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Income Tax Appellate Tribunal, DELHI BENCH “D”: NEW DELHI
Before: SHRI KULDIP SINGH & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M.
These are the two appeals filed by the assessee emanating from issues from same search involving identical legal issue; therefore, both the parties argued the same together and therefore, are disposed off by this common order.
The Assessee M/s. Kuber Khanpan Udyog Pvt ltd filed appeal in for AY 2011-12 against the order of the CIT(A)-30, New Delhi dated 19.12.2018 raising following grounds of appeal:- ―1 On the facts and in the circumstances of the case Ld. CIT (A) New Delhi New Delhi has erred both on facts and in law in upholding the impugned order passed by the respondent illegally, violating the principles of natural justice, without fair and objective application of Page | 1 mind to the facts of the case and the law applicable and without being guided by the binding decisions of courts and tribunals and hence liable to be set aside and quashed and declared non est. in law. 2 On the facts and circumstances of the case, the learned Ld. CIT (A) New Delhi has erred, both on facts and in law, in sustaining the assessment of the appellant at income of Rs.147,95,510/- as against the income of Rs.3,20,260/- declared by the appellant. 3 On the facts and circumstances of the case, the learned Ld. CIT (A) New Delhi has erred, both on facts and in law, in sustaining the assessment that could not have been re-opened u/s 147/148 as no valid reasons have been recorded by the Assessing Officer to establish any satisfaction on his part that any income belonging to the appellant has escaped assessment. 4 On the facts and in the circumstances of the case Ld. CIT (A) New Delhi has erred both on facts and in law , in sustaining the action of AO as no incriminating material whatsoever was found/unearthed as a result of search. 5 On the facts and circumstances of the case, the learned Ld. CIT (A) New Delhi has erred, both on facts and in law, in sustaining the action of AO in initiation of proceedings u/s 147, of the IT Act, solely on the basis Unverified/ unratified/unsubstantiated/unconfirmed statement of Shri Mul Chand Malu. 6 That the Ld. CIT(A) has erred, both on facts and in law, in sustaining the addition of Rs.1,35,00,000/- u/s 68 on account of share capital/share premium without appreciating the facts of the case. 7 On the facts and circumstances of the case, the learned Ld. CIT (A) New Delhi has erred, both on facts and in law, in sustaining the additions of Rs.1,35,00,000/-despite the fact that the assessee has discharged the onus cast upon it under section 68 of the Income-tax Act. 8 On the facts and circumstances of the case, Ld. CIT (A) New Delhi has erred, both on facts and in law, in sustaining the said addition arbitrarily rejecting the explanation and evidences brought on record by the appellant. 9 On the facts and in the circumstances of the case Ld. CIT (A) New Delhi has erred both on facts and in law, in sustaining the action of AO violating the principle of natural justice by not providing opportunity for cross-examination of persons, whose statements have been relied upon by the AO, in spite of specific request made by the appellant in assessment proceedings as well as before CIT(A). 10 On the facts and circumstances of the case, the learned Ld. CIT (A) New Delhi has erred, both on facts and in law, in sustaining the action of AO. As the proceedings initiated u/s 147/148 are invalid, the proceedings should have been initiated u/s 153C. 11 That the provisions of sections 234A, 234B and 234C of the Act are not at all applicable. 12 That the impugned appeal order is arbitrary, illegal, bad in law and in violation of rudimentary principles of contemporary jurisprudence. Page | 2 13 The appellant craves leave to add, amend or alter any of the grounds of appeal
.‖
3. The second Assessee M/s Kuber Food Products Pvt. Ltd filed an appeal in Assessment Year 2011-12 against the order of the ld CIT(A)-30, New Delhi , dated 26.11.2018 raising following grounds of appeal:- ―1 On the facts and in the circumstances of the case Ld. CIT (A) New Delhi New Delhi has erred both on facts and in law in upholding the impugned order passed by the respondent illegally, violating the principles of natural justice, without fair and objective application of mind to the facts of the case and the law applicable and without being guided by the binding decisions of courts and tribunals and hence liable to be set aside and quashed and declared non est. in law. 2 On the facts and circumstances of the case, the learned Ld. CIT (A) New Delhi has erred, both on facts and in law, in sustaining the assessment of the appellant at income of Rs. 1,85,99,907/-as against the income of (Rs.29,00,030/-) declared by the appellant. 3 On the facts and circumstances of the case, the learned Ld. CIT (A) New Delhi has erred, both on facts and in law, in sustaining the assessment that could not have been re-opened u/s 147/148 as no valid reasons have been recorded by the Assessing Officer to establish any satisfaction on his part that any income belonging to the appellant has escaped assessment. 