M/S ORIENTAL LOGISTICS COMPANY ,HOSPET vs. DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE--1(1), BANGALORE

All the three appeals filed by the assessee relate to the assessment years 2008-09 to 2010-11 and they are directed against the common order dated 23.01.2018 passed by Ld. CIT(A)-11, Bengaluru. All these three appeals were heard together and are being disposed of by this common order for the sake of convenience.

The assessee is contesting decision of Ld. CIT(A) in confirming the following additions made during the years under consideration. to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet

Besides the above, the assessee has raised two legal issues. The first legal issue relates to the validity of search proceedings and this ground has been urged in all the three years. At the time of hearing, the Ld. A.R. did not press this legal ground in all the 3 years. Accordingly, the grounds relating to this issue are dismissed as not pressed.

The facts relating to the case are discussed in brief. The assessee is a partnership firm and is engaged in the business of trading and transportation of iron ore. The assessee was subjected to search operation u/s 132 of the Income-tax Act,1961 ['the Act' for short] on 15.2.2011. Consequently, the present assessments were completed u/s 153A r.w.s. 143(3) of the Act. Under the provisions of sec.153A of the Act, the AO shall issue notice for six assessment years immediately preceding the assessment year to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet

As per the second proviso to sec.153A, the assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of search u/s 132 shall abate. In the case on hand, the date of search is 15.02.2011. The Ld A.R submitted that the assessment of AY 2010-11 was pending on the date of initiation of search and the same shall abate. However, the assessments of AY 2008-09 and 2009-10 were not pending on the date of initiation of search and hence assessment of both these years shall not abate.

It is the contention of the Ld A.R that the additions could be made in unabated assessment years only on the basis of incriminating materials found during the course of search. In support of this proposition, the Ld A.R placed his reliance on the following decisions:- (a) Yunus Zia vs. DCIT (ITA Nos. 126 to 130/Bang/2013 dated 20-03-2020) (b) Anurag Dalmia vs. DCIT (ITA No.5395 & 5396/Del/2017 dated 15.02.2018) The Ld A.R submitted that the Delhi bench of Tribunal in the case of Anurag Dalmia (supra) has followed the decision rendered by Hon'ble Delhi High Court in the case of Kabul Chawala (2016)(380 ITR 570)(Del), wherein it was held that any addition could be made in any unabated assessment year only on the basis of incriminating material found during the course of search. In the case of to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet

The Ld A.R submitted that the search officials did not unearth any incriminating material relating to AY 2008-09 and 2009-10. Hence the AO could not have made any addition in these two years. However, the AO has made additions in AY 2008-09 and 2009-10 on the basis of post search enquiries, i.e., the AO has disbelieved the purchases of minerals and payment of transportation charges on the basis of post search enquiries and made impugned additions. Hence the additions made by the AO are liable to be deleted on the basis of above said legal ground. He submitted that, even on merits these additions are liable to be deleted.

The Ld D.R, however, submitted that the AO is entitled to make any addition in the case of unabated assessment years also as per the decision rendered by jurisdictional Hon'ble Karnataka High Court in the case of Canara Housing Development Company vs. DCIT (274 CTR 122)(Kar). He submitted that the parties to whom the payments were made for purchase of minerals and transportation charges have disowned the transactions. Accordingly, he submitted that the AO was justified in making the impugned additions.

In the rejoinder, the Ld A.R submitted that the parties had initially denied transactions. However, they have filed letters subsequently, accepting the transactions and they have explained as to why they denied the transactions earlier. In respect of purchase of minerals, the assessee has produced the income tax returns of the supplier, wherein he had duly disclosed the sales to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet

We heard rival contentions and perused the record. The present appeals pertain to AY 2008-09 to 2010-11. We shall examine whether they fall in the category of abated or unabated assessment. We have earlier noticed that the date of initiation of search is 15-02-2011. The details of earlier assessment proceedings for the above said three years are given below:- (a) For AY 2008-09, the original assessment has been completed u/s 143(3) on 14-12-2010, i.e., prior to the date of search. Hence the assessment of AY 2008-09 shall not abate. (b) For AY 2009-10, the assessee has filed return of income on 31.3.2010. The time period for issuing notice u/s 143(2) has expired on 30-09-2010 and no notice u/s 143(2) has been issued for this assessment year prior to 30-09-2010. Hence the assessment is considered as completed accepting the return of income prior to the date of initiation of search. Hence the assessment of AY 2009-10 shall not abate. (c) For AY 2010-11, the return of income itself was filed on 07-03-2012, i.e., after the date of initiation of search. Hence the question of abatement of assessment does not arise for this year.

