THE MODERN CONSTRUCTION CO. PVT. LTD.,AHMEDABAD vs. ITO, WARD-2(1)(4), AHMEDABAD
आयकर अपीलीय अिधकरण, अहमदाबाद ᭠यायपीठ ‘D’ अहमदाबाद।
IN THE INCOME TAX APPELLATE TRIBUNAL
“D” BENCH, AHMEDABAD
BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER
AND SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER
AND Assessment Year :2013-14
The Modern Construction Co.
Pvt. Ltd.
5th Floor, H.K. House
Ashram Road
Ahmedabad.
PAN : AAACM 5823 E
Vs.
The DCIT, Cent.Cir.1(1)
Ashram Road
Ahmedabad.
Assessment Year : 2013-14
The United
Builders
Corporation
23,
Arjav
Co-op
Housing
Society, Satellite Road
Ahmedabad.
PAN : AAAFU 6786 D
Vs.
The DCIT, Cent.Cir.1(1)
Ashram Road
Ahmedabad.
(Appellant)
(Respondent)
Assessee by :
Shri Tushar Hemani, Sr.Advocate
Shri Parimalsinh B. Parmar, ARs.
Revenue by :
Dr. Darsi Suman Ratnam, CIT-DR
सुनवाई कᳱ तारीख/Date of Hearing : 25/10/2024
घोषणा कᳱ तारीख /Date of Pronouncement: 23/01/2025
आदेश/O R D E R
PER:ANNAPURNA GUPTA, ACCOUNTANT MEMBER
These are appeals relating to two different assessees, filed against separate orders passed by Ld. Commissioner of Income Tax
(Appeals) [in short “CIT(A))] u/s 250(6) of the Income Tax
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Act,1961(hereinafter referred to as ‘Act”). The appeals in ITA
No.3464 and 3465/Ahd/2016 arise against orders passed in quantum proceedings and the appeal in ITA No.432/Ahd/2019
arises against order passed in penalty proceedings conducted under section 271(1)(c) of the Act.
At the outset itself it was stated that the issue for adjudication in the appeals filed by the two assessees was common and identical arising from assessment framed on them u/s 153C r.w.s 153A of the Act on account of additions made to their incomes from documents found during search action undertaken u/s 132 of the Act on an alleged accommodation entry provider entity. The documents allegedly revealing both the assessees to have taken accommodation entry of capital gains earned from sale of immovable property ,adopting identical modus operandi in both the cases. The assessees being found to have not disclosed capital gains to the extent of accommodation entry availed, addition of the same was made in the hands of both the assessees. The nature/ character of addition and its basis therefore, it was common ground, was identical and so also the arguments to be made by both the sides. Therefore, both the appeals were taken up together for hearing, and are being disposed of by way of this commonconsolidated order.
The penalty appeal, it was stated was filed only in the case of one assesse i.e. The Modern Construction Co. P. Ltd. and was levied on account of addition made to the income of the said assessee in the quantum proceedings. Being related to the appeal filed by the ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019
assessee in quantum proceedings, the same was also heard along with other two appeals.
4. The ld. counsel for the assessee stated that he shall be making arguments dealing with the facts in the case of the assessee, M/s.
