ACIT, CENTRAL CIRCLE-1, PATNA vs. SONAMOTI AGROTECH PVT LTD, PATNA

Per Rajpal Yadav, Vice-President (KZ):- The Revenue is in appeal before the Tribunal against the order of ld. Commissioner of Income Tax (Appeals)-3, Patna dated 02.01.2019 passed for Assessment Year 2012-13.

(a) In this compartment, assessee raised a preliminary objection before the ld. CIT(Appeals) that no incriminating material was found during the course of search and, therefore, the assessment will not abate and ld. Assessing Officer has no jurisdiction to make additions under section 153A/153C in absence of any incriminating material. According to the assessee, this aspect has been decided against the assessee by the ld. 1st Appellate Authority.

(b) In ‘B’ compartment, the assessee raised four grounds, i.e. Grounds No. 6, 7, 8 & 9, but all these grounds are in support of the finding of ld. CIT(Appeals) on merits.

Assessment Year: 2012-2013 & C.O. No. 04/PAT/2022 (in Assessment Year: 2012-2013 Sonamoti Agrotech Pvt. Limited

Assessment Year: 2012-2013 & C.O. No. 04/PAT/2022 (in Assessment Year: 2012-2013 Sonamoti Agrotech Pvt. Limited

Assessment Year: 2012-2013 & C.O. No. 04/PAT/2022 (in Assessment Year: 2012-2013 Sonamoti Agrotech Pvt. Limited

Assessment Year: 2012-2013 & C.O. No. 04/PAT/2022 (in Assessment Year: 2012-2013 Sonamoti Agrotech Pvt. Limited

Assessment Year: 2012-2013 & C.O. No. 04/PAT/2022 (in Assessment Year: 2012-2013 Sonamoti Agrotech Pvt. Limited

6. Ld. Counsel for the assessee while impugned the order of the ld. CIT(Appeals) on this fold submitted that the assessee is not disputing about the search carried out upon it, but during the course of search, the search party discovered certain inventory of books of account/documents inventoried as Annexure ‘A’ and such annexure is available at page 43 of the paper book. He also drew our attention towards inventory of cash found during the course of search, details are available on page 44 and inventory of stock found is available on page 45 (Annexure A/3). On the strength of these details, he pointed out that the evidence regarding bogus share

Assessment Year: 2012-2013 & C.O. No. 04/PAT/2022 (in Assessment Year: 2012-2013 Sonamoti Agrotech Pvt. Limited application money raised by the assessee was nowhere available in this material found during the course of search. Therefore, the additions under section 153A cannot be made. For buttressing his contention, he relied upon the judgment of ITAT, Patna Bench in the case of GRD Construction Pvt. Limited –vs.- ACIT, copy of this judgment has been placed on the record at pages no. 18 to 32 of the paper book. Similarly he placed reliance upon the judgment of the Hon’ble Delhi High Court in the case of Principal Commissioner of Income Tax-vs.- Mamta Agrawal in ITA 191/2022. He filed copy of this judgment also. Apart from these judgments, which are placed on the record. He made reference to a large number of decisions for buttressing his proposition. The citations of such decision namely,- (i) CIT –vs.- Kabul Chawla reported in 380 ITR 573 (Delhi), (ii) CIT –vs.- Continental Warehousing Corporation Limited reported in 374 ITR 645, have been referred by him in the written submission filed before the Tribunal. On the strength of these decisions, he contended that the addition on this point is also not sustainable.