4 On the facts and in the circumstances of the case Ld. CIT (A) New Delhi has erred both on facts and in law , in sustaining the action of AO as no incriminating material whatsoever was found/unearthed as a result of search. 5 On the facts and circumstances of the case, the learned Ld. CIT (A) New Delhi has erred, both on facts and in law, in sustaining the action of AO in completion of proceedings u/s 147, of the IT Act, solely on the basis Unverified/ unratified/unsubstantiated/unconfirmed statement of Shri Mul Chand Malu. 6 That the Ld. CIT(A) has erred, both on facts and in law, in sustaining the addition of Rs.65,00,000/- u/s 68 on account of share capital/share premium without appreciating the facts of the case. 7 That the Ld. CIT(A) has erred, both on facts and in law, in sustaining the addition of Rs. 1,50,00,000/- u/s 68 on account of unsecured loan without appreciating the facts of the case. 8 On the facts and circumstances of the case, Ld. CIT (A) New Delhi has erred, both on facts and in law, in sustaining the failure of AO in appreciating that though the original assessment was completed u/s 143(3) at a loss 29,00,030/- as against the returned loss of Rs.4294,657/- but out of the additions of Rs. 13,94,627/- the CIT(A) has deleted the additions of Rs.13,38,056/- vide order dated 18/12/2015. Page | 3 9 On the facts and circumstances of the case, Ld. CIT (A) New Delhi has erred, both on facts and in law, in sustaining the said addition arbitrarily rejecting the explanation and evidences brought on record by the appellant. 10 On the facts and in the circumstances of the case Ld. CIT (A) New Delhi has erred both on facts and in law, in sustaining the action of AO violating the principle of natural justice by not providing opportunity for cross-examination of persons, whose statements have been relied upon by the AO, in spite of specific request made by the appellant in assessment proceedings as well as before CIT(A). 11 On the facts and circumstances of the case, the learned Ld. CIT (A) New Delhi has erred, both on facts and in law, in sustaining the action of AO. As the proceedings initiated u/s 147/148 are invalid, the proceedings should have been initiated u/s 153C. 12 That the provisions of sections 234A, 234B and 234C of the Act are not at all applicable. 13 That the impugned appeal order is arbitrary, illegal, bad in law and in violation of rudimentary principles of contemporary jurisprudence 14 The appellant craves leave to add, amend or alter any of the grounds of appeal
.‖
4. Brief facts of the case is that Kuber Khanpan Udyog Pvt. Ltd filed its return of income on 29.09.2011 for Rs. 320270/-. The assessment of the company was reopened u/s 148 of the Act on 31.03.2017. The Assessee filed return in response to that notice on 13.04.2017 declaring the same income. The assessment u/s 143(3) read with section 147 of the Act was passed on 12.05.2017 at Rs. 14795510/-. The addition of Rs. 1.35 crores was made in the hands of the Assessee u/s 68 of the Act. During the search and seizure u/s 132 of the Act on 09.10.2014 on Kuber Group of Cases details relating to companies with respect to share capital and unsecured loan came to the light. The statement recorded on oath on 15.12.2014 Shri Mulchand Mallu declared undisclosed income of Rs. 100 crores of the Kuber Group of Companies and its directors out of total undisclosed income of Rs. 150 crores. During the course of assessment proceedings statement of Mr. Malu was also recorded u/s 131 of the Act. The AO noted that the Assessee issued share capital of Rs. 1.35 crores from M/s. Pawmex Sales pvt. Ltd and same was added u/s 68 of the Act. Against the order of the ld Assessing Officer Assessee preferred appeal before the ld CIT(A), who dismissed the appeal of the Assessee. During the appeal Assessee raised an additional ground of appeal contesting that assessment u/s 153C of the Act should have been made instead of reassessment u/s 147 of the Act. The above additional ground was dismissed by the ld CIT(A) relying upon the decision of coordinate bench in Westland Developers Pvt. Ltd Vs. ACIT in holding that there is no bar on taking action u/s 147 of the Act. Therefore, Assessee aggrieved with that order has preferred appeal before us.
5. In case of Kuber Food Pvt. Ltd in Assessee filed return of income on 30.09.2011 declaring loss of Rs. 4294657/-. The notice u/s 148 of the Act was issued and consequently, based on the same search addition was made in the hands of the Assessee with respect to the share capital of pawmex Sales Pvt. Ltd of Rs. 2.15 crores u/s 68 of the Act and assessment order was passed on 26.04.2017 determining total income of the Assessee at Rs. 18599970/-. The Assessee preferred appeal before the ld CIT (A), who dismissed the appeal of the Assessee including the additional ground that assessment should have been passed u/s 153C of the Act. Therefore, the Assessee aggrieved with the order of the ld CIT(A) has preferred appeal before us.
