PAWAN KUMAR AGARWAL,NEW DELHI vs. PR. CIT - 12, NEW DELHI

Aforesaid appeals have been filed by the assessee against the separate impugned order of even date 09.06.2020, passed by the ld. Pr. CIT - 12, Delhi in his revisionary jurisdiction under section 263 of the Income-tax Act, 1961 (for short ‘the Act’) for the assessment years 2010-11, 2011-12 & 2012-13.

2 1355 & 1357/Del./2020 3. In various grounds of appeal, the assessee besides challenging the impugned order u/s 263 of the Act has stated that ld. Pr.CIT could not have revised the assessment order by setting aside on the issues which are not arising out of any incriminating material found during the course of search of the assessee. The points which have been raised by the Ld. PCIT in his show-cause notice as well as in the impugned order are not based on incriminating material, therefore, such an order cannot be sustained as all the three assessment years had attained finality much prior to the date of search.

4. The brief facts and the background of the case are that the assessee is proprietor of M/s. Supreme Gold which was engaged in sale and purchase of bullion, from the premises 301-305/1185, 3rd Floor, Kucha Mahajani, Chandni Chowk, Delhi-110006. A survey was conducted at the same premises on 20.07.2015, which was converted to search action under section 132 and cash of Rs.4.75 crores out of total cash found of Rs.4,78,50,000/- at the above premises was seized. Admittedly, as per the original assessment records, the search action did not yield any incriminating material. Thereafter, in pursuance of such notices issued u/s 153A, the assessments were completed u/s 153A /143(3) of the Act. Later on, the assessee’s income of above three assessment years after subject to rectification order dated 23.02.2018 in the following manner :- Assessment Income Returned Income assessed Income after Year (Amt. in Rs.) u/s 153A (Amt. rectification in Rs.) (Amt. in Rs.) 2010-11 97,61,380/- 10,51,31,345/- 6,09,12,936/- 2011-12 2,57,01,482/- 62,37,29,550/- 32,87,07,501/- 2012-13 3,27,32,750/- 101,38,03,038/- 54,50,04,679/- 3 1355 & 1357/Del./2020 5. Before us, it has been pointed out that assessments for the above assessment years had attained finality as they were completed u/s 143(3) for the assessment years 2011-12 & 2012-13 and for AY 2010- 11, return income stood finally assessed. At the time of search on 20.07.2015, none of the assessments of these assessment years were pending. It has also been brought on record that the assessee had preferred an appeal before the Ld. CIT (A) who vide his order dated 19.12.2018 has quashed the assessments for AYs 2010-11, 2011-12 & 2012-13 on the ground that none of the additions were based on any incriminating material and after relying upon the decisions of Hon’ble Delhi High Court in the case of CIT (C)-III v. Kabul Chawla (Delhi) [2015] 380 ITR 573 and Pr. CIT, Central 2, New Delhi vs. Meeta Gutgutia Prop. M/s. Ferns ‘N’ Petals 2017 (5) TMI 1224 – Delhi High Court. Thus, the additions which were made by the AO stood deleted.

4 1355 & 1357/Del./2020 (iii) As per ITS (individual transaction-statement), interest of Rs.4,62,75,542/- was accrued/received but interest of Rs.4,42,20,409/- was disclosed in ITR. The balance amount of Rs.20,55,133/- (4,62,75,542/- minus 4,42,20,409/-) was not disclosed. (iv) The following bank accounts were run and operated but transactions of these accounts were not been disclosed in the ITR :- Bank name Bank account no. Total deposits (Rs.) ICICI Bank Ltd. 521500164 1,52,33,010/- ICICI Bank Ltd. 25505000150 6,00,000/- ICICI Bank Ltd. 35305000974 5,70,000/- ICICI Bank Ltd. 18601512155 2,00,000/- ICICI Bank Ltd. In various bank 80,00,09,890/- accounts Total deposits 81,66,12,900/-

