Short Overview Where regular assessment for the year under consideration remained unabated as on date of search, same could not be interfered with while framing section 153A assessment, in the absence of incriminating material discovered during search.

AO, pursuant to search conducted at assessee’s premises, framed assessment under section 153A and made addition under section 68. Assessee challenged this on the ground of no incriminating material found during search.

 It is held that Regular assessment for the year under consideration remained unabated as on date of search and, therefore, same could not be interfered with while framing section 153A assessment, in the absence of incriminating material discovered during search.

Decision: In assessee’s favour.

Followed: CIT v. Continental Warehousing Corporation (2015) 58 taxmann.com 78 (Bom-HC) : 2015 TaxPub(DT) 2182 (Bom-HC) and CIT v. Kabul Chawla (2015) 93 CCH 210 (Del) : 2015 TaxPub(DT) 3486 (Del-HC).

IN THE ITAT, AHMEDABAD BENCH

PAWAN SINGH, J.M. & ARJUN LAL SAINI, A.M.

Dy. CIT v. Creative Trendz (P) Ltd.

I.T(SS)A Nos. 272 & 273/Ahd/2016

13 November, 2020

Assessee by : Rasesh Shah, CA

Revenue by : Sreenivas T. Bidari, CIT-DR

Pawan Singh, J.M.

These two appeals by the revenue are directed against the order of learned Commissioner (Appeals) (learned CIT (A)), Surat dt. 17-6-2016 for assessment year 2009-10 and 2010-11.

2. In both the appeals the revenue has raised certain common grounds of appeal except variation of addition, the learned Commissioner (Appeals) passed consolidt. order for both the assessment years, therefore, with the consent of the parties, both the appeals were heard and are decided by common order. For appreciation of facts, appeal for assessment year 2009-10 was treated as lead case. The revenue as raised following grounds of appeal:

“(1) On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) has erred in deleting the addition of Rs. 3,13,90,000 made by the assessing officer on account of unexplained cash credits under section 68 of the Act stating that completed assessment can be interfered with by the assessing officer making assessment under section 153A only on the basis of some incriminating material unearthed during the search action. There is no mention in section 153A of the Act that any incriminating material had to be found during the search in order that an assessment could be framed in terms of the first proviso to section 153A(1) of the Act for those assessment years where the assessment already stood completed on the date of search.

(2) On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) has erred in deleting the addition of Rs. 3,13,90,000 made by the assessing officer on account of unexplained cash credits under section 68 of the Act in spite of the fact that evidences on record clearly indicate that the assessee company is indulged in circular transactions by diverting its unaccounted income to M/s Rotech Merchants Pvt. Ltd. which is Kolkata based bogus company and exists only on paper, which in turn invests in shares of the assessee company to the tune of Rs. 3,13,90,000 even though it has no creditworthiness to invest such huge amount which is proved by the fact that the said shareholder company has consistently reported loss from assessment year 2009-10 to assessment year 2012-13. Identity, creditworthiness and genuineness of transaction were also not provided by the assessee. Moreover, the assessee company has issued shares to Kolkata based company at Rs. 490 premium whereas in the same year, the assessee company has issued shares to the directors of the company at no premium.

(3) On the facts and in the circumstances of the case, the learned Commissioner (Appeals) ought to have upheld the order of the assessing officer.

(4) It is, therefore, prayed that the order of the Commissioner (Appeals) may be set aside and that of assessing officer may be restored to the above extent.”

3. Facts of the case in brief are that the assessee is a company engaged in the business of embroidery of cloth and job work. The assessee filed its Return of Income for year under consideration on 15-9-2009 declaring total income of Rs. 1,85,10,810. The Return of Income was processed and accepted under section 143(1) of the Act. A search action under section 132 was carried out on 18-2-2014 on the premises of the assessee. Consequent upon the search a notice under section 153A dt. 28-11-2014 was issued to the assessee to file Return of Income for the year under consideration (assessment year 2009-10).

4. In response to notice under section 153A of the Act, the assessee furnished Return of Income on 27-2-2014 declaring income of Rs. 1,85,10,810. The assessing officer (AO) after serving notice under section 143(2) of the Act proceeded for re-assessment of income furnished in response to notice under section 153A of the Act. During the assessment the assessing officer issued notice to the assessee vide Notice, dt. 16-3-2016 as to why the share capital of Rs. 3.13 crore raised during the assessment year 2009-10 and Rs. 3.57 crore in assessment year 2010-11 should not be treated as unexplained cash credit. The assessing officer also mentioned in the show cause notice that the investor company has no creditworthiness to make investment. It was also mentioned that during the search action stamen of one of the Director namely Jayesh Mistry was recorded and he was unable to make reply about the whereabouts of the investor company or that share certificate in the name of Investor Company was found and seized which shows that share certificate was not used and the name of investor was used as a colorable device.