6. The ld Authorised Representative submitted that in both these cases the assessment should have been passed u/s 153C of the Act and therefore, the assessment in both the cases passed u/s 147 of the Act are invalid. He referred to ground NO. 11 of ITA No. 322/Del/2019 and Ground no. 10 of ITA NO. 580/Del/2019.
7. He also raised the issue on reopening as well as he extensively referred to the paper book filed by him. His submission on all the issue were as under:- ― 1. The assessee has raised 13 grounds of appeal
, ground number- 1, 8 and 9 are related to violation of principle of natural justice and not providing an opportunity of cross examination of the alleged entry providers. Ground number-3,5 and 10 are related to assumption of jurisdiction under section 147 of the Act. Ground number 2, 4,6, 7 and 12 are related to merits of the addition, ground number-11 is related to the levy of interest which is consequential and ground number 13 is general in nature.
2. Facts of the case. Assessee Company has originally filed its ROI for the impugned year on 29.09.2011; the same was processed on 10.01.2012, after making some adjustments. Thereafter, the case of the assessee has been reopened on 31.03.2017; on the ground that Page | 5 material found in search of Kuber Group reveals that the assessee has alleged to have been received accommodation entries in the form of share allotment money. Assessee asked the AO to provide an opportunity of cross examination of the alleged entry operators during the course of assessment proceedings. However the AO could not provide the same, the assessee has also asked the CIT (A), when CIT (A) called for remand report the AO revealed the truth of addition made which is discussed in below paras.
3. Aggrieved with the order of the AO assessee filed appeal before the CIT (A) who vide his order dated 19.12.2018 affirmed the order of the AO. Now the Assessee is in appeal before this Hon’ble Bench. Finding of CIT(A) on legal ground of section 147 is at Page No*-29 of the CIT(A) order.
It is submitted that certain dates which goes to the root of the matter are being reproduced. These dates are important to adjudicate the legal as well as issues on merits. DATE Event Remarks 14.03.2011 Shares have been Information to ROC has allotted to M/s Powmex been given on sales Pvt Ltd 09.04.2011. evidence annexed with this note 30.09.2011 ROI filed by the Admitted fact coming assessee declaring a out from the loss of Rs 42,94,657/- assessment order itself( See Page No-1 of assessment order) 28.02.2014 Assessment under Admitted fact section 143(3) of the Act was completed on returned loss of Rs 29,00,030/- 09.10.2014 A search and seizure Admitted fact action has been taken in the case of Kuber Group of cases. And certain cash belonging to assessee was also seized. 02.05.2016 Case of the assessee See Page no-52 of has been centralised by Decisions Paper Book. the Pr. Commissioner In this order it is clearly Guwahati, by passing mentioned that an order u/s 127 of the assessee has been Act. To circle -30 for the searched purpose of assessment. 13.10.2016 Case of the assessee Admitted fact. Company has been centralized with Central Page | 6
Circle -30 from the Central Circle 31. 10.11.2016 Commission has been See Page No-29 of the issued to Kolkotta PB Office by the Delhi Office 31.03.2017 Reassessment notice Pg No-1 of the PB was issued u/s 148 of the Act 13.04.2017 Assessee filed its ROI Pg No-2 of the PB. electronically declaring the same income in pursuance to notice of 148. 17.04.2017 Assessee filed copy of Pg No-3 of PB acknowledgment of ROI filed under section 148 to the AO and asked for reasons recorded. 20.04.2017 Assessee filed its See Page No- of the PB objection to 148 proceedings 21.04.2017 AO disposed off the See Page NO—of the PB objection of assessee 28.04.2017 Assessee filed reply Page No-104 and 105 before the AO and has of PB asked for cross examination of witnesses 12.05.2017 AO framed the Admitted fact assessment. Despite the fact that the AO have time up-to 31.12.2017 the AO framed the assessment within 21 days of the time span AO was having time upto 31.12.2017. However he has passed the assessment order in a hurried manner.
Submissions of the assessee are as under:-
In respect of Ground number-3,5 and 10 are related to assumption of jurisdiction under section 147 of the Act. In this regard the arguments of the assessee are as under:- 6. Provisions of section 153C/153A are bypassed. It is submitted that perusal of the reasons recorded would show that in very first Para, it has been mentioned by the AO that ―during search and post search proceedings‖, information relating to entities providing accommodation entries of share application money share premium.....etc came to light. The AO further mentioned that as per the information gathered it was found that during the AY 2011-12 assessee Company has received share capital and share premium from M/s Powmex Sales Pvt Ltd.