3 As per bank statement of M/s M S Enterprises, the following payments of Rs.7,41,03,321/- were received by M/s M S Enterprises from M/s Supreme Gold. Date Amount 22.01.2010 56,25,000/- 29.01.2010 44,55,700/- 09.02.2010 98,50,000/- 17.02.2010 93,00,000/- 31.03.2010 4,48,72,621/- Total 7,41,03,321/-

3.1 However, these payments were not disclosed in the ITR. The AO has made addition of Rs.1,45,32,880/- u/s 69A of the Act on account of advance of money to M/s M S Enterprises. But the payment of remaining amounts of Rs.5,95,70,441/- (7,41,03,321-1,54,32,880) has not been enquired by the AO.”

5 1355 & 1357/Del./2020 7. Before ld. Pr.CIT, the assessee has raised this legal issue and submitted that, first of all, all the transactions of derivatives were duly disclosed in the books of account and disclosed in the profit & loss account and have been treated as part of sale and turnover of the assessee. The entire reply in response to the showcause notice had been incorporated in the impugned appellate order. Besides this, the assessee has also challenged that the points which have been raised in the show-cause notice are not based on any incriminating material and the decisions of Hon’ble Delhi High Court in cases of Kabul Chawla and Meeta Gutgutia Prop. M/s. Ferns ‘N’ Petals (supra) were referred to and relied upon. However, the ld. Pr.CIT said that these judgments are not related to proceedings u/s 263 of the Act. Finally, he held that order passed by the AO without making enquiries should have not been made and his observations made in the impugned order is as under :- “8 In regard to commodity transactions through exchange, the assessee has submitted that net gain from these transactions of Rs.66,25,170/- was included in the sale and duly accounted for. 8.1 On this issue it is submitted that a) The assessee has not submitted any documents or profit and loss account which shows that profit of Rs.66,25,170/- was earned from commodity transactions through commodity exchange. b) Profit/loss in transactions in commodity through exchange needs to be reported separately because there is no income tax guidelines/provision or CA institute guideline which state that net gain/loss are to be clubbed in the sale of other items. c) As per income tax Act, total sale and purchase are to be reported in the relevant columns of Income Tax return. As per guidelines of CA institute for Tax audit purpose, the total positive and negative of each transaction are to be 6 1355 & 1357/Del./2020 considered as sale for tax audit purpose. But the assessee neither follows the income tax provision nor the guideline of the CA institute. d) Without prejudice to the above, even if it has been accepted that the net profit has been included in the sale, than the GP ratio, as determined in the assessment order dated 31.12.2017 by AO is to be recomputed as under because profit from transactions in commodity through exchange is separate from trading of bullion. Amount in Rs. Sale 5291247476 Less credit from HHEC 2083397 Gain from derivative 6625170 8708567 transactions Net Sale 5282538909 GP 0.40% as assessed by the AO 21130156 GP disclosed 12830816 Addition on account of enhancement of GP ratio 8299340 (21130156 minus 12830816) Net Gain on commodity 6625170 transactions Credit from HHEC 2083397 Total addition to be made (instead of Rs.84,79,929 on 17007907 account of GP)

8.1.1 In view of above, the reply of the assessee is not accepted and rejected on this issue. The issue needs detailed enquiry and verification. 8.2 In regard to allegation of non-disclosure of Interest of Rs.20,55,133/-, the assessee has submitted that interest income of Rs 20,55,133/- has been included and clubbed with the currency premium charges. The breakup of accounting head of currency premium charge will be duly enclosed in our submission.

