MEENA JOHAR,RISHIKESH vs. DCIT, CENTRAL CIRCLE, DEHRADUN

IN THE INCOME TAX APPELLATE TRIBUNAL DEHRADUN BENCH: DEHRADUN (Through Video Conferencing) assssss BEFORE, SHRI R.K.PANDA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER

ITA No.7092 & 7093/Del/2017 (ASSESSMENT YEAR-2010-11 & 2012-13)

Manav Johar DCIT, 104/38, Central Circle, Dehradun Road, Vs. Dehradun Rishikesh.

PAN-ADPP J0682D (Appellant) (Respondent)

ITA No.7098 & 7099/Del/2017 (ASSESSMENT YEAR-2010-11 & 2012-13) Mansi Johar DCIT, 104/38, Central Circle, Dehradun Road, Vs. Dehradun Rishikesh.

PAN-AFNP J3808B (Appellant) (Respondent)

2 ITA Nos.7092 & 7093/Del/2017 ITA Nos. 7098 & 7099/De/2017 ITA Nos. 7095 & 7097/Del/2017 Manav Johar & Ors vs. DCIT ITA No.7095 & 7097/Del/2017 (ASSESSMENT YEAR-2010-11 & 2015-16)

Meena Johar, DCIT, 104/38, Central Circle, Dehradun Road, Vs. Dehradun Rishikesh, PAN-ABRPJ 6975H (Appellant) (Respondent)

Appellant By Sh. Gautam Jain, Advocate Respondent by Sh. S.K. Chatterjee, SR-DR Date of Hearing 09.10.2020 Date of Pronouncement 27.11.2020

ORDER PER SUDHANSHU SRIVASTAVA, JM: The above six appeals filed by the respective assessees

are directed against the separate orders dated 20.9.2017 passed by

the Ld. Commissioner of Income Tax (Appeals)- IV, Kanpur {CIT (A)}.

Since common issues have been raised in all these appeals,

therefore, they were heard together and are being disposed of by

this common order.

3 ITA Nos.7092 & 7093/Del/2017 ITA Nos. 7098 & 7099/De/2017 ITA Nos. 7095 & 7097/Del/2017 Manav Johar & Ors vs. DCIT ITA No. 7092/Del/2017 A.Y. 2010-11:

2.0 ITA No. 7092/Del/2017 for A.Y. 2010-11 in the case of

Shri Manav Johar is taken as the lead case. Facts of the case, in

brief are that the assessee was engaged in the business of real

estate during the year under consideration and derived income from

salary, business & profession, house property, capital gain and

other sources. The assessee had filed the return of income declaring

total income at Rs. 22,13,440/- and agricultural income of Rs.

46,92,034/-. The return was processed u/s 143(1) of the Income

Tax Act, 1961 (hereinafter called ‘the Act’). A search and seizure

operation was conducted u/s 132 of the Act at the business

premises and the residential premises of the Manjeet Johar group of

cases on 23.12.2014. In response to the notice u/s 153A, the

assessee filed return of income declaring total income of Rs.

22,13,440/-. Thereafter, the case was assessed at an income of Rs.

39,70,440/- after making disallowance of expenses of Rs.

17,57,000/- u/s 40A(3) of the Act vide order passed u/s

153A/143(3) of the Act.

4 ITA Nos.7092 & 7093/Del/2017 ITA Nos. 7098 & 7099/De/2017 ITA Nos. 7095 & 7097/Del/2017 Manav Johar & Ors vs. DCIT 2.1 In appeal, the Ld. CIT (A) upheld the action of the

Assessing Officer by observing as under:

“The plain reading of the rules 6DD of the IT Rules would make it amply clear that the appellant case is not covered by any of the clauses stipulated rule 6DD of the IT Rules. The law of statue clearly implies that if literal meaning of the language of the statue is unambiguous then the full effect should be accorded to the language of statue. In the instant case, cash payment is made for the purchase of stock-in-trade which is clearly hit by the provisions of section 40A (3) of the Act. No clauses of rules 6DD is applicable to the appellant case. Business expedience was earlier covered by the rule 6DD (j) of the I.T. Act. However, this has under gone the amendment w.e.f. 01.04.2009 i.e. A.Y. 2009-10 onwards. The cases relied upon by the ld. AR are on their own footings and distinguishable on facts and are not applicable to the present case, because the case laws cited by appellant are prior to the amendment in the rules 6DD of the I.T. Rules. Moreover, the Hon’ble Apex Court in the very same case of Attar Singh Gurmukh Singh v. ITO (1997) 191 ITR 667 (SC) have categorically upheld that the payments for acquisitions of stock- in-trade or raw materials are clearly covered under provision of section 40A(3) of the I.T. Act. In view of the above discussion addition of the AO is confirmed and appeal of the appellant on this ground is dismissed”.