Assessment Year: 2012-2013 & C.O. No. 04/PAT/2022 (in Assessment Year: 2012-2013 Sonamoti Agrotech Pvt. Limited no. 4.3.10. Basically the ld. CIT(Appeals) has recorded the finding in A.Ys. 2011-12 and 2008-09, where similar additions were made. The quantum in those years was very less, namely Rs.75,00,000/- as well as Rs.41,00,000/-. It appears that the appeals in those years might have not been filed before the Tribunal on account of tax effect or if filed then must have been dismissed. But the assessment orders are on the same line, therefore, he followed the finding in A.Y. 2011-12 and deleted the addition in this year also. In order to completeness of the facts, we deem it appropriate to take note of this finding of the ld. CIT(Appeals) on merit, which reads as under:- “4.3.10. Now coming to the merits of the case, the undisputed fact is that a search and seizure operations u/s 132(1) of the Income Tax Act, 1961 was conducted on 10.01.2014 in Sona group eases of Patna. The appellant M/s Sona Moti Agrotcch Pvt. Ltd. is related to Sona Group of cases and also subjected to search. Apparently as can be seen from the assessment order the AO has not referred to any material cither found or seized during the course of search based on which addition was made. However, the AO do referred to information received from the investigation wing of Income Tax Department, Kolkata wherein certain companies were identified as paper companies which involved in providing accommodation entries. Accordingly, the AO based on the findings of the Directorate of Income tax (Inv.), Kolkata held that the identity, genuineness and creditworthiness of following companies which subscribed to the shares of the appellant company at a premium were held to be non genuine and accordingly made an addition of Rs.75,00,000/- u/s.68 of the Act.

Assessment Year: 2012-2013 & C.O. No. 04/PAT/2022 (in Assessment Year: 2012-2013 Sonamoti Agrotech Pvt. Limited

Name of the Company Amount 1.Himalayan Investment Rs. 3,00,000/- Consultant Pvt. Limited, Kolkata 2. Atlantic Invest Advisory Rs. 4,00,000/- Pvt. Ltd., Kolkata 3. Welkin Investment Rs. 10,00,000/- Consultant Pvt. Ltd., Kolkata 4. S Albino Investment Rs. 12,00,000/- Consultant Pvt. Ltd., Kolkata 5. Booster Commercial Pvt. Rs.25,00,000/- Ltd., Kolkata 6. Odilon Suppliers Pvt. Rs. 4,00,000/- Ltd., Kolkata 7. Bhagya Vinimay Pvt. Rs. 5,00,000/- Ltd., Kolkata 8. Seltron Finance Ltd., Rs. 12,00,000/- Kolkata

On the other hand, the appellant contended that, during the course of assessment proceeding it had submitted complete details of share application money received along with the name and address of the applicants. Further in order to prove the identity, credit worthiness and genuineness of the transaction in respect to share applicants it had submitted form for application of equity shares, Copy of Board resolution of the respective company, their copy Income tax acknowledgement, Certificate of Incorporation, Copy of bank statement, Copy of balance sheet of the company showing the amount of shares shown in the audited balance sheet etc.. The appellant contended that, these companies arc registered with ROC and all the details regarding investor companies have been provided to the AO i.e. CIN, address, date of incorporation of the company, copy of Form-2 filed with ROC alongwith present correspondence address of the applicant company. The appellant further submitted that amount received by the company was all by account payee cheques and it is not a ease of depositing of cash in the accounts of the share- applicants prior to acknowledgement: of cheques for share application money. The appellant further submitted that the share applicant companies are not the strangers to Assessment Year: 2012-2013 & C.O. No. 04/PAT/2022 (in Assessment Year: 2012-2013 Sonamoti Agrotech Pvt. Limited the appellant as the directors of the applicant companies are relatives of the directors of the appellant. The appellant further argued that the AO has not controverted the material placed on record or the AO could lay his hand on any incriminating material found during the course of search or could independently gather any evidence to corroborate the so called findings of the DIT(Inv.), Kolkata. Accordingly, the appellant relying on various case laws of Hon’ble High courts and Hon’ble Apex court including that of HonTDle Jurisdictional High court (supra) concluded that it has discharged the onus placed on it u/s.68 of the Act by documentary evidence, however, the AO simply disbelieved the same for the reasons best known to him, and therefore the addition made is unjustified and Illegal. I have carefully considered the rival arguments/submissions/findings of the AO and the appellant and I find considerable force in the argument/submission of the appellant. It is a fact that the AO had totally relied on the physical inspection report of the ITI of Directorate of Income tax (Inv.), Kolkata about the nature of buildings and whether the same was operating / functioning from the given location of the share applicants. As I have stated earlier, the AO can assume valid jurisdiction u/s,153A based on the report from the Investigation wing of the department, but at the same time has to be backed by independent enquiry by the AO with positive evidence to corroborate the findings contained in the investigation report. However the AO failed to gather an iota of additional evidence or could controvert the evidence placed by the appellant and instead totally swayed away by the report of the investigation. In this context it is very important to know that upto A.Y.2012- 13, the burden of proof u/s.68 of the Act oscillated between the assessee and the AO depending upon the nature and quality of evidence adduced with regard to any sum credited in the books of accounts of the assessee company (not being a company in which the public are substantially interested) and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called. However, from A.Y.2013-14 a proviso to section 68 was inserted by the Finance Act, 2012 w.e.f. 01.04.2013 wherein the onus of proving identity, genuineness and creditworthiness of the creditor to the satisfaction of the AO

