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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI S. RIFAUR RAHMAN, HONBLE & SHRI SANDEEP SINGH KARHAIL, HONBLEShri Ajay Virender Arora v.
These cross appeals are filed by the assessee and revenue against the order of the Learned Commissioner of Income Tax (Appeals)-54, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 25.08.2021 for the A.Y.2016-17.
First we take up the appeal of the assessee in ITA.No. 1706/MUM/2021 (A.Y.2016-17).
Brief facts of the case are, assessee filed his original return of income on 16.11.2016 declaring total income of ₹.38,44,08,310/- after claiming deduction of ₹.1,60,000/- under Chapter VI-A of Income-tax Act, 1961 (in short “Act”). The return was processed u/s. 143(1) of the Act. Subsequently a search action was carried out in the case of D Décor Group on 06.03.2018. Consequent to the search action, the case of the assessee being Director and Key person on D Décor Group, was centralized vide order u/s. 127(2) of the Act on 29.05.2018. Consequently, notice u/s.153A dated 11.01.2019 was issued and served on the assessee. In response assessee filed his return of income on 09.02.2019 declaring total income of ₹.38,45,10,750/- after claiming deduction of ₹.1,60,000/- under 3 & 2147/MUM/2021 (A.Y: 2016-17) Shri Ajay Virender Arora Chapter VI-A of the Act. Accordingly, notices u/s. 143(2) and 142(1) of the Act were issued and served on the assessee. In response AR of the assessee attended and submitted the relevant information as called for.
During assessment proceedings, Assessing Officer observed that assessee is holding 84.5% of the shares and assessee has received loans and advances during the year. He observed that D Décor Home Fabrics Private Limited (DDHF) has given loans either directly to the assessee or in the form of payments made to third parties on behalf of the assessee. When the assessee was asked to substantiate, assessee submitted that the transaction with D Décor Home Fabrics Private Limited are running account and which is mutual or current account and it is not advances or loans. In various occasions D Décor Home Fabrics Private Limited owed amount to the assessee. It was submitted that assessee has running current account with the company and in fact assessee has been advancing money to the company as and when required for the purpose of the business of the company, in most part of the year the company owed to the assessee. Therefore these transactions cannot be termed as deemed dividend u/s. U/s. 2(22)(e) of the Act . However, Assessing Officer rejected the submissions of the assessee and proceeded to make the addition u/s. 2(22)(e) of the Act.
4 & 2147/MUM/2021 (A.Y: 2016-17) Shri Ajay Virender Arora 5. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and before the Ld.CIT(A) assessee also raised separate ground on the issue of Assessing Officer making the addition without there being any incriminating documents found during the course of search. Ld.CIT(A) however, decided the issue of incriminating material against the assessee and dismissed the same.
6. Further, assessee has filed additional grounds of appeal
before us for the sake of clarity it is reproduced below: - “1. The Commissioner of Income Tax (Appeals)- 54, Mumbai, erred in confirming the action of the AO in issuing notice u/s 153A of the Income Tax Act, 1961 (Act) without mentioning therein the incriminating materials found during the course of search at the premises of the Appellant. The Appellant submits that notice issued u/s 153A of the Act without mentioning therein the incriminating materials found during the course of search at the premises of the Appellant is without jurisdiction; hence, the notice issued u/s 153A as well order passed u/s 143(3) r.w.s. 153A of the Act shall be quashed and set aside.
2. In the alternative and without prejudice to the above, the CIT(A) ought to have held that section 2(22)(e) of the Act does not apply to a sum given to the Managing Director of the company who is an employee. The Appellant craves leave to amend, alter, modify the above grounds of appeal.”
It was prayed before us that the necessary facts required for adjudication of the additional grounds of appeal are already on record and no new facts are required to be brought on record. Therefore, these
On the other hand, Ld.DR objected for admission of the above said additional grounds of appeal and further, he submitted that Ld.CIT(A) has already deliberated on this issue.
Considered the rival submissions and material placed on record, we observe that the issue raised by the assessee in additional grounds of appeal goes to the root of the matter and accordingly, admitted and proceeded to adjudicate the same. Since it is a jurisdictional issue we proceed to decide this issue without going into merits of the case.
