THE DCIT, CENTRAL CIRCLE-1, VADODARA vs. M/S. GURUKRUPA FINANCIAL SERVICES PVT. LTD, GODHARA

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ITSSA 30/AHD/2020Status: DisposedITAT Ahmedabad07 February 2024AY 2010-116 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the CIT(A) rightly deleted the addition. The assessee had provided confirmatory letters, bank account details of shareholders, their PANs, and other relevant information. The Assessing Officer had not doubted the identities of the persons, and the assessment was abated. No admission of undisclosed income was made by the assessee, nor was any additional income offered in response to the Section 153A notice. Crucially, the addition of Rs. 3,54,50,000 was not based on any material unearthed during the search. The ratio of the decision in Saumya Construction Pvt. Ltd., confirmed by the Apex Court, is squarely applicable, stating that no addition can be made under Section 153A if there is no related incriminating material found during the search. Therefore, the CIT(A) was correct in holding the assessment void ab initio and quashing it. The Revenue's appeal was dismissed.

What were the facts?

The Revenue is in appeal against the order of the CIT(A) for AY 2010-11. The assessee, M/s. Gurukrupa Financial Services Pvt. Ltd., filed a return of income of Rs. 1,37,020. A search under Section 132 was conducted on the assessee on July 3, 2012. Proceedings under Section 153A were initiated, and the assessee filed a return of income showing Rs. 1,37,020. The Assessing Officer (AO) completed the assessment determining total income at Rs. 4,26,37,020, making an addition of Rs. 4,25,00,000 on account of share capital and premium, treating it as sham transactions to introduce undisclosed income. The CIT(A) deleted this addition, aggrieved by which the Revenue filed the present appeal.

What were the issues?

1. Whether the CIT(A) erred in deleting the addition of Rs. 4,25,00,000 on account of undisclosed income in the form of investment in share capital, when the assessee could not explain the source and creditworthiness of investors, and the subscription at a huge premium defied commercial prudence (Section 153A). 2. Whether the CIT(A) erred in relying on decisions like Pr. CIT Vs Saumya Construction Pvt. Ltd. when the facts are distinguishable as no assessment for AY 2010-11 was completed prior to the search (Section 153A). 3. Whether the CIT(A) erred in holding that additions under Section 153A must be confined to incriminating material found during the search, as there is no such stipulation in Section 153A (Section 153A). 4. Whether the CIT(A) erred in not appreciating that Section 153A requires assessment/re-assessment of income for six years, and the scheme would be rendered ineffective if no additions are allowed without seized incriminating material (Section 153A). Revenue's Contentions: The CIT(A) erred in deleting the addition as the assessee failed to explain the source and creditworthiness of investors, and the premium was excessive. The decision in Saumya Construction is distinguishable as no assessment was completed. Additions under Section 153A are not confined to incriminating material. The scheme of Section 153A requires assessment for six years, and disallowing additions without seized material would defeat the purpose. The CIT(A) failed to appreciate that unrelated issues might arise which cannot be assessed if additions are restricted to search material. Assessee's Contentions: The assessee relied on the CIT(A)'s order and the decision of the Hon'ble Gujarat High Court in Pr. CIT vs. Saumya Construction Pvt. Ltd., which was confirmed by the Apex Court.

Which sections of the Income-tax Act were involved?

Section 153A,Section 132,Section 143(2),Section 142(1),Section 158BB,Section 158BI

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD

Before: MS. SUCHITRA KAMBLE & SHRI WASEEM AHMED

For Appellant: Shri Ketan H. Shah, AR
For Respondent: Shri Akhilendra Pratap Yadav, CIT-DR
Hearing: 01.02.2024Pronounced: 07.02.2024

आयकर अपीलीय अिधकरण, अहमदाबाद �ायपीठ ‘A’ अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER IT(SS)A No. 30/Ahd/2020 Assessment Year: 2010-11 M/s. Gurukrupa Financial Dy. Commissioner of Services Pvt. Ltd., Income-tax, 1215/2, Opp. Swaminarayan Central Circle-1, बनाम/ Complex, Bamroli Road, Aaykar Bhavan, Race Course Vs. Godhra Circle, Vadodara-390007 PAN : AADCG 1575 G (Appellant) (Respondent) Assessee by Shri Ketan H. Shah, AR Revenue by Shri Akhilendra Pratap Yadav, CIT-DR Date of Hearing 01.02.2024 Date of Pronouncement 07.02.2024 आदेश/ O R D E R PER MS. SUCHITRA KAMBLE, JUDICIAL MEMBER :

This appeal filed by the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)-12, Ahmedabad [hereinafter referred to as "CIT(A)" for short] dated 26.11.2019 passed under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as "the Act" for short] for the Assessment Year (AY) 2010-11.

