DCIT, NEW DELHI vs. M/S. GODHULI VANIJYA PVT. LTD., KOLKATA

This appeal is filed by the ld Dy. Commissioner of Income Tax, Central Circle-31, New Delhi [the ld AO] against the order of the Ld. CIT (Appeals)–XXXIII, New Delhi, [the ld CIT (A)] dated 29.09.2014 for assessment year 2009-10. By This order appeal filed by the assessee against assessment order passed by The ACIT, Central Circle-19, New Delhi [ the ld AO] u/s 153C read with section 153A of the Income tax Act [ The Act] on 30.03.2014 determining the total income of the assessee at Rs. 55,00,740/- against the returned income of Rs. 740/-, was allowed by the ld CIT(A) deleting the addition of Rs 5 Cr. The ld AO has made this addition u/s 68 of the Act on the basis of documents found during the course of search at another person. So the ld AO is aggrieved.

The following grounds of appeal raised by the revenue:-

Brief facts of the case shows that search u/s 132 of the Act took place in case of M/s. Akruti Hotels Pvt Ltd on 22.11.2011. During the course of search, certain documents were seized. The satisfaction in the case of searched person was recorded stating that seized documents belong to the assessee company. Consequently, The Ld Assistant Commissioner of Income Tax, Central Circle-23, New Delhi, [Ld AO of the assessee] recorded a satisfaction for initiating action u/s 153C of the Act and consequently a notice was issued on 20.09.2013 for AY 2009-10. The appellant had filed its original return of income u/s 139 (1) of the income tax act on 1 October 2009. On the date of search, admittedly, no assessment proceedings for the impugned assessment year are pending before the income tax authorities.

In response to the above notice, assessee filed its return of income on 13.01.2014 showing income of Rs. 740/- . Consequently, notice u/s 143(2) of the Act was also issued on 11.02.2014.

Case of the ld AO is that assessee is engaged in the business of providing services and it was incorporated on 16.02.2009 and therefore, this is the first year of its operation. The assessee has shown receipt of service charge for the year of Rs. 9000/- only. He found from the audited balance sheet of the assessee as on 31.03.2009, that it has issued share capital to 10 different companies having a face value of Rs. 10/- each and has collected share premium of Rs. 4,90,00,000/-. Thus, the total share capital was issued of Rs. 5 crores. He noted that the assessee company has just been incorporated, yet to start its operation but has received huge premium per share of Rs 490/ - from 10 companies, Page | 2 ITA 288 (Del) of 2015 which are based at Kolkata. The ld AO issued letters to all these companies u/s 133(6) of the Act asking for the audited accounts, audited report, source of investment, details of business and reasons for investment along with bank statement. The letters were either not replied or remained unserved. Therefore, assessee was asked to submit all these details. Assessee was also asked to produce all the Directors for their personal examination to verify identity, creditworthiness, and genuineness of the transaction. The assessee submitted the requisite details and the ld AO noted that the companies are showing meager profit, based at Kolkata, Guwahati, not engaged in any business, does not have any legitimate income for source of this investment and no bank statement was furnished. Therefore, the ld AO issued show cause notice that why the above sum of Rs. 5 crores should not be added u/s 68 of the Act as unexplained cash credit. The assessee submitted that it has discharged its onus by submitting the requisite details such as name, address, PAN, Bank statement and balance sheet of the investors to prove their identity, creditworthiness, and genuineness of the transaction. Assessee also promised to produce the Directors of those companies given adequate time. The ld AO noted that assessee could not produce the Directors of the above company and bank statement for verification. Therefore, the assessee has failed to discharge its onus. Thereafter, he discussed modus operandi of accommodation entry from the Kolkata companies and proceeded to make an addition of Rs. 5 crores u/s 68 of the Act. On 30.03.2014 assessment order u/s 153C read with section 153A of the Act was passed making the above addition of Rs. 5 crores and determining the total income of Rs. 5,00,00,740/-.

