DCIT,C.C-3(3),KOLKATA, KOLKATA vs. M/S. CYGNUS EQUIPMENTS & RENTALS PVT.LTD. , KOLKATA

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ITSSA 97/KOL/2023Status: DisposedITAT Kolkata08 May 2024AY 2012-1310 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that for unabated assessments (i.e., assessments already concluded before the date of search), additions under Section 153A can only be made if there is incriminating material found during the search. In this case, the assessment for AY 2012-13 was concluded prior to the search on 23.12.2014. The Tribunal found that the AO failed to bring on record any material that was unearthed solely as a result of the search and could be considered incriminating. The additions regarding share capital and the discrepancy in Form 26AS were based on information already available in the assessee's regular books of account and did not emanate from any incriminating material found during the search. Therefore, the additions made by the AO were not sustainable. The CIT(A)'s deletion of both additions was upheld. The Tribunal dismissed the revenue's appeal.

What were the facts?

The assessee, M/s. Cygnus Equipments & Rentals Pvt. Ltd., is in appeal before the ITAT against an order of the CIT(A) for Assessment Year 2012-13. A search and seizure operation was conducted on the Cygnus group of companies on 23.12.2014. No incriminating documents related to the assessee were found during the search. The Assessing Officer (AO) issued a notice under Section 153A of the Income Tax Act, 1961. The assessee filed a return, arguing that Section 153A proceedings were invalid due to the absence of incriminating material. The AO made additions of Rs. 8,37,00,000/- on account of share capital and Rs. 53,59,766/- as a difference in receipts in Form 26AS compared to the assessee's books. The CIT(A) allowed the assessee's appeal, deleting both additions.

What were the issues?

1. Whether the addition on account of alleged bogus share capital amounting to Rs. 8,37,00,000/- made under Section 68 of the Income Tax Act, 1961, is sustainable in the absence of any incriminating material found during the search, for a concluded assessment year. 2. Whether the addition on account of discrepancy in Form 26AS with the receipts declared by the appellant, amounting to Rs. 53,59,766/-, is sustainable in the absence of any incriminating material found during the search, for a concluded assessment year. Assessee's Contention (as per CIT(A)'s order): The assessee contended that since no incriminating documents were found during the search, and the information regarding share capital and Form 26AS discrepancies was already part of the regular books of account, the proceedings under Section 153A were bad in law, and the additions were not sustainable. Revenue's Contention (as per Tribunal's discussion): The revenue argued that Section 132 of the Act would be relevant for conducting the search and initiating proceedings under Section 153A. The revenue's argument, as understood by the Tribunal, implied that Section 153A proceedings could be initiated even for unabated assessments, potentially leading to additions if material was available with the AO, even if not directly incriminating from the search.

Which sections of the Income-tax Act were involved?

Section 153A,Section 68,Section 132,Section 143(1),Section 154

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, KOLKATA BENCH ‘B’, KOLKATA

Before: Shri Sonjoy Sarma & Shri Girish Agrawal]

Hearing: 27.02.2024Pronounced: 08.05.2024

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH ‘B’, KOLKATA [Before Shri Sonjoy Sarma, Judicial Member & Shri Girish Agrawal, Accountant Member] IT(SS)A No. 97/Kol/2023 Assessment Year : 2012-13 DCIT, Central Circle-3(3), vs M/s. Cygnus Equipments & Kolkata Rentals Pvt. Ltd. PAN: AADCC 6193 Q Appellant Respondent Date of Hearing 27.02.2024 Date of Pronouncement 08.05.2024 For the Assessee Shri S.M. Surana, AR For the Revenue Shri Abhijit Kundu, CIT, DR ORDER Per Sonjoy Sarma, JM: This appeal of the revenue for the assessment year 2012-13 is directed against the order dated 28.04.2023 passed by the ld. Commissioner of Income-tax, Appeals, NFAC, Delhi [hereinafter referred to as ‘the ‘ld. CIT(A)’].

2.

