BAKHSHISH SINGH,JAGADHRI, YAMUNANAGAR vs. DEPUTY COMMISSIONER OF INCOME TAX (CENTRAL CIRCLE-2), CHANDIGARH), C.R. BUILDING

Aggrieved, the assessee went in appeal before the ld.CIT (Appeals) but did not get any relief from the ld.CIT (Appeals) and ld.CIT (Appeals) dismissed the appeal of the assessee and confirmed the additions made by the AO.

The assessee is in further appeal before this Tribunal. The ld. counsel for the assessee has stated that the ld.CIT (Appeals) has erred in law and on facts in confirming the additions made by the AO in re-opening the assessment. It was further submitted that the ld.CIT (Appeals) has erred in confirming the action of the AO of initiating re-assessment proceedings u/s 148 and ignoring the A.Y.2017-18 3 non obstante provisions of Section 153C. The ld. counsel for the assessee has also submitted that the ld.CIT (Appeals) has erred in confirming the action of the AO in making addition of Rs.1,53,55,875/- u/s 68 of the Act on the basis of statement of third parties as well as documents found from the third parties without providing copies of such documents/statements and without providing opportunity to cross-examine the third parties. It was further submitted that the authorities below have erred in law and on facts in imposing higher rate of tax of 60% u/s 115BBE despite the fact the same was introduced vide Taxation Laws (Second Amendment) Act, 2016 from 01.04.2017 onwards. The summary of finding s of Ld. CIT(A) are as under :-

Feeling aggrieved by the order passed by the Ld. CIT(A) the assessee is in appeal before us for the grounds mentioned hereinabove.

At the outset, the learned Authorised Representative submitted that the reassessment proceedings as well as the addition sustained by the learned CIT(A) are contrary to the facts of the case and the settled position of law. The learned AR invited our attention to the detailed written synopsis filed before the Bench and submitted that the issues involved in the present appeal are covered both on jurisdiction as well as on merits. The A.Y.2017-18 5 learned AR submitted that the very assumption of jurisdiction under sections 147/148 is illegal as the Assessing Officer proceeded on wholly incorrect facts. Referring to the reasons recorded for reopening, it was submitted that the Assessing Officer recorded that the Investigation Wing had reported unsecured loan transactions between the assessee and the Majha Group amounting to ₹1,53,55,027/-. However, a reading of the Investigation Wing report itself shows that no such unsecured loan transaction was ever reported.

1 Drawing our attention to pages 26 to 36 of the paper book and paragraphs 2.1 to 2.6 of the written synopsis, the learned AR submitted that the Investigation Wing had only referred to the Tally data maintained in the name of "GM & Co.", wherein profits pertaining to various mining entities were reflected. The figure of ₹1,53,55,027/- merely represented allocation of profit appearing in the seized books and not an unsecured loan as assumed by the Assessing Officer. It was submitted that the reopening, therefore, proceeds on a complete misconception of facts and deserves to be quashed. Reliance was placed on the judgment of the Hon'ble Punjab & Haryana High Court in CIT v. Atlas Cycle Industries Ltd. for the proposition that where the very basis of reopening does not exist, the reassessment is liable to be quashed. A.Y.2017-18 6

The learned AR further submitted that the Assessing Officer had merely reproduced the Investigation Wing report without making any independent enquiry or application of mind. It was argued that the reasons recorded nowhere disclose whether the assessee had advanced or received any loan, the identity of the alleged lender, the date of transaction or any independent verification carried out by the Assessing Officer.

It was submitted that the entire reopening is founded on borrowed satisfaction, which has consistently been held to be impermissible by the Hon'ble Supreme Court and various High Courts. Reliance was placed upon ACIT v. Dhariya Construction Co. (SC), PCIT v. Meenakshi Overseas Pvt. Ltd. (Delhi High Court), Paramjit Kaur (P&H High Court), Signature Hotels, Sarthak Securities, G & G Pharma India Ltd., and RMG Polyvinyl (India) Ltd. It was accordingly prayed that the reassessment itself deserves to be quashed.