Modern Construction Co. P. Ltd. in ITA No.3464/Ahd/2016. Therefore, we shall be adjudicating the appeal of the assessee in ITA
No.3464/Ahd/2016 and our decision rendered therein shall apply pari passu to other appeal in ITA No.3465/Ahd/2016. ITA NO.3464/AHD/2016 – Asst.Year 2013-14
Brief background of the case is that searchaction under section 132 of the Act was undertaken in the case of Sarang Chemical Ltd. (“SCL” for short) alongwith cases of Amrapali Group on 26.10.2012. During the course of search certain documents belonging/pertaining to the assessee were found. Based on these documents the Assessing Officer( AO)of the assessee recorded satisfaction to assume juri iction in terms of the provisions of section 153C of the Act for framing assessment in the case of the assessee. Due notices were issued to the assessee who was confronted with all the material available with the AO. The assessment order reveals that the case of the Revenue was that the documents found during search on “SCL”, along with the statements recorded of the Director of the said company and others, revealed that the assessee had colluded with SCL, who had admitted to be an accommodation entry provider ,for routing through “SCL” a portion of the sale consideration received by it, in cash, on transfer of immovable property owned by it. Thus, in this manner, the assesseeallegedly had managed to show the transfer of ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019
immoveable property to have been effected at a consideration less than the actual consideration. The assessee, as per the AO, therefore had disclosed less capital gain to tax . The AO, after considering the submissions made by the assessee, proceeded to add thesale consideration routed by the assessee through “SCL”, to the capital gains returned by the assessee from the sale of the said immovable property. Therefore, in the assessment framed under section 153C read with section 153A of the Act, the addition made to the income of the assessee was on account of capital gains short disclosed on sale of immovable property. The quantum beingRs.3,42,41,628/-.
This addition was challenged before the ld.CIT(A) who confirmed the order of the AO, and thus, the present appeal before us.
The assessee has raised the following grounds in its appeal before us: “1. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO in making an addition of Rs.3,42,41,628/- to the Capital Gain of the appellant
Both the lower authorities failed to appreciate that the said amount of Rs.3,42,41,628/- was never received by the appellant and hence the same cannot be said to have accrued as income in the hands of the appellant.
Ld. CIT(A) has further erred in not allowing opportunity to cross examine persons whose statements were used against the appellant.
Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 5. The learned CIT(A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s.234A/B/C of the Act.
The ld.CIT(A) has erred in law and on facts of the case in confirming action of the ld.AO in initiating penalty u/s.271(1)(c) of the Act.
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Further, the assessee has filed an application raising additional grounds, vide application dated 19.9.2016, which are as under:
“The appellant, through oversight, could not raise in the original appeal memo, the following legal ground of appeal and therefore, appellant now craves leave to raise this additional ground of appeal before this Hon'ble ITAT. This, being a legal ground, can be raised before Hon'ble the ITAT as per decision of Hon'ble Supreme Court in the case of "National Thermal Power - 229 ITR 383. 1. Both, AO and CIT(A), have erred in not appreciating the fact that the satisfaction recorded for the purpose of invoking juri iction under section 153C of the Act is not in accordance with the satisfaction contemplated under the scheme of the Act.
In any case, the Assessment Order is without juri iction since the conditions prescribed for invoking juri iction under section 153C of the Act are not fulfilled.”
During the course of hearing on the issue of admission of the additional grounds, it was submitted by the ld. counsel for the assessee that the additional grounds are purely legal in nature, and that it is settled law that legal grounds can be raised at any time. Reference was made to the decision of the Hon’ble Supreme Court in the case of NTPC Ltd. Vs. CIT, 229 ITR 383 (SC). On the other hand, the ld. DR though objected to the admission of additional grounds ,however was unable to controvert the fact of the grounds raised being legal grounds which could be adjudicated on the basis of facts already on record.
Considering the same, the additional grounds raised by the assessee, being legal grounds which do not require further investigation of facts for adjudication, are therefore admitted for ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019
adjudication following the decision of the Hon’ble Supreme Court on the issue in the case of NTPC Ltd. (supra).
We shall now proceed to adjudicate the present appeal dealing first with the legal grounds raised by the assessee, since the challenge raised therein is to the validity of the assessment framed in the case.
As is evident from a bare perusal of the grounds raised, the challenge to the validity of the assessment framed is on the ground that the satisfaction recorded by the AO for assuming juri iction under section 153C of the Act was not in accordance with law.
