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Income Tax Appellate Tribunal, DELHI BENCHES “SMC” : DELHI
Before: SHRI ANIL CHATURVEDI
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES “SMC” : DELHI BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ITA.No.847/Del./2020 Assessment Year 2011-12 Wachovia Marketing Pvt. Income Tax Officer Ltd., Plot No.55, Industrial Ward – 27(2), [vs. Area, Patparganj, New Delhi Delhi – 110 092 PAN : AAACW 9538 L (Appellant) (Respondent) For Assessee : Shri Piyush Kaushik, Adv. For Revenue : Shri Om Prakash, Sr. D.R. Date of Hearing : 16.06.2022 Date of Pronouncement : 31.08.2022 ORDER PER ANIL CHATURVEDI, A.M.
This appeal by assessee has been directed against the order of the Ld. Commissioner of Income Tax (Appeals) - 9, New Delhi, dated 27.11.2019, relating to the A.Y. 2011-12.
The relevant facts as culled out from the material on record are as under :
The assessee is a company who filed its return of income for A.Y. 2011-12 on 11.02.2013 declaring total income of Rs.3,360/-. The assessment was initially framed u/s 143(3) of the Act vide order dated 31.01.2017 assessing the total income at Rs.1,06,850/-. Thereafter, the case was reopened by issuing notice u/s 148 of the Act and consequently the assessment was framed u/s 147 r.w.s 144 of the Act vide order dated 03.10.2018 determining the total income at Rs. 19,42,995/-.
4. Aggrieved by the order of AO, assessee carried the matter before CIT(A) who vide order dated 27.11.2019 in Appeal No.10126/2019-20 dismissed the appeal of the assessee. Aggrieved by the order of CIT(A), assessee is now in appeal before the Tribunal and has raised the following grounds: “
1. Because the proceedings initiated under section 147 by notice under section 148 have neither been validly initiated nor concluded in accordance with the provisions of law and the assessment order passed in pursuance thereof is liable to be declared as void ab initio.
2. The CIT(A) has erred in law and on facts in upholding the addition Rs.18,36,145/- under section 68 of the Act.
3. Interest under various sections could not have been charged and included in the computation of tax demand.
4. The order appealed against is contrary to facts, law and principles of natural justice.”
The case file reveals that there is a delay of 6 days in filing the appeal. Assessee has filed a letter explaining the reasons which lead to the delay in filing the appeal and has sought the condonation of the delay.
Learned DR did not seriously object to the request for condonation. Considering the aforesaid and the reasons explained by the Learned AR, I find that the reasons for the delay has been sufficiently explained and accordingly condone the delay and admit the appeal for hearing.
Vide Ground No.1 Assessee is challenging the validity of the reassessment proceedings.
The AO in the assessment order has noted that information was received from ADIT (Inv.) which was forwarded to PCIT and through him to the AO according to which a search and seizure action was carried out in the case of Pradeep Kumar Jindal group of companies on 18.11.2005 and Shri Sajjan Kumar Jain. It was noted that two consequential surveys were also carried out at a location in Delhi, which was a secret office of Pradeep Kumar Jindal. During the course of search and survey operations, large number of physical documents and soft data of the front companies of Pradeep Jindal was found and impounded. AO has noted that during the course of search and post search investigations, statement of various dummy directors of the front companies were recorded u/s 132 and 131(1A) of the Act wherein they all inter alia admitted that they were dummy directors of the front companies of Pradeep Jindal, Pradeep Jindal was involved in providing accommodation entries of various nature to a large number of beneficiaries in lieu of cash. Statement of Shri Pradeep Jindal was also recorded wherein he explained the entire modus operandi of providing accommodation entries to various beneficiaries. AO at para 9 of the order has noted that Pradeep Jindal in the statement recorded u/s 132(4) of the Act had admitted that he charged commission in cash @ 0.25% of the value of accommodation entries provided to various beneficiaries and his different rate of