No addition could be made in Assessment u/s 153A if No incriminating material found

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No addition could be made in Assessment u/s 153A if No incriminating material found

 

Overview : 

 As assessment for impugned assessment year was not pending on the date of search, therefore, no addition could to be made in assessment framed under section 153A in the absence of any incriminating material found during search.

AO based on search conducted at assessee’s premises framed assessment under section 153A and made addition in respect of already complete assessment, however, without any incriminating material found during search.

It was held that assessment for impugned assessment year was not pending on the date of search, therefore, no addition could to be made in assessment framed under section 153A in the absence of any incriminating material found during search.

Decision: In assessee’s favour.

Relied: Pr. CIT v. Meeta Gutgutia ITA No. 306/2017 and others, dt. 25-5-2017 : 2017 TaxPub(DT) 1767 (Del-HC) and CIT v. Kabul Chawla (2016) 380 ITR 573 (Del) : 2015 TaxPub(DT) 3486 (Del-HC).

Distinguished: Smt. Dayawanti v. CIT ITA No. 357/2015, dt. 27-10-2016 : 2016 TaxPub(DT) 4888 (Del-HC).

IN THE ITAT, CHANDIGARH BENCH

DIVA SINGH, J.M. & ANNAPURNA GUPTA, A.M.

DCIT v. Chandigarh Developers (P) Ltd.

ITA No. 994/Chd/2017

24 September, 2018

Appellant by: Gulshan Raj, CIT DR

Respondent by: Ashwani Kumar, CA

ORDER

Annapurna Gupta, A.M.

The present appeal has been filed by the Revenue against the order of Commissioner (Appeals)-3, Gurgaon [hereinafter referred to as CIT(A)], dated 31-3-2017, relating to assessment year 2010-11.

  1. The Department is aggrieved by the action of the learned Commissioner (Appeals) in deleting the addition made by the assessing officer on account of unsecured loans of Rs. 1 crore, as unexplained credit under section 68 of the Income Tax Act, 1961 (in short ‘the Act’).
  2. Briefly stated, search & seizure operation, under section 132 of the Act, was carried out at the premises of the assessee on 4-10-2012. In the assessment framed thereafter, pursuant to the search carried out at the assessee’s premises, addition under section 68 of the Act was made of Rs. 1 crore, received as share application money from M/s. RSM Metals Ltd. and M/s. Octamac Software Private Ltd., being Rs. 50 lacs each, treating the same as unexplained. The Commissioner (Appeals) deleted the additions so made for the reason that no incriminating material was found during the course of search. The learned Commissioner (Appeals) held that at the time of search proceedings, assessments for the impugned year were not pending and had, therefore, not abated. He further found that no incriminating material or evidence was found and seized during the course of search, nor any addition made emanating out of the search proceedings. Therefore, relying on various judicial decisions, the learned Commissioner (Appeals) held that the impugned additions could not have been made in the facts of the present case in the order passed under section 153A of the Act. The learned Commissioner (Appeals) relied upon the decision of the Coordinate Bench of the Tribunal in the case of M/s. Mala Builders Pvt. Ltd. v. ACIT in ITA Nos. 433 to 437/Chd/2017 : 2016 TaxPub(DT) 4539 (Chd-Trib), wherein the Tribunal had further relied upon the decision of the Hon’ble Bombay High Court in the case of CIT v. M/s. Murli Agro Products Pvt. Ltd. in ITA No. 36 of 2009 : 2014 TaxPub(DT) 3361 (Bom-HC)and in the case of CIT v. Kabul Chawla (2015) 234 Taxman 300 (Delhi) : 2015 TaxPub(DT) 3486 (Del-HC) in which the Hon’ble High Court had unanimously held that in the absence of any incriminating material found during the course of search action, when there was no pending assessment which could be said to have abated on the date of search, the addition could not have been made.
  3. Before us, the learned counsel for assessee placed copy of the order passed by ITAT Chandigarh Bench in the case of DCIT v. M/s. Bharat Net Technology Ltd. in ITA Nos. 983 & 984/Chd/2017, dt. 13-11-2017, and stated that the present appeal is squarely covered by the aforesaid decision of the Tribunal wherein the facts were identical and even identical grounds had been raised by the Revenue in its appeal.
  4. The learned DR when confronted with the findings of the Commissioner (Appeals), fairly admitted that no incriminating material was found during the search and the original assessment proceedings stood completed on the date of search. The learned DR was asked to confirm from the concerned assessing officer as to what incriminating material was found during search. In response the learned DR filed copy of the reply received from the assessing officer dated 29-3-2018 as under :–

“Kindly refer to your office Letter No. CIT(DR)/ITAT02/2017-18/1609, dt. 15-3-2018 on the above cited subject.