5. The assessee filed its reply dt. 23-3-2016. In the reply, the assessee stated that assessment completed under section 143(3) cannot be interfered without any incriminating material found during the course of search. The assessee stated the assessment for the year was completed under section 143(3) and no incriminating material was found during the search related with the share application money. The investor company has sufficient share capital and reserve funds available with them. It was stated that their employee made some mistake in filing up the details in the share certificates and same was discarded not signed. These unsigned shares were rough papers, which were not destroyed.

The assessee also stated that onus passed under section 68 of the Act fully discharged. The assessee also submitted that in response to notice under section 133(6), the investor company responded and filed its reply confirming the transaction.

6. The assessing officer not accepted the contention of the assessee. The assessing officer concluded that the assessee has failed to pass the test as required under section 68 of the Act to prove the identity of shareholders genuineness of the transaction and credit worthiness of the creditor. The assessing officer made addition of Rs. 3.13 crore as unexplained cash credit. On appeal before the learned Commissioner (Appeals), the assessee raised grounds of appeal that in unabated assessment no addition can be made in absence of incriminating material found in the search.

The learned Commissioner (Appeals) deleted the addition by holding that completed assessments cannot be interfered by the assessing officer while making assessment in absence of incriminating material emerged during the course of search. Thus, aggrieved by the order of learned Commissioner (Appeals) the revenue has filed this appeal before the Tribunal. The fact for assessment year 2010-11 is almost identical except variation of figure.

7. We have heard the submission of learned Departmental Representative (DR) of the revenue and the learned AR of the assessee and also gone through the orders of authorities below. The learned DR for the revenue submits that the learned Commissioner (Appeals) deleted the addition relying upon the decision of CIT v. Kabul Chawla (2015) 93 CCH 210 (Del) : 2015 TaxPub(DT) 3486 (Del-HC). The reliance by the learned Commissioner (Appeals) in case of Kabul Chawla (supra) is placed. As per explanation in section 153A(d), the assessing officer has power to assess or re-assess the total income in respect of six assessment years. Nowhere is it mentioned that assessing officer cannot make assessment under section 153A if not incriminating material is found. The learned Commissioner (Appeals) has not appreciated the fact that during the course of assessment proceedings the assessee was asked to prove identity, credit worthiness of shareholders and the genuineness of the transaction. The assessee stated that he has discharged the onus under section 68 of the Act to prove the identity, credit worthiness and genuineness of share capitals by submitting relevant evidences viz.. name, address PAN, Income tax Acknowledgment, copy of bank statements and reply filed by the shareholders in response to notice under section 133(6) of the Act.

The assessing officer while making addition rebutted the submission of assessee. The assessee could not prove to the satisfaction of assessing officer the investor company is the real and genuine company. The identity of Shareholder Company is not established. The share application money was unaccounted money of the assessee which was routed in the garb of share capital.

8. On the other hand, the learned AR of the assessee supported the order of the learned Commissioner (Appeals). The learned AR for the assessee submits that the assessing officer in the entire assessment, nowhere mentioned that any incriminating material was found during the search on 18-2-2014. The learned AR for assessee submits that it is settled law by various High Courts and Hon’ble Supreme Court’s decision that no addition can be made in unabated assessment in absence of incriminating material qua the assessment year. The learned AR submits that no incriminating material related with share application money was recovered in the search carried at the premises of the assessee, thus, the assessing officer was not justified to make addition under section 68 of the Act against the assessee. The learned Commissioner (Appeals) appreciated the fact in proper perspective and on the basis of decision of Hon’ble Delhi High Court in Kabul Chawla (supra) the decision of Special Bench of All Cargo Global Logistics Ltd. v. DCIT (2012) 147 TTJ 513 (SB) : 2012 TaxPub(DT) 2464 (Mum-Trib) which has been upheld by the Hon’ble Bombay High Court, in CIT v. Continental Warehousing Corporation (2015) 58 taxmann.com 78 (Bom) : 2015 TaxPub(DT) 2182 (Bom-HC) and held that in absence of incriminating material unearthed during the search, the addition is not permissible. In support of his submission, the learned AR for the assessee also relied upon the following decision:

1. PCIT v. Saumya Construction (2016) 81 taxmann.com 292 (Guj) : 2016 TaxPub(DT) 3466 (Guj-HC);

2. CIT v. Gurinder Singh Bawa (2016) 386 ITR 483 (Bom) : 2016 TaxPub(DT) 3900 (Bom-HC);

3. CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd. (2015) 58 taxmann.com 78 (Bom) : 2015 TaxPub(DT) 2182 (Bom-HC);

4 CIT v. Kabul Chawla (2015) 93 CCH 210 (Del) : 2015 TaxPub(DT) 3486 (Del-HC);

5. CIT v. Meeta Gutgutia (2017) 395 ITR 296 (Del) : 2017 TaxPub(DT) 1767 (Del-HC);

6. CIT v. Lancy Constructions (2016) 383 ITR 168 (Kar) : 2016 TaxPub(DT) 1207 (Karn-HC);

7. ACIT v. Ravnet Solutions Pvt. Ltd. (2018) 52 CCH 223 (Del) : 2018 TaxPub(DT) 2330 (Del-Trib);

8. Garg Brothers Pvt. Ltd. & Ors. v. DCIT & Ors. 52 CCH 334 (Kol);

9. DCIT v. Pacific Industries Ltd. (2019) 111 taxmann.com 32 (Jodh) : 2019 TaxPub(DT) 4752 (Jod-Trib);

10. DCIT v. Viren S. Shah, IT(SS)A No. 274-275/Ahd/2016 (Surat).

9. We have considered the submission of both the parties and have gone through the orders of Lower Authorities. We have also deliberated on various case laws relied by learned AR for the assessee.

There is no dispute that search was carried out in case of assessee on 18-2-2014. No assessment for assessment year 2009-10 or for assessment year 2010-11 was pending when notice under section 153A on 28-11-2014 was served upon the assessee. Even the time period for issuing notice under section 143(2) for both assessment years had already elapsed. The assessing officer issued notice under section 153A on 28-11-2014.

In the entire assessment order the assessing officer has nowhere mentioned that any incriminating material related with the share capital was unearthed during the survey on 18-2-2014. The assessee during the assessment proceedings initiated in pursuance of notice under section 153A, specifically stated that no addition can be made in the completed assessment in absence of incriminating material. No material was brought on record by assessing officer to counter the statement of the assessee that such transaction was not disclosed or made known in the course of original assessment.

10. The Hon’ble Delhi High Court in CIT v. Kabul Chawla (supra) held that completed the assessment can be interfered by the assessing officer while making assessment under section 153A of the Act only on the basis of incriminating material unearthed during the course of search which was not produced or not already disclosed or made known in the course of original assessment. The Hon’ble Bombay High Court in CIT v. Continental Warehousing Corporation (Nheva Seva Ltd.) (supra) also held that no addition can be made in respect of assessments which have became final if no incriminating material found during the search.

11. Before us, the learned CIT-DR failed to bring any fact that assessment for the year under consideration was pending at the time of search on 14-2-2014 of that the issue of share capital was not the subject matter in the assessment was not reported while filing the Return of Income in the assessment year under consideration. The learned DR referred the explanation attached with section 153A that the assessing officer has power to assess or re-assessing total income in respect of each assessment year falling within six assessment years. There is not dispute regarding statutory provision in the Act. However, the Hon’ble Bombay Delhi High Court has laid down Law that no addition in absence of incriminating material can be made in respect of assessment which has become final if no incriminating material is found during the search. The learned DR failed to bring any contrary fact to our notice that any incriminating material was found during the search. The assessing officer has not filed even a single piece document to support the grounds of appeal raised in these appeals. No contrary law is brought to our notice. Therefore, we have no option except to affirm the order to learned Commissioner (Appeals).

12. In the result, appeal of the revenue is dismissed.

ITA No. 273/Ahd/2016 for assessment year 2010-11:

13. As noted above the facts of the year under consideration are identical with for assessment year 2009-10 the revenue has raised identical grounds of appeal as raised in assessment year 2009-10, which we have dismissed by affirming the order of learned Commissioner (Appeals), therefore this appeal is also dismissed with similar observation.

14. In the result, both the appeals of the revenue are dismissed.