charges for various other modes of providing accommodation entries. AO at para 10 of the order noted that assessee was one of the front companies of Pradeep Jindal Group and was maintaining bank account with Corporation Bank Delhi and Yes Bank Delhi for the accommodation entry business. AO on the basis of the aforesaid facts and the detailed reasons noted in the order concluded that he had reason to believe that the income of the assessee has escaped assessment and accordingly after obtaining the prior approval of PCIT issued notice u/s 148 of the Act on 28.03.2018 for reopening the assessment proceedings for A.Y. 2011-12. AO noted that subsequently notice was also issued through ITBA portal on 30.03.2018 but there was no compliance by the assessee. AO noted that notice issued u/s 142(1) of the Act also remained uncomplied by the Assessee. AO thereafter by invoking the powers u/s 133(6) of the Act obtained bank statements of the assessee from Corporation and Yes Bank with which the assessee was having the bank accounts. On perusing the bank statements, AO noted that total bank credits in Corporation Bank account was Rs.1,75,58,700/- and the credits in Yes Bank was Rs.5,58,87,000/- and the total aggregate credits in both its bank account to be Rs.7,34,45,790/-. He considered the aforesaid aggregate amount to be the value of accommodation entry provided by the assessee. On such accommodation entry provided, he worked out the commission of Rs.18,36,145/- (2.5% of Rs.7,34,45,790/) and treated the commission as undisclosed income of the assessee.
Aggrieved by the order of AO, assessee carried the matter before CIT(A) who upheld the order of AO and thereby dismissed the appeal of the assessee. Aggrieved by the order of CIT(A), assessee is now before Tribunal.
Before me, Ld AR vide Ground No.1 is challenging the reassessment. Before me, Ld AR submitted that the reassessment proceedings initiated to be contrary to law and void ab initio and therefore required to be set aside. He thereafter pointed to the observation of CIT(A) at para 6.2 of the order wherein he had noted that the incriminating material was found during the course of search. He submitted that since the incriminating material was found during the course of search (not at the place of the assessee but a third party) the right course available to the AO was to invoke the provisions of Section 153C of the Act and after following the procedure prescribed therein, the AO should have framed the assessment u/s 153C of the Act and not u/s 147/148 of the Act as the jurisdiction under Section147 of the Act is ousted in view of the non obstante clause under Section 153C of the Act. In support of his aforesaid contentions, he placed reliance on the decision in the case of G. Koteshwara Rao Vs. DCIT (2015) 64 Taxmann.com 159, the copy of which was placed at page 41 of the paper book. He also placed reliance on other decisions apart from the following decisions: 1. Rajat Shubra Chatterji Vs. ACIT (ITA No 2430/Del/2015 order dated 20.05.2016 2. Fragrance Construction Pvt. Ltd. Vs. ACIT (ITA No. 2311/Del/2013 order dated 27.09.2021)
Ld AR thereafter pointed to the copy of the form for recording the reasons for initiating proceedings u/s 148 for obtaining the approval of PCIT which is placed at page 39 and 40 of the paper book. Pointing to the aforesaid form, he submitted that the Addl.CIT and PCIT have given the approval in a mechanical way without any application of mind. He submitted that the sanctioning authority u/s 151 of the Act is required to judiciously review and record objective satisfaction which should be discernible from the order passed u/s 151 of the Act and it should an independent satisfaction and not a borrowed satisfaction. In the present case, he submitted that the approval granted by Addl. CIT and PCIT were given in a mechanical way and without application of mind and therefore in the absence of proper satisfaction recorded by the competent authority, the assessment is invalid. In support of his aforesaid contention, he placed reliance on the decision of Hon’ble Delhi High Court in the case of Synfonia Tradelinks P. Ltd. Vs. ITO (2021) 127 Taxmann.com 153. On the merits of the addition, he relied on the submissions of the assessee made before lower authorities.