We shall first deal with the legal issue urged by the assessee, i.e., whether, in an unabated assessment year, the AO could make any addition in the absence of any incriminating material found during the course of search. This legal issue is relevant for AY 2008-09 and 2009-10 only. In these two assessment years, it is an admitted fact that the additions made by the AO do not relate to any incriminating material found during the course of search. In to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet

The above question has been recently answered by the jurisdictional Hon'ble Karnataka High Court in the case of PCIT vs. M/s Delhi International Airport (P) Ltd & others (ITA No.322/2018 & others dated 29-09-2021) and it has been held that the AO, while passing order u/s 153A r.w.s 143(3) of the Act, ordinarily cannot disturb the assessment/reassessment order which has attained finality, unless the materials gathered in the course of proceedings establishes that the finalized assessments are contrary to the material unearthed during the course of search. We notice that the Hon'ble Karnataka High Court also considered the decision rendered by it in the case of Canara Housing Development Company (supra) and also the decision rendered in the case of IBC Knowledge Park (P) Ltd (385 ITR 346)(Kar) while rendering its decision as stated above. The relevant observations made by Hon'ble jurisdictional High Court in the case of Delhi International Airport (P) Ltd (supra) are extracted below:-

Section 153B provides for the time limit for completion of search assessments.

Section 153C provides that where an Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account documents seized or requisitioned belong or belongs to a person other than the person referred to in Section 153A, then the books of account, or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet

Thus, it is clear that the Assessing Officer while passing the order under Section 153A read with Section 143[3] of the Act, ordinarily cannot disturb the assessment/reassessment order which has attained finality, unless the materials gathered in the course of the proceedings establishes that the finalized assessments are contrary to the material unearthed during the course of 153A proceedings, as held by the Co- ordinate Bench of this Court in the case of IBC Knowledge Park (P) Ltd., supra. A concluded assessment could not be disturbed without there being any basis for doing so which is impermissible in law. Even in case of a searched person, the same reason would hold good. As observed in Canara Housing Development Company supra, the Assessing Officer is empowered to assess or reassess the total income of six assessment years i.e., the income which was returned in the earlier return, the income which was unearthed during search and also any income which was not disclosed in the earlier return or which was not unearthed during the search by separate assessment orders but in our considered view the completed assessments should be subject to thc safeguards provided in IBC Knowledge Park (P) Ltd. supra. "54. On a consideration of the relevant sections as well as judicial precedent referred to above, what emerges is that, Section 158BD of the Act deals with undisclosed income of a third party. However, insofar as the incriminating material of the searched person or other person detected during the course of search is concerned, the same can be considered during the course of assessment. Further, such incriminating material must relate to undisclosed income which would empower the Assessing Officer to upset or disturb a concluded assessment of the other person. Otherwise, a concluded assessment would be disturbed without there being any basis for doing so which is impermissible in law. Even in case of a searched person, the same reason would hold good as in case of any other person. As observed by us, detection or the existence of incriminating material is a must for disturbing the assessment already made and concluded. But, at the same time, such can be at three stages: one, at the stage when the reassessment is initiated, the second, at the stage during the course of reassessment and third, at a stage where the reassessment is altered by a different assessment in respect of searched person or in respect of third party. In this regard, reference may be made to the decision of Apex Court in case of M/s. Calcutta Knitwear (supra) and based on the said decision, the CBDT has also issued circular dated 31.12.2015 vide No.24/ 2015.The relevant extract of the circular for ready reference can be extracted as under: ……….. to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet

Before Ld. CIT(A), the assessee challenged the above said addition contending that the right to receive the above said payment accrued to the assessee only in the succeeding year and to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet

We have held that the assessing officer could not have made any addition in AY 2008-09 since no incriminating material relating to this addition was unearthed during the course of search. A perusal of the assessment order of AY 2008-09 would show that the assessing officer has found out this discrepancy only during the course of assessment proceedings upon comparing the Balance Sheets of the assessee and M/s DLC. We have held earlier that this addition could not be sustained, since it is not based upon any incriminating material. Accordingly, this addition was deleted on legal ground discussed above. We noticed earlier that the AO was fair enough to exclude this amount of Rs.1,51,44,860/- in AY 2009- 10. Since this addition has been deleted in AY 2008-09, the corresponding reduction of income made by AO in AY 2009-10 is liable to removed. The assessing officer is directed accordingly.

The next addition made by the A.O. relates to the addition of payments made to Shri Basavaraj Banni. This addition has been made in assessment years 2008-09 and 2009-10to the extent of Rs.5,98,65,880/- and Rs.5,53,18,500/- respectively.