The assessee preferred an appeal before the ld CIT(A) raising the first jurisdictional issue that the order u/s 153A of the Act is invalid as satisfaction note u/s 153C is not recorded in file of the person searched but in the file of assessee. This argument was rejected. The second argument was that in case of concluded assessment no addition could be made in the hands of the assessee unless incriminating material was found during the course of search. The assessee referred to various Page | 3 ITA 288 (Del) of 2015 seized documents. It was stated that those documents relates to the shareholder of the assessee company and even otherwise they are not incriminating in nature. The ld CIT(A) noted that seized documents relates to share holders of the appellant company and as additions are made on account of share capital, he relying on the order of the Hon’ble Delhi High Court in case of Anil Bhatia upheld the action u/s 153A of the Act rejected this argument.

The ld CIT(A) on the merits of the case held that the assessee has discharged its initial onus submitted the evidence such as share holder application forms, income tax returns, share certificate, form No. 2 under the Companies Act, bank statement and other documents. He further held that on perusal of the record, he noted that in many cases shareholders have replied in response to notice u/s 133(6) of the Act. He also noted that there is no references as to whom notices were not served on which shareholder. He further held that the assessee was not given any opportunity stating that notices have not been served on which shareholder. He further held that declaration of small profit of shareholder does not say that investment is not genuine as the investments are disclosed in the balance sheet, which explained the source of such investment. He held that the assessee has already filed the balance sheet of the investors. In view of this, he deleted the addition u/s 68 of the Act as according to him assessee discharged its onus by proving identity, creditworthiness, and genuineness of the new shareholders. Thus, on the issue of jurisdiction he decided against the assessee and on the merits, he deleted the addition. Therefore, the ld AO has filed this appeal before us contesting the deletion of addition of Rs. 5 crores u/s 68 of the Act.

At the time of hearing the assessee has invoked the provision of Rule 27 of the ITAT Rules contesting that the issue of jurisdiction is decided against the assessee wherein, the ld CIT (A) relying upon the decision of the Hon’ble Delhi High Court in case of Anil Bhatia has held that addition can be made in the hands of the assessee in concluded assessment despite no incriminating documents are found during the course of Page | 4 ITA 288 (Del) of 2015 search. Therefore, the ld AR submitted that against this issue decided against the assessee by the ld CIT (A), assessee would like to invoke the above rule and stated that the jurisdiction assumed by the ld AO is not valid.

He submitted that the documents found during the course of search are already mentioned by the ld CIT (A) in is order at pg No.

He submitted that none of these documents is incriminating in nature and therefore, no addition can be made in the hands of the assessee. He submitted that the impugned assessment year 2009-10 is already concluded at the time of search on 22.11.2011 and further at the time of recording of the satisfaction by the ld AO of the assessee. Thus, he stated that the addition made in the hands of the assessee is not based any incriminating material found during the course of search. He submitted the timelines as a. For AY Date of filing of return is 1.10.2009, b. date by which notices u/s 143(2) could have been issued is 30/09/2010 and c. Date of search is 22/11/2011. Thus, on the date of search, this assessment for AY 2009-10 in case of the assessee was a concluded assessment and is tinkered only if there is an incriminating material found during the course of search. He further referred to the decision of the Hon’ble Delhi High Court in CIT Vs. Anil Kumar Bhatia 2011 Taxman 453, the decision of the Hon’ble Supreme Court in CIT vs. Sinhgad Technical Education Society (2017) 397 ITR 344 (SC). He further relied upon the decision of the coordinate bench in and 287/Del/2015 for Assessment Year 2010-11 in the group company case, which is related to the same search wherein, the coordinate bench has decided in favour of the assessee on this issue. e therefore, submitted that the issue is squarely covered in favour of the assessee.

The ld DR vehemently objected to the invocation of Rule 27 of the ITAT Rules. On the issue, she specifically referred to the decision of the Hon’ble Delhi High Court in case of Anil Kumar Bhatia (supra) and Page | 5 ITA 288 (Del) of 2015 extensively relied upon paragraph No. 11, 12, 13, and 15 of that decision. She further referred to the Page No. 4 of the assessment order to show that all the shareholders are having meager income and therefore, the issue of share to such shareholders found form the balance sheet of the assessee company clearly shows that these are incriminating documents. She further referred to page No. 15 of the order of the ld CIT (A) wherein, categorically share certificate in name of certain shareholder and share transfer form were found. She stated that when the assessee has issued share to Kolkata based company at a hefty premium finding from share certificate and share transfer form clearly shows that those are incriminating documents. Such documents coupled with the low income of the shareholder makes it an incriminating documents based on which the ld AO correctly assumed jurisdiction u/s 153A of the Act. She submitted that all these documents are all with respect to the shareholder and therefore, it has been correctly used to invoke provisions of section 153A of the Act.