  1. Brief facts of the case are that pursuant to search & seizure operation under section 132 of the Income Tax Act, 1961 carried out on the assessee on 4-10-2012, the assessment was completed under section 153A(1)(b) read with section 143(3) of the Income Tax Act, 1961 vide assessment order dt. 23-3-2015 at an income of Rs. 1,00,00,000 against nil returned income.
  2. Addition of Rs. 1,00,00,000 was made under section 68 of the Income Tax Act, 1961 as it was found that the Steel Strips Group was resorting to systematic re-introduction of unaccounted black money into the regular books of accounts in the form of share capital, share premium and unsecured loan. The group created companies controlled by its employees as directors, the assessee is one of such companies. The assessee received huge share capital, share premium and loans from a third layer of entry Provider Company which did not have the wherewithal and the economic reasons prudence to invest heavy amounts in paper companies. The assessee had received credits in its bank account totaling to Rs. 1,00,00,000 from M/s. RSM Metals Ltd. and M/s. Octomac Softwares Pvt. Ltd. (after layering through Shri Shaman Jindal, an employee of Steel Strips Group) respectively. These companies had received share capital including share premium from paper companies.
  3. M/s. RSM Metals Ltd. came into existence during the year with the employees of the group like Shri H.K. Sehgal, Bhagwan Dass Sharma, Sharman Jindal and Bhavnesh Gupta as directors. M/s. Apoorva Leasing Finance Company Ltd. and M/s. Sunita Securities Pvt. Ltd. purchased 4000 shares of the company at a premium of Rs. 499 per share. M/s. Apoorva Leasing Finance Company Ltd. had shown its registered office as the address of Shri S.K. Jain, a known entry provider. A search was conducted on Shri S.K. Jain on 14-9-2010, wherein on the basis of incriminating documents found, it could be reasonably concluded that M/s. Apoorva Leasing Finance Company was only a paper concern involved in providing accommodation entries in the form of share capital and share premium.
  4. M/s. Octomac Softwares Pvt. Ltd. also came into existence during the year with the employees of the group like Shri M.L. Jain, Shri B.D. Sharma and Bhavnesh Gupta as directors. This company had also introduced unaccounted money of Steel Strips Group through issue of shares at a huge premium to paper concerns M/s. Porter Buildcon Pvt. Ltd. and M/s. Abhay Holdings Pvt. Ltd. Shri Shaman Jindal received money from M/s. Octomac Softwares Pvt. Ltd., which was introduced in the books of the assessee through him.
  5. The balance sheet of the assessee for the assessment year 2012-13 was seized from the premises of M/s. Steel Strips Wheels Ltd., SCO 49-50, Sector 26D, Chandigarh (Page 26 to 40 of AnnexureA-6), copy of the same is enclosed herewith. The said balance sheet shows loans of Rs. 1,30,10,000 from M/s. RSM Metals Ltd. Thus, this is an incriminating document showing transaction in the books of the company from M/s. RSM Metals Ltd.
  6. Further, a survey was conducted under section 133A of the Income Tax Act, 1961 on Shri Bhavnesh Gupta on 4-10-2012. He is a director in M/s. RSM Metals Ltd. and M/s. Octomac Softwares Pvt. Ltd. His statement was recorded on oath on 4-10-2012, wherein he has admitted that these companies are suitcase companies with dummy directors and dummy registered office and it is also controlled by promoter director of the Steel Strips Group through their trusted aides.
  7. Needless to add that as has been mentioned in the assessment order, incriminating documents were found during the course of search on an entry provider Shri S.K. Jain, which indicated that companies managed by him including M/s. Apoorva Leasing and Finance was a paper company.
  8. In view of the facts stated above, the addition has been made on the basis of incriminating documents found during search.
  9. As desired, the revised grounds of appeal are also enclosed herewith.”
  10. Referring to the same the learned DR stated that the only incriminating material found was Balance Sheet of the assessee relating to assessment year 2012-13, i.e., the succeeding assessment year, showing loan received from M/s. RSM Metals. The case was thereafter heard on 10-4-2018. Thereafter the case was fixed for seeking further clarification from the learned DR as to how the document stated by the assessing officer in his letter dt. 20-3-2018, constituted incriminating material in the present case. Further opportunity was given to the learned DR to make submissions in this regard when finally on 9-8-2018, the learned DR categorically stated at Bar that he had gone through the assessment records of the assessee pertaining to the impugned year and was unable to find any document, other than Balance Sheet of the assessee for the succeeding year as referred by the assessing officer in the above letter. The learned DR stated that he had gone through all the documents relating to the inquiries made by the assessing officer during the assessment proceedings and found no reference to any document unearthed during search relating to the issue on which addition had been made & which was confronted to the assessee. At the same the learned DR agreed that though the issues stood covered by the order of the ITAT in the case of M/s. Bharat Net Technology(supra), he relied on his submissions on the issue made in writing as under :–

