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Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI R.K. PANDA & SHRI SUDHANSHU SRIVASTAVA
This appeal filed by the assessee is directed against the order dated 6th December 2017 of the Ld. CIT(A) -IV Kanpur relating to assessment year 2012-13.
Facts of the case, in brief, are that assessee is company incorporated on 5th February 2007 and is engaged in the Shruti Buildcon P. Ltd. vs DCIT business of construction and developing, owning, maintaining of infrastructure projects, residential and commercial buildings, malls, township business etc. It filed its return of income for the impugned assessment year on 12th January, 2013 declaring total income of Rs. 47,60,330/-. A search u/s 132 (1) of the Act was conducted in the case of Shreevaas Group of cases on 21.11.2013. On the basis of satisfaction recorded by the AO of the searched person, the documents belonging to the assessee were transferred to the AO and notice u/s 153C of the Act was issued on 8thFebruaruy, 2016. In response to the same, the assessee filed a copy of return filed on 12.1.2013 declaring the income of Rs. 47,60,330/-.
During the course of assessment proceedings the AO noted that as per seized documents LP-9, page 18 assessee had entered with heavy transactions of loan and advances to other parties, which are as under :-
i) Advance to Smt. Praveen Malik on 18.07.2011 – Rs. 80 lacs ii) Advance to Smt. Praveen Malik on 20.07.2011 – Rs. 20 lacs _____________ Rs. 1 Crore _____________
Shruti Buildcon P. Ltd. vs DCIT
On perusal of the profit and loss account, the AO noted that the assessee claimed expenses of Rs. 1,00,00,000/- under the head other expenses in the name of amount forfeited. On being confronted by the AO, the assessee replied as under :-
“The assessee entered into an agreement with Smt. Shobha Modi (Seller) for purchase of a building of Rs. 2.5 crore on 23.08.2011 and paid Rs. 1 crore as advance with the condition that the assesee will paid remaining Rs. 1.5 crore within 3 months i.e. on or before 22.11.2011, but the assesee failed to pay the remaining amount and advance payment of Rs. 1 crore has forfeited by the seller i.e Smt. Shobha Modi.”
However, AO was not satisfied with the explanation given by the assessee and made addition of Rs. 1,00,00,000/- to the total income of the assesee by recording as under :-
i. “It is observed that the so called agreement was entered between the assessee company and Smt. Sobha Modi w/o Shri. Arun Kumar Modi, R/o A- 21, Sadulganj Bikaner, dated 23.08.2011, for the property to be purchased at 21- Sadulganj Bikaner, Rajasthan, for the consideration of Rs. 2.50 crores,
Shruti Buildcon P. Ltd. vs DCIT against which an amount of Rs. 1 crores was paid by the company and balance of Rs. 1.5 crore was to be paid within three months,. ii. The so called agreement is an un-registered agreement. iii. From the P&L A/c it is found that assessee was having turn over on sale/purchase of property amounting to Rs. 2.50 crores during the year and most of the transactions were executed before the so called agreement which shows availability of fund with the assessee company. iv. It is found that during the year assessee company has given/ Advance loans amounting to Rs. 1,09,25,000/- to other parties as shown in Schedule 9 of Balance Sheet under the head Short Term Loan & Advances'. It is surprising that instead of meeting its funds requirements to make payment for so called purchase of property, assessee chose to advance loan to other parties and agreed for forfeiture of such a big amount with in a short span of 3 months only without any material ground or reason. v. It is observed that as shown in schedule/note 4 of Balance Sheet assessee has shown loan of RS. 70.58 lacs as 'other long term liabilities' raised during the year, which also shows availability of funds with the assessee. vi. In the letter dated 10.12.2011 shown to have been issued by assessee company to Smt. Shobha Modi, the reasons given are as "in ability to pay the balance agreed amount of Rs. 1. 50 crores", while the facts of the case on record are contrary and totally incorrect as the assessee was having sufficient funds for payment.