It is submitted that very source of alleged information gathered is to be attributable to those evidences found in search, means had the search would not have been taken, the alleged information could not have been found. It is pertinent to mention here that when search was conducted certain hard disc; tally server, containing books of account of assessee were found and seized by the revenue, as is evident from the Panchnama prepared at the time of search. In this tally server the books of account of the assessee company was there and when these books were opened it is found that the assessee has received share application money. However, since there was no search warrant in the name of assessee no action under section 153A has been taken. However the AO overlooked the provisions of section 153C(1)(b), and has reopened the assessment under section 147. Copy of the Panchnama is annexed at Page No-57 of the decisions- PB- Page No-62 of the decisions Paper Book would show that hard disc, tally server were scanned and information of these hardisc and tally server were taken. Page No 64 of decisions Paper Book is most pertinent document it is a list of all the companies whose offices were located at 1/8 West Patel Nagar- in this list the name of assessee and the position of cash in hand is there. Name of the assessee is at Page No-65 of the PB.
It is submitted that perusal of the above facts would show that in fact a search was conducted on assessee and its group companies; during that search tally server of assessee Company has been seized. Therefore it is a case squarely covered by the provisions of section 153C (1) (b). However the AO instead of invoking the provisions of section 153C straight away invoked the provisions of section 147. Ignoring that both these provisions are mutually exclusive and would not overlap each other. 9. It is next submitted that in the case of other group concern namely Marudhara marketing the assessing officer has initiated proceedings under section 153C of the Act. The name of this Company is at Page No-65 of decisions Paper Book- part of Panchnama- 10. It is next submitted that order of 127, by virtue of which the jurisdiction of present assessee has been transferred. However that document has not been supplied to assessee, despite several request and written request filed recently.
Further there is no mention about the status of income tax return of the assessee firm related to the impugned year, otherwise every time when reasons are recorded, the revenue is mentioning the status of original return, its status and relation of information with that return. This fact would also show that the AO has wrongly assumed the jurisdiction of section 147 or deliberately by passed the provisions of section 153C, keeping in mind the verdict of Kabul chawala reported in 380 ITR 573.
Further generally the cases, where 147 is to be invoked, the revenue did not centralise the case with that of searched person and the notice of 147 is always issued by the jurisdictional AO who has original jurisdiction. However in the case of the assessee the assessment is centralised this fact would further prove beyond doubt that the assessee matter ought to have been reassessed under section 153C of the Act. 13. All above facts in totality would show that AO has erred in initiating action under section 147 of the Act. He would have invoked the provisions section 153C, like he has initiated in the case of Marudhara, a sister concern whose books were also seized and found. These arguments were raised before the CIT(A). However he has summarily rejected the same. See page NO- 14. It is submitted that provisions of section 153C are non obstantive provisions and they override the provisions of section 147 of the Act. However the revenue instead of invoking these provisions has chosen to initiate action under section 147, which is illegal. It is submitted that both provisions are mutually exclusive and would not overlap each other. If the very source of information is search, as is happened in this case, then provisions of section 153C are applicable. It is clearly mentioned in these provisions that if some material is found related to third party in the search then provisions of section 153C would be applicable. Here the material is books of account present on tally server of the assessee Company. 15. Further assessee seeks to rely on the following judgments:- Wherein it has been held that provisions of section 153C are non obstantive and would override the provisions of section 147. a. ACIT Vs Aru Kapoor reported in 140 TTJ 249(Asr) b. Dr Rajat Saurabh Chaterji- Reported in 47 CCH 135(Del) c. Vikaram Munishwarlal Vs ITO reported in 50 CCH 133(Pune) d. Cargo Clearing case -307 ITR 1(Guj) e. V.n.Khandge Pune Bench copy of the decision is annexed in Decisions PB 16. In all above cases it has been held that where the provisions of section 153C are applicable, the AO is not justified in invoking the provisions of section 147 of the Act. Both provisions are different and mutually exclusive. Provisions of section 153C are non obstantive and will over ride the provisions of section 147. It is relevant to point out that this ground was very much raised before the CIT(A) see Page No17 Page | 9 of the CIT(A) order Para-4. However the CIT(A) has decided the issue subsilentio means without adjudicating the same Ground number-2 Page NO-4 17. Without prejudice to the above it is submitted that information gathered was vague, remote and farfetched:- It is submitted that perusal of the reasons recorded would show that the material/ information used by the AO is vague and the same was not specific. This averment is evident from the fact that the AO has not mentioned any instrument number, the AO has not even mentioned that Bank details, date of the transactions etc. In fact the address of the investor company which is mentioned in reasons is different from the address available in public Domain.
