M/S. CLASSIC REAL ESTATE DEVELOPERS PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

The above two appeals filed by the assessee are directed against the separate orders dated 31st December, 2013 of the CIT(A)-31, New Delhi relating to assessment years 2003-04 and 2004-05 respectively. Since common issues are involved in both these appeals, for the sake of convenience, these were heard together and are being disposed of by this common order.

During the course of assessment proceedings, the AO asked the assessee to furnish the complete details of fresh share application money received during the year to the tune of Rs.2,84,50,000/-. He requested the assessee to prove the genuineness of these transactions within the meaning of section 68 of the IT Act, 1961 by filing confirmations, copies of IT returns, PAN, bank account, etc. Although the assessee filed certain details, however, according to the AO, the assessee failed to prove the genuineness of the transactions u/s 68 of the Act. From the details furnished by the assessee, the AO noted that the assessee has received share application money to the tune of Rs.2,84,50,000/- from the following companies against which shares were issued:-

He noted that the above-mentioned companies are also claimed to have made investments in M/s Vikas Telecom Ltd and in M/s DD Resorts Pvt. Ltd. The issue of introduction of share capital through Kolkata based companies was referred to the Investigation Wing, Kolkata in the case of M/s Vikas Telecom Ltd. and M/s DD Resorts Pvt. Ltd. in which the share application money was received from Kolkata based companies and extensive enquiries were made. The AO noted that as per the gist of investigation conducted at Kolkata about the above mentioned companies, it was found that most of the concerns did not exist in the given addresses. Efforts were also made to serve the summons u/s 131 of the Act through Inspectors, but, most of these companies could not be located. Therefore, the genuineness and the identities of these concerns are doubtful. He further noted that wherever the authorized representatives of these concerns appeared and confirmed the investments, the credit worthiness of the said concerns could not be proved as only little profits were being made by these companies. In view of the above and in view of the inability of the assessee to substantiate with evidence to his satisfaction regarding the identity and credit worthiness of the share applicants and the genuineness of the transactions, the AO, relying on various decisions made an addition of Rs.2,84,50,000/- to the total income of the assessee u/s 68 of the IT Act. Similarly, for A.Y. 2004-05, the AO made addition of Rs.50 lakhs to the total income of the assessee.

In appeal, the ld.CIT(A), in separate orders, confirmed the additions made by the AO for both the assessment years.

Aggrieved with such orders of the CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds:-

The assessee has also raised the following identical additional ground for both the years:- “1. Without prejudice to the other grounds of appeal, the ld.CIT(A) has erred on facts and in law in confirming the additions which were not based on the incriminating material found and seized during the course of search.”

The ld. counsel for the assessee, referring to the above additional ground, submitted that this is purely a legal ground and no new facts are required to be investigated. Relying on the decisions of the Hon’ble Supreme Court in the case of NTPC Ltd. vs. CIT, 229 ITR 383, Jute Corporation of India Ltd. vs. CIT, reported in 187 ITR 688 and various other decisions, he submitted that the additional ground raised by the assessee should be admitted.

The ld. DR, on the other hand, heavily opposed the admission of the additional ground so raised by the assessee. She submitted that this additional ground has been raised by the assessee after a lapse of more than five years from finalization of assessment and, therefore, the same should not be admitted. She submitted that although this issue was raised before the CIT(A) as a ground, however, the same was not pursued by the assessee before the CIT(A), therefore, the additional ground raised by the assessee now should not be admitted.

We have considered the rival arguments made by both the sides on the issue of admission of additional ground. Since the additional ground raised by the assessee is purely a legal ground, therefore, the same is admitted for adjudication.

The ld. Counsel for the assessee submitted that for A.Y. 2003-04 the assessee filed its return of income on 12th December, 2003 and for A.Y. 2004-05, the return was filed on 28th February, 2005. Since the search in the instant case was conducted by the Department on 31.07.2008, therefore, these are unabated returns consequent upon the search carried out in July, 2008. Referring to the copy of the assessment orders for both the years, the ld. Counsel for the assessee submitted that it very unambiguously reveals that the additions made by the AO for both the years were not based on any incriminating documents found as a result of search as no incriminating documents found or seized has been mentioned by the AO in the assessment order. The additions have been made on the basis of post- search enquiries and, therefore, were undisputably outside the scope of assessment u/s 153A of the Act and deserves to be deleted. He submitted that the ld. CIT(A) also has not referred to any incriminating documents/materials while confirming the additions. Referring to the decision of the Hon’ble Delhi High Court in the case of CIT vs. Kabul Chawla, 61 taxmann.com 412 for the proposition that additions in the unabated assessments can be made only on the basis of incriminating documents found or seized during the course of search, he submitted that the addition so made by the AO and sustained by the CIT(A) in absence of any incriminating material found as a result of search deserves to be deleted. He further submitted that although in the instant case the assessments were not completed u/s 143(3), but, were completed u/s 143(1), however, such processing u/s 143(1) is considered equivalent to 143(3) assessment for the purpose of 7 determining whether the assessment is abated or unabated. For the above proposition, he relied on the decision of the Hon’ble Delhi High Court in the case of PCIT vs. Marichika Properties (P) Ltd., vide ITA 633/2016 & CM No.30477/2016 and ITA 634/2016 & CM No.30478/2016, order dated 19th October, 2016.