Ld DR on the other hand supported the order of lower authorities and submitted that despite various notices issued by AO, the same remained uncomplied and therefore AO had no other option but to frame assessment u/s 144 r.w.s 147 of the Act. With respect to the contention of the Ld AR on improper recording of satisfaction, he submitted that Addl. CIT had after application of mind had recommended the proposal for reopening on the basis of reasons recorded by AO that thereafter PCIT after considering the material on record had recorded his satisfaction for reopening of the assessment and thus there was no infirmity in recording the satisfaction and thereby in the reassessment proceedings. He thus supported the order of lower authorities.
I have heard the rival submissions and perused the material on record. The first challenge of the assessee is that the assessment should have been framed u/s 153C of the Act and not u/s 147/148 of the Act and since the assessment has been framed u/s 147/148 of the Act, therefore the assessment order passed is bad in law. The power of assessment or reassessment of any income chargeable to tax that has escaped assessment has been provided under section 147 r.w.s 148 of Income-tax Act 1961. If the Assessing Officer has the reason to believe that any income chargeable to tax has escaped assessment then the Assessing Officer may subject to the provisions of Section 147 to 153 of the Act assess or reassess such income. Section 147 of the Act empowers the Assessing Officer to reopen an assessment if the conditions prescribed therein are satisfied. The conditions are:
1. 1. AO has to record the reason for taking action under section 147 of the Act. Only on the basis of such reasons recorded (a live link with the formation of the belief) in the file that the validity of the order reopening a assessment has to be decided.
2. AO must also have reason to believe that income chargeable to tax has escaped assessment for any assessment year 3. The jurisdictional condition is that the formation of belief by the AO that income has escaped assessment 4. No action can be initiated after the expiry of 4 years from the end of the relevant assessment year unless reason for the failure is on the part of the taxpayer to disclose fully all material facts necessary for assessment.
On the other hand, there are specific provisions contained in section 153A to section 153C which deals with assessments that commence after a search has been conducted under the provisions of section 132 of the Act or requisition has been made under section 132A of the Act. The analysis of the Section 153C of the Act would indicate that the section comes into play only if the following conditions are fulfilled: 1. Search or requisition must have taken place; 2. any money, bullion, jewellery or other valuable articles or other things or books of account or documents (hereinafter called “assets/documents”) are found belonging/pertaining to “such other person”) or even any information contained therein relates to a person other than the person on whom the said search is conducted; 3. Satisfaction of AO that it belongs to or relates to “such other person”
After finding any books account or documents or assets seized or requisitioned, the same shall be handed over to the AO having jurisdiction over such other person. The AO (having jurisdiction) has to be satisfied that the “assets/documents” seized or requisitioned have a bearing on the determination of the total income of such other person. Only then the AO (having jurisdiction) can proceed/s.153C against such other person in the manner provided u/s. 153A. It is apparent from the above that two separate satisfactions ought to be recorded which is: (i). First by the AO of the person on whom search was conducted i.e. “searched person” for any “documents/assets” found pertaining to or belonging to the “such other person”. (ii). Secondly by the AO of other person, regarding “assets/documents” seized or requisitioned have a bearing on the determination of the total income of such other person.