“The search under section 132 was conducted on the premises of M/s. Steel Strips Group of Cases on 4-10-2012. Additions were made by the assessing officer under the head Unexplained Credits under section 68 of the Act. The Commissioner (Appeals) has dealt with this issue at Paras 5 of his order. The case law M/s. Mala Builders Pvt. Ltd. v. ACIT, ITA Nos. 433 to 437/Chad/2017 : 2016 TaxPub(DT) 4539 (Chd-Trib) relied upon by the Commissioner (Appeals) is on different footings i.e. related to section 24(b) of the Act. Moreover, the Commissioner (Appeals) has failed to verify the contention of the assessee that no incriminating documents have been found and seized during search. It was his duty to bring on record the above said clinching facts.

  1. In the above case, it is humbly submitted that the following decisions may kindly be considered with regard to validity of proceedings under section 153A :–
  2. E.N. Gopakumar v. CIT (2016) 75 taxmann.com215 (Kerala) : 2016 TaxPub(DT) 4661 (Ker-HC) (Copy Enclosed) (PAGE NO. 1 TO 4 OF ANNEXURE)

Where Hon’ble Kerala High Court held that assessment proceedings generated by issuance of a notice under section 153A(1)(a) can be concluded against interest of assessee including making additions even without any incriminating material being available against assessee in search under section 132 on basis of which notice was issued under section 153A(1)(a).

The above order has been passed after considering cases of —

(i) CIT v. Kabul Chawla (2016) 380 ITR 573 (Delhi) : 2015 TaxPub(DT) 3486 (Del-HC) (para 4),

(ii) CIT v. Continental Warehousing Corpn. (Nhava Sheva) Ltd. (2015) 374 ITR 645 (Bom.) : 2015 TaxPub(DT) 2182 (Bom-HC) (para 4)

(iii) Principal CIT v. Kurele Paper Mills (P.) Ltd. (2016) 380 ITR 571 (Delhi) : 2016 TaxPub(DT) 1068 (Del-HC) (para 4),

(iv) CIT v. Lancy Constructions (2016) 383 ITR 168 (Kar.) : 2016 TaxPub(DT) 1207 (Karn-HC) (para 4),

(v) CIT v. ST. Francies Clay Decor Tiles (2016) 240 Taxman 168 (Ker.) : 2016 TaxPub(DT) 3010 (Ker-HC)(para 5) and

(vi) CIT v. Promy Kuriakose (2016) 386 ITR 597 (Ker.) : 2016 TaxPub(DT) 4081 (Ker-HC) (para 5).

  1. CIT v. Raj Kumar Arora (2014) 367 ITR 517 (Allahabad) : 2014 TaxPub(DT) 3949 (All-HC)(PAGE NO.5 TO 17 OF ANNEXURE)

Where Hon’ble Allahabad High Court held that assessing officer has power to reassess returns of assessee not only for undisclosed income found during search operation but also with regard to material available at time of original assessment

  1. CIT v. Kesarwani Zarda Bhandar Sahson Alld. [ITA No. 270 of 2014] (Allahabad) (PAGE NO.18 TO 23 OF ANNEXURE)

Where Hon’ble Allahabad High Court held that assessing officer has power to reassess returns of assessee not only for undisclosed income found during search operation but also with regard to material available at time of original assessment

  1. CIT v. St. Francis Clay Decor Tiles (2016) 385 ITR 624 (Ker) : 2016 TaxPub(DT) 3010 (Ker-HC) (Copy Enclosed) (PAGE NO. 24 TO 31 OF ANNEXURE)