2.2 Aggrieved, the assessee is in appeal before this Tribunal

and has raised the following grounds of appeal:

“1 That initiation of proceedings u/s 153A of the Act and, framing of assessment u/s 153A/143(3) of the Act were without jurisdiction and, deserved to be quashed as such since no incriminating material was found as a result of search conducted on the appellant.

5 ITA Nos.7092 & 7093/Del/2017 ITA Nos. 7098 & 7099/De/2017 ITA Nos. 7095 & 7097/Del/2017 Manav Johar & Ors vs. DCIT 2 That the learned Commissioner of Income Tax (Appeals) has further erred both in law and on facts in sustaining a disallowance of Rs. 17,57,000/- by invoking the provisions contained in section 40A(3) of the Act. 2.1 That disallowance made and upheld of Rs. 17,57,000/- is without jurisdiction since it is not based on any incriminating material found as a result of search on the appellant as has CIT v. Kabul Chawla reported in 380 ITR 573. 2.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that expenditure incurred for purchase of land could ot have been disallowed by invoking the provisions contained in section 40A(3) of the Act. 2.3 That the aforesaid disallowance made and sustained u/s 40A (3) of the Act is covered under Rule 6DD and as such, disallowance made is arbitrary and untenable.”

3.0 All the aforesaid grounds essentially relate to the

validity of disallowance of Rs. 17,57,000/- by invoking the

provisions contained in section 40A (3) of the Act. The Ld.

Authorised Representative (AR) has contended that disallowance

made and upheld is without jurisdiction since it is not based on any

incriminating material found as a result of search on the assessee.

The Ld. AR for the assessee submitted that that notice issued u/s

153A of the Act, disallowance made and disputed in this appeal and

the impugned assessment framed u/s 153A/143(3) of the Act is

without jurisdiction since disallowance made by the Assessing

Officer is not based on any incriminating material found as a result

6 ITA Nos.7092 & 7093/Del/2017 ITA Nos. 7098 & 7099/De/2017 ITA Nos. 7095 & 7097/Del/2017 Manav Johar & Ors vs. DCIT of search on the assessee. It was submitted that in the instant

case, search under section 132 of the Act was conducted on

23.12.2014 and no proceedings were pending on the date of search

for the instant assessment year. It was submitted that the original

return of income was filed by the assessee on 8.10.2010 u/s 139(1)

of the Act and no notice u/s 143(2) of the Act was issued till the

date of search and, as such, the assessment for the instant year

was not pending on the date of search. Thus, the assessment made

prior to search had not abated under second proviso to section

153A of the Act and, therefore, the disallowance made is beyond the

scope of assessment framed u/s 153A/143(3) of the Act. It was

submitted that as a result of search on the assessee, no

incriminating material has been detected as a result of such search

and, therefore, addition made is without jurisdiction. Reliance was

placed on the judgments of the Hon’ble Delhi High Court in the case

of CIT v. Kabul Chawla reported in 380 ITR 573 and Pr. CIT vs.

Meeta Gutgutia reported in 395 ITR 526. Reliance was also placed

on (i) CIT v. Sinhgad Technical Education Society 397 ITR 344 (SC);

and (ii) Pr. CIT Index Securities (P) Ltd. 157 DTR 20 (Del).