From the above analysis, it is clear that the provision of Section 153C of the Act can be invoked in case of “Other Person” if the recovery of any money, bullion, jewellery or other valuable article or thing seized or requisitioned belongs to person other than the searched person, then section 153C of the Act would be justified. However, with regard to the recovery of any books of accounts or documents, seized or requisitioned, then if they pertain to other person, or any information contained therein relates to person other than the searched person, then the action under section 153C could be there. In the present case, it is an undisputed fact that AO has noted that during the course of search conducted on 18.11.2015 at the various premises of Pradeep Kumar Jindal and on the basis of documents found during the course of survey at various other places, various incriminating material was found and seized, statement of various persons were recorded. It is also an undisputed fact, that no search has taken place in the case of the Assessee. On the basis of the examination of such material found at the time of search at the various premises of Pradeep Jindal, AO had “reason to believe” that the income chargeable to tax of the Assessee had escapement assessment and accordingly initiated reopening proceedings u/s 147 of the Act. The perusal of the relevant provisions of Section 153A and 153C of the Act makes it clear that recourse u/s 153A and 153C of the Act being special procedure for assessment gets triggered upon receipt of the incriminating material post any search or requisition. The mandatory requirement u/s 153C of the Act is that on handing over of the seized materials to the Assessing Officer having jurisdiction over such other person, then alone, he is empowered to record satisfaction and issue notice to the other person. In the absence of handing over of the searched materials as per the procedures contemplated under the provision, it would be not be permissible on the part of the AO to initiate proceedings u/s 153C of the Act. Merely on the basis of information available with the AO or certain information made available prior to the handing over of the materials would not be sufficient to initiate proceedings u/s 153C of the Act and would not confer any power on the AO to initiate proceedings u/s 153C of the Act. In order to initiate proceedings to assess or reassess u/s 153C of the Act, the AO should mandatorily possess the seized material or other books of accounts etc and only after handing over of the materials to the AO of the other person, the AO is empowered to issue notice u/s 153C of the Act and that too after recording necessary satisfaction. Thus initiation of action u/s 153C would arise only if the seized material are handed over to the AO of such other person having jurisdiction of such other person. In the present case, it will be relevant to note that there is neither any material on record nor any evidence has been placed on record by the assessee to demonstrate that the seized and impounded material of the searched person was handed over to the AO of the assessee when the AO had initiated proceedings u/s 147 of the Act and the AO had recorded satisfaction as contemplated u/s 153C of the Act.
I also find that Hon’ble Madras High Court in the case of Karti P. Chidambaram V. Principal Director of Income- Tax (Investigation) and others [2021] 436 ITR 340 (Mad) has held that there is distinction between the provisions of Section 147, 153A and 153C of the Act and has held that only after handing over of the materials to the Assessing Officer of the other person, he is empowered to issue notice under section 153C of the Act and not otherwise. The relevant observations of the High Court reads as under: “Distinction between sections 147, 153A and 153C 96. Section 147 contemplates “if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment, he can reopen the assessment”. The term “has reason to believe” is wider enough to cover various circumstances including informations, materials under assessment etc. Thus, section 147 may be invoked, if the Assessing Officer “has reason to believe”
Section 153A contemplates where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A, the Assessing Officer shall issue notice to such person, requiring him to furnish within such period as may be specified in the notice, the return of income. Thus, based on the search, the Assessing Officer shall issue notice to such person (i. e., searched person). As far as the searched persons are concerned, section 153A contemplates that search and seizure would be sufficient to issue notice to the assessee. Once search is conducted and notice is issued, then all pending proceedings initiated under section 147/148 stood abated, in view of the second proviso clause.
Section 153C contemplates that a person other than a person referred to in section 153A, then the books of account or document or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied. Section 153C contemplates certain conditions to the Assessing Officer for initiation and issuance of notice. Based on the search or seizure, the Assessing Officer cannot proceed against the other persons, who are not connected
with the search or seizure operations. In order to initiate proceedings to assess or reassess under section 153C of the Act, the Assessing Officer mandatorily should possess the seized materials and other books of account etc., section 153C unambiguously stipulates that the assets seized or requisitioned shall be “handed over” to the Assessing Officer having jurisdiction over such person. Thus, only after handing over of the materials to the Assessing Officer of the other person, he is empowered to issue notice under section 153C of the Act and not otherwise.
Thus, the scope of section 147 for reopening of assessment is not comparable with the reassessment proceedings under section 153C of the Act. On receipt of certain information from the Investigation Wing, though the Assessing Officer in the present case instituted reopening proceedings under section 147/148 of the Act. On handing over of the seized or requisitioned materials, the Assessing Officer is bound to issue notice under section 153C of the Act. Reassessment under section 153C of the Act is wider enough to cover six assessment years. At each stage, the Income-tax Act provides various procedures, considering the instances and developments in the matter of gathering informations and during the search operations. Unless such powers are contemplated, it would be difficult for the authorities to deal with cases of tax evasions.
