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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI AMARJIT SINGH & SHRI SANDEEP SINGH KARHAIL
The present appeal has been filed by the assessee challenging the impugned order dated 30/11/2015, passed by the learned Commissioner of Income Tax (Appeals)–48, Mumbai [‘learned CIT(A)’], under section 250 of the Income Tax Act, 1961 ("the Act"), for the assessment year 2010–11.
In this appeal, the assessee has raised following grounds:–
“1. On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the Dy. Commissioner of Income Tax, Central Circle–09, in framing and completing the assessment under section 143(3) r/w section 153C of the Act in the absence of the Satisfaction Note required to be prepared by the A.O. of the searched person.
Datalink Informatics Pvt. Ltd. ITA No.571/Mum./2016
1.2 The learned CIT(A) further erred in not appreciating the fact that the Satisfaction Note for issuing Notice under section 153C of the Act did not mention the assessment year for which it belongs. 1.3 The learned CIT(A) erred in not appreciating the fact that the seized material referred in the Satisfaction Note was not “belonged” to the Appellant. 1.4 The learned CIT(A) further erred in not appreciating the fact that the Satisfaction Note was not displaying any reason or basis concluding that the seized material was belonged to the Appellant. 1.5 The appellant prays that the order passed under section 143(3) r/w section 153C of the Act be held as bad in law or void ab initio and as such was liable to be quashed. Without prejudice to the above, 2.1. On the facts and in circumstances of the case and in law, the Learned CIT(A) erred in no appreciating the fact that there was no "incriminating material" being found during the course of search based on which additions/disallowances were made u'ider the assessment u/s. 143(3) r.w.s. 153C of the Act on the alleged ground that the assessment u/s. 143(3) of the Act was pending and was abated due to initiation of assessment u/s. 153C of the Act and as such the AO would have the jurisdiction to assessee / reassess issues arising out of regular assessment. 2.2. The Learned CIT(A) erred in not appreciating the fact that there was no assessment proceedings u/s. 143(3) was pending on the date of recording of Satisfaction Note and as such the additions / disallowances would be made only on the basis of "Incriminating Material" found during the course of search. 2.3. The Learned CIT (A) erred in not appreciating the fact that the AO did not have jurisdiction to make additions/disallowances without referring to the "incriminating material". 2.4. The Appellant prays that the order passed u/s. 143(3) r.w.s. 153C of the Act be held as bad in law or void ab initio and as such liable to be quashed. 2.5. Without prejudice, the Appellant prays that it be held that the additions/ disallowances made without referring to any "incriminating material" be deleted.”
At the outset, during the course of hearing, learned Authorised 3. Representative (‘learned A.R.’) wish not to press grounds no. 1.1, 1.2, and 2.1 to 2.5 raised in assessee’s appeal. In view of the submissions, the aforesaid grounds are dismissed as not pressed.
Thus, only grounds no. 1.3 to 1.5, raised in assessee’s appeal, were argued by the learned AR, during the course of hearing. Page | 2
Datalink Informatics Pvt. Ltd. ITA No.571/Mum./2016
The brief facts of the case pertaining to these grounds, as emanating from the record, are: The assessee is engaged in the business of dealership and electronic goods and computer hardware and software during the year under consideration. Initially, assessee filed its return of income under section 139 of the Act and notice under section 143(2) was issued on 24/08/2010. Subsequently, search and seizure action under section 132(1) of the Act was conducted in the case of Global Telecom Ltd Group, its associated concerns, directors and related persons on 28/09/2010, wherein certain paper/documents/computer data were found and seized. During the course of search, Assessing Officer alleged to have found certain documents belonging to the assessee. Pursuant thereto, notice under section 153C of the Act was issued to the assessee on 19/09/2011. In compliance to the aforesaid notice, assessee declared total income at Rs. 12,10,89,790, which was same as that of the returned income as per original return filed by the assessee under section 139 of the Act. Due to initiation of assessment under section 153C of the Act, assessment under section 143(3) was abated. During the assessment proceedings, it was observed that assessee had offered income under head capital gain at Rs. 14,31,67,447 on sale of shares against which expenses were claimed at Rs. 1,72,65,457. In the absence of specific reply justifying allowability of the aforesaid expenditure under the head capital gains, expenditure claimed by the assessee were disallowed and accordingly, added to the taxable capital gains in the hands of the assessee.