Shruti Buildcon P. Ltd. vs DCIT vii. It is also observed from the submission that on 10.12.2011, the assessee company has shown just to have written a letter to Smt. Sobha Modi, intimating that the assessee company is not able to pay the balance amount of Rs. 1.5 crore, so amount of advance already given may be forfeited and the assessee company will not have any right on the same. viii. It is beyond business prudence that that such a huge sum is forfeited with in the span of four months and that too by mere writing of one letter.”
Before the Ld. CIT(A), the assessee apart from challenging the addition on merit challenged the validity of the order framed u/s 153C/143(3)of the Act. However, the Ld. CIT(A) held that the AO had validly assumed the jurisdiction and has rightly made the addition.
Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal by raising following grounds :-
1. “That both the notice issued u/s 153C of the Act and assessment framed u/s 153C of the Act were without satisfying the statutory preconditions contained in the Act and therefore without jurisdiction. 1.1 That while upholding the assumption of jurisdiction the learned Commissioner of Income Tax (Appeals) has failed to appreciate that since no money, bullion jewellery or other valuable article or thing or books of accounts or documents belonging to the appellant were seized as a result of search on M/s Shreevaas group, notice issued u/s 153 A of the Act was illegal, invalid and unsustainable.
Shruti Buildcon P. Ltd. vs DCIT
1.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that in absence of any valid satisfaction having been recorded in the case of searched person, action u/s 153C of the Act was in excess of jurisdiction.
2 That since approval obtained u/s 153D of the Act was a mechanical and, invalid approval having been granted without due application of mind to the facts of the assessee company, order of assessment made u/s 153C/143(3) is invalid and not in accordance with law.
3 That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in sustaining an disallowance made of Rs. 1,00,00,000/- on account of loss claimed on forfeiture of amount paid as advance for purchase of property
3.1 That while sustaining the aforesaid disallowance the learned Commissioner of Income Tax (Appeals) has failed to appreciate the factual matrix of the claim, provision of law evidence on record and therefore disallowance made and sustained is altogether invalid.
3.2 That the learned Commissioner of Income Tax (Appeals) has proceeded to deny the legitimate claim on the basis of surmiseful assumptions and presumptions and adverse findings recorded are factually and legally misconceived and contrary to evidence on record. 3.3 That the learned Commissioner of Income Tax (Appeals) has otherwise too sustained the disallowance without appreciating that no independent enquiries had been conducted by the learned Assessing Officer in accordance with law before making the disallowance and therefore any disallowance on premeditated, preconceived, opinion and borrowed inference from the appraisal report without confronting the same to the appellant is highly arbitrary, unjustified, illegal and untenable. 4 That both the authorities below have framed the impugned order without granting sufficient proper opportunity to the appellant company and therefore the same are contrary to principle of natural justice and hence vitiated.
5. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding the levy of interest under section 234A, u/s 234B, and u/s 234C of the Act which are not leviable on the facts and circumstances of the case of the appellant company.
Shruti Buildcon P. Ltd. vs DCIT
It is therefore, prayed that it be held that both the assessment and, disallowance made and confirmed are without jurisdiction and therefore along-with interest levied be deleted and appeal of the appellant company be allowed.”
Ld. Counsel for the assessee submitted that the original return in the case was filed on 12th January 2013 and the notice u/s 153C was issued on 8th February, 2016. Referring to the copy of the assessment order, he submitted that the addition of Rs. 1,00,00,000/- is not based on any incriminating material and based on post search inquiries i.e on examination of the profit and loss account of the assessee. Therefore in view of the decision of Hon’ble Supreme Court in the case of CIT vs. Sinhgad Technical Education Society reported in 397 ITR 344 and the decision of Hon’ble Delhi High Court in the case of Kabul Chawla reported in 380 ITR 573 (Del), the addition made by the AO and sustained by the Ld. CIT(A) is not in accordance with law since the same is not based on any incriminating material. Referring to the decision of Hon’ble Delhi High Court in the case of PCIT vs. SMC Power Generation Ltd. vide order dated 23.7.2019 he submitted that the Hon’ble High Court after considering the decision of the Hon’ble Supreme Court in the Shruti Buildcon P. Ltd. vs DCIT case of CIT vs. Singhad Technical Education Society (2017) 397 ITR 344, has held that the requirement that the incriminating material to have the correlation to the particular addition sought to be made is a logic that will hold good not only for Section 153C of the Act but in relation to Section 153A of the Act as well. Relying on various other decisions, he submitted that since the addition made by the AO is not based on any incriminating material found during the course of search, therefore, the assessment made under section 153A/143(3) by making the addition is not in accordance with law.