The learned AR next submitted that admittedly the entire reassessment is founded upon documents and material seized during the search conducted under section 132 in the cases of the Majha Group. Once the Revenue itself relies upon seized material belonging to or relating to a third person, proceedings could only have been initiated under section 153C and not under sections 147/148. A.Y.2017-18 7

Our attention was invited to paragraph 8.1.40 of the Investigation Wing report itself, wherein action under section 153C was recommended. It was argued that the Assessing Officer, instead of following the statutory mandate, resorted to reassessment under section 147, thereby rendering the entire proceedings void ab initio.

Reliance was placed upon the decision of the Hon'ble Rajasthan High Court in Shyam Sunder Khandelwal v. ACIT, as well as the decisions of the Chandigarh Bench in Sanjay Singal (HUF) and Subhash Chander Gupta.

Without prejudice to the legal grounds, the learned AR submitted that even on merits the addition deserves to be deleted.

It was argued that the Assessing Officer has treated the impugned amount as unexplained unsecured loan under section 68, whereas the Investigation Wing report itself never alleged any loan transaction. The report merely referred to allocation of profits appearing in the seized books of "GM & Co."

Referring to paragraphs 5.1 to 5.4 of the written synopsis, the learned AR submitted that the seized books showed business results of the mining concerns belonging to the Majha Group. A.Y.2017-18 8 Pursuant to the search, assessments of the mining entities were completed wherein additional profits were offered and assessed. Subsequently, those assessments travelled before the Coordinate Bench of the Tribunal.

The learned AR specifically relied upon the decision of the Coordinate Bench in the case of Mubarikpur Royalty Company, wherein the Tribunal accepted the disclosure made by the mining entities and granted relief. It was submitted that once the profits reflected in the seized books have already been considered in the assessments of the Majha Group entities, the same amount cannot once again be brought to tax in the hands of the present assessee merely because his name appears in the seized material. Such an approach would result in clear double taxation of the same income.

The learned AR further submitted that proceedings were initiated against several other persons whose names appeared in the same seized material. He referred to the assessment orders of Shri Inder Pal Singh, Shri Kuldeep Singh, Shri Rakesh Vohra, Shri Rajinder Singh and Shri Aman Sethi, wherein, after considering identical facts, the Assessing Officer himself did not make any addition on this issue. Copies of those assessment orders were placed in the paper book. A.Y.2017-18 9

It was submitted that when the Revenue itself has accepted the position in the cases of similarly placed persons arising from the same search and the same Investigation Wing report, a contrary view cannot be adopted in the case of the present assessee.

Lastly, without prejudice to the above submissions, the learned AR contended that the Assessing Officer erred in applying the enhanced rate of tax under section 115BBE. It was submitted that the enhanced rate introduced by the Taxation Laws (Second Amendment) Act, 2016 is prospective and cannot be applied to transactions pertaining to the relevant previous year. Reliance was placed upon the judgment of the Hon'ble Madras High Court in Smile Microfinance Ltd. v. ACIT .

Per contra, the learned Departmental Representative strongly relied upon the orders of the Assessing Officer and the learned Commissioner of Income Tax (Appeals). The learned DR submitted that the Assessing Officer had received credible information from the Investigation Wing pursuant to the search conducted under section 132 in the cases of the Majha Group, wherein the name of the present assessee appeared in the seized material. It was submitted that the seized Tally data, the statements recorded during the course of search, the pen-drive data and other incriminating material clearly established that A.Y.2017-18 10 the assessee had entered into unexplained financial transactions with the Majha Group.

The learned DR further submitted that the assessee failed to discharge the onus cast upon him under section 68 of the Act despite being afforded adequate opportunities during the assessment proceedings. The Assessing Officer had confronted the assessee with the investigation report and the assessee failed to substantiate the nature and source of the impugned credits by producing any cogent documentary evidence.