7 1355 & 1357/Del./2020 8.2.1 On this issue, it is submitted that the assessee has not provided the ledger account of currency premium charges. It has also been found that the assessee has disclosed the amount of interest received of Rs.4,42,20,409/- in his ITR separately. The-interest paid is also claimed separately. Thus, the assessee's submission that interest income was clubbed with the currency premium charges is not credible. When the assessee is showing the interest income separately, why the undisclosed amount of interest as reported in the notice issued u/s 263, was included in the currency premium account? Hence, the assessee's reply is not accepted on this issue and rejected. The issue needs detailed enquiry and verification. 8.3 In regard to deposit in various bank accounts, as reported in the ITS, the assessee has stated that account no.25505000150, 35305000974, 18601512155 do not pertain to him. The transactions of Rs.80,00,09,890 was made in various accounts pertaining to him, as he has made transactions for more than Rs3.00 cr. 8.3.1 On this issue, it is submitted that the assessee has admitted that transactions of Rs.80,00,09,890/- was made in various bank accounts but assessee has not provided a single instance to show that the transactions have been recorded in the books of accounts. Hence the assessee's view is not acceptable and rejected. The issue needs to be verified by calling information from banks and the assessee. 8.4 The assessee has not submitted any reply on this issue of payment of Rs.5,95,70,441/- (7,41,03,321-1,54,32,880) to M/s. M S Enterprise and stated that the issue is subject matter of appeal. It shows that assessee has no explanation for the same. 8.5 In regard to initiation of penalty u/s 271AAB(1)(c) instead of 271(1)(c) of the Act, the assessee has not given any reply on this issue. Hence it shows that the assessee has not any objection on this issue. 9 The above facts show that the AO has not made any enquiry and verification on this issue. The AO has not even made enquiry and verification on the issues mentioned above.

8 1355 & 1357/Del./2020 9.1 Thus, It is absolutely clear that during the assessment proceedings for A Y 2010-11, AO has not made proper enquiry and verification of the issue mentioned above. There was no application of mind on issues in hand as narrated above. The assessment order passed u/s 153A1143(3) of the Act dated 31.12.2017 for AY 2010-11 is both erroneous & prejudicial to the interest of revenue. This has rendered assessment order "erroneous". If due to an erroneous order of the AO the revenue is losing tax lawfully payable by a person, it would be certainly prejudicial to the interest of revenue, as held in the case of CIT Vs Leisure Wear Exports Ltd. (2012) 341 ITR 166 (Del.). In case of Malabar Industrial Co. Ltd. Vs CIT (2000) 243 ITR 87 (SC) Hon'ble Apex Court held that there was no material to support the claim of appellant & yet AO accepted the entry in the statement of account in absence of any supporting material and without making any inquiry. It is incumbent on the officer to investigate the facts stated in the return. The order becomes erroneous if such enquiry has not b n made as held in case of Duggal & Co. Vis CIT (1996) 220 ITR 456 (Del.).”