Datalink Informatics Pvt. Ltd. ITA No.571/Mum./2016
In appeal before the learned CIT(A), assessee raised additional ground of appeal challenging the initiation of assessment under section 153C of the Act. Accordingly, remand report from the Assessing Officer was sought regarding the additional grounds raised by the assessee. In the remand report, Assessing Officer, inter-alia, submitted that assessee neither filed any objection after issuance of notice under section 153C nor filed any objection against the proceedings under section 153C, during the course of assessment proceedings. The Assessing Officer further submitted that before the issuance of notice under section 153C of the Act, satisfaction for issue of notice has been recorded by the Assessing Officer on the basis of documents seized. After considering the submissions of the assessee and the remand report filed by the Assessing Officer, the learned CIT(A) vide impugned order dated 30/11/2015, inter–alia, observed as under:–
“... The second contention raised by the appellant is that the documents seized during the course of search were Profit & Loss A/c and Balance Sheet of the appellant which were only in draft mode and hence cannot be considered as “belonging to” the appellant. However, the fact that the Profit & Loss A/c and Balance Sheet found were of the appellant has not been disputed. It has been admitted in the submission by the appellant that the said draft financials were provided by the appellant itself to Lexcorp (from whose office they were seized) in order make them enable to finalise the annual accounts by reviewing the said draft. Having admitted such a factual position, it is not correct for the appellant to raise a contention that they were not belonging to it merely because they were in a draft mode and were finalized subsequent to the date of search. Hence, this contention of the appellant is devoid of any merits and rejected.”
Being aggrieved, the assessee is in appeal before us.
Datalink Informatics Pvt. Ltd. ITA No.571/Mum./2016
We have considered the submissions made by learned Representatives for the parties and perused the material available on record. The grievance raised by the assessee, in these grounds, is against initiation of proceedings under section 153C of the Act on the basis of material found during the course of the search. During the course of search and seizure action under section 132(1) of the Act, the office premises of M/s. Lexcorp Advisory Services Pvt. Ltd., was also covered. During the said action, the Profit & Loss Account for the year ending 31/03/2010, Balance Sheet as at 31/03/2010, and Schedules forming part of Balance Sheet and Profit & Loss Account of the assessee were seized. The Assessing Officer after verifying the said documents / books of account recorded the satisfaction for issuing notice under section 153C of the Act on the basis that the said documents ‘belongs to’ the assessee being a person other than the person referred to in section 153A of the Act. Accordingly, notice dated 19/09/2011, under section 153C of the Act was issued to the assessee. As is evident, no objection was taken by the assessee against the finalisation of proceedings under section 153C of the Act during the course of assessment proceedings. It is also pertinent to note that as the scrutiny proceedings pursuant to notice issued under section 143(2) of the Act were pending, the same were abated after initiation of proceedings under section 153C of the Act. The assessee in its appeal before the learned CIT(A), for the first time, challenged the initiation of proceedings under section 153C of the Act, which was, inter–alia, dismissed vide impugned order. In appeal before us, the learned A.R. submitted that the books of account / Page | 5
Datalink Informatics Pvt. Ltd. ITA No.571/Mum./2016 documents, which were found in possession of M/s. Lexcorp Advisory Services Pvt. Ltd., were in draft form, which were provided by the assessee to the said entity for the purpose of finalisation of accounts after perusal of the draft, therefore, the said documents cannot be said to be „belong to’ the assessee for the purpose of section 153C of the Act. It is also the submissions of the learned A.R. that since these documents were provided to the said entity, which was rendering consultancy services to the assessee, the same becomes the working paper of the said entity and thus, was the property of the said entity and cannot be said to be ‘belonging to’ the assessee. In support of his submissions, the learned A.R. placed reliance upon the decision of the Hon’ble Delhi High Court in Pepsico India Holdings Pvt. Ltd. v/s ACIT, [2014] 50 taxmann.com 299 (Del.); and the decision of the Co–ordinate Bench of the Tribunal, in DSL Properties Pvt. Ltd. v/s DCIT, [2013] 33 taxmann.com 420 (Del.).
Before proceeding further, it is relevant to note that for the purpose of initiating proceedings under section 153C of the Act, during the year under consideration, the Assessing Officer was required to be satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents, seized or requisitioned, belongs or belonged to a person other than the person referred to in section 153A of the Act. In the present case, as noted above, it is the plea of the assessee that the books of account / documents seized during the course of search do not belong to the assessee and, therefore, the proceedings initiated under section 153C of the Act are bad–in–law. We find that the Hon’ble Delhi High Court in Page | 6
Datalink Informatics Pvt. Ltd. ITA No.571/Mum./2016 Pepsico India Holdings Pvt. Ltd. (supra) was dealing with a case wherein notice under section 153C of the Act was issued, inter–alia, on the basis of photocopy of the documents found in possession of the searched person. While quashing the notice issued under section 153C of the Act, the Hon’ble Delhi High Court observed as under:–
“15. Secondly, we may also observe that the finding of photocopies in the possession of a searched person does not necessarily mean and imply that they "belong” to the person who holds the original. Possession of documents and possession of photocopies of documents are two separate things. While the Jaipuria Group may be the owner of the photocopies of the documents it is quite possible that the originals may be owned by some other person. Unless it is established that the documents in question, whether they be photocopies or originals, do not belong to the searched person, the question of invoking Section 153C of the said Act does not arise.”