She also submitted that on the merits the genuineness of the parties who introduced share capital is in series doubt and the ld CIT(A) have not given any reason that even if the assessee failed to produce the share holders before the ld AO the addition is deleted. She submitted that the ld CIT (A) has grossly erred in deleting the addition u/s 68 of the Act. She relied on plethora of judicial precedents wherein, it has been held that when assessee failed to produce the shareholder, coupled with other mitigating circumstances the addition u/s 68 of the Act can be made when shares are issued to Kolkata based companies at a huge premium.

The ld AR in rejoinder submitted that the documents are not found from the premises of the assessee but from the premises of Akruti Hotels Pvt. Ltd. This company is based in New Delhi whereas the assessee is based at Kolkata. Therefore, it was submitted that these documents of share certificate etc were not found from the premises of the assessee. He further submitted that share certificate and share transfer form were found vide Page No. 49, 51 and 52 of Annexure A-11. As such, the share certificate, and share transfer form pertained to those shareholders. He Page | 6 ITA 288 (Del) of 2015 further stated that the share certificate and names of the shareholders are part of the annual return as well as share capital issued by the assessee. They cannot be stated to be an incriminating document. He further relied upon the decision of the Hon’ble Delhi High Court in 86 Taxmann 84 in Pr. CIT Vs. Index Securities Pvt. Ltd wherein, even the trial balance and balance sheet of the assessee could also not to be said to be incriminating. Therefore, he held that mere availability of the share certificate of the shareholders of the assessee from the premises of the third party could not be held to be pertaining to assessee and much less incriminating in nature.

On the merits of the case, he relied on the order of the ld CIT (A) holding that assessee has discharged its onus and therefore, the addition has rightly been deleted by him.

We have carefully considered the rival contentions and perused the orders of the lower authorities. Firstly we come to the application of the assessee-invoking rule 27 of the ITAT rules wherein it has been stated that the learned CIT – A has erred in not appreciating that the addition is not sustainable in a non-abatted assessment year without any incriminating document found during the course of search. The learned CIT – A in paragraph number 3.3 of his order has held that a perusal of the seized documents shows that these seized documents relates to shareholders of the appellant company. Addition is made on account of share capital. Therefore the additions are relatable to seized document. Therefore relying on the decision of the honourable Delhi High Court in case of Shri Anil Bhatia in [2012] 24 taxmann.com 98 (Delhi)/[2012] 211 Taxman 453 (Delhi)/[2013] 352 ITR 493 (Delhi that the jurisdiction of the assessing officer u/s 153A is to assess total income for the year and not restricted to seized material Where it has been held that even if for one assessment year, there are seized documents, the relatable to addition, the assessing officer can be made addition for all the assessment years covered u/s 153A. Therefore, accordingly on jurisdictional grounds the grounds of appeal are dismissed for both the assessment years. Therefore apparently he decided on this issue against the assessee and Page | 7 ITA 288 (Del) of 2015 therefore the assessee is entitled to challenge this issue as it has been decided against the assessee by invoking provisions of rule 27 of the Income Tax Appellate Tribunal Rules. The arguments of the assessee are also supported by the decision of the honourable Delhi High Court in Sanjay Sawhney V PCIT [2020] 116 taxmann.com 701 (Delhi)/ [2020] 273 Taxman 332 (Delhi) [2020] 116 taxmann.com 701 (Delhi)/ [2020] 273 Taxman 332 (Delhi). Therefore we now proceed to decide the issue whether the additions on the basis of the seized material can be made in the hands of the assessee in this assessment year or not.