Section 153C further contemplates that on receipt of the seized materials, assets etc., shall proceed and issue notice and assess or reassess the income, if the Assessing Officer is satisfied. Thus, handing over of material should happen and thereafter, the Assessing Officer shall proceed, issue notice, and assess or reassess, if the Assessing Officer is satisfied. Thus, satisfaction of the Assessing Officer is mandatory. Such a satisfaction must be recorded in writing and if the satisfaction recorded is sufficient enough, then the Assessing Officer shall proceed to assess or reassess under section 153C of the Act. The assessee will get an opportunity during the process of assessment or reassessment to defend their case.
The comparative understanding of sections 147/148 and 153A and 153C would reveal that even in case, based on the informations from the Investigation Wing of the Income-tax Department, actions are initiated under section 147/148 and during the pendency of the reopening proceedings, if the seized materials were handed over to the Assessing Officer, on receipt of the seized materials, he is empowered to proceed, issue notice and assess or reassess, if the Assessing Officer is satisfied. No matter when the search was conducted in such cases against the other persons, in view of the fact that the search is no way connected with the assessee with reference to section 153C of the Act. In the present case, the search was conducted on July 5, 2018. Informations were provided to the Assessing Officer of the petitioner. However, all those materials seized and impounded were not communicated to the Assessing Officer of the petitioner. Admittedly, certain informations were provided by the Deputy Director of Income-tax (Investigation), and based on which proceedings under section 147/148 was initiated.
Even in such circumstances, if at all the Assessing Officer erroneously proceeded under section 147/148 of the Act, thereafter, on handing over of complete materials seized or impounded during the search operation to the jurisdictional Assessing Officer, he is empowered to invoke section 153C of the Act as there is an abatement clause contemplated under sections 153A and 153C. The very purpose and object of abatement clause is to ensure that on receipt of materials during the interregnum period, more specifically, during the pendency of reopening proceedings, the Assessing Officer, if satisfied, shall issue notice under section 153C of the Act and proceed for assessment or reassessment. This being the constructive interpretation to be adopted, even in cases, where there is a mistake in initiation of proceedings under section 147/148 proceedings, on receipt of complete seizure materials, the Assessing Officer is empowered to invoke section 153C of the Act on satisfaction and by issuing notice.
Therefore, initiation of action under section 153C of the Act would arise only if the seized materials are handed over to the Assessing Officer of such other person, having jurisdiction over the other person. In the present case, admittedly, the search was conducted in the premises of M/s. Agni Estates and Foundation Private Limited. The materials of the searched person was handed over to the Assessing Officer of the searched person on November 28, 2019. It was forwarded to the Assessing Officer of the other person (petitioner) on November 28, 2019 and thereafter, the Assessing Officer completed the “satisfaction note” on December 16, 2019 and issued show-cause notice, which is mandatory under section 153C of the Act. Thus, the procedure would be that, the seized materials are to be handed over to the Assessing Officer of the searched person at the first instance for initiation of action under section 153A of the Act and such materials must be handed over to the jurisdictional Assessing Officer of the other persons and on receipt of the materials, the Assessing Officer shall have no option, but to issue notice under section 153C of the Act to the other persons, after recording satisfaction.
The cogent understanding of the procedures contemplated under Chapter XIV of the Income-tax Act would provide a clear picture that the Legislatures thought fit that the assessment and reassessment in the case of search operations are to be conducted in a different manner and accordingly, section 153A and section 153C are enacted. The abatement clause is provided in order to avoid parallel proceedings. Thus, once the seized materials are handed over to the Assessing Officer having jurisdiction, then the Assessing Officer shall have no option, but to issue notice under section 153A in respect of searched person and 153C in respect of other persons. On the date of receipt of the searched materials by the jurisdictional Assessing Officer, non obstante clause would come into operation and accordingly, all other proceedings, if any pending on that date under section 147/148 shall stand abated.”
Considering the provisions of the Act as noted hereinabove, in the light of the legal position and in the light of the decision of Hon’ble Madras High court in the case of Karti Chidambaram (supra), I find no fault in the initiation of proceedings u/s 147/148 of the Act by the AO and thus that there is no merit in the contention of the Ld AR that the AO should have initiated proceedings u/s 153C and not u/s 147/148 of the Act.
