessee paid over and above what was stated in its books of account for purchase of shares, in absence of any evidence on record, there was no basis for the AO to make any addition against the assessee.

Assessee purchased shares from company ‘T’. AO noticed that the said shares were purchased by T at a much higher price than the price at which the same were sold to assessee. AO, therefore, came to the conclusion that since assessee purchased the same shares just after 5 days from T at a much lower price, therefore, it must have paid the sale consideration outside the books of account. Accordingly, AO passed assessment order under section 153C holding that the assessee made investment outside books of account and made addition of the same. Assessee contended that as no incriminating material was there, thus, no addition could be made under section 153C.

It is held that Since no incriminating material was found during course of search to prove that assessee paid over and above what was stated in its books of account for purchase of shares of T, therefore, in absence of any evidence on record, there was no basis for AO to make any addition against the assessee. Moreover, no satisfaction was recorded in the case of the person searched and no incriminating material was found connected to assessee. Hence, there was no justification to assume jurisdiction under section 153C.

Decision: In assessee’s favour

Referred: CIT v. Sinhgad Technical Education Society (2017) 397 ITR 344 (SC): 2017 TaxPub (DT) 3941 (SC), Asstt. CIT v. Global Estate (2013) 142 ITD 740 (Agra): 2013 TaxPub (DT) 1712 (Agra-Trib).

IN THE ITAT, DELHI BENCH

BHAVNESH SAINI, J.M. AND B.R.R. KUMAR, A.M.

Dy. CIT v. Prominent Realtech (P) Ltd.

ITA Nos. 6817 & 6818/Del./2013, Cross Objection Nos. 258 & 259/Del./2014, Arising out of ITA Nos. 6817 & 6818/Del/2013

14 October, 2019

Assessee by: K. Sampat, Advocate

Revenue by: J.K. Mishra, Commissioner of Income Tax-Departmental Representative

ORDER

Bhavnesh Saini, J.M.

Both the Departmental Appeals as well as Cross Objections by assessee are directed against the different orders of the learned Commissioner (Appeals)-3, New Delhi, dt. 17-10-2013 and 15-10-2013 for the assessment year 2008-2009.

  1. We have heard the learned representatives of both the parties and perused the material on record. Both the parties mainly argued in the case of Prominent Real-Tech (P.) Ltd., and have submitted that the issue is same in other case also, therefore, the Order in the case of Prominent Real-Tech (P.) Ltd., may be followed in other appeals. Therefore, we decide appeal of Prominent Real-Tech (P.) Ltd., as under.
  2. Briefly the facts of the case are that assessing officer passed the assessment order under section 153C read with section 143(3) of the Income Tax Act, 1961, Dated 22-3-2013. In this year, as against the returned income of ₹ NIL, the assessing officer assessed the assessee company at an income of ₹ 9,70,40,500 by making the addition on account of investment made from the source not disclosed to the Revenue Department. The assessing officer noted that in the year under consideration, the assessee had purchased following shares from Triveni Infrastructure Development Co. Ltd., (“TIDCL”) on 28-3-2008 –

(i) 20,000 shares of Ramada Hospitality (P.) Ltd., for a sum of ₹ 50 lakhs.

(ii) 24,000 shares of Better Homes Build-Tech (P.) Ltd., for ₹ 89,59,500.

3.1. The assessing officer found that TIDCL had purchased both the above shares from the promoter company at a much higher price i.e., for ₹ 5 crores for Ramada Hospitality (P.) Ltd., and for ₹ 6.10 crores for Better Homes Build-Tech (P.) Ltd. The assessing officer, therefore, came to the conclusion that since assessee company purchased the same shares just after 05 days from TIDCL at a much lower price, therefore, assessee must have paid the sale consideration outside the books of account. Accordingly, assessing officer in the assessment order held that assessee has paid to TIDCL outside books of account and made addition of ₹ 9,70,40,500.

  1. The assessee challenged the assumption of jurisdiction under section 153C of the Income Tax Act as well as addition on merits before the learned Commissioner (Appeals). The learned Commissioner (Appeals) rejected the ground relating to assumption of jurisdiction under section 153C of the Income Tax Act. The assessee on merit contended that addition can be made under section 153C only on the basis of the incriminating material found during the course of search. However, no incriminating material was there, therefore, no addition can be made. It was further submitted that there is no evidence that assessee has made investment outside the books of account. There has to be some evidence for the undisclosed investment allegedly made by the assessee. Since there is no evidence available on record, therefore, whole addition is unjustified.