Issues referred in Direction in the order Basis of direction /order the notice issued passed u/s 263 u/s 263 The following In para 2 of notice PCIT stated transactions were that transactions in para 2(i) made but not to para 2(iv) of notices as disclosed in ITR, narrated in table were not further AO has not disclosed in ITR and AO has made enquiry and not made verification and verification of these enquiries of these transactions. transactions. PCIT observations are not based on any incriminating material The transactions in The assessee’s reply Information already on record. commodity through that profit of No incriminating material national/Multi Rs.66,25,170/- on found in search action nor Commodity derivatives referred to as such by the exchange of Rs.4160 transactions in PCIT. crores were made commodity and Merit during the F.Y 2009- shares was included The transactions of derivatives 10 relevant to AY in turnover needs were conducted on screen 2010-11 detailed enquiry and based electronic trading on a verification (Para recognized stock exchange 8.8.1 and 8.1.1 at through a recognized stock page 11-13 of the broker, which were fully order passed u/s disclosed. 263) The transaction in Same as above Same as above shares of Rs.27,52,65,805/- were made during the year through Share India Securities limited. As per ITS The Assessee's reply Observation of the PCIT on the (individual that interest income issue is not based on any transaction of Rs.20,55, 133/- incriminating material, it is statement), interest was based on the basis of of Rs.4,62,75,542/- included in the information already available was accrued account of currency on record in the form of /received but premium charges Individual Transaction interest of needs detailed statement (ITS). Merit Rs.4,42,20,409/- enquiry and was disclosed in ITR. verification. (Para 8.2 The amount of interest income The balance amount and 8.2.1 at page 13 was duly declared in profit and of Rs.20,55,133/- of the order passed loss account and thus fully (4,62,75,542/- u/s 263) disclosed. minus 4,42,20,409/- ) was not disclosed. The certain bank The Assessee's reply The PCIT observation on the accounts were run that transactions of issue is not based on any and operated but Rs.80,00,09,890/- incriminating material. transactions of these were made in various Merit accounts were not bank accounts The assessee replied during disclosed in the ITR without providing proceedings u/s 263 that detail needs to be certain bank accounts stated verified from calling in the notice u/s 263 as not information from disclosed by him did not banks and assessee pertain to him and that all (Para 8.3 and 8.3.1 at other transactions of page 13 of the order Rs.80,00,09,890/- were passed u/s 263) disclosed in his books of accounts. As per bank The assessee has not The PCIT observation on the statement of M/s. M made any reply on issue is not based on any S Enterprises, the issue (Para 8.4 incriminating material. The certain payments of CIT(A) in her order also held page 13-14 of the Rs.7,41,03,321/- order passed u/s that the transactions with were received by 263) M/s. M S Enterprises are not M/s. M S based on any incriminating Enterprises from material. M/s. Supreme Gold Merit but these payments The transactions are duly are not disclosed in disclosed in the regular ITR. audited books of accounts maintained by the assessee. Penalty initiated u/s No reply from The PCIT observation on the 271AAB(1)(c) instead assessee (Para 8.5 issue is not based on any of u/s 271(1)(c) page 14 of the order incriminating material. passed u/s 263) Merit The direction on the issue of penalty is beyond the purview of provisions of section 263 of the Act. The following In para 2 of notice PCIT stated transactions were that transactions in para 2(i) made but not to para 2(ii) of notice which are disclosed in ITR, narrated in table which as per further AO has not PCIT were not disclosed in ITR made enquiry and and AO has not made verification of these verification and enquiries of transactions these transactions. PCIT observations are not based on about any incriminating material. The transactions in The assessee reply The PCIT observation on the commodity through that transactions issue is not based on any national/multi- mentioned in point incriminating material. Commodity 2(i) of the notice do Merit exchange of not pertain to him is The assessee replied during Rs.2,05,97,86,270/- not acceptable. The proceedings u/s 263 that the were made during issue needs to be transactions stated in the the F.Y. 2010-11 verified by calling notice u/s 263 as not relevant to A.Y. information from disclosed by him did not 2011-12. exchange and broker. pertain to him. (Para 8 page 11 of the order passed u/s 263.) The certain bank The assessee’s reply The PCIT observation on the accounts were run that transactions of issue is not based on any and operated but Rs.79,75,000/- were incriminating material. transactions of these made in various bank Merit accounts were not accounts without The assessee replied during disclosed in the ITR. providing detail proceedings u/s 263 that needs to be verified certain bank accounts stated from calling in the notice u/s 263 as not information from disclosed by him did not banks (Para 8.3 at pertain to him and that all page 14 of the order other transactions of passed u/s 263) Rs.79,75,000/- were disclosed in his books of accounts. Certain additions No direction in order No direction in order passed and disallowances at passed u/s 263. u/s 263. However, notice is the time of order also not based on any passed u/s 143(3) of incriminating material the Act, but no enquiry and verification made in order passed u/s 143(3)/153A of the Act. Penalty initiated u/s No reply from The PCIT observation on the 271AAB(1)(c) instead assessee (Para 8.4 issue is not based on any of u/s 271(1)(c) page 14 of the order incriminating material. passed u/s 263) Merit The direction on the issue of penalty is beyond the purview of provisions of section 263of the Act. The interest The assessee has The PCIT observation on the accrued/ received accepted that due to issue is not based on any was of inadvertent error the incriminating material. Rs.46,88,05,206/- interest of Rs.6,847/- whereas interest of in declaration of Rs.46,87,98,359/- interest income could was disclosed in ITR be added to the during the FY 2011- income of the 12 relevant to AY assessee. (Para 8 2012-13. The AO page 8 of the order has not made any passed u/s 263.) enquiry and verification for balance interest of Rs.6,847/-. The assessee has The PCIT has stated The PCIT observation on the claimed hedging loss that reply of the issue is not based on any of Rs.1,82,54,867/- assessee that source incriminating material. and the same was of payment for Merit disallowed by the transactions of The transactions of derivatives AO. But, AO has hedging loss in the were conducted on screen not made any personal bank based electronic trading on a enquiry and account of the recognized stock exchange to a verification about assessee is from M/s. recognized stock broker, which amount of Supreme Gold were fully disclosed. investment and proprietorship of the source thereof for assessee is not making hedge acceptable due to transaction. non-filing of bank statement of Supreme Gold. This issue needs enquiry and verification. (Last sub-para of para 8.3 at page 10 of the order passed u/s 263) Certain addition and No direction in order No direction in order passed disallowances at the passed u/s 263. u/s 263. However, notice is time of order passed also not based on any u/s 143(3) of the incriminating material. Act, but no enquiry and verification made in order passed u/s 143(3)/153A of the Act. Penalty initialled u/s No reply from The PCIT observation on the 271AAB(1)(c) instead assessee (Para 8.4 issue is not based on any of u/s 271(1)(c). page 10 of the order incriminating material. passed u/s 263. Merit The direction on the issue of penalty is beyond the purview of provisions of section 263 of the Act.