Brief facts of the case are that the assessee is a company filed its return of income for the assessment year in question. The return was filed on 25.09.2021 which was within the time limit as allowed and the said return was accepted u/s 143(1) of the Act. In the cases of assessee, a search and seizure operation was conducted at the office premises of the Cygnus group of companies on 23.12.2014 of which assessee was also a part of said search and seizure operation. In the search, various documents belonging to various companies were seized. However, no incrementing paper relating to the assessee company were found or seized. The ld. AO issued notice u/s 153A of the Act to

2 IT(SS)A No. 97/Kol/2023 AY: 2012-13 M/s. Cygnus Equipments & Rentals Pvt. Ltd. the assessee for the assessment year in question. In response to the said notice, the assessee-company filed its return of income. In the course of assessment proceedings, the assessee also brought to the notice of the AO that since no incriminating document was found in the course of search nor any unaccounted goods or materials was found. Therefore, the proceedings u/s 153A of the Act was bad in law. During the course of proceedings, the ld. AO verified all papers found and seized but could not point out any incriminating document as is apparent from the assessment order itself. However, the ld. AO has added back Rs. 8,37,00,000/- being share capital received and Rs. 53,59,766/- as difference in the receipts in Form No. 26AS in books of accounts of the assessee.

3.

Aggrieved by the above order, assessee went into appeal before the ld. CIT(A) where the appeal of the assessee was allowed by ld. CIT(A) by observing in following manner: “Let us take the addition related to the addition on account of discrepancy in Form 26AS with the receipts declared by the appellant. The AO has noted that the appellant earned rental income against which TDS was deducted. The AO has made additions based upon the alleged discrepancy between 26AS and the receipts as declared by the appellant in his books. The AO has not been able to bring on record any material by which it can be inferred that this information regarding 26AS or the receipts of the appellant were not already there as part of the regular books of the appellant based on which the original return had been filed. Nowhere is it brought on record that this information was obtained as a consequence of search or during the search. It is not the case of the AO that this was a prima facie adjustment which could have been rectified u/s 154 of the Act (This in any case cannot be the case dine the appellant in appeal has contested this addition even upon merits saying that the AO had completely misread the Form-26 AS; thus not making this a prima facie adjustment).

3 IT(SS)A No. 97/Kol/2023 AY: 2012-13 M/s. Cygnus Equipments & Rentals Pvt. Ltd. Therefore, this addition, based upon the information used by the AO, which obviously did not emanate from any incriminating material found during the search, cannot be sustained and the same would stand deleted.

As regards the second addition, that on account of alleged bogus share capital, it is noticed that in his assessment order, the AO on Page 1 has referred to the seized/impounded material marked as CG/2 Page no.1 & Page No.2 which as per the notings of AO shows that "One Jeetuji received cash under the head of Long Term Capital Gain. The AO has recorded subsequently that in the course of post search investigation, it was found that the assessee booked bogus LTCG in the A.Y: 2012-13, but has not made any additions in this regard in the case of the present appellant, therefore this information from the seized material cannot be construed as incriminating material for the purposes of the addition made in this order - that is, with regard to share capital.

Except for the above reference to a seized material, there is no reference to any form of seized material, much less incriminating material, found in the impugned order, while making the said additions with respect to share capital. The AO has noted in his order that the appellant had, as per records, raised share capital amounting to Rs 8.99 crore during the year. This information was already a part of the regular books of account of the appellant at the time of filing of his return of income and did not come into the possession of the appellant as a consequence of the search. Therefore, it is clear that this addition was not made on the basis of any incriminating material found during this search.

Upon examination of the material before me, including the impugned assessment order, I cannot find anything that the AO has adduced in the assessment order that can be considered material that was not already present before him before the search took place, much less find anything incriminating.

The AO, during the course of the impugned assessment, has not been able to bring on record any material whatsoever which he can claim to have come to light solely as a result of the search. Seized material has to be distinguished from incriminating material, for, it is not necessary that all the seized material would be incriminating. For the material to be considered incriminating, the material in question has to satisfy the tests laid down by the judicial authorities as reproduced and discussed

4 IT(SS)A No. 97/Kol/2023 AY: 2012-13 M/s. Cygnus Equipments & Rentals Pvt. Ltd. above. I find that the material relied upon by the AO does not satisfy any of the tests discussed above. Therefore by no form of reasoning can this material be considered incriminating. The onus to establish that any particular such material/document/evidence found during a search should be considered incriminating lies upon the AO since it is he who is making such an assertion. Therefore, lawfully, it is he who has to adduce evidence that this is so. From the material on record this fact has not been established at all and no evidence in this regard has been led during assessment proceedings. Not only has this onus not been discharged by the AO, but the records themselves do not indicate anything that creates an impression that there was any incriminating material found during the search.