7 ITA Nos.7092 & 7093/Del/2017 ITA Nos. 7098 & 7099/De/2017 ITA Nos. 7095 & 7097/Del/2017 Manav Johar & Ors vs. DCIT 3.1 The Ld. AR also submitted that in absence of any

incriminating material qua the addition in respect of non-abated

assessment, no addition can be validly made. In this regard reliance

was placed on the following judicial pronouncements:

i) ITA 406/2019 (Del) dated 23.07.2019 Pr CIT vs. SMC Power Generation ii) ITA No. 2083/Del/2012, dated 19.10.2016 Ranjana Garg vs. DCIT [The appeal of revenue dismissed by Hon’ble Delhi High Court in ITA 257/2017 dated 01.05.2017] iii) ITA No. 3332/Del/2017 dated 29.12.2017 M/s. Brahmaputra Finlease (P) Ltd vs. DCIT iv) ITA No. 1553 & 3173/Mum/2010 dated 13.02.2015 Jignesh P. Shah vs. DCIT v) I.T.A.No.513 & 514/Vizag/2013 dated 09.06.2017 Y.V. Anjaneyulu Guntur vs. DCIT vi) 387 ITR 529 (Guj) Pr CIT vs. Saumya Construction (P.) Ltd. vii) ITA No. 4593/Del/2016 dated 27.02.2018 ACIT vs. S P Singla Construction P. Ltd

4.0 The Ld. DR, on the other hand, relied upon the orders of

the lower authorities.

8 ITA Nos.7092 & 7093/Del/2017 ITA Nos. 7098 & 7099/De/2017 ITA Nos. 7095 & 7097/Del/2017 Manav Johar & Ors vs. DCIT 5.0 We have considered the rival arguments made by both

the sides, perused the orders of the Assessing Officer and the Ld.

CIT (A) and the paper book filed on behalf of the assessee. A perusal

of the assessment order shows that the disallowance made by the

Assessing Officer is not based on any incriminating material found

during the course of search from the premises of the searched

party. The disallowance of Rs. 17,57,000/- has been made by

observing as under:

“The assessee deals in trading of purchase and sale of land and building etc. On examination of purchase account of the assessee in the year under consideration it is noticed that the assessee has purchase the following lands in cash on different dates are as follows: S.No. Particulars Date Amount Nature (in Rs.) of payment 1 Purchase of land 15.6.2009 5,14,000 Cash 2 Purchase of land 13.8.2009 5,00,000 Cash 3 Purchase of land 13.10.2009 30,000 Cash 4 Purchase of land 01.12.2009 10,000 Cash 5 Purchase of land 01.12.2009 7,03,000 Cash Total 17,57,000 In this regard the assessee was asked to explain as to why he expenses incurred on account of purchase of material in cash of Rs. 1757000/- may not be disallowed by invoking the provisions of section 40A(3) of the I.T. Act, 1961. In compliance of the same the assessee has filed his written submission and has contended that “we had to made purchase under the compelling circumstances and due to business exigency as

9 ITA Nos.7092 & 7093/Del/2017 ITA Nos. 7098 & 7099/De/2017 ITA Nos. 7095 & 7097/Del/2017 Manav Johar & Ors vs. DCIT seller was not willing to receive payment vide cheques since sellers were stranger to the assessee therefore they insisted on cash payment. Assessee was also willing to make the payment by account payee cheques as is evidenced from the fact from the following table that assessee had to withdraw amount from bank just before the days for making payment to the seller in compelling conditions:- Sir, in case we had not paid to the seller in cash they would have not sold their property to the assessee which would have resulted into business loss to the assessee. Since the transaction is genuine and made under compulsion which arises out of business expediency which is also supported by the following judgment of various courts that section 40A(3) of the Income Tax Act, 1961 will not apply in such cases therefore we request your goodself not to disallow the cash purchase during the year under consideration for trading assets:- “GurdasGarg v. CIT (A) (P&H) ITA No. 413 of 2014 dated 16.07.2015” The explanation of the assessee has been cosnidered which is not acceptable because the assessee could not furnish any justification in support his/her claim. Moreover, the claim of the assessee does not fall within the preview of rule 6DD of I.T. rule’ 1962. In this case the assessee has purchased material (land and Building) in cash and has violated the provision of section 40A(3). The provision of section 40A(3) clearly says that “Where the assessee incurs any expenditure in respect of which a payment or agreegate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure.” The assessee failed to substnaitate that he has not purchased material in cash. Hence the expenses of Rs. 17,57,000/- claimed in the trading and profit and loss account is disallowed and added to the total income of the assessee.”

5.1 From the aforesaid, it is apparent that the disallowance is

not based on any incriminating material found as a result of search

10 ITA Nos.7092 & 7093/Del/2017 ITA Nos. 7098 & 7099/De/2017 ITA Nos. 7095 & 7097/Del/2017 Manav Johar & Ors vs. DCIT but examination of the purchase account of the assessee for the

year under consideration. The Hon'ble Delhi High Court in the case

of Kabul Chawla (supra) has held that when the assessment which

stands completed on the date of search and no incriminating

material was found during the course of search, no addition can be

made to the income already assessed.