14 1355 & 1357/Del./2020 on the basis of evidence found in the course of search or other post search material or information available with the AO which can be related to the evidence found. No assessment relating to all the three assessment years was pending as on the date of search. ……….. 10.4 The appellant has submitted before me that out of the three assessment years, the AO had accepted book results in the original assessment orders for AYs 2011-12 & 2012-13 with some routine disallowances. The appellant has placed copies of the assessment orders passed u/s 143(3) of the Act, for assessment years 2011-12 and 2012-13 in its paper book filed before me. The appellant has also submitted that no assessment was pending on the date of search for the above three assessment years which could abate in view of the statutory provisions. The appellant also submitted during the course of proceeding before me that the Assessing Officer has not made any addition on the basis of incriminating seized material. ………… 10.7.2 From the above narration, it is discernable that the addition has been made on the basis of some information gathered during survey conducted on 23.07.2014. It may be seen that the addition has no reference to any incriminating seized material found or seized during the course of search & seizure action. It is to be mentioned here that survey dated 23.07.2014 had taken place much before the survey dated 20.07.2015 which was converted into search & seizure action subsequently . ………… 10.14 The jurisdictional High Court is clear on the point that the assessment cannot be arbitrary or made without any relevant or nexus with the seized material. The completed assessments can be reiterated in the absence of any incriminating material and the assessments or reassessments can be made in respect of abated assessments. Completed assessments can be interfered with by the AO while making the assessment u/s 153A only on the basis or some incriminating material unearthed during the course of search or requisition of document or undisclosed income or 15 1355 & 1357/Del./2020 property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessments. 10.15 Further the jurisdictional High Court has followed the above decision in Pr. CIT vs. Meeta Gutgutia Prop. M/s. Ferns ‘N’ Petals 395 ITR 526 (Del), The Appellant has informed me that the Hon'ble Supreme Court has not admitted SLP of the department against the judgment of the jurisdictional Delhi High Court in the case of Meeta Gutguua (supra), in view of which the judgment passed by the Delhi High Court has attained finality. 10.16 In view of the above facts and the decisions of the jurisdictional High Court, I hold that the additions / disallowances made by the AO in the impugned Assessment Orders are not sustainable in the eyes of law, Therefore, the additions / disallowances are deleted.”