Arguments at length were made before us by both the parties. The contention of the ld. counsel for the assessee primarily was to the effect that the satisfaction recorded was vague and unclear and did not reveal any material in the possession of the AO having a bearing on the determination of the total income of the assessee, which was a necessary prerequisite for assuming juri iction u/s 153C of the Act. More specifically ,he stated, that the absence of clarity in the satisfaction note of the AO was with respect to how the documents in his possession from the search conducted on “SCL” had any bearing on determination of income of the assessee. His contention was that the satisfaction note only mentioned certain documents relating to the assessee which was found during the search on “SCL”, but how those documents had an impact on the determination of the income of the assessee was not coming out from the satisfaction note. His contention was that the law in this regard is settled that the satisfaction of the AO has to be a clear
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objective satisfaction bringing out clearly the documents found during the search pertaining to the assessee which have a bearing on the determination of its income. That therefore merely mentioning the documents relating to the assessee found during search, without specifying how it impacted determination of income of the assessee would not suffice for a valid assumption of juri iction u/s 153C of the Act .
The ld. DR, on the other hand, vehemently opposed this contention of the ld. counsel for the assessee stating that considering the facts on record there was no case of any lack of credible satisfaction of the AO for assuming juri iction u/s 153C of the Act. He contended that the AO of the searched person, SCL, and the assessee was the same. That the AO of the searched person not only had documents pertaining to the assessee but inquiries conducted during search had revealed the documents to pertain to an accommodation entry taken by the assessee from the searched entity , Sarang Chemicals Ltd.(SCL).He pointed out that during search on SCL, documents relating to transfer of an immoveable property of the assessee was found. These documents were an MOU signed by the assessee with SCL for transfer of property, the subsequent cancellation of this MOU and a relinquishment deed of the property by SCL in favour of the entity to whom it was ultimately sold by the assessee , i.e. Edelweiss Precious Metals Pvt. Ltd. That the directors & associated persons of SCL, in their statement recorded, had admitted to providing accommodation entry by following the modus operandi of entering into such MOU’s for sale of property ,then cancelling them and thereafter relinquishing rights
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therein for substantial sums of money received from the ultimate buyer of the property ,which amount was subsequently withdrawn in cash and handed over to the seller of property. That the AO in post search inquiries had found the entire fund trail of the money received by SCL from Edelweiss for relinquishing its rights in the immoveable property and noted the same to have returned back to the assessee. That parties involved in the process had admitted to the same in their statement recorded by the AO of the searched person.
11.1 That therefore the AO of the assessee being the same as the AO of the searched person, he was in possession of sufficient information adversely impacting the determination of income of the assessee.
11.2 His contention was that the satisfaction may not have been adequately and properly worded so as to bring out all the materials leading to his satisfaction but there could be no doubt of all material being in the possession of the AO for assuming a valid juri iction under section 153C of the Act to frame assessment under section 153A of the Act in the present case.
11.3 The Ld. Counsel for the assessee countered by stating that courts have consistently held that the sufficiency of satisfaction of the AO for valid assumption of juri iction is to be determined on the basis of the satisfaction recorded by the AO in writing alone and nothing can be added to the same.
11.4 The Ld. DR countered by reiterating that admittedly there was sufficient adverse material with the AO of the assessee for being satisfied that material found during search on SCL revealed assessee to have taken an accommodation entry relating to capital gain. And ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019
there was no question of the juri iction assumed by the AO therefore u/s 153C of the Act being not in accordance with law.
Reference was made to various case laws by both the sides and submissions in writing were filed by both the parties. The same are being reproduced hereunder:
Submissions of the assessee in this regard are as under:
Satisfaction note recorded by AO for initiating proceedings u/s 153C of the Act has been provided by Ld. DR during the pendency of the present appeal pursuant to additional grounds raised in this respect by the assessee. Following vital aspects emerge from perusal of the said satisfaction note:
Satisfaction note has been recorded by the learned AO of the “assessee” on 15.09.2014 (i.e. FY 2014-15 / AY 15-16).