Assessment Year: 2012-2013 & C.O. No. 04/PAT/2022 (in Assessment Year: 2012-2013 Sonamoti Agrotech Pvt. Limited has entirely shifted to the assessee. In this regard the relevant proviso as inserted is reproduced hereunder. [Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:

Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.] Further, the Hon’ble Bombay High court: in the case of CIT Vs. Gagandeep Infrastructure Pvt. Ltd. [2017] 80 taxmann.com 272 held that insertion of above proviso is prospective in nature and not retrospective. Therefore taking into account assessment years under appeal and all other facts as discussed above, the addition made u/s.68 of Rs.41,00,000/- is directed to be deleted. Accordingly, ground No.l is allowed.

5. Ground No. 2: This ground is directed against the charging of interest u/s.234A, 234B and 234C of the Act. As this ground is consequential in nature, the same do not require separate adjudication.

Assessment Year: 2012-2013 & C.O. No. 04/PAT/2022 (in Assessment Year: 2012-2013 Sonamoti Agrotech Pvt. Limited 8. In view the detailed findings given for A.Y. 2011-12, the appeal for A.Y. 2012-13 is also allowed”.

Assessment Year: 2012-2013 & C.O. No. 04/PAT/2022 (in Assessment Year: 2012-2013 Sonamoti Agrotech Pvt. Limited 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 16 Assessment Year: 2012-2013 & C.O. No. 04/PAT/2022 (in Assessment Year: 2012-2013 Sonamoti Agrotech Pvt. Limited already disclosed or made known in the course of original assessment."

“15. Thus, when during the course of search of an assessee any books, document or money, bullion, jewellery etc. is found which relates to a person other than the person searched, then the Assessing Officer of the person searched shall hand over such books of account, documents, or valuables to the Assessing Officer of such other person and thereafter, the Assessing Officer of such other person can proceed against such other person. However, in the case under appeal before us, admittedly, Section 153C is not invoked in the case of the assessee and the 17

Assessment Year: 2012-2013 & C.O. No. 04/PAT/2022 (in Assessment Year: 2012-2013 Sonamoti Agrotech Pvt. Limited assessment is framed under Section 153A. We, respectfully following the above decisions of Hon'ble Jurisdictional High Court, hold that during the course of assessment under Section 153A, the incriminating material, if any, found during the course of search of the assessee only can be utilized and not the material found in the search of any other person."

"Did the Income Tax Appellate Tribunal (ITAT) fall into error in holding that the additions made under Section 153A read with Section 143(3) of the Income Tax Act, 1961 in the circumstances of the case, were not justified and supportable in law?"

"6. The Assessee went in appeal before the Commissioner of Income Tax (Appeals) who dismissed it by an order dated 27th November, 2014. A further appeal was filed by the Assessee before the ITAT. The ITAT, inter alia, found substance in the contention of the Assessee that the assessment under Section 153(A) of the Act, in the absence of any incriminating material found during the search on the premises of the Assessee was not sustainable in law. Reliance was placed on the decision of this Court in Commissioner of Income Tax v. Kabul Chawla, [2016] 380 ITR 573.