10. At the time of hearing, Ld. AR brought to our notice, notice issued u/s. 153A of the Act dated 11.01.2019 to the assessee which is placed on record vide letter dated 14.06.2022. As per the notice issued by the Assessing Officer which is general in nature and nowhere Assessing Officer has discussed the material found during the search in the notice issued u/s. 153A of the Act. In this regard he brought to our notice decision of the Hon'ble Bombay High Court in the case of Underwater Services Co. Ltd. v. ACIT & Others (2002) 326 CTR (Bom) 208. He
6 & 2147/MUM/2021 (A.Y: 2016-17) Shri Ajay Virender Arora submitted that in the above said decision the Hon'ble High Court has reproduced the notice issued u/s. 153A of the Act to the assessee which is exactly similar to the notice issued to the assessee in the present case. By considering the notice issued in the above manner the Hon'ble Bombay High Court decided the issue in favour of the assessee, he brought to our notice the ratio of the decision as under: - “5. Issuance of a show cause notice is the preliminary step which is required to be undertaken. The purpose of show cause notice is to enable a party to effectively deal with the case made out by respondent (Om Shri Jigar Association vs Union Of India 5).
Because Section 153A provides that an assessment has to be made under the said Section only on the basis of seized material, the notice dated 29th November 2018, which is impugned in this petition, should have mentioned whether the seized material was under Section 132 or books of account, other documents or any assets are requisitioned under Section 132A. The notice is absolutely silent as could be seen from above. The notice says “you are required to prepare true and correct return of income” and “setting forth such other particulars”. Petitioner had filed their returns for the Assessment Year in question, which they thought was the true and correct return of income and that it contained all other particulars as prescribed. If respondent felt that was not enough and petitioner should file a fresh true and correct return of income because of the search, then respondent should certainly indicate in its notice what were the seized material under Section 132 or books of accounts or other documents or any assets requisitioned under Section 132A. Otherwise an assessee would file a copy of what it had filed earlier, which respondent anyways had in its file. Petitioner has also been seeking from respondent to make available copy of the alleged incriminating material found/seized during the search based on which the notice has been issued. Mr. Chhotaray states that such material has been given later. We are not going into that aspect at this stage because what we find is that the notice issued under Section 153A is bereft of any material. Nothing prevented respondent from mentioning in the notice the basis for issuing the notice under Section 153A so that petitioner could comply with the same as prescribed.
7 & 2147/MUM/2021 (A.Y: 2016-17) Shri Ajay Virender Arora 7. In the circumstances, the notice dated 29th November 2018 impugned in this petition is quashed and set aside. We do not make any observation on the merits of the case. Respondent may issue fresh notice under Section 153A and word it suitably, as advised so that petitioner may have some information reading that notice the basis on which such notice has been issued. All rights and contentions of the parties are kept open.”
Further, he brought to our notice the case of D Décor Exports Pvt. Ltd., v. DCIT in ITA.No. 1050,1055,1056,1057, & 1709/Mum/2021 dated 22.04.2022 wherein the Coordinate Bench has considered the above decision and decided the same issue in favour of the assessee.
With regard to no incriminating material found, Ld. AR submitted that assessee is an individual and major shareholder in D Décor Group in which search was conducted on 06.03.2018. He submitted that return was filed on 16.11.2016 and notice u/s. 143(2) of the Act was issued on 30.09.2017. He brought to our notice Page No. 24 of the order of the Ld.CIT(A) and his conclusion. Further, he brought to our notice Page No. 7 of the Paper Book which is statement recorded from the assessee on 07.03.2018. Ld. AR took us through the statement recorded and submitted that Assessing Officer has not raised any query regarding issue of deemed dividend u/s. 2(22)(e) of the Act or anything to do shareholding of the Company. It clearly indicates that Assessing Officer has made the addition in absence of any incriminating material during the 8 & 2147/MUM/2021 (A.Y: 2016-17) Shri Ajay Virender Arora assessment proceedings and the addition was made on the issue which is not the matter or issue originating from the search. Therefore, no addition was made by the Assessing Officer which can be made u/s. 153A without there being any incriminating material particularly in the case unabated assessment. In this regard