It was further submitted that the shares were subsequently sold by the assessee company in financial year 2010-2011 for a sum of ₹ 1,39,59,500 and this fact has been accepted by the assessing officer in the assessment under section 143(3) for assessment year 2011- 2012. The learned Commissioner (Appeals) accepted the explanation of assessee that there is no evidence on record with the assessing officer to come to the conclusion that any payment over and above the stated price of shares have been paid to TIDCL. Further, these shares have been sold in subsequent assessment year 2011-2012 and sale consideration have been accepted by the assessing officer.

Therefore, there was no basis to make any addition. The addition was accordingly deleted. The learned Commissioner (Appeals) also noted that since loss is booked by TIDCL, therefore, it needs investigation at the level of the assessing officer in that case. The addition was accordingly deleted.

  1. In the departmental appeal, the revenue challenged the deletion of addition of ₹ 9,70,40,500.
  2. After considering the rival submissions, we are of the view that no interference is called for in the matter. It is an admitted fact that during the course of search no incriminating material found which may belong to assessee to prove that assessee paid over and above what is stated in the books of account for purchase of shares of TIDCL. In the absence of any evidence on record, there were no basis for the assessing officer to make any addition against the assessee. Assessing officer made addition merely on the basis of presumption of certain facts, for which, there is no evidence available on record.

Further the same shares have been sold by assessee in subsequent assessment year 2011-2012 at a lesser price as against the addition made by the assessing officer which is accepted by the assessing officer under section 143(3) of the Income Tax Act. In these circumstances and in the absence of any evidence on record, no interference is called for. The Departmental Appeal is accordingly dismissed.

  1. In the Cross Objections the assessee challenged the assumption of jurisdiction under section 153C of the Income Tax Act. Learned counsel for the assessee referred to satisfaction note, copy of which is filed at page-1 of the paper book of the Department, which reads as under :

“Income Tax Department

Name of the Assessee : Prominent Realtech (P.)
Status : Company
PAN : AAECP6096N

Satisfaction note for initiating proceedings under section 153C of the Income Tax Act, 1961

A search & seizure operation under section 132 of the Income Tax Act, 1961 was carried out on 28-9-2010 in Triveni Group by the ADIT (Inv.), Unit-III(3), New Delhi. During the course of search, documents as per Annexure A-7 and A-1 were found and seized as per panchanama dt. 29-9-2010. I have carefully examined these documents and it is found that these documents belong to Prominent Realtech (P.) Ltd.

The contents of these documents are as under :

Annexure No. Page No. Description/Detail of paper.
A-7/party TA-3 1 and 2 Balance sheet of the company as on 31-3-2008 dully signed by the Director of company and Chartered Accountant.
A-1/party TA-3 34 and 35 Trial balance and sundry creditors of company 1-4-2010 to 28-9-2010.

I have carefully examined and found that these documents belongs to M/s Prominent Realtech (P.) Ltd.

In view of above facts, I am satisfied that this is a case of a person other than the person referred to in section 153A covered under section 132 of the Income Tax Ac. 1961.

Accordingly, I am satisfied that this is a fit case for initiation of proceedings under section 153C read writ section 153A of the Income Tax Act, 1961 in the case of Prominent Realtech (P.) Ltd.

Issue notice under section 153C of the Income Tax Act. 1961 in the case of Prominent Realtech (P.) Ltd. accordingly for assessment year 2008-09 and assessment year 2010-11 separately.

Sd- Subhash Verma,

Dy. Commissioner of Income Tax,

Central Circle – 22, New Delhi.”

7.1. In this satisfaction note assessing officer has referred to the balance-sheet of the assessee which is already in public domain. Learned Counsel for the assessee, therefore, submitted that satisfaction is not as per Law and no incriminating material is found against the assessee. He has relied upon Judgment of Hon’ble Supreme Court in the case of CIT v. Sinhgad Technical Education Society (2017) 397 ITR 344 (SC) : 2017 TaxPub(DT) 3941 (SC). He has also relied upon Judgment of Hon’ble Delhi High court in the case of CIT v., Radhey Shyam Bansal (2011) 337 ITR 217 (Del.) : 2011 TaxPub(DT) 2061 (Del-HC) and Amity Hotels (P.) Ltd. v. CIT (2005) 272 ITR 75 (Del.) : 2005 TaxPub(DT) 0743 (Del-HC).

  1. On the other hand, learned Departmental Representative relied upon the orders of the authorities below.
  2. We have considered the rival submissions. Since addition on merit have already been deleted and confirmed by us, therefore, this issue is left with academic discussion only. However, briefly, we may point-out that in this case satisfaction note have been recorded in the case of assessee instead of recording it in the case of person searched by assessing officer of the assessee which is invalid. Further balance-sheet of the assessee have been referred to which was found during the course of search in the case of Triveni Group.