Relying upon the findings recorded by the learned CIT(A), the learned DR submitted that the appellate authority had examined the entire material available on record and categorically held that sufficient information was available with the Assessing Officer for reopening the assessment and that the reassessment proceedings were validly initiated. The learned CIT(A) further recorded a finding that the investigation material, the statements recorded during search, particularly those of Shri Rajinder Singh and other key persons connected with the Majha Group, corroborated the financial entries found in the seized records. It was also noticed by the learned CIT(A) that despite repeated opportunities, the assessee neither furnished satisfactory evidence explaining the impugned credits nor sought cross-examination of the persons whose statements were relied A.Y.2017-18 11 upon. The learned CIT(A), therefore, concluded that the assessee had failed to discharge the burden cast upon him under section 68 of the Act and accordingly confirmed the addition of ₹1,53,55,875/-. The learned DR accordingly prayed that the order of the learned CIT(A) deserves to be upheld.

We have heard the rival submissions and carefully perused the assessment order, the order of the learned CIT(A), the written synopsis filed by the learned Authorised Representative, the paper book and the material placed on record.

The addition of ₹1,53,55,875/- has been made by the Assessing Officer under section 68 of the Act treating the said amount as unexplained unsecured loan allegedly entered into by the assessee with the concerns of the Majha Group. The assessment order records that during the course of search, incriminating documents were found from the premises of the Majha Group and, on analysis of those documents, it was found that the assessee had entered into unsecured loan transactions amounting to ₹1,53,55,875/-. Assessing Officer Proceeding on the said premise, called upon the assessee to establish the identity, creditworthiness and genuineness of the alleged lenders and, on failure of the assessee to do so, treated the entire amount as unexplained cash credit under section 68 of the Act. A.Y.2017-18 12

The learned CIT(A), while affirming the addition, has substantially adopted the reasoning of the Assessing Officer by holding that the investigation material, the seized Tally data, the pen-drive recovered during the course of search and the statements recorded under section 132(4) sufficiently established the financial transactions of the assessee and that the assessee had failed to discharge the burden cast upon him under section 68 of the Act.

However, upon a careful examination of the material placed before us, we find that the very foundation on which the addition has been made suffers from an inherent factual inconsistency.

The learned Authorised Representative has invited our attention to paragraphs 2.1 to 2.6 and 5.1 to 5.4 of the written synopsis as well as the Investigation Wing report forming part of the paper book, more particularly page 30. It has been demonstrated that the Investigation Wing never reported that the impugned amount represented an unsecured loan advanced to or received by the assessee on the contrary, the Investigation Wing report explains that the seized Tally data maintained in the name of GM & Co. contained the consolidated financial results of various mining concerns of the Majha Group and that the amount of ₹1,53,55,027/- represented allocation of profit appearing in the capital accounts maintained in the seized books for A.Y.2017-18 13 Assessment Year 2017-18. No finding has been recorded in the Investigation Wing report that the assessee had either borrowed or advanced any loan of the aforesaid amount.

Surprisingly, while framing the assessment, the Assessing Officer has completely altered the nature of the transaction. Without bringing any independent material on record, he proceeded to describe the amount as an unsecured loan and thereafter invoked section 68 of the Act by requiring the assessee to prove the identity, creditworthiness and genuineness of the alleged lenders. We find that neither the assessment order nor the material relied upon by the Revenue identifies the alleged lender, specifies the date of any loan transaction, the mode of payment, the terms of the alleged borrowing or any contemporaneous document evidencing advancement or receipt of a loan. Except for describing the amount as an unsecured loan, no material has been brought on record to establish that any loan transaction had, in fact, taken place. We find that the very premise adopted by the Assessing Officer for treating the impugned amount as an unsecured loan is not borne out by the seized material or any other evidence brought on record. The conclusion that the transaction represented a loan transaction does not emanate from the record, and, therefore, the very foundation of the addition is rendered unsustainable. A.Y.2017-18 14

In our considered opinion, before invoking section 68 of the Act, the Revenue must first establish the existence and nature of the transaction sought to be taxed. Where the very character of the transaction is incorrectly assumed, the consequential addition under section 68 cannot be sustained merely because the assessee is unable to explain a transaction which, in the first place, has not been correctly identified by the Assessing Officer.