he relied on the following case laws:- (i). CIT v. Deepak Kumar Agarwal, (2017) 86 taxmann.com 3 (Bom). In this judgement the contention of the Revenue that if the order u/s. 143(1) is passed then the decision in the case of Continental Warehousing would not apply has been rejected. The said decision also considers and distinguishes Rajesh Jhaveri's case. (ii). CIT v. SKS Ispat & Power Ltd., (2018) 99 taxmann.com 424 (Bom). The said decision also deals with a case wherein a distinction was sought to be made between assessment order u/s. 143(3) and intimation u/s. 143(1) qua 153A, which has been rejected as no longer res integra. (iii). CIT v. Gurinder Singh Bawa, (2017) 79 taxmann.com 398 (Bom). This decision also considers a case wherein the return was processed u/s. 143(1) and no incriminating material was found regarding gifts in the course of search and seizure. (iv). Pr.CIT v. Vikas Gutgutia, (2017) 88 taxmann.com 605 (Delhi). (v). Pr.CIT v. Saumya Construction (P.) Ltd., (2017) 81 taxmann.com 292 (Guj). The said decision threadbare analyses all the decisions on the issue under consideration and the scheme of 153A assessment and other regular assessments. (vi). Pr.CIT v. Ram Avtar Verma, (2017) 88 taxmann.com 666 (Delhi). The said decision also considers the provisions of section 158BD and comes to a conclusion that even u/s. 153A the requirement of incriminating material is sine qua non. (vii). CIT v. MDG Automobiles Ltd., (2015) 93 CCH 0235 (Delhi). In this case, no 132 statement was recorded nor any 9 & 2147/MUM/2021 (A.Y: 2016-17) Shri Ajay Virender Arora incriminating material was found which could form the basis of 153A assessment. (viii). Pr.CIT v. Best Infrastructure (India) (P.) Ltd., (2017) 84 taxmann.com 287 (Delhi). In the said decision the High Court rejected the principle of extrapolation for the years for which no incriminating material was found. (ix). HBN Dairies & Allied Ltd. v. ACIT (2018) 96 taxmann.com 353 (Del-Trib.) (TM). (x). Lord Krishna Dwellers (P) Ltd. v. DCIT, (2019) 197 TTJ (Del) 502. (xi). ACIT v. RPD Earth Movers (P.) Ltd., (2019) 101 taxmann.com 89 (Chennai-Trib). In the said decision it was observed in para 5 that accounts in the form of Tally cannot be said to be incriminating material found during search. (xii). Moon Beverages Ltd. & Anr. v. ACIT, (2018) 195 TTJ 0076 (Del). In the said decision the Tribunal in para 41 held that statement recorded u/s. 132(4) cannot constitute incriminating material. (xiii). xiv. Vishal Dembla v. DCIT, (2013) 157 TT) (Jd) 189. In the said decision the Hon'ble Tribunal held that the gifts disclosed by the assessee for the first time u/s. 153A cannot be added in the absence of any incriminating material found in the course of the search and seizure proceedings. The findings are at para 2.8 of the said decision. (xiv). Metalind (P) Ltd. v. DCIT, (2019) 72 ITR Trib (Trib) 204) (Kol). In the said decision it is held that profit and loss account and balance sheet cannot be considered as incriminating material and the details filed of a flat constitutes official record of the revenue and cannot be considered as incriminating material since same were already on the record prior to the search and seizure. (xv). ACIT V. Inlay Marketing (P.) Ltd., (2015) 60 taxmann.com 431 (Del-Trib). In the said decision it has been held that cheque book cannot be considered as incriminating material.”
10 & 2147/MUM/2021 (A.Y: 2016-17) Shri Ajay Virender Arora 13. On the other hand, Ld. DR relied on the findings of the Ld.CIT(A). With regard to incriminating material he submitted that various courts have held that addition can be made in search assessments even in the absence of incriminating material. In this regard he relied on the following decisions: - [A] On the issue of addition being made in Search Assessments even in the absence of Incriminating Material (i). Commissioner of Income-tax, Central, Kanpur v. Raj Kumar Arora [2014] 52 taxmann.com 172 (Allahabad) (ii). EN. Gopakumar v. Commissioner of Income-tax (Central) [2016] 75 taxmann.com 215 (Kerala) (iii). M/S Canara Housing Development... vs The Deputy Commissioner Of Income Tax Karnataka High Court) on 25 July, 2014 ITA No. 38/2014 (iv). CIT VS Shri KP Ummer Kerala High court's order dated 19/02/2019 in ITA No. 174 of 2013 [B] List of few cases wherein the SLP filed by the Revenue, against the orders of High Courts given in favour of the assessee on the issue of addition being made in Search Assessments even in the absence of Incriminating Material, are admitted (i). Principal Commissioner of Income Tax v. Gahoi Foods (P) Ltd [2020] 117 taxmann.com 118 (SC) (ii). Principal Commissioner of Income-tax v. Param Dairy Ltd. [2021] 133 taxmann.com 148 (SC) (iii). Principal Commissioner of Income-tax v. Gaurav Arora (2021) 133 taxmann.com 293 (SC) (iv). Commissioner of Income-tax-II v. Continental Warehousing Corporation (Nhava Sheva) Ltd., [2015] 64 taxmann.com 34 (SC).