Further in the reasons recorded the AO has alleged that assessee has received an amount of Rs 2,15,00,000-. Out of which an amount of Rs 65 lakhs is Share allotment money and amount of Rs 1.50Crore is unsecured loan. The AO has completely overlooked that this loan was an interest bearing loan and assessee has also deducted TDS on this amount. See Submissions of the assessee before the AO at Page No-95 of the PB. However these facts have not been proved to be false by the AO.
No Independent application mind of AO:- It is submitted that in the very first Para of reasons recorded the AO has used the expression ―Kuber group of cases‖. Then he has mentioned that during search and post search proceedings information relating to entities providing accommodation entries of share application money.................to Kuber Group entities (a general observation which entity not specified) came to light. Then he has referred to that information gathered it was found that during AY 2011-12 M/s Kuber Khan Pan Udyog that is the assessee has received share capital and share premium from Powmex Sales Ltd. It is relevant to mention here that the source of this information was the Talley server of the assessee company seized in search wherein books of Assessee Company were present.
It is next submitted that at various places the AO has mentioned that enquiries were conducted in Kuber Group of Companies. However there is no specific mention of any Company, it is submitted that Kuber group of Companies is a generic term, which is used to describe so many. Neither the kuber group has been assessed as an AOP nor do such company exist in the record of revenue. Even otherwise it is an admitted fact that neither post search enquiries, nor any enquiries were conducted in assessee’s own case. Enquiries conducted in 3rd party case cannot perse give jurisdiction to the AO particularly when no corroborative material justifying the story of AO has been unearthed during search.
It is also worthy to mention here that no such entity namely Kuber Group of Companies ever exist, nor the revenue has assessed the group as an AOP. Therefore use of this expression, itself shows that the case of borrowed satisfaction. It is submitted that Hon’ble Delhi High Court in G&G Pharama 384 ITR 147 and RMG Polyvinyal 396 ITR 5 and Meenakashi Oveseas 395 ITR 677(Del) has held that information Page | 10 received from investigation wing perse is not an Incriminating material, there has to be independent application of mind by the AO, discernable from the reasons, before assuming jurisdiction of section 147 of the Act. If there is no independent application of mind then the assumption of jurisdiction is bad in law.
It is next submitted that averments made in the reasons recorded in para2-3-4-5 are mere allegations without any reference to any evidence it is settled law that an allegation whosoever may be strong never partake the character of evidence.
Further below mentioned submissions would prove beyond doubt that the AO has not applied his mind independently and the commissioner has granted approval mechanically, as is evident from the following. a. Address of Investor Company available mentioned in Reasons recorded is not correct- as available in public Domain. b. Amount of transactions mentioned and finally assessed is not correct. c. No details of instrument number, bank and the date of transaction has been mentioned. d. AO has not even mentioned whether the share application money was pending or shares have been allotted in lieu of the same. e. No enquiry either from ROC or from the Bank, where the account of the investor company was in operation. f. Reference to the generic name of Kuber Group of Companies is also non application of mind. g. No live link between the material and the belief entertained by the AO. h. Reasons recorded are conclusions one after the other without reference to any tangible material. i. In assessee case neither 131(1) nor 133(6) have been done.
Further assessee seeks to rely on the following judgments: - Wherein it has been held that reassessment is not permissible on the basis of borrowed satisfaction, where there is non application of mind. Where there is no live link between the reasons to believe and formation of belief. Where the conclusions drawn against assessee are not supported by tangible material. a. SBS Realtors Vs ITO- ITA No-7791/Del/2018 b. PCIT Vs Shodiman Investment Pvt Ltd Bombay High Court. c. Agaya Ram Vs CIT- 386 ITR 0545(Del) d. CIT Vs RMG Poly Vinayl- 396 ITR 5(Del) e. CIT vs Meenakashi Overseas 396 ITR 5
Period of Four Weeks not granted after the disposal of objections:- It is next submitted that the AO has not granted four weeks time after the disposal of objections filed by the assessee, and has framed the assessment in hurried manner. However, there is no delay on the part of assessee to file the objections before the AO.