Assessment Year: 2012-2013 & C.O. No. 04/PAT/2022 (in Assessment Year: 2012-2013 Sonamoti Agrotech Pvt. Limited 7. A question was posed to the learned counsel for the Revenue whether in the present case anything incriminating has been found when the premises of the Assessee was searched. The answer was in the negative. The entire case against the Assessee was based on what was found during the search of the premises of the AEZ Group. It is thus apparent on the face of it, that the notice to the Assessee under Section 153A of the Act was misconceived since the so-called incriminating material was not found during the search of the Assessee's premises. The Revenue could have proceeded against the Assessee on the basis of the documents discovered under any other provision of law, but certainly, not under Section 153A. This goes to the root of the matter."

"[A] Whether the order of Tribunal is right in law and on facts in deleting the addition made in assessment made u/s 153A of the Act? [B] Whether the Tribunal is right in law in holding that the addition should be based on the incriminating material found during the course of search under new procedure of assessment 19 Assessment Year: 2012-2013 & C.O. No. 04/PAT/2022 (in Assessment Year: 2012-2013 Sonamoti Agrotech Pvt. Limited u/s 153A which is different from earlier procedure u/s 158BC r.w.s. 158BB of the Act and by reading into the section, the words 'the incriminating material found during the course of search' which are not there in section 153A? [C] Whether the Tribunal erred in relying on the ITAT order in Sanjay Aggarwal v. DCIT (2014) 47 Taxmann.Com 210 (Del) which has interpreted undisclosed income unearthed during the search to imply incriminating material, as against the finding of the Delhi High Court in Filatex India Ltd. v. CIT- IV (2015) 229 Taxman 555 wherein it is held that during the assessment u/s 153A additions need not be restricted or limited to incriminating material found during the course of search?"

17. In the facts of the present case, a search came to be conducted on 07.10.2009 and the notice was issued to the assessee under section 153A of the Act for assessment year 2006-07 on 04.08.2010. In response to the notice, the assessee filed return of income on 18.11.2010. In terms of section 153B, the assessment was required to be completed within a period of two years from the end of the financial year in which the search came to be carried out, namely, on or before 31st March, 2012. Here, insofar as the impugned addition is concerned, the notice in respect thereof came to be issued on 19.12.2011 seeking an explanation from the assessee. The assessee gave its response by reply dated 21.12.2011 calling upon the Assessing Officer to provide copies of statements recorded on oath of Shri Rohit P. Modi and Smt. Pareshaben K. Modi during the search as well as the copies of the documents upon which the department placed reliance for the purpose of making the proposed addition as well as the copy of the explanation given by Shri Rohit P. Modi and Smt. Pareshaben K. Modi regarding the on- money received, copies of the assessment orders in case of said persons and also requested the Assessing Officer to permit him to cross-examine the said persons. The Assessing Officer issued summons to the said persons, however, they were out of station and it was not known as to when they would return. In this backdrop, without affording any opportunity to the assessee to cross-examine the said persons, the Assessing Officer made the addition in question.

Assessment Year: 2012-2013 & C.O. No. 04/PAT/2022 (in Assessment Year: 2012-2013 Sonamoti Agrotech Pvt. Limited At the relevant time when the notice came to be issued under section 153A of the Act, the assessee filed its return of income. Much later, at the fag end of the period within which the order under section 153A of the Act was to be made, in other words, when the limit for framing the assessment as provided under section 153 was about to expire, the notice has been issued in the present case seeking to make the proposed addition of Rs.11,05,51,000/- on the basis of the material which was not found during the course of search, but on the basis of a statement of another person. In the opinion of this court, in a case like the present one, where an assessment has been framed earlier and no assessment or reassessment was pending on the date of initiation of search under section 132 or making of requisition under section 132A, while computing the total income of the assessee under section 153A of the Act, additions or disallowances can be made only on the basis of the incriminating material found during the search or requisition. In the present case, it is an admitted position that no incriminating material was found during the course of search, however, it is on the basis of some material collected by the Assessing Officer much subsequent to the search, that the impugned additions came to be made.