Therefore, no satisfaction have been recorded in the case of the person searched and that no incriminating material have been found to connect the assessee with the impugned addition. It is balance-sheet of the assessee only which is already on the record of the Department as well in public domain. The ITAT, Agra Bench in the case of ACIT, Circle-I, Gwalior v. Global Estae (2013) 142 ITD 740 (Agra) : 2013 TaxPub(DT) 1712 (Agra-Trib) held as under :

The assessee had a case for quashing of proceedings under section 153C. No material is produced to prove that the assessing officer in the case of person searched was satisfied that any money, bullion, jewellery or other valuable article or things or books of account or documents seized or requisitioned belongs to or belong to a person other than the person referred to in section 153A.

No material is produced before to show if any satisfaction was recorded by the assessing officer in that case that the material belongs to any person other than the person with respect to whom search was made under section 132. Department did not produce any material to show if any such satisfaction as required under section 153C was recorded by the assessing officer in the case of person searched. No material is produced in reference to above requirement.

No material is also produced before to show that books of account or documents or assets seized had been handed over to the assessing officer having jurisdiction over such other person. In the absence of any adequate material produced by the department contention of the assessee was justified that in this case, the assessing officer had not recorded any satisfaction that any seized document or material belongs to any person other person searched.

Since the revenue is in appeal, therefore, burden was upon them to prove that necessary ingredients of section 153C have been complied with in this case before invoking jurisdiction under section 153C.

It is added further here that the assessing officer has not referred to any seized document or material in the assessment orders on the basis of which, additions on merit have been made.

Therefore, the conditions of section 153Cas noted above are also not satisfied in this case. Therefore, there is no infirmity in the order of the Commissioner (Appeals) in quashing the proceedings under section 153C.”

9.1. The Hon’ble Supreme Court in the case of CIT v. Sinhgad Technical Education Society (supra), held as under:

“Held, dismissing the appeals, (i) that the Tribunal permitted the assessee to raise the additional ground on the ground that it was a jurisdictional issue taken up on the basis of facts already on record, that under section 153C of the Act, incriminating material which was seized had to pertain to the assessment years in question, and that the documents which were seized did not establish any co-relation, document-wise, with these four assessment years. The Tribunal found that the material disclosed in the satisfaction note belonged to assessment year 2004-05 or thereafter. The Tribunal rightly permitted this additional ground to be raised and correctly dealt with the groundon the merits as well. The High Court was right in affirming this view of the Tribunal.

Decision of the Bombay High Court in CIT v. Sinhgad Technical Education Society (2015) 378 ITR 84 (Bom) : 2015 TaxPub(DT) 1464 (Bom-HC) affirmed.

(ii) That the assessment order passed by the assessing officer covered eight assessment years.

For six assessment years the assessment was under section 153C of the Act. The assessment order was set aside only in respect of four of those assessment years and on a technical ground. The objection pertaining to the four assessment years in question did not relate to the other tax assessment years, namely, 2004-05 and 2005-06.

Nor did this decision have a bearing in respect of assessment for assessment year 1999-2000 or assessment year 2006-07. The necessary consequence would be that the conclusions of the assessing officer in his assessment order regarding the activities of the trust not being genuine and not carried out in accordance with the trust deed or cancellation of registration, denial of benefits of sections 11 and 12 would not be affected by this judgment.”

9.2. In view of the above, there was no justification to assume jurisdiction under section 153C of the Income Tax Act, 1961. In view of the above, we set aside the orders of the authorities below and quash the assumption of jurisdiction under section 153C of the Income Tax Act. C.O. No. 248/Del./2014 of the assessee is allowed.

  1. In the result, appeal of the department dismissed and Cross-Objection of the assessee allowed.
  2. In the departmental appeal, revenue challenged the deletion of addition of ₹ 7,71,24,500 on account of unexplained investment. The assessee in the Cross Objection has challenged the assumption of jurisdiction under section 153C of the Income Tax Act, 1961.
  3. Since issues are identical in both the matters, therefore, following the decision in the case of Prominent Realtech (P.) Ltd., New Delhiin ITA No. 6817/Del./2013 (supra), we dismiss the Departmental Appeal and allow the Cross Objection.
  4. In the result, ITA No. 6818/Del./2013of the revenue dismissed and C.O. No. 259/Del./2014 of the assessee allowed.
  5. To sum-up, both the appeals of the department are dismissed and both the Cross Objections of the assessee are allowed.

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