Similarly, the Co–ordinate Bench of the Tribunal in DSL Properties Pvt. Ltd. (supra) held that the photocopy of the document namely Profit & Loss Account and Balance Sheet found in the possession of shareholders and directors, during the course of search, cannot be held to be belonging to the taxpayer company and such photocopy shall belong only to the shareholder and director in whose possession the same were found, despite the fact that such documents were supplied by the taxpayer company. From careful perusal of the aforesaid decisions, as relied upon by the learned A.R., we find that in both the cases, the Hon’ble Courts were dealing with a situation wherein though the original documents were in the possession of the taxpayer, the photocopy of the same was found in possession of the searched person and on the basis of such photocopy of the documents, proceedings under section 153C of the Act were initiated in Page | 7
Datalink Informatics Pvt. Ltd. ITA No.571/Mum./2016 case of the taxpayer. We are of the view that both the decisions cited by the learned A.R., during the course of hearing, are factually distinguishable from the present case. As in the present case, the documents which were found in possession of the Lexcorp Advisory Services Pvt. Ltd. (searched entity) were the draft financials provided by the assessee to the said entity for the purpose of finalisation of its accounts after perusing the same. It is not the case of the assessee that like the aforesaid two decisions, the original documents were in possession of the assessee, whereas, the photocopy was found in possession of the searched entity. We also don’t find any merit in assessee’s submission that draft financials were working papers of the searched entity, as the same were claimed to have been provided by the assessee. It has also not been denied that the draft financials were of the assessee company only. In the present case, even if the draft financials were provided by the assessee to the searched entity, the said documents continued to be ‘belonged to’ the assessee, as the services of the searched entity were sought only for the purpose of finalising the accounts and if at all anything can be said to be belonging to the searched entity, it can only be the final outcome of such exercise, for which searched entity’s services were availed. Analogically can be drawn with the situation where books / vouchers / bills etc. are provided to a consultant for preparation of accounts. In such a situation, the documents / books as provided and available with the consultant will always belong to the taxpayer. In view of the above, we find no infirmity in the impugned
Datalink Informatics Pvt. Ltd. ITA No.571/Mum./2016 order passed by the learned CIT(A) on this issue. Accordingly, grounds no.1.3 to 1.5 raised in assessee’s appeal are dismissed.
The assessee has also filed an application seeking admission of the following additional ground:–
“ADDITIONAL GROUND NO. 1: DISALLOWANCE U/S 14A OF THE ACT CANNOT EXCEED EXEMPT INCOME 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not restricting the disallowance u/s 14 of the Act to the extent of exempt income earned by the Appellant. 2. The Appellant prays that the disallowance u/s 14A of the Act be restricted to the exempt income earned by it.”
The learned A.R. submitted that the assessee suo–moto made a disallowance under section 14A of the Act over and above the exempt income earned by the assessee. It was submitted that as the legal position at the time of filing of return of income was not settled, therefore, the claim, as now sought to be raised by way of additional ground, was not raised.
On the other hand, opposing the admission of additional ground, the learned D.R. submitted that neither any addition has been made by the Assessing Officer under section 14A of the Act nor this issue was raised in appeal before the learned CIT(A). It was further submitted that no computation has been provided by the assessee as to how suo–moto disallowance under section 14A of the Act was offered by the assessee.
Datalink Informatics Pvt. Ltd. ITA No.571/Mum./2016
We have considered the rival submissions and perused the material available on record. From the perusal of the financials, we find that for the year under consideration, the assessee has earned dividend income of Rs.26,81,157. Further, the assessee while filing its return of income suo– moto disallowed Rs.1,72,65,457, under section 14A of the Act. However, the Assessing Officer did not make any further disallowance and return of income on this aspect was accepted. Recently, it has been held by various Hon’ble Courts that disallowance under section 14A has to be restricted to the dividend income earned. Accordingly, the assessee has made a fresh claim before us. We find that Hon'ble Supreme Court in Goetz India Ltd. v/s CIT, [2006] 284 ITR 323 and Hon'ble Jurisdictional High Court in CIT v/s Pruthvi Brokers and Shareholders Pvt. Ltd., [2012] 349 ITR 336 (Bom.) has held that the appellate authority can entertain a fresh claim made by the assessee, even if such a claim was not made in return of income or by way of revised return of income. Further, as the issue raised by the assessee by way of additional ground of appeal is a legal issue, which can be decided on the basis of material available on record, we are of the view that the same can be admitted for consideration and adjudication in view of the ratio laid down by the Hon'ble Supreme Court in NTPC Ltd. v/s CIT, [1998] 229 ITR 383 (SC).
14. As is evident from the record, this issue, now raised by the assessee by way of additional ground, was not examined by any of the lower authorities, therefore, we deem it fit and proper to restore the same to the file of the Assessing Officer. We further direct the Assessing Officer to Page | 10
Datalink Informatics Pvt. Ltd. ITA No.571/Mum./2016 examine the claim of the assessee and decide the same in accordance with law. As a result, additional ground is allowed for statistical purpose.
In the result, appeal by the assessee is partly allowed for statistical purpose. Order pronounced in the open court on 01/08/2022