20. For the foregoing reasons, it is not possible to state that the impugned order passed by the Tribunal suffers from any legal infirmity so as to give rise to a question of law, much less, a substantial question of law, warranting interference. The appeal, therefore, fails and is, accordingly, dismissed."

Assessment Year: 2012-2013 & C.O. No. 04/PAT/2022 (in Assessment Year: 2012-2013 Sonamoti Agrotech Pvt. Limited

18. It is also pertinent to observe that except Hon’ble Kerala High Court almost all the Hon’ble High Courts are unanimous in propounding the scope of section 153A/153C. More particularly the propositions culled out by the Hon’ble Delhi High Court in the judgment of Kabul Chawla, if from that angle the assessment order is perused then it will reveal that ld. Assessing Officer has not made reference to any seized material for making the addition on account of alleged share application money. The complete seized material has been brought to our notice by the ld. Counsel for the assesese and is available on pages 40 to 45 of the paper book, but in all these pages, there is no material available indicating that assessee has received bogus share application money from shell companies. All these materials are part of regular books. The ld. Assessing Officer has not made addition on account of small cash found in the search, similarly he did not find irregularity in stock statement (Annexure A2 and A3). Therefore, where is the incriminating material. In the absence of any seized material on this item, addition is not sustainable. Accordingly we accept the first five grounds of appeal raised by the assessee in its Cross Objection and reverse the finding of the ld. CIT(Appeals) on the first-fold of Assessment Year: 2012-2013 & C.O. No. 04/PAT/2022 (in Assessment Year: 2012-2013 Sonamoti Agrotech Pvt. Limited contentions. The addition is not sustainable on this issue also.

19. As far as the finding of the ld. CIT(Appeals) on merit is concerned, we do not find any error in this finding. The simple reason is that on perusal of the assessment order (extracted supra), it would reveal that ld. Assessing Officer did not take any step to examine the alleged veracity of the claim made by the assessee. These details must have been reflected in the original return. The ld. Assessing Officer has not made reference when investigation was carried out by the Investigation Wing. What is the date of its report whether it is before the search or after the search. The only letter written by the ld. Assessing Officer is date 06.01.2016 requesting the explanation of the assessee by 25.01.2016 and he passed the assessment order in the month of March, 2016. The Hon’ble Delhi High Court in the case of CIT – vs.- Navodha Cashle [367 ITR 306] has considered a large number of decisions including the decision of the Hon’ble Supreme Court in the case of CIT –vs.- Durga Prasad More reported in 82 ITR page 540. According to the Hon’ble Delhi High Court, basically there are two sets of judgments. In one set of case, the assessee produced necessary documents/evidence to show and establish the identity of the shareholder and bank account from which payment was made, the fact that payment was received through banking channels, filed necessary affidavit Assessment Year: 2012-2013 & C.O. No. 04/PAT/2022 (in Assessment Year: 2012-2013 Sonamoti Agrotech Pvt. Limited of the shareholders, confirmation of the Directors of the shareholder company but thereafter no further inquiry was made by the ld. Assessing Officer. The second set of case is that where there was evidencing material to show that the shareholder company was only a paper company without doing any serious business having no such income. In the present case, it revealed that ld. Assessing Officer himself has not carried out any exercise. He put into the service the alleged report of Investigation Wing by treating it as gospel truth.

Assessment Year: 2012-2013 & C.O. No. 04/PAT/2022 (in Assessment Year: 2012-2013 Sonamoti Agrotech Pvt. Limited 21. In the result, the appeal of the Revenue is dismissed and Cross Objection of the assessee is allowed. Order pronounced in the open Court on 23.02.2023.