11 & 2147/MUM/2021 (A.Y: 2016-17) Shri Ajay Virender Arora 14. Considered the rival submissions and material placed on record, we observe that Assessing Officer has issued the notice u/s. 153A of the Act without indicating any details on the incriminating material found during search and we observe that the assessee has raised this jurisdictional issue before us that Assessing Officer has issued improper notice u/s.153A of the Act to initiate proceedings in unabated assessment year under consideration. In the similar situation the Coordinate Bench of this Tribunal has decided the similar issue relying on the decision of the Hon'ble Bombay High Court in the case of Underwater Services Co. Ltd. v. ACIT & others (supra) in the case of D Décor Exports Pvt. Ltd., v. DCIT., (supra), for the sake of clarity it is reproduced below: - “16. Considered the rival submissions and material placed on record. First let us deal with the jurisdictional issue raised by the assessee in their appeal that the Assessing Officer has issued improper notice u/s 153A of the Act to initiate the unabated assessment year under consideration. We noticed from the submissions of the Ld AR that the notice issued u/s 153A by the Assessing Officer does not contain any details of incriminating material found during the search. In absence of such crucial details, whether the assessment made under section 143(3) r.w.s 153A is bad in law. As indicated earlier the notice issued u/s 153A does not contain any details of incriminating material or any reasons for which the assessment is reassessed u/s 153A of the Act, we observe that in the similar situation, the Hon’ble Bombay High Court in the case of Underwater Services Company Limited (supra) held that issuance of notice is the preliminary step which enables the assessee to effectively deal with the case made out by the revenue. Further, the section 153A provides that an assessment has to be made under the said section only on the basis of seized material u/s 132 or 132A, in 12 & 2147/MUM/2021 (A.Y: 2016-17) Shri Ajay Virender Arora the absence of such details in the notice issued under the said section, the assessee is not in a position to appreciate which return of income should be filed in response to the notice issued u/s 153A, whether the original return of income filed or revised return of income. As held that the Hon’ble Court held that nothing prevented the revenue from mentioning in the notice the basis for issuing the notice u/s 153A so that the assessee could comply with the same as prescribed.
17. Therefore, the issue under consideration is exactly similar to the issue raised in the case of Underwater Services (supra), hence the notice issued u/s 153A is bad in law and the assessment made by issue of improper notice is also bad in law, accordingly we follow the direction of the Hon’ble Jurisdictional High Court decision and accordingly we hold the assessment made u/s 143(3) r.w.s 153A is bad in law. Therefore, the additional ground raised by the assessee is allowed.”
Respectfully following the above said decision, we are inclined to accept the submissions of the Ld. AR that notice issued u/s. 153A is bad in law and assessment made by issue of improper notice is also bad in law. Accordingly, we follow the directions of the Hon'ble Bombay High Court and accordingly, we hold that assessment made u/s. 143(3) r.w.s. 153A of the Act is bad in law. With regard to submissions made by Ld.DR and the cases relied by him, we observe that the cases referred by him are not of this jurisdiction and further, he filed the cases in which Hon'ble Supreme Court has only admitted the issue of incriminating material but facts in those cases are distinguishable and final decisions are still awaited. In such situation, the decisions of Hon'ble Jurisdictional High
13 & 2147/MUM/2021 (A.Y: 2016-17) Shri Ajay Virender Arora Court are clear and binding on us. Therefore, we are incline to follow the same. Hence, the additional ground raised by the assessee is allowed.
Other grounds raised by the assessee are kept open and not adjudicated at this stage, considering the fact that we held the issue of notice itself is bad in law.
Coming to the appeal filed by the Revenue, we observe that the revenue has raised grounds of appeal on the merits i.e., merit of additions made by the Assessing Officer u/s. 2(22)(e) of the Act. Since we held that the assessment completed u/s. 143(3) r.w.s. 153A is bad in law in Para No. 15 above, accordingly, we dismiss the appeal filed by the Revenue.
In the result, appeal filed by the assessee is partly allowed and appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 06th July, 2022