Referring to page 77 and 78 of the paper book he submitted that these advances are duly recorded in the books of accounts and there is nothing incriminating in the said documents and therefore, the addition which has been made by the AO on the basis of the profit and loss account and not on the basis of any seized material should be deleted.
10. Ld. DR on the other hand strongly supported the order of the Ld. CIT(A) both on merit as well as on the validity of the assessment u/s 153C of the Act.
Shruti Buildcon P. Ltd. vs DCIT
We have heard the rival arguments made by both the sides, perused the order of the AO and Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO on the basis of certain documents belonging to the assessee found and seized from the premises of Shreevaas Group of cases during the course of search u/s 132 of the Act on 21.11.2013 issued notice u/s 153C of the Act to the assessee on 8th February 2016. We find in response to the said notice u/s 153C assessee filed the return declaring income of Rs. 47,60,330/- which was the income originally declared. We find the AO completed the assessment u/s 153C read with section 143(3) determining the total income at Rs. 1,47,60,330/- wherein he made addition of Rs. 1,00,00,000/- by disallowing the claim of expenses under the head other expenses in the name of amount forfeited. A perusal of the assessment order shows that the addition made by the AO is not based on any incriminating material. The so called heavy transaction of loan and advances are already recorded in the books of accounts, copy of which is filed in the paper book at page 77. In the said page the advance against land at Shyampur shows the amount of Rs. 80 lacs and Rs. 20 lacs paid to Shri
Shruti Buildcon P. Ltd. vs DCIT Praveen Malik on 8th July, 2011 and 20th July, 2011 respectively. Therefore, once these entries are recorded in the books of accounts, it cannot be said to be incriminating in nature. Apart from this, we find the addition has been made on the basis of the profit and loss account wherein the expenses of Rs. 1,00,00,000/- under the head other expenses has been shown as forfeited. Thus a perusal of the seized documents vis a vis the addition made by the AO clearly indicate that the addition made is not based on any incriminating material found during the course of search but based on verification of books of account produced during the course of assessment proceedings.
Hon’ble Supreme Court in the case of Sinhgad Technical Education Society (supra) has held that for making any addition under the provision of section 153C of the Act the incriminating material which was seized had to pertain to the assessment years in question. It was held that the documents, which were seized had to establish a co relation document wise with the assessment year for which the addition was sought to be made.
We find Hon’ble Delhi High Court in the case of PCIT vs. SMC Power Generation Ltd. vide order dated
Shruti Buildcon P. Ltd. vs DCIT 23rd July 2019 has held that the requirement that the incriminating material to have the correlation to the particular addition sought to be made is a logic that will hold good not only for section 153C of the Act but also in relation to Section 153A of the Act as well. The relevant observation of the Hon’ble High Court reads as under :-
“9. The fact remains that the Revenue itself is not disputing that in respect of the share capital no incriminating documents were found in the search proceedings. The Court’s attention has been drawn to the decision of the Supreme Court in CIT vs. Singhad Technical Education Society (2017) 397 ITR 344 (SC) wherein the context of Section 153C of the Act it was held that the incriminating material which was seized had to pertain to the AY in question. It is further held that documents seized had to establish a co-relation documents wise with the assessment years for which the addition was sought to be made.
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 153C of the Act but in 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 153A of the Act was not satisfied.”
Since in the instant case the addition is not based on any incriminating material found during the course of search, therefore, in view of the decision of Hon’ble Supreme Court in the Shruti Buildcon P. Ltd. vs DCIT case of Sinhgad Technical Education Society (supra) we hold that the addition made by the AO and sustained by the Ld. CIT(A) is not justified. Accordingly, the same is directed to be deleted. Grounds raised by the assessee are accordingly allowed.
In the result the appeal filed by the assessee is allowed.