Thus, it can be clearly inferred that the material collected during the course in the case of “person searched” was sent to the office of learned AO during the FY 2014-15 / AY 15-16. Satisfaction note contains reference to the following documents found during the course of search in the case of “Sarang Chemicals
Ltd” based on which, juri iction u/s 153C has been assumed:
Pgs.11-19 of A/1: MOU dated 20.06.2011;
Pgs.24-29 of A/1: Deed of cancellation dated 23.03.2012;
Pgs.2-10 of A/1: Relinquishment deed dated 23.03.2012;
Pgs.37-45 of A/1: Relinquishment deed dated 23.03.2012;
In view of the facts, -
AO is satisfied that “above documents seized from corporate office of Sarang chemicals Ltd at C-4/806, Anushruti, Near
Jain Temple, Thaltej, belongs to the assessee Modern
Construction Co. Pvt. Ltd.”;
Since the assessee, being other than the person referred to in S.153A of the Act, AO has satisfaction to proceed against the assessee namely Modern Construction Co. P. Ltd. as per the provisions of S.153C of the Act for the Assessment
Years 2007-08 to 2013-14. ITA No.3464 and 3465/Ahd/2016 and 432/Ahd/2019
“Assessment Year 2013-14” would fall within the ambit of “six assessment years immediately preceding the year of search”, as envisaged u/s 153C:
Since the seized material in question has been received by the AO of the assessee in FY 2014-15 / AY 15-16, proceedings u/s 153C shall be applicable for the “Assessment Years 2009-10 to 2014-15” (six assessment year immediately preceding the year of search). Reliance is placed on the following provisions / decisions:
CIT vs. Jasjit Singh – (2023) 458 ITR 437 (SC);
1st proviso to S.153C of the Act.
“Satisfaction note” is completely “vague”, “scanty” and “non-specific”:
After receipt of seized material from AO of the ‘person searched’, -
if AO of “other person’ is satisfied that such material has a bearing on determination of total income of such ‘other person’
for six assessment years immediately preceding the year in which search is conducted or requisition is made, then AO of the ‘other person’ can assume juri iction u/s 153C of the Act in the case of such ‘other person’.
In the present case, satisfaction note recorded by AO is completely silent on the following aspects:
How such material has bearing on determination of total income;
Income of which Assessment Year emanates from such material;
Document-wise correlation for AYs 2007-08 to 2013-14. Thus, it is clear that the satisfaction note is absolutely “scanty”, “vague”
as well as “non-specific”. Hence, the same cannot justify the assumption of juri iction u/s 153C of the Act.
The “seized material in question” does not have bearing on determination of the “income for AY 2013-14”:
The “seized material” referred to the in the satisfaction note is as follows and the same pertain to “Assessment Year 2012-13” only:
Pgs.11-19 of A/1: MOU dated 20.06.2011;
Pgs.24-29 of A/1: Deed of cancellation dated 23.03.2012;
Pgs.2-10 of A/1: Relinquishment deed dated 23.03.2012;
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Pgs.37-45 of A/1: Relinquishment deed dated 23.03.2012;
Thus, there is “no seized material” which has bearing on determination of income of the assessee for “Asst. Year 2013-14”.
It is well settled that assessment u/s 143(3) r.w.s. 153A / 153C of the Act is to be framed strictly on the basis of “incriminating material” found during the course of “search” action carried out in the case of “assessee concerned”. Reliance is placed on the following decisions:
CIT v Singhad Technical Education Society – 397 ITR 344 (SC);
PCIT vs. Abhisar Buildwell P. Ltd. – (2023) 454 ITR 212 (SC);
PCIT vs. Saumya Construction – (2017) 387 ITR 529 (Guj);
CIT vs. Kabul Chawla – (2015) 380 ITR 573 (Del.);
As regards reference to “statements recorded during search”, it is well settled that “statements recorded by revenue do not constitute incriminating material”. Reliance is placed on following decisions:
PCIT v Best Infrastructure (India) (P.) Ltd – 397 ITR 82 (Delhi);
PCIT v. Anand Kumar Jain – MANU/DE/0347/2021 (Delhi);
CIT vs. Harjeev Aggarwal – (2016) 70 taxmann.com 95 (Delhi);
In absence of any seized material for the Asst. Year 2013-14, assumption of juri iction u/s 153C is not justified.
