DCIT CENTRAL CIRCLE- 7(1), MUMBAI, MUMBAI vs. VINOD KUMAR JATIA (H.U.F.), MUMBAI

The common issues arising in these appeals relate to deletion of additions amounting to Rs.90,37,714/- and Rs.8,64,381/- made under section 68 of the Income- tax Act, 1961 (in short, "the Act"), for the Assessment Years 2014-15 and 2016-17, respectively.

Briefly the facts, more or less common in both the appeals relating to this issue in dispute are, the assessee is a Hindu Undivided Family (HUF). For both the years under dispute, assessee had filed its original returns of income under section 139(1) of the Act. Subsequently, a search and seizure operation under section 132(1) of the Act was carried out in case of the assessee as well as other related persons (within the group), on 17-4- 2018. Pursuant to search and seizure operation, proceedings under section 153A of the Act were initiated in case of the assessee. In response to notice issued under section 153A of the Act, the assessee furnished its returns of income, declaring income as was originally offered in the return of income filed under section 139(1) of the Act. In course of assessment proceedings, the Assessing Officer noted that as per information available on record, in Assessment Year 2014-15, the assessee had offered Long Term Capital Gain (‘LTCG’) on sale of shares of M/s. KDJ Holidayscapes and Resorts Limited. Based on investigation carried out by the Kolkata Investigation Wing, the said company was found to be penny stock company providing accommodation entries to various beneficiaries through bogus LTCG. He noticed that the assessee had received an amount of Rs.18,34,60,400/- on sale of shares of the aforesaid company. He further found that the assessee has offered LTCG of Rs.17,44,24,686/- to claim exemption under section 10(38) of the Act. He further found that the assessee had offered the LTCG of Rs.17,44,24,686/- under the Income Disclosure Scheme Rules, 2016. Thus, he held that the difference between sale price of Rs.18,34,60,400/- and the LTCG offered under the IDS Rules-2016, has to be brought to tax under section 68 of the Act. Accordingly, he added back the amount of Rs.90,37,714/-.

Insofar as Assessment Year 2016-17 is concerned, he noticed that the assessee had declared short-term capital loss of Rs.1,31,98,831/- on sale of shares of Shree Shaleen Textiles Ltd. He observed that as per information available on record, in course of search and seizure operation carried out in case of Shree Shaleen Textiles Ltd., a statement was recorded under section 132(4) of the Act, wherein the person concerned had allegedly admitted to indulging in providing accommodation entries through bogus capital gains/losses. Thus, relying upon the said statement, the Assessing Officer concluded that the short-term capital loss declared by the assessee is bogus. Accordingly, not only he disallowed short-term capital loss claimed by the assessee, but alleging that the assessee has offered accommodation entries through bogus short-term capital loss, estimated commission at the rate of 6% on the sale value of the shares and added back an amount of Rs.8,64,381/-. The assessee contested the aforesaid addition before learned First Appellate Authority.

Insofar as Assessment Year 2014-15 is concerned, learned first appellate authority held that once the assessee has offered the LTCG arising from sale of shares under the IDS-2016 and paid the tax thereon, which is approved by the Principal Commissioner of Income Tax, no addition on account of the differential amount can be made under section 68 of the Act. Accordingly, he deleted the addition.

Without prejudice, learned first appellate authority held that since on the date of search and seizure operation conducted on the assessee, no assessment proceedings for the impugned assessment years were pending. In other words, the assessment has not abated, the Assessing Officer could have made additions only with reference to incriminating material found as a result of search and seizure operation conducted in case of the assessee. Since addition made by the Assessing Officer was not based on any incriminating material found in course of search and seizure operation conducted in case of the assessee, following the ratio laid down by the Hon'ble Supreme Court in case of ‘PCIT vs. Abhisar Buildwell (P.) Ltd.’ [2023] 454 ITR 212, he deleted the addition.

Insofar as Assessment Year 2016-17 is concerned, learned first appellate authority found that not only the assessment was unabated but the addition made was not with reference to any incriminating material found as a result of search and seizure operation carried out in case, in assessee's case. Thus, following the ratio laid down in case of PCIT vs. Abhisar Buildwell (P.) Ltd. (supra), he deleted the addition.

We have considered rival submissions and perused the materials on record. In our view, the reasons based on which learned first appellate authority has deleted the additions in both the assessment years under dispute are unassailable. As could be seen from the materials on record, as also the observations of the Assessing Officer himself, insofar as Assessment Year 2014-15 is concerned, the LTCG amounting to Rs.17,44,22,686/- arising out of sale of shares of KDJ Holidayscapes and Resorts Limited, was offered to tax under the IDS-2016. Thus, once the income has been declared under the IDS, the assessee has to be granted immunity from further taxation. Even otherwise, also the observations of the Assessing Officer in the assessment order make it clear that disputed addition was made based on investigation carried out by the Kolkata Investigation Wing in case of KDJ Holidayscapes and Resorts Limited. Thus, it is established on record that the addition made was not based on any incriminating material as a result of search and seizure operation in case of the assessee. Thus, as per the ratio laid down by the Hon'ble Supreme Court in case of PCIT vs. Abhisar Buildwell (P.) Ltd. (supra), in absence of any incriminating material found as a result of search and seizure operation conducted in case of the assessee, no addition can be made in an unabated assessment under section 153A of the Act. In respect of addition made in Assessment Year 2016-17, as well, the facts are identical. Based on a statement recorded under section 132(4) of the Act in course of search and seizure operation conducted in case of Shree Shalin Textiles Limited, the Assessing Officer has concluded that the short-term capital loss claimed by the assessee is bogus. Hence, not only he had disallowed the loss claimed but added alleged commission paid by the assessee amounting to Rs.8,64,318/-. Thus, as can be seen from the aforesaid facts, the disallowance of short-term capital loss and addition on account of commission income was not based on any incriminating material found as a result of search and seizure operation was carried out in case of the assessee, but on extraneous information/material found in course of search and seizure operation carried out in case of a third party. Thus, the ratio laid down by the Hon'ble Supreme Court, PCIT vs. Abhisar Buildwell (P.) Ltd. (supra), would equally apply to this appeal also. In view of the aforesaid, we do not find any infirmity in the decision taken by the learned first appellate authority with reference to additions made. Accordingly, we uphold the decision of learned first appellate authority by dismissing the grounds raised by the Revenue.

In the result, both the appeals are dismissed.

Insofar as CO Nos. 47 & 48/Mum/2026 are concerned, learned counsel appearing for the assessee, on instructions, did not press them. Accordingly, they are dismissed.

To sum up, both the appeals and the Cross-Objections are dismissed.