The ld. Counsel for the assessee submitted that the AO, in para 5 of the order has primarily made addition u/s 68 of the Act after referring to the enquiries conducted by the Investigation Wing at Kolkata in the cases of group entities M/s Vikas Telecom Ltd and in M/s DD Resorts Pvt. Ltd. He submitted that similar additions of Rs.3,32,00,000/- for A.Y. 2003-04 and of Rs.25 lakhs for A.Y. 2004- 05 were actually made by the AO in the case of M/s Vikas Telecom Ltd., using similar language. Referring to the order of the AO as well as the order of the CIT(A) in the case of Vikas Telecom Ltd., he drew the attention of the Bench to the order of the CIT(A) where he has asked the AO to point out the seized material which was used for making additions. In the remand report, which has been quoted by the CIT(A) at para 3.5 of his order, the AO has accepted that the additions were not based on any incriminating material seized. Accordingly, the ld.CIT(A) deleted the additions on the ground that such additions were made without any seized documents and, therefore, cannot be sustained. He submitted that the Revenue challenged the order of the CIT(A) before the Tribunal and the Tribunal, vide order dated 2nd July, 2018, dismissed the appeal filed by the Revenue by following the decision of the Delhi High Court in the case of CIT vs. Kabul Chawla, 380 ITR 573 (Del). Relying on various other decisions, he submitted that since the addition in the instant case is not based on any incriminating material found during the course of search, therefore, the order of the CIT(A) sustaining the addition made by the AO u/s 68 of the Act for both the years deserves to be deleted.

The ld. DR, on the other hand, heavily relied on the orders of the AO and the CIT(A). She submitted that the AO, in the instant case, after conducting thorough enquiries, has come to the conclusion that the assessee has routed its unaccounted money through Kolkata based bogus entry providing companies. She accordingly submitted that the order of the CIT(A) be sustained and the grounds raised by the assessee should be dismissed.

We have considered the rival arguments made both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the AO, in the instant case, made addition of Rs.2,84,50,000/- for A.Y. 2003-04 and Rs.50 lakhs for A.Y. 2004-05 by invoking the provisions of section 68 of the IT Act since the assessee could not substantiate with evidence to his satisfaction regarding the identity and credit worthiness of the investor companies who have invested in the share capital of the assessee and the genuineness of the transaction. We find, the ld.CIT(A) upheld the action of the AO. It is the submission of the ld. 9 Counsel for the assessee that since the addition made by the AO and sustained by the CIT(A) for both the years are not based on any incriminating material found during the course of search, and is based on post-search enquiries, therefore, such addition deserves to be deleted.

We find some force in the above argument of the ld. Counsel for the assessee. A perusal of the assessment order as well as the order of the CIT(A) for both the years clearly shows that the addition is not based on any incriminating material found as a result of search, but, the same is based on post search enquiries made by the AO. Further, it is also pertinent to mention that the AO while making the addition has relied on the enquiries conducted for examining investments made in the case of M/s Vikas Telecom Ltd and in M/s DD Resorts Pvt. Ltd. since the companies who have made investment in the assessee company have also made investments in the above two companies. A perusal of the order of the Tribunal in the case of Vikas Telecom Ltd. (supra) shows that the AO, in the remand report, had categorically mentioned that no seized documents have been made use of in the assessment. However, extensive enquiries have been made during assessment proceedings regarding the accommodation entries. Thus, in that case also no seized document was referred to by the AO in the body of the assessment order. Be that as it may, the addition in the instant case is not based on any incriminating material and based on post search enquiries which is evident from the assessment orders as well as the orders of CIT(A) for both the years. Under these circumstances, we have to see whether such addition can be sustained in unabated assessment completed u/s 153A of the Act.

In the result, both the appeals filed by the assessee are allowed. The decision was pronounced in the open court on 17.03.2021.