“Assumption of juri iction u/s 153C” has to be justified “strictly” on the basis of “contents of satisfaction note”; Any material / statement coming to the knowledge of the revenue at a “later stage” (say, during
“consequential assessment proceedings”) cannot be referred to / relied upon for justifying “assumption of juri iction u/s 153C”:
AO can assume juri iction under the provisions of “section 147” &
“section 153C” of the Act subject to fulfillment of certain conditions prescribed by the Statute under the respective sections.
Prior to invoking “section 147” (as applicable at the relevant point in time), AO has to mandatorily record “reasons for reopening” and in a similar manner, prior to invoking “section 153C” (as applicable at the relevant point in time), AO has to mandatorily draw a “satisfaction note”.
It is well settled that –
Assumption of juri iction u/s 147 / 153C has to be justified strictly on the basis of contents of “reasons recorded for reopening” /“satisfaction note”.
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Revenue cannot improve upon such “reasons recorded for reopening” / “satisfaction note” at a later stage.
Any material / statement coming to the knowledge of the Ao concerned at a “later stage” (say, during the “consequential assessment proceedings”) cannot be relied upon for justifying
“assumption of juri iction u/s 153C”.
Reliance is placed on following decisions:
Prashant S. Joshi vs. ITO – 324 ITR 154 (Bom) – Para 9 (Pgs.6-13);
Kantibhai D. Narola v ACIT– 436 ITR 302 (Guj) – Para 32(i)
(Pgs.14-25);
Hindustan Lever Ltd. – 268 ITR 332 (Bom) – Para 20 (Pgs.26-29);
In the facts of the present case, -
Contents of the satisfaction note do not indicate that the so-called material has a bearing on determination of total income for AY
2013-14;
In fact, there is no reference to any material pertaining to AY
2013-14. Hence, there cannot be any bearing on determination of income for AY 2013-14;
Contention of learned DR to the effect that “statements of certain persons referred to in the body of the assessment order” would justify the action of initiating proceedings u/s 153C. In rebuttal to this, assessee submits as follows:
Validity of proceedings u/s 153C is to be tested strictly on the basis of ‘contents of satisfaction note’;
Scope of ‘satisfaction note’ recorded by AO for initiating proceedings u/s 153C cannot be expanded at a later stage;
Judgments of various High Courts laying down such legal proposition have been cited in the earlier part of this note.
Accordingly, ‘assumption of juri iction u/s 153C’ has to be tested strictly on the basis of ‘satisfaction note’ recorded by AO without being guided by “statements of certain persons referred to in the body of the assessment order”.
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“Satisfaction note” recorded by AO for assumption of juri iction u/s 153C of the Act is subject to “judicial scrutiny”:
It is well settled that the “satisfaction note” recorded by AO for assumption of juri iction u/s 153C of the Ac tis subject to “judicial scrutiny” by Hon’ble the Tribunal / Courts.
In fact, it is clearly evident from decision of Hon’ble the Apex Court in the case of “CIT v. Singhad Technical Education Society – 397 ITR 344 (SC)
(Para 9)” that –
Hon’ble the ITAT has permitted the said assessee to raised
“additional ground” questioning the “validity of notice u/s 153C of the Act”;
Hon’ble the ITAT, thereafter, quashed the notices u/s 153C of the Act for relevant assessment years;
Hon’ble the High Court also dismissed the appeals filed by the revenue against the order of Hon’ble the High Court;
Thereafter, revenue approached Hon’ble the Apex Court pursuant to which, the aforesaid decision came to be delivered by Hon’ble the Apex Court.
Thus, it is well settled that the “satisfaction note” recorded by AO for assumption of juri iction u/s 153C of the Ac tis subject to “judicial scrutiny” by Hon’ble the Tribunal / Courts.
Under such facts and circumstances of the present case, assumption of juri iction u/s 153C of the Act by AO is not in accordance with the scheme of Act. Hence, notice issued u/s 153C of the Act deserve to be quashed.
Counter filed by the Department to this is as under:
“The