It is established principle that in case of search the provision of section 153C of the Act could have been invoked prior to 01.06.2015 when AO is satisfied that money, bullion, jewellery or other valuable article or thing, seized or requisitioned pertains to a person other than the person searched, then such documents or asset shall be handed over to the AO having jurisdiction over such person, then such AO shall proceed, if he is satisfied that such documents or assets have bearing on the determination of total income of such other person, shall assess him in accordance with provision of section 153A of the Act. Therefore, the first threshold to be crossed by the ld AO by holding that the share Page | 8 ITA 288 (Del) of 2015 certificates along with share Transfer forms pertain to the assessee. The second threshold that needs to be crossed at the time of making any adjustment to the total income of the assessee based on the above documents is to prove that the documents so found pertaining to the assessee are incriminating in nature (having a bearing on the determination of total income of the assessee) which has the capability of enhancing the income of the assessee. Therefore, it is apparent that in case of persons other than searched person for the relevant year prior to 01.06.2015 the requirement clearly says that the documents pertaining to assessee must be found during the course of search on another person which has a bearing on enhancing income of the assessee.

Admittedly in this case search was conducted on another assessee i.e. M/s Akruti Hotels Limited. Therefore now it is required to be tested whether the documents found during the course of search on Akruti Hotels limited are pertaining to the assessee or not. In the present case the documents found are at page 49 on Annexure A-11 is share certificate in the name of Raj Nand Hela. Page no. 51 is share transfer form of certificate No. 15 in the name of Raj Nand Hela. Both these documents are the property of Mr. Raj Nand Hela and therefore, there cannot be said to be the pertain to the assessee. Similarly page No. 51 and 52 the share certificate in the name of Response Overseas Ltd and share transfer form were found. These share transfer forms also did not belong to the assessee but to the shareholder. The share certificate shows that those investors are holding share in the assessee company. Therefore, the property of this share certificate does not remain with the assessee but with the shareholder whose name appears on those share certificates. Anyway, these shares are issued by the assessee in the name of those persons, which is part of the details of shareholders as well as the books of account of the assessee wherein share capital is shown. If it is to be believed that these documents found during the course of search on Akruti Hotels Limited pertain to the assessee, then natural corollary would be that whenever a share certificates are found during the course of search, the company whose shares are issued, would be covered u/s Page | 9 ITA 288 (Del) of 2015 153C of the act. The share certificates are owned by the person in whose name those were issued. This is not the case, where the share certificates along with the blank transfer forms duly signed by the shareholders along with some other materials such as blank receipts of consideration received of those shares as well as sale note issued by the shareholders are found togetherwith. Therefore, in this case we do not agree with the contentions of the revenue that share certificates in the name of Response Overseas Private Limited and Raj Nand Hela along with the transfer forms pertains to the assessee company.

Now we come to the decision of the Hon’ble Delhi High Court in case of Anil Kumar Bhatia (supra). On careful consideration of para 23 it was categorically held by the Hon’ble High Court that “23. We are not concerned with a case where no incriminating material was found during the search conducted under Section 132 of the Act. We, therefore, express no opinion as to whether Section 153A can be invoked even in such a situation. That question is therefore left open.”

Thus, the honourable high court was not concerned with the case where no incriminating material was found during search and therefore, it did not express any opinion as either section 153A can be invoked in such situation. Therefore, this decision does not referred to the situation where no incriminating documents are found during the course of search. The case before us is there is no material found pertaining to the assessee in search on third party.

The Hon’ble Supreme Court in CIT vs Sinhgad Technical Education Society 397 ITR 344 (SC) clearly held that in case of the person other than searched person, concluded assessment can be tinkered with only if incriminating material is found in those assessment years. Therefore, in the present case it is apparent that no incriminating material found during the course of search and therefore, the concluded assessment year i.e. 2009-10 cannot be tinkered with.

As we have already held that share certificates as well as the share transfer forms found during the course of search on AKruti Hotels Ltd Page | 10 ITA 288 (Del) of 2015 does not pertain to the assessee and therefore same can also not be an incriminating material, which has a bearing on the income of the assessee. Thus, there cannot be any addition in the hands of assessee on this count. In view of this, the ground raised