A perusal of the above chart would show that the AO has framed the assessment without waiting for 4 weeks, despite the fact that he was having time up-to 31.12.2017. And hence the AO has violated the guide lines of Hon’ble Apex Court in the case of GKN Drive Shaft reported in 259 ITR 19(SC). It is submitted that in the following cases it has been held that if the AO could not wait for four weeks after the disposal of objection of the assessee then the action of 147 is bad in law. a. Jyanti Lal Shah Vs UOI 378 ITR 596(B0M) b. Meta Plast Engeineering Vs ITO –ITA No-5780/Del/2014 c. Kamlash Goel A Bench- of 2017 dated 30.08.2017 d. KARTI P. CHIDAMBARAM vs. ASSISTANT COMMISSIONER OF INCOME TAX-402 ITR 488 (Mad) e. Conclave publisher Vs Union of India and ors-W.P No-284 of 2019- dated 01.02.2019
It is next submitted that the AO has categorically mentioned that Commission u/s 131(1)(d) was issued, during the course of assessment proceedings of Kuber Group of Companies, however no such entity is in existence in law. Therefore there is complete non application of mind. However for the sake of clarification it is informed that no assessment of assessee Company was pending, when the commission was issued that is on 10.11.2016. A copy of investigation done by Kolkota Wing is annexed at Page No- 29-31 of PB 28. It is submitted that provisions of section 131(1)(d) are parimateria with the provision of CPC and the same can be applied only when some suit is pending, time and again the courts have held that commission cannot be issued before the commencement of assessment proceedings rather the same can be issued only while the assessment proceedings(means suit) is pending before the AO. It is submitted that in the present case of the assessee no proceedings on the date of issuance of commission was pending and hence the reference made to Kolkota wing is bad in law and hence the entire proceedings were also bad in law. It is submitted that once the assessments are centralised then assessment proceedings would only commence after the issuance of notice of relevant assessment proceedings, during the intgrim period the proceedings are not pending rather a stage of one proceeding completes and the next stage would have to be begin that is the proceedings of trying a suit. And hence any commission issued without the pendency of proceedings then such commission is bad in law.
On merits the assessee has filed all the details before the AO and has asked for cross examination of the alleged entry provider, which request of the assessee has been denied by the AO.
30. The assessee has filed following documents before the AO during the course of proceedings- a. Copies of share application forms. b. Informations given to ROC for allotment of shares. c. Confirmations- d. Bank statements. e. ITR acknowledgments f. Annual Financial Statements g. MCA data available in public domain- Perusal of which would show that M/s Powmex has paid up share capital of Rs1,93,00,000/-.
It is next submitted that finding of the AO starts from Para-6.5 of the assessment order, prior to that the AO has just reproduced the contents of reasons recorded, and has again referred to the investigation carried out by investigation wing in some other case.
After filing the above mentioned details assessee has asked for the cross examinations of the persons, whose statements were relied upon by the AO. However the request of the assessee was discarded. Before CIT(A) also assessee requested the cross examination of the witnesses. However the same was rejected summarily. 33. It is settled position of law that when assessee filed documentary evidences with the AO, it is incumbent upon AO to refute those evidences with cogent material, in the present case no material has been brought on record by the revenue even after search, to establish that it is the assessee’s own money which has come via share application money. In the case of Victor electrode reported in 329 ITR 271(Del) it has been categorically held by the jurisdictional High Court that there is no legal obligation on the assessee to produce the directors of the share subscriber companies 34. See Page No-104-105 of the PB+ Order of CIT(A). In fact the AO has completely built a new case in remand proceedings, wherein he alleged that he has relied on the statement of three persons, namely Devesh, Parveen and Ashish Aggarwal. 35. It is next submitted that neither the CIT (A) nor the AO has provided the assessee an opportunity to cross examine the alleged entry providers and hence in view of the following judgments the assessee is bad in law. See Page no-20 of CIT(A) order assessee raised the issue of cross examination Andaman Timber cited in Para 5 at page no-21Page NO-26 Andaman Timber again cited. However the CIT(A) relying on the contents of remand report and without providing assessee an opportunity of cross examination deleted the addition. a. Andaman Timber Industries vs CIT (2015) 127 DTR 241(SC), Page | 13 b. Shobit Goyal(HUF)-ITA No-2021/Del/2018 c. Prabhatam Vs ACIT ITA No-2525 of 2015-28.03.2015
In view of the above it is prayed that stay application of the assessee may be allowed or in the alter native an early hearing may be granted.‖ 8. The ld DR submitted that search was not conducted on the Assessee. She further stated that prior to 01.06.2015 the seized documents was suppose to belong to the person other than searched. She stated that documents belong to Kuber Group of companies but the Assessee’s name was not included in the Panchnama and only certain information contained therein pertained to the Assessee. She further stated that documents founds during the course of search were nothing but just books of accounts of the group companies where the Assessee’s company name was found. She therefore, stated that AO has nowhere quoted that the documents were incriminating in nature. Therefore, provisions of section 153C could not have been invoked. She further relied on the decision of coordinate bench in dated 08.01.2018, wherein, the reopening u/s 147 of the Act was upheld. She further stated that perquisite to invoking section 153C of the Act could not have been invoked. She further relied upon the decision of the coordinate bench in case of Mannat Hospitality pvt. Ltd vs. ITO ITA No. 7348/Del/2018 dated 07.06.2019, wherein the objection of the Assessee against the order passed u/s 147 was rejected. Therefore, she submitted that there was no ambiguity in initiating the proceedings u/s 147 of the Act. 9. We have carefully considered rival submissions and perused the orders of lower authorities. Main issue raised in this appeal is whether the AO should have invoked the provision of section 153C of the act or section 147 of the act, as done by LD AO. It is necessary to first look at the provision of section 153C of the act which is as under :-
Income-tax Act, 1961 153C. ASSESSMENT OF INCOME OF ANY OTHER PERSON (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that any Page | 14 money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong 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 Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A. Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person. (2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year (a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or (b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub- section (2) of section 143 has expired, or (c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A.