Another grievance of the assessee is that the approval given by Addl. CIT and PCIT u/s 151 of the Act was in a mechanical way and without application of mind and therefore in the absence of proper satisfaction recorded by the competent authority, the assessment is invalid. In support of his contention, Ld AR has pointed to the form for recording the reasons for initiating proceedings u/s 148 and for obtaining the approval of PCIT which is placed at page 39 and 40 of the paper book.
Section 151 of the Income-tax Act, 1961 provides that no notice shall be issued under section 148 by the Assessing Officer after the expiry of a period of four years from the end of the relevant assessment year, unless the Commissioner is satisfied about the reasons recorded by the Assessing Officer that it is a fit case for issue of such notice. Before the Commissioner endorses the satisfaction on the reasons recorded by the Assessing Officer, the Commissioner has to apply his mind and he cannot pass orders mechanically and without having read the reasons.
The perusal of the aforesaid form which is placed at page 39-40 reveals that the form has in total 13 entries. Entry No. 11 of the aforesaid form refers to the “reasons for the belief that income has escaped assessment” and the reply to which is stated “As per Annexure A”. Entry No 12 of the aforesaid form reads “whether the Addl. CIT is satisfied on the reasons recorded by the AO in this case for A.Y. 2011- 12 that it is a fit case for the issue of a notice u/s 148” to which the Addl CIT in his own handwriting has noted “Recommended for approval on the basis of reasons recorded by AO” and it is signed on 23.03.2018. Entry No 13 of the aforesaid form reads “Whether the PCIT is satisfied on the reasons recorded by the AO in this case for A.Y. 2011-12 that it is a fit case for the issue of a notice u/s 148” to which PCIT in her own hand writing has noted “As per the reasons recorded, I am satisfied that it is a fit case”. Perusal of the aforesaid form thus reveals that the reasons recorded were placed by the AO before the Addl. CIT alongwith other details in prescribed format. It was only after perusing such details that the Addl. CIT agreed that it was a fit case for issuing notice under Section 148 of the Act and he had recommended for approval before PCIT. PCIT in her own hand writing has noted about the case being fit for issuance of notice. It is thus seen that Addl. CIT has after considering the reasons recorded by the AO has recorded his satisfaction and approval which in my view is valid approval. I therefore find no merit in the contention of the Ld AR that sanction under section 151 of the Act was granted by the competent authority in a mechanical manner. Further, the statutory provisions do not require that the satisfaction has to be recorded in a particular manner. Ld AR has not placed on record any material to demonstrate the entire proposal along with the necessary details and the reasons recorded by the Income Tax Officer were not placed before the Addl.CIT and Principal CIT. Further I draw support from the decision of Hon’ble Delhi High Court in the case of Experion Developers (P.) Ltd. Vs ACIT [2020] 115 taxmann.com 338 (Delhi) wherein the Hon’ble High Court has held that there is no requirement to provide elaborate reasoning to arrive at a finding of approval when the Principal Commissioner is satisfied with the reasons recorded by the AO. Considering the totality of the aforesaid facts, I am of the view that there is no merit in the contentions of Learned AR about the satisfaction being recorded mechanically. In view of the aforesaid facts, I do not find any merit in the grounds raised by the assessee and thus the ground of the assessee is dismissed.
As far as Ground No.2 on the merits of the addition is concerned, Learned AR did not advance any arguments before me on the matter but merely submitted that he relied on the submissions made by the assessee before the lower authorities. Ld DR on the other hand supported the order of lower authorities.
I have heard the rival submissions and perused the material on record. In the present ground, assessee is challenging the addition u/s 68 on merits. I find that the lower authorities by well reasoned orders and for the reasons stated in their orders have upheld the addition. Before me, Ld AR has neither pointed to any fallacy in the findings of the lower authorities nor has placed any material on record to controvert the findings of lower authorities. In such a situation, I find no reason to interfere with the order of CIT(A) and thus dismiss the ground of the assessee.
In the result, the appeal of assessee is dismissed.