Since it is now clear that the documents referred to by the AO are by no means incriminating, it needs to be appreciated that the legal position in respect of the search conducted under section 132 of the Act is well settled. As discussed above, the assessment made, u/s 153A, pursuant to the search has to be on the basis of incriminating materials gathered or unearthed during the course of the search.

In view of the above mentioned judgements of various courts all over the country, as well as the Apex Court, as discussed above, which unequivocally reiterate that completed assessments can be interfered with by the AO while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment, I am of the opinion that in search assessment made u/s. 153A, if assessment has been concluded, then, no addition can be made without linkage to incriminating material found during the course of search. In the instant case, the original return of income had been filed on 25.09.2012. Therefore, I find that on the date of the search, i.e 23.12.2014, since, this case pertains to the AY 2012-13, the assessments had been concluded. It is not the case that the share capital/premium raised, was not disclosed in the regular books of the appellant, or was otherwise brought to light on account of the search. The aforesaid additions made by the AO u/s 68 towards bogus share capital and on account of alleged discrepancy between Form26AS and the receipts declared by the appellant, therefore, cannot be sustained and are deleted. The grounds raised by the appellant are allowed.

5 IT(SS)A No. 97/Kol/2023 AY: 2012-13 M/s. Cygnus Equipments & Rentals Pvt. Ltd. In view of the above, there is no need to adjudicate upon these grounds.”

4.

Dissatisfied with the above order, revenue is in appeal raising multiple grounds. However, the main grievance of the revenue is relating to the deletion of Rs. 8,37,00,000/- being the share capital received by the assessee and Rs. 53,59,766/- as in receipt in Form No. 26AS by the assessee setting aside the order of AO.

5.

The ld. DR stated that the impugned order passed by ld. CIT(A) is bad in law. Therefore, it needs to be set aside by upholding the order of AO. On the other hand, ld. AR stated that the impugned order passed by the ld. CIT(A) is correct and decided on various principles of law laid down by the Hon’ble Supreme Court as well as High Court following the judgment rendered by the Hon’ble Supreme Court as in the case of PCIT vs Abhisar Buildwell Pvt. Ltd. dated 23.04.2023, Civil Appeal No. 6580 of 2023 therefore need not required to be interfered by the Tribunal and sustained the order passed by the ld. CIT(A).

6.

We after hearing the rival submissions of the parties and perused the material available on record find that the ld. AO while passing the assessment order at page no. 1 stated that on account of alleged bogus share capital has referred to the seized/impounded material marked as CG/2 page no. 1 & 2 which as per the notings of AO shows that “One Jeetuji” received cash under the head of Long Term Capital Gain. The ld. AO has also recorded subsequently by stating that in the course of post search

6 IT(SS)A No. 97/Kol/2023 AY: 2012-13 M/s. Cygnus Equipments & Rentals Pvt. Ltd. investigation, it was found that the assessee booked bogus LTCG in the A.Y. 2012-13 but has not made any additions in this regard. Therefore, the alleged information from the seized material cannot be construed as incriminating material for the purpose of addition made in the case of assessee regarding share capital. Since, the alleged information stated by the AO was already a part of the regular books of account of the assessee at the time of filing of return of income and did not come into the possession of the assessee as a consequence of the search. In such a situation, it is clearly stated that this addition was not made on the basis of any incriminating material found during the course of search. Similarly, the addition on account of discrepancy in Form No. 26AS with the receipts declared by the assessee, the ld. AO has stated that assessee earned rental income against which TDS was deducted and the addition was made based upon the alleged discrepancy between 26AS and the receipts as declared by the assessee in its books of account. The ld. AO has not able to bring on record any material which it can be inferred that this information regarding 26AS or the receipts of the assessee was not there as a part of regular books of assessee based on which the original return was filed. The ld. AO failed to brought on record that this information was obtained as a consequence of search. In such a situation, the alleged addition based upon the information used by AO which did not emanate from any incriminating material found during the search. We, therefore, following the judgment rendered by Hon’ble Delhi High Court as in the case of CIT vs Kabul Chawla reported in (2016) 380 ITR 573 (Del) which is held as under:

7 IT(SS)A No. 97/Kol/2023 AY: 2012-13 M/s. Cygnus Equipments & Rentals Pvt. Ltd. “10.3. We also find that recently the Hon’ble Delhi High Court in the case of CIT vs Kabul Chawla reported in (2016) 380 ITR 573 (Del) held as under:- '37. On a conspectus of section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under section 132 of the Act, notice under section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.

ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the LD AOs as a fresh exercise.

iii. The LD AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The LD AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax".

iv. Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the LD AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material."

v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to complete assessment proceedings.

vi. Insofar as pending assessments are concerned, the jurisdiction to

8 IT(SS)A No. 97/Kol/2023 AY: 2012-13 M/s. Cygnus Equipments & Rentals Pvt. Ltd.

make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the LD AO.

vii. Completed assessments can be interfered with by the LD AO while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment."

38.

The present appeals concern AYs 2002-03, 2005-06 and 2006-07, on the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed.”

7.

We also find that the Hon’ble Jurisdictional High Court recently in the case of Principal CIT vs M/s Salasar Stock Broking Ltd in G.A.No. 1929 of 2016 ITAT No. 264 of 2016 dated 24.8.2016 had endorsed the aforesaid view of Hon’ble Delhi High Court in Kabul Chawla’s case and also placed reliance on its own decision in the case of CIT vs Veerprabhu Marketing Ltd reported in (2016) 73 taxmann.com 149 (Cal HC).

8.

We find that the provisions of section 132 of the Act relied upon by the ld DR would be relevant only for the purpose of conducting the search action and initiating proceedings u/s 153A of the Act. Once the proceedings u/s 153A of the Act are initiated, which are special proceedings, the legislature in its wisdom bifurcates differential treatments for abated assessments and

9 IT(SS)A No. 97/Kol/2023 AY: 2012-13 M/s. Cygnus Equipments & Rentals Pvt. Ltd. unabated assessments. At the cost of repetition, we state that in respect of abated assessments (i.e pending proceedings on the date of search) , fresh assessments are to be framed by the ld AO u/s 153A of the Act which would have a bearing on the determination of total income by considering all the aspects, wherein the existence of incriminating materials does not have any relevance. However, in respect of unabated assessments, the legislature had conferred powers on the ld AO to just follow the assessments already concluded unless there is an incriminating material found in the search to disturb the said concluded assessment. In our considered opinion, this would be the correct understanding of the provisions of section 153A of the Act , as otherwise, the necessity of bifurcation of abated and unabated assessments in section 153A of the Act would become redundant and would lose its relevance. Hence the arguments advanced by the ld DR in this regard deserves to be dismissed.

9.

In view of the aforesaid findings and respectfully following the judicial precedents relied upon hereinabove, we hold that the assessment already deemed to have been completed for the Asst Year 2012-13, which was unabated / concluded assessment, on the date of search, deserves to be undisturbed in the absence of any incriminating material found in the course of search and accordingly no fresh addition could be made thereon without the existence of any incriminating materials found in the course of search from the premises of the assessee. Since the issues are addressed on ground of in absence of any incriminating materials

10 IT(SS)A No. 97/Kol/2023 AY: 2012-13 M/s. Cygnus Equipments & Rentals Pvt. Ltd. are available on record. Therefore, the issues raised by the revenue are dismissed.

10.

In the result, the appeal of the revenue is hereby dismissed.

Order pronounced in the open court on 08.05.2024. Sd/- Sd/-

(Girish Agrawal) (Sonjoy Sarma) Accountant Member JudicialMember Dated: 08.05.2024 Biswajit, Sr. PS Copy of the order forwarded to: 1. Appellant- DCIT, CC-3(3), Kolkata. 2. Respondent – M/s. Cygnus Equipments & Rentals Pvt. Ltd., 51, Nalini Seth Road, Burabazaar, Kolkata-700007. 3. Ld. CIT 4. Ld. CIT(A) 5. Ld. DR

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