Section 153C was amended with effect from October 1, 2014 to provide that notwithstanding anything contained in sections 139, 147, 148, 149, 151 and 153, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents Page | 15 seized or requisitioned belongs or belong to any person, other than the person in respect of whom the search was conducted, 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 Assessing Officer shall proceed against each such other person and issue notice and assess or reassess income of such other person in accordance with the provisions of section 153A if he is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of section 153A. Therefore, it is important that the documents found during the course of search from 1/3 person or any other material should belong to the assessee (pertinent to the assessee after amendment) and the AO must be satisfied that such books of accounts et cetera have a bearing on the determination of the total income of such other person. If 1 of the condition fails, the provisions of section 153C cannot be applied. Therefore, the material available with the assessing officer would be a tangible material based on which the proceedings u/s 147 of the income tax act, if it stands the test of the provisions of that section, can be initiated. Thus, it is not necessary that if books of accounts of these assessee are found during the course of search on third person, necessarily the case of the assessee must be completed by invoking the provisions of section 153C of the act. Honourable Delhi High Court in the principal Commissioner of income tax vs index securities private limited (86 taxmann.com 84) has held as under:- “29. The search in the case before the Supreme Court was prior to 1st June 2015. Apart from the fact the Supreme Court approved the above decision of the Gujarat High Court holding that the seized documents should 'belong' to the other person, the legal position in this regard where the search has taken place prior to 1st June 2015 has been settled by the decision of this Court in Pepsico India Holdings (P.) Ltd. (supra). In Vinita Chaurasia (supra), this Court reiterated the above legal position after discussing the decisions in Super Malls (P.) Ltd. (supra) and Nau Nidh Overseas (P.) Ltd. (supra). The essential jurisdictional requirement for assumption of jurisdiction under Section 153 C of the Act (as it stood prior to its amendment with effect from 1st June 2015) qua the 'other person' (in this case the assessees) is that the seized documents forming the basis of the satisfaction note must not merely 'pertain' to the other person but must belong to the 'other person'.
In the present case, the documents seized were the trial balance and balance sheets of the two Assessees for the period 1st April to 13th September 2010 (for ISRPL) and 1st April to 4th September 2010 (for VSIPL). Both sets of documents Page | 16 were seized not from the respective Assessees but from the searched person i.e. Jagat Agro Commodities (P) Ltd. In other words, although the said documents might 'pertain' to the Assessees, they did not belong to them. Therefore, one essential jurisdictional requirement to justify the assumption of jurisdiction under Section 153 C of the Act was not met in the case of the two Assessees.” Merely because regular books, of other persons are found with searched persons assumption of jurisdiction by AO of Other persons may be justified but since these are generally the regular books of account on the basis of which returns are prepared, there cannot be any undisclosed income arising from them. In view of expression, "books of account/documents/assets seized have a bearing on the determination of total income" appearing in section 153C(1), proceedings u/s. 153C will not be valid. In view of this, we are of the opinion that assessing officer did not have any jurisdiction to invoke the provisions of section 153C of the income tax act and therefore it has not been rightly invoked by him. Thus, action of AO for reopening of the assessment u/s 147 of the act is upheld. Accordingly ground NO. 11 of Ground no. 10 of of the appeal of the assessee are dismissed.