The facts relating to this addition are stated in brief. During the financial year relevant to the assessment year 2008-09, the assessee has transferred a sum of Rs.5.98 crores to M/s. Banni Mines & Mineral Traders. During the post search proceedings, the A.O. made local enquiries and could not trace the proprietor of the above said concern named Shri Basavaraj Banni. The assessee also expressed its inability to produce the above said person. The A.O. to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet

When these findings were confronted to the assessee, it was submitted that the assessee has purchased iron ore from Banni Minerals to the tune of Rs.6.83 crores and the payment of Rs.5.98 crores was made towards the above said purchases. It was also submitted that he has filed VAT returns before the sales tax authorities declaring the above said turnover. The assessee also submitted that Shri Basavaraj Banni has filed return of income. Accordingly, it was submitted that Shri Basavaraj Banni is not giving true picture. The AO did not accept the explanations of the assessee and accordingly treated the payment of Rs.5.98 crores to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet

The Ld. A.R. submitted that during the financial year 2007- 08, the assessee has purchased iron ore to the tune ofRs.36.65 crores, which included iron ore purchased from Shri Basavaraj Banni to the tune of Rs.6.83 crores. The assessee has made payment of Rs.5.98 crores to Shri Basavaraj Banni towards the above said purchases. The Ld. A.R. further submitted that the assessee has reported gross sales of iron ore to the tune of Rs.57.32 crores, which also included materials purchases made from M/s Banni Mines and Minerals. He submitted that the assessee could not have sold the iron ore without purchasing it. The Ld. A.R. further submitted that Shri Basavaraj Banni has given wrong statements in the sworn statement taken from him u/s 131 of the Act. In fact, Shri Basavaraj Banni has filed a letter on 21.3.2013 before ITO Bagalkot who recorded sworn statement and explained the reason for giving wrong statement, i.e., he has stated that he has given wrong statement on fear of facing interrogation by CBI officials and to avoid confrontation with investigation agencies. Further, an affidavit and copy of his revised return of income was also given by him. The Ld. A.R. also submitted that the return of income filed by the assessee has been assessed by his A.O. u/s 143(3) r.w.s. 147 of the Act and in the said return of income, Shri Basavaraj Banni has disclosed turnover of Rs.6.83 crores and the same has been accepted. When these facts were submitted before Ld CIT(A), he called for a remand report from the AO. However, the AO has reported that the assessment order passed in the hands of Shri Basavaraj Banni has been revised u/s 263 of the Act. to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet

On the contrary, the Ld. D.R. supported the order passed by Ld. CIT(A).

We heard the parties on this issue. It is an admitted fact that the assessing officer has disbelieved the payments made to M/s Banni Mines and Minerals Ltd. The fact remains that the purchases from the above said concern has been duly recorded and further the assessee has also sold them. The sale transactions have been accepted by the AO. It is also a fact that M/s Banni Mines and Minerals have filed VAT returns under Sales tax Act and it has reported the sales made by it to the assessee. Further Shri Basavaraj Banni has filed revised return of income disclosing the sales made to the assessee. His return of income has been accepted by the department in an order passed subsequent to the date of search. Shri Basavaraj Banni has later accepted that he has given wrong statement earlier and has given reasons for doing to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet

In AY 2009-10, the AO has assessed payment of Rs.5,53,10,000/- made to M/s Banni Mines and Minerals. The Ld A.R submitted that during the year relevant to AY 2009-10, the assessee did not purchase any mineral from the above said concern. The above said payment was shown as advance only in the Balance Sheet. Since the assessee did not claim the above said payment as expenditure, the question of disallowing the expenditure does not arise.

We heard Ld D.R and perused the record. Since the assessee did not claim payment of Rs.5,53,10,000/- as expenditure, there is no question of disallowing any expenditure. Accordingly, the addition of Rs.5,53,10,000/- cannot be sustained.

The next addition made by the AO relates to the transaction made with Shri Jagadish Devadiga. The AO has added the transportation payments made to the above said person amounting to Rs.2,51,00,000/- and Rs.65,00,000/- respectively in AY 2009-10 and 2010-11.

The assessee has paid transportation charges to a person named Shri Jagadish Devadiga to the tune of Rs.2,51,00,000/- and to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet

The Ld A.R submitted that Shri Jagadish Devadiga has provided transportation services to the assessee. He submitted that before the AO, the assessee has furnished copies of invoices given by Shri Jagadish Devadiga, which included working sheets relating to the transportation services. He submitted that the assessee has also furnished copies of income tax returns, tax audit report of Shri Jagadish Devadiga. He submitted that the AO has not considered material evidences, but relied upon the statement given by Shri to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet

We have heard Ld D.R and perused the record. We notice that the AO has placed full reliance on the statement given by Shri Jagadish Devadiga at the time of search, where as the assessee has provided evidences in the form of invoices raised by the above said person along with the trip details, income tax returns filed by above said person along with tax audit report. Shri Jagadish Devadiga has also subsequently furnished affidavit to the AO retracting from the statement given earlier. Thus, it is the witness who has retracted his statement. Since the AO did not accept the retraction statement, the assessee has asked for an opportunity to cross examine Shri Jagadish Devadiga, but the said opportunity was not given to the assessee by the AO, which has resulted in violation of Principles of natural justice. In any case, there was no material to 468/Bang/2018 M/s. Oriental Logistics Company, Hospet