Where Hon’ble Delhi Kerala Court held that notice issued under section 153A return must be filed even if no incriminating documents discovered during search

  1. Smt. Davawanti v. CIT (2017) 390 ITR 496 (Delhi) : 2016 TaxPub(DT) 4888 (Del-HC)(Though Stayed by the Apex Court) (PAGE NO. 32 TO 44 OF ANNEXURE)

Where Hon’ble Delhi High Court held that Where inferences drawn in respect of undeclared income of assessee were premised on materials found as well as statements recorded by assessee’s son in course of search operations and assessee had not been able to show as to how estimation made by assessing officer was arbitrary or unreasonable, additions so made by assessing officer by rejecting books of account was justified

  1. CIT v. Anil Kumar Bhatia (2013) 352 ITR 493 (Del) : 2013 TaxPub(DT) 0245 (Del-HC) (Copy Enclosed) (PAGE NO.45 TO 56 OF ANNEXURE)

Where Hon’ble Delhi High Court held that jurisdiction of assessing officer under 153A is to assess total income for the year and not restricted to seized material. Post search reassessment in respect of all 6 years can be made even if original returns are already processed under section 143(1)(a) — assessing officer has power under section 153A to make assessment for all six years and compute total income of assessee, including undisclosed income, notwithstanding that returns for these years have already been processed under section 143(1)(a). Even if assessment order had already been passed in respect of all or any of those six assessment years, either under section 143(1)(a) or section 143(3) prior to initiation of search/requisition, still assessing officer is empowered to reopen those proceedings under section 153A without any fetters and reassess total income taking note of undisclosed income, if any, unearthed during search.

  1. Filatex India Ltd. v. CIT 49 taxmann.com465 (Copy Enclosed) (PAGE NO.57 TO 61 OF ANNEXURE)

Where Hon’ble Delhi High Court held that during assessment under section 153A, additions need not be restricted or limited to incriminating material, found during course of research.”

  1. We have heard the rival contentions. We find no reason to interfere in the order of the Commissioner (Appeals) who has deleted the additions made in the impugned case on finding that the same was not based on any incriminating material found during the course of search and assessment for the impugned year had not abated. The fact that no incriminating material was found has been admitted at Bar by the learned DR before us. The only document pointed out by the Revenue, we find, is a Balance Sheet that too pertaining to the succeeding year and which throws no light absolutely on the facts leading to additions made in the impugned year on account of share application money of Rs. 50 lakhs received from M/s. RSM Metals and M/s. Octomac Software Pvt. Ltd. The said document, we find, reflects only some unsecured loans taken by the assessee from the two companies that too in the succeeding year only and not in the impugned year. Therefore it is an admitted fact that no incriminating material was found during search conducted on the assessee. The fact that the assessment for the impugned year has not abated is also an undisputed fact. In view of the same we hold that the learned Commissioner (Appeals) has rightly deleted the additions made following the proposition laid down by Hon’ble Delhi high court in case of Kabul Chawla (supra), that no addition to be made in assessment framed under section 153A of the Act in absence of any incriminating material, where assessments were not abated. The grounds raised by the Revenue to the effect that the decision of the Hon’ble Delhi High Court in the case of Kabul Chawla has been distinguished in the case of Smt. Dayawanti v. CIT in ITA No. 357/2015, dt. 27-10-2016 : 2016 TaxPub(DT) 4888 (Del-HC), has been dealt with by ITAT in the case of Bharat Net Technology (supra), wherein it has been noted that the decision in the case of Dayawanti (supra) had been discussed in the subsequent decision of the Hon’ble Delhi High Court in the case of Pr. CIT v. Meeta Gutgutia Proprietor M/s. Fern ‘N’ Petals, ITA No. 306/2017 and others, dt. 25-5-2017 : 2017 TaxPub(DT) 1767 (Del-HC), wherein it was observed that incriminating material was found in that case, however in the case of Meeta Gutgutia (supra), no incriminating material was found and hence additions made were not justified. The same has remained uncontroverted before us.

In view of the above we do not find any infirmity in the order of the Commissioner (Appeals) in deleting the impugned additions. The grounds of appeal raised by the Revenue are, therefore, dismissed.

  1. In the result, the appeal of the Revenue is dismissed.

 

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