11. Now we come to the other issues of the reopening of the assessment challenged by the assessee. The reopening has been challenged by the assessee stating that initiation of proceedings u/s 147 of the income tax act is solely on the basis of the unverified, on rectified, unsubstantiated and unconfirmed statement of Mr Malu. It is further the claim of the assessee that the learned assessing officer has violated the principles of natural justice by not providing the opportunity for cross-examination of the persons whose statements have been relied upon by him in spite of specific request made by the appellant in the assessment proceedings as well as before the learned CIT – A. Admittedly in this case notice u/s 148 of the income tax act was issued on 31/3/20 17. The reasons recorded in the first paragraph clearly refer to the search and seizure operation carried out on the coupe group of cases on 9/10/2014. During post search investigation summons were issued u/s 131 of the income tax act to comic sales private limited, which has provided the share capital to the assessee company. The summons returned unserved. Further enquiries were made issuing commission u/s 131 (1A) of the act and information was gathered from investigation wing that the share deposit company is not physically existing Page | 17 at the given address 125/1, cotton Street, Kolkata – 700007 whereas the correct address of this company was 16 A, Shakespeare Sarani, New B K Market, 5th Floor, Kolkatta 71. Thus, the learned assessing officer made the inquiries at the incorrect address. Furthermore, the learned assessing officer has heavily relied upon the statement of Mr. Vikas Agarwal residing at BC – 75, Akanskha apartment, 4th floor Calcutta 101 that was recorded on 9/1/2014. He is an alleged entry operator. He admitted this in answer to question number 6 of his statement. He named in answer to question number 7 - 12 companies, however, the name of the company who deposited share capital with the assessee was not appearing in the statement. Further, in none of the other statements recorded by the investigation wing Kolkata, the name of the company who deposited money with the assessee was appearing. During the course of appellate proceedings before the learned CIT – A, assessee submitted a remand report dated 25/10/2018, which is at page number 22 of 38 of the appellate order. In para number 5 the learned AO stated that the assessment order are based on the statement of Shri Moolchand Malu, post search investigation and investigation during assessment proceedings. The assessee specifically asked the AO to provide cross-examination or the information to show that the amount of share capital taken by the assessee from the above stated company is an accommodation entry. None of the statements of the investigation wing, though referred to many of the companies, however the name of this company from womb the assessee has taken share capital is appearing. In para number 8 of the remand report, the learned assessing officer has categorically stated that during the assessment proceedings commission u/s 131 (1) (D) of the income tax act, 1961 was issued to the Calcutta investigation wing. A list of 27 companies was sent for necessary enquiry. As per report of Calcutta wing, 9 companies are such companies, which are used for routing, and providing accommodation entry to the beneficiaries as per the statement of the directors/to persons of respective companies admitted during both during the previous enquiry survey/searches. For balance 18 companies, as per inspector report, no such companies existed at the addresses mentioned. The name of the company who deposited money with the assessee appears in the list of 18 companies where the inspector has gone to the incorrect address as held above. Further, at para number 10 of the remand report, request of the assessee for cross-examination is dealt with. The learned assessing officer and stated that in the commission report received from Calcutta office, statement of Mr VIkas Kumar AGarwal, Devesh Upadhyay, and Praveen Kumar was mentioned. However, in none of these entry operators’ statement the name of the company, which deposited money with the assessee, is mentioned. Further assessee asked the cross-examination of these persons who have mentioned the name of the above-deposited company. Statement recorded of all these persons are prior to date of search on Kuber Group. Thus, statements are recorded by the investigation wing prior to search, naturally before the reasons were recorded. Before the learned CIT – A, on the specific request of the assessee that AO has not granted an opportunity of the cross-examination of those persons, even the learned CIT – A directed the AO to grant cross- examination of those person however AO expressed his inability to do so. With respect to the identity, creditworthiness and genuineness of the transactions the assessee submitted return of income of the share applicant, it is audited balance sheet, confirmation of the transactions and bank statement of the share applicants. Therefore, the claim of assessee is that it has discharged initial onus cast upon it under section 68 of the income tax act. The learned AO merely on the basis of the statement of the entry operators, who did not name the share deposit as 1 of the companies operated by them, the inspector report saying that share deposit and did not exist by inquiring at the incorrect address and failure to give cross- examination of those entry operators, which are the only statement against the assessee, the addition made by the learned assessing officer cannot be sustained. Honourable Supreme Court in CIVIL APPEAL NO. 4228 OF 2006 M/S ANDAMAN TIMBER INDUSTRIES VERSUS COMMISSIONER OF CENTRAL EXCISE,KOLKATA-II has held that when except the statement of the 3rd party is the only evidence available with the revenue authorities, addition cannot be made on that solitary evidence without granting the cross-examination of such 3rd party to the assessee when asked for. In the present case the assessee asked for cross-examination