5.2 The Hon’ble Delhi High Court in the case of Pr. CIT vs.

Meeta Gutgutia (supra) observed as under:

“69. What weighed with the Court in the above decision was the “habitual concealing of income and indulging in clandestine operations” and that a person indulging in such activities “can hardly be accepted to maintain meticulous books or records for long.” These factors are absent in the present case. There was no justification at all for the AO to proceed on surmises and estimates without there being any incriminating material qua the AY for which he sought to make additions of franchisee commission. 70. The above distinguishing factors in Dayawanti Gupta (supra), therefore, do not detract from the settled legal position in Kabul Chawla (supra) which has been followed not only by this Court in its subsequent decisions but also by several other High Court.

11 ITA Nos.7092 & 7093/Del/2017 ITA Nos. 7098 & 7099/De/2017 ITA Nos. 7095 & 7097/Del/2017 Manav Johar & Ors vs. DCIT 71. For all of the aforementioned reasons, the Court is of the view that the ITAT was justified in holding that the invocation of Section 153A by the Revenue for the AYs 2000-01 to 2003-04 was without any legal basis as there was no incriminating material qua each of those AYs. Conclusion 72. To conclude: i) Question (i) is answered in the negative i.e., in favour of the Assessee and against the Revenue. It is held that in the facts and circumstances, the Revenue was not justified in invoking Section 153A of the Act against the Assessee in relation to AYs 2000-01 to AYs 2003-04.”

5.3 Also the Hon’ble Delhi High Court in the case of Pr. CIT

vs. SMC Power Generation in ITA 406/2019 (Del) dated 23.07.2019

has observed as under:

“3. The question sought to be raised by the Revenue is whether the ITAT was justified in quashing the assessment order framed under Section 153A of the Income Tax Act, 1961 (Act) on the ground that there is no incriminating material found qua the addition made on account of share application money in the course of the search? 10. The requirement that the incriminating material to have the co-relation to the particular addition sought to be made is a logic that will hold good not only for Section 153 C of the Act but in

12 ITA Nos.7092 & 7093/Del/2017 ITA Nos. 7098 & 7099/De/2017 ITA Nos. 7095 & 7097/Del/2017 Manav Johar & Ors vs. DCIT relation to Section 153A of the Act as well. Consequently, this Court does not find any error having been committed by the ITAT in accepting the plea of the Assessee that there is no incriminating document which was seized in the course of search relating to the addition sought to be made on account of the share capital. Therefore, the jurisdictional requirement of Section 153 A of the Act was not satisfied.”

5.4 In view of the above, we hold that the Ld. CIT (A) was

not justified in upholding the action of the Assessing Officer in

assuming jurisdiction u/s 153A of the I.T. Act. Accordingly, the

disallowance made by the Assessing Officer and as upheld by the

Ld. CIT (A) in the 153A assessment proceedings being void ab initio

are deleted.

5.5 Since the assessee succeeds on this legal ground, the

grounds raised on merits are not adjudicated having become

academic in nature.

13 ITA Nos.7092 & 7093/Del/2017 ITA Nos. 7098 & 7099/De/2017 ITA Nos. 7095 & 7097/Del/2017 Manav Johar & Ors vs. DCIT ITA Nos. 7093/Del/2017 A.Y. 2012-13, 7095/Del/2017 A.Y. 2010- 11, ITA No. 7098/Del/2017 A.Y. 2010-11, ITA No. 7099/Del/2017 AY. 2012-13:

6.0 We find that identical grounds have been raised by the

assessee in all these appeals challenging the disallowances made by

the Assessing Officer which has been upheld by the Ld. CIT (A). We

find the grounds raised by the assessees are identical to the

grounds raised in the case of Manav Johar in ITA No.

7092/Del/2017 A.Y. 2010-11. We have already decided the issue

and the grounds raised by the assessee have been allowed in Para 5

above. Following similar reasoning, the grounds raised by the

assessee are allowed.