2.

The Grounds of appeal raised by the Revenue are as under :- “1. On the facts and in the circumstances of the case and in law, the ld. CITIA) has erred in deleting the addition of Rs.4,25,00,000/- on account of undisclosed income in the form of investment in the share capital without appreciating the fact involved in this case that the assessee could not explain the source and creditworthiness of investors. 2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs.4,25,00,000/- on account of undisclosed income in the form of investment in the share capital, when the Ld. CIT(A) has found and observed that "it is true

IT(SS)A No. 30/Ahd/2020 DCIT Vs. Gurukrupa Financial Services Pvt Ltd AY : 2010-11 [2] that the subscription of shares of the appellant company at huge premium (of Rs.90 per share) defies commercial/investment prudence" (Emphasis is supplied at para no. 13.18 of appellate order). 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in relying on various decisions of the Hon'ble Court including the decision of Hon'ble High Court of Gujarat in the case of Pr. CIT Vs Saumya Construction Pvt. Ltd., when the facts involved in this case are distinguishable for the reason that all the referred decisions cover the situation where assessment for a particular year was completed. However, in the instant case no assessment for A.Y.2010-11 was completed. 4. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in holding that any addition during the assessment u/s 153A has to be confined to the incriminating material found during the course of search u/s 132(1) of the Act, even though, there is no such stipulation in sec. 153A of the Act.

5.

On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in not appreciating that sec. 153A requires a notice to be issued requiring the assessee to furnish his return of income in respect of each assessment year falling within six assessment years and to assess or re-assess the total income of those six assessment years, and that the scheme of assessment or re-assessment of the total income of a person searched will be brought to naught if no addition is allowed to be made for those six assessment years in the absence of any seized incriminating material. 6. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in not appreciating that while computation of undisclosed income of the block period u/s 158BB was to be made on the basis of evidence found as a result of search or requisition of books of accounts, there is no such stipulation in sec. 153A and sec.158BI specifically states that the provisions of Chapter-XIV-B, under which sec.158BB falls, would not be applied where a search was initiated u/s 132 after 31.5.2003 7. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in not appreciating that assessment in relation to certain issues not related to the search and seizure may arise in any of the said six assessment years after the search u/s 132 is conducted in the case of the assessee, and that if the interpretation of the ld.CIT(A) were to hold it will not be possible to assess such income in the 153A proceedings, while no other parallel proceedings

IT(SS)A No. 30/Ahd/2020 DCIT Vs. Gurukrupa Financial Services Pvt Ltd AY : 2010-11 [3] to assess such other income can be initiated, leading to no possibility of assessing such other income, which could not have been the intention of the legislature. 8. It is, therefore, prayed that the order the Ld. CIT(A)-12, Ahmedabad may be set aside and that of the AO may be restored to the above extent.”

3.

The return of income for AY 2010-11 was filed u/s 139 at Rs.1,37,020/-. A search u/s 132 of the Act was carried out in Dhanjimama Group of cases on 03.07.2012, which included the case of the assessee. Consequent to the search, proceedings u/s 153A were initiated and in response to notice, the assessee filed its return of income showing total income of Rs.1,37,020/-. Notices u/s 143(2) and 142(1) of the Act were issued and assessment was completed determining total income at Rs.4,26,37,020/- with addition of Rs.4,25,00,000/- on account of share capital along with premium received by the assessee by treating the same as sham transactions through the shareholders by the assessee itself to introduce its own undisclosed money/income.

4.

Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) allowed the appeal of the assessee.

5.

The Ld. DR submitted that the CIT(A) erred in deleting the addition of Rs.4,25,00,000/- on account of undisclosed income in the form of investment in the share capital without appreciating the fact involved in this case that the assessee could not explain the source and creditworthiness of investors. The CIT(A) observed that "it is true that the subscription of shares of the assessee company at huge premium, i.e Rs.90 per share, defies commercial/investment prudence" and despite that deleted the addition. The ld. DR further submitted