The written submissions filed before us further reveal that the seized books of GM & Co., from which the impugned figure has been picked up, subsequently became the basis of assessments framed in the hands of the actual mining entities constituting the Majha Group. Those entities disclosed additional profits pursuant to the search and the issue ultimately travelled before the Coordinate Bench of this Tribunal. The Coordinate Bench, while adjudicating the appeals of the group, accepted the disclosures made by the mining entities and granted consequential relief. Thus, the very entries appearing in the seized books have already been considered in the assessments of the persons to whom those books admittedly belonged.

The learned CIT(A), while affirming the addition, has not dealt with this crucial aspect. The appellate order proceeds on the assumption that the assessee failed to explain the impugned A.Y.2017-18 15 entry. However, the more fundamental question, namely, whether the impugned entry constituted an unsecured loan at all and whether the same amount had already been taken into account in the assessments of the Majha Group entities, has remained unanswered. Once the assessee demonstrates that the Investigation Wing itself treated the impugned figure as an allocation of profits reflected in the seized books, rather than a loan transaction, the very basis for invoking section 68 disappears.

We also find considerable force in the submission of the learned Authorised Representative that similar proceedings were initiated in the cases of other persons whose names appeared in the same seized material and ultimately no addition was made after accepting that the income reflected therein had already been considered in the hands of the Majha Group concerns. The Revenue has neither disputed this factual position nor pointed out any distinguishing feature in the case of the present assessee. We may fruitfully refer to the assessment orders placed in the paper book in the cases of Shri Kuldip Singh (page 58), Shri Rakesh Kumar Vohra (page 64), Shri Rajinder Singh (page 67) and Shri Aman Sethi (page 74). A perusal of these assessment orders clearly reveals that these assessees were similarly situated to the present assessee. Their names also find place in A.Y.2017-18 16 the same chart appearing at page 33 of the paper book, carrying the same description and arising from the very same seized material recovered during the course of search in the Majha Group cases. It is noteworthy that, after examining the identical material and considering the explanation furnished by those assessees, the learned Assessing Officer did not make any addition on this issue in their respective assessments.

In our considered opinion, once the Revenue itself has accepted the explanation in the cases of other similarly placed persons whose names appeared in the same seized documents and who stand on an identical factual footing, there is no justification for adopting a different yardstick in the case of the present assessee. The Revenue has not brought on record any distinguishing feature to demonstrate that the assessee's case stands on a different footing. It is a settled principle of law that similarly situated assessees are required to be treated alike, and in the absence of any distinguishing circumstances, a contrary view in the case of the present assessee would offend the doctrine of consistency and result in arbitrary discrimination. We are, therefore, unable to sustain the impugned addition in the hands of the assessee.

Accordingly, we are of the considered view that the Assessing Officer has proceeded on an erroneous factual premise A.Y.2017-18 17 by treating an alleged allocation of profits reflected in the seized books as an unsecured loan and thereafter invoking section 68 of the Act. The learned CIT(A) has merely affirmed the assessment without addressing this fundamental inconsistency. Since the very foundation of the addition does not survive, the addition of ₹1,53,55,875/- cannot be sustained.

In view of our decision allowing the appeal of the assessee on merits and directing deletion of the impugned addition, we refrain from adjudicating the legal grounds challenging the assumption of jurisdiction under sections 147/148 of the Act. The said grounds have become academic and infructuous and are, therefore, not adjudicated, leaving the question of law open.

Accordingly, we set aside the order of the learned CIT(A) and direct the Assessing Officer to delete the addition. The grounds raised by the assessee are allowed.

In the result, appeal of the assessee is allowed.