ITA No. 7097/Del/2017 A.Y. 2015-16:

7.0 Grounds 1 to 1.2 relate to disallwoance of Rs. 7,14,000/- by

invoking section 40A (3) of the Act. The finding of the Ld. CIT (A) on

the issue in dispute is extracted as under:

“The plain reading of the rules 6DD of the IT Rules would make it amply clear that the appellant case is not covered by any of the clauses stipulated rule 6DD of the IT Rules. The law of statue clearly implies that if literal meaning of the language of the statue is unambiguous then the full effect should be

14 ITA Nos.7092 & 7093/Del/2017 ITA Nos. 7098 & 7099/De/2017 ITA Nos. 7095 & 7097/Del/2017 Manav Johar & Ors vs. DCIT accorded to the language of statue. In the instant case, cash payment is made for the purchase of stock-in-trade which is clearly hit by the provisions of section 40A(3) of the Act. No clauses of rules 6DD is applicable to the appellant case. Business expedience was earlier covered by the rule 6DD(j) of the I.T. Act. However, this has under gone the amendment w.e.f. 01.04.2009 i.e. A.Y. 2009-10 onwards. The cases relied upon by the ld. AR are on their own footings and distinguishable on facts and are not applicable to the present case, because the case laws cited by appellant are prior to the amendment in the rules 6DD of the I.T.Rules. Moreover, the Hon’ble Apex Court in the very same case of Attar Singh Gurmukh Singh v. ITO (1997) 191 ITR 667 (SC) have categorically upheld that the payments for acquisitions of stock- in-trade or raw materials are clearly covered under provision of section 40A(3) of the I.T. Act. In view of the above discussion addition of the AO is confirmed and appeal of the appellant on this ground is dismissed”.

8.0 The Ld. AR for the assessee submitted that the addition

made by the Assessing Officer on the ground that the Assessee has

purchased Land on 28.08.2014 for Rs.7,14,000/- in cash in

violation of section 40A (3) is completely imaginative, baseless and

absolutely not related to the assessee because no such trading

assets of that amount were purchased in cash by the assessee

during the year under consideration. In fact, the assessee had

purchased trading assets during the year amounting to Rs. 3,833/-

only which is duly appearing in the audited Balance sheet of the

assessee for the same year and apart from it no trading assets were

15 ITA Nos.7092 & 7093/Del/2017 ITA Nos. 7098 & 7099/De/2017 ITA Nos. 7095 & 7097/Del/2017 Manav Johar & Ors vs. DCIT purchased during the year. Our attention was drawn to Copy of

Audited Balance Sheet, Profit and loss account with all schedules

(Page 41-45 of Paper book), cash book (Page 63-77 of Paper book)

and purchase account (Page 79 of Paper book) in support by the Ld.

AR.

9.0 Per contra, the Ld. Sr. DR placed reliance on the orders of

the lower authorities.

10.0 We have considered the rival arguments made by both

the sides, perused the orders of the Assessing Officer and the Ld.

CIT (A) and the paper book filed on behalf of the assessee. We find,

the assessee in its reply (page 57 of Paper book) addressed to the

AO has stated as under:

“Please refer to the query raised by your goodself during last hearing in the above cited case for the cash purchase of trading assets during the A.Y.2015-16 as it violate the provision of section 40A(3) therefore liable to be disallowance as expenses. In this regard we would like to submit that there was no purchase made for trading assets otherwise than account payee cheques therefore section 40A(3) is not applicable in our case and there is no amount of transaction of Rs. 7,14,000/- made in cash for trading assets.”

10.1 We, therefore, consider it appropriate to restore the

issue to the file of the Assessing Officer for considering the issue

16 ITA Nos.7092 & 7093/Del/2017 ITA Nos. 7098 & 7099/De/2017 ITA Nos. 7095 & 7097/Del/2017 Manav Johar & Ors vs. DCIT afresh with a direction to decide the issue after granting due

opportunity of hearing to the assessee. Thus, grounds 1 to 1.2 of

the assessee’s appeal are accordingly allowed for statistical

purposes.

11.0 In the final result, ITA Nos. 7092/Del/2017,

7093/Del/2017, 7095/Del/2017, 7098/Del/2017 and

7099/Del/2017 are allowed and ITA No. 7097/Del/2017 stands

allowed for statistical purposes.

Order pronounced on 27th November, 2020.

Sd/- Sd/- (R.K.PANDA) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 27/11/2020 *Dragon Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT

ASSISTANT REGISTRAR ITAT DEHRADUN