IT(SS)A No. 30/Ahd/2020 DCIT Vs. Gurukrupa Financial Services Pvt Ltd AY : 2010-11 [4] that the decision of Hon'ble High Court of Gujarat in the case of Pr. CIT Vs Saumya Construction Pvt. Ltd. is not applicable in the present case as it is distinguishable for the reason that all the referred decisions cover the situation where the assessment for a particular year was completed. However, in the instant case no assessment for AY2010-11 was completed. The ld. DR further submitted that any addition during the assessment u/s 153A cannot be stated to be confined to the incriminating material found during the course of search and the same is not stipulated as per Section 153A of the Act. The ld. DR further submitted that the CIT(A) did not appreciate that Section 153A requires a notice to be issued requiring the assessee to furnish his return of income in respect of each assessment year falling within six assessment years and to assess or re-assess the total income of those six assessment years, and that the scheme of assessment or re-assessment of the total income of a person searched will be brought to naught if no addition is allowed to be made for those six assessment years in the absence of any seized incriminating material. The ld. DR further submitted that while computation of undisclosed income of the block period u/s 158BB was to be made on the basis of evidence found as a result of search or requisition of books of accounts, there is no such stipulation in Section 153A and Section 158BI of the Act specifically states that the provisions of Chapter-XIV-B, under which Section 158BB falls, would not be applied where a search was initiated u/s 132 of the Act after 31.5.2003. The ld. DR further submitted that the CIT(A) erred in not appreciating that assessment in relation to certain issues not related to the search and seizure may arise in any of the said six assessment years after the search u/s 132 is conducted in the case of the assessee, and that if the interpretation of the CIT(A) were to hold it will not be possible to assess such income in the 153A proceedings, while

IT(SS)A No. 30/Ahd/2020 DCIT Vs. Gurukrupa Financial Services Pvt Ltd AY : 2010-11 [5] no other parallel proceedings to assess such other income can be initiated, leading to no possibility of assessing such other income, which could not have been the intention of the legislature.

6.

The Ld. AR relied upon the order of the CIT(A) as well as the decision of the Hon’ble Gujarat High Court in the case of Pr. CIT vs. Saumya Construction Pvt. Ltd., [2016] 387 ITR 529, which was subsequently confirmed by the Hon’ble Apex Court.

7.

We have heard both the parties and perused all the relevant material available on record. It is pertinent to note in the present assessee’s case that the assessee has filed confirmatory letters as well as other details relating to bank account of the concerned parties and other details which were relevant in assessee’s case. The ld. DR’s contention that the CIT(A) has not appreciated the huge premium in respect of subscription of shares is without any basis when the assessee has filed the details of shares issued, confirmation from the shareholders, their PANs and bank accounts. From the remand report filed before the CIT(A), the CIT(A) has observed that the Assessing Officer has not doubted the identities of the persons, and in fact the present assessment is an abated assessment. There was also neither any admission of undisclosed income found by the Assessing Officer during the search and thereafter nor any additional income was offered in the return in response to notice u/s 153A of the Act. In fact, the addition on account of share capital amounting to Rs.3,54,50,000/- was not made on the basis of any material unearthed during the search conducted. The ratio of decision of the Hon’ble Gujarat High Court in the case of Saumya Construction Pvt. Ltd. (supra), which is confirmed by the Hon’ble Apex Court, is applicable in toto in the present case as no addition can be made in the assessment proceedings u/s 153A of the Act if there is no related

IT(SS)A No. 30/Ahd/2020 DCIT Vs. Gurukrupa Financial Services Pvt Ltd AY : 2010-11 [6]

incriminating material found during the search. Thus, the CIT(A) has rightly held that the assessment itself is void ab initio and quashed the same. The contention of the ld. DR that the facts in the case of Saumya Construction Pvt. Ltd. (supra) are distinguishable in the present case will not help the revenue’s case as the ratio laid down by the Hon’ble Gujarat High Court, which has been confirmed by the Hon’ble Apex Court, is squarely applicable in the present case. Thus, the appeal of the Revenue is dismissed.

8.

In result, appeal of the Revenue is dismissed.

Order pronounced in the open Court on 7th February, 2024 at Ahmedabad.

Sd/- Sd/-

(WASEEM AHMED) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad, Dated 07/02/2024 **bt आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��थ� / The Respondent. 2. संबंिधत आयकर आयु� / Concerned CIT 3. आयकर आयु� अपील 4. ( ) / The CIT(A)- िवभागीय �ितिनिध अिधकरण अपीलीय आयकर 5. , , /DR,ITAT, Ahmedabad, गाड� फाईल /Guard file. 6. आदेशानुसार/ BY ORDER, TRUE COPY सहायक पंजीकार (Asstt. Registrar) आयकर अपीलीय अिधकरण ITAT, Ahmedabad 1. Date of dictation …………01.02.2024 1. Date on which the typed draft is placed before the Dictating Member :..… 01.02.2024… 2. Other Member…02.02.2024…….………….. 3. Date on which the approved draft comes to the Sr.P.S./P.S…05.02.2024… 4. Date on which the fair order is placed before the Dictating Member for pronouncement…07.02.2024… 5. Date on which the fair order comes back to the Sr.P.S./P.S……07.02.2024….……… 6. Date on which the file goes to the Bench Clerk…07.02.2024…….…… 7. Date on which the file goes to the Head Clerk……. 8. The date on which the file goes to the Assistant Registrar for signature on the order………… 1. Date of Despatch of the Order

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