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Income Tax Appellate Tribunal, DELHI BENCH : C : NEW DELHI
Before: SHRI R.K. PANDA & SHRI SUDHANSHU SRIVASTAVA
& 6464/Del/2014 CO No.178 & 177/Del/2015 Assessee by : Mrs. Ragini Handa, CA Revenue by : Mrs. Naina Soin Kapil, Sr. DR Date of Hearing : 03.07.2019 Date of Pronouncement : 15.07.2019 ORDER PER BENCH: The above batch of cross appeals filed by the respective assessees and Revenue are directed against the separate orders dated 19th September, 2014 and 22nd September, 2014 of the CIT(A)-1, New Delhi, relating to assessment year 2006-07. Since identical issues are involved in both these cross appeals, therefore, these were heard together and are being disposed of by this common order.
First we take up CO No.178/Del/2015 (A.Y. 2006- 07) (Ganpati Sugar Ltd.).
Facts of the case, in brief, are that the assessee is a company engaged in the business of dealers, sellers, buyers, importers, exporters, distillers, formentation processors, manufacturers of sugar, sugar candy, sugar cane, molasses, jiggery sugar beet, bagasse boards, paper, pulp etc., and manufacture of sugar or its products and its by products. A search and seizure action u/s 132 of the IT Act was conducted in the case of M/s Jay Polychem India Ltd. and its associates on 14th March, 2012. The case of the assessee was also covered under the said search. In response to notice u/s 153A, the assessee filed its return of income on 18th December, 2012 declaring total loss of Rs.1,860/-. The Assessing Officer completed the assessment at a total income of & 6464/Del/2014 CO No.178 & 177/Del/2015 Rs.1,57,88,138/- wherein he made an addition of Rs.1,57,90,000/- on account of bogus purchases.
4. In appeal, the ld.CIT(A) deleted the addition so made by the Assessing Officer by observing as under:-
“4.1 I have considered the assessment order, the submissions of the appellant and the documents filed before me. Although the company was incorporated on 23.08.1995 with the object of manufacturing, processing and dealing with sugarcane, sugar, jaggery, distillery, etc., and has share capital of Rs.l1,97,000/- along with reserves and surplus of Rs. 1,07,15,071/-, there was practically no business during the year. The only activity carried out by the appellant was purchase and sale of shares, including shares of M/s Jay Polychem India Limited, its flagship group concern, and also certain other shares. Purchases of shares amounted to Rs. 1,57,90,000/- and sales of shares amounted to Rs. 1,59,15,000/-. The revenue has treated the purchase as bogus and added the said amount to the returned loss of the appellant on the ground that details / evidences were not filed. 4.2 Before me, the appellant has also filed copy of the submissions filed before the AO. From the said submissions, I find that details of purchases and sale of shares was duly filed before the AO. I also find that the transactions of purchase and sale of shares include in-house within the group concerns, and settled by contra transactions, apart from part payment by cash / cheque. The AO possibly got confused and did not seek sufficient clarification in the matter and took an adverse view. 4.3 In the instant case the internal transactions of purchase and sale of shares may appear to be a book-building exercise. However, such transactions do not have any tax implication, unless there are issues of valuation of the transactions and of the stock. I find that AO did attempt to be fair in holding the closing stock value at the value of opening stock, having held the purchases as bogus, but omitted to evaluate that the transactions did not have any financial or tax implication. There is admittedly no issue of valuation of purchases and sales, and no substantive flow of funds. The book entry purchases get set off by book entry sales. Therefore, there is no tax implication in the transaction. I hold accordingly. 4.4 In view of the above, the addition made cannot be factually or legally sustained and is deleted. All grounds of appeal raised are disposed of accordingly,”
& 6464/Del/2014 CO No.178 & 177/Del/2015 5. Aggrieved with such order of the CIT(A), the Revenue is in appeal before the Tribunal by raising the following grounds:-
“1. The order of Ld. CIT (A) is not correct in law and facts. 2. On the facts and circumstances of the case the Ld. CIT (A) has erred in deleting the addition of Rs.1,57,90,000/- made by AO on account of bogus purchase of shares by the assessee company. 3. The appellant craves leave to add, amend any/all the grounds of appeal before or during the course of hearing of the appeal.”
5.1 The assessee has also filed the Cross Objection by raising the following grounds:-
“1. That the order u/s 153A r.w.s. 143(3) of the Act dated 27.03.2014 passed by the Id. AO is bad on facts and in law. 1.1 That on the facts and in law the ld. AO has erred in not granting a proper opportunity of being heard and hereby violating the well settled principles of audi alteram partem.
2. That on the facts and in the circumstances of the case, the ld. AO erred in making huge additions / disallowances to the total income without any incrementing evidence in support thereof.
3. That on facts and in law in absence of any information leading to action of search u/s. 132(1) of the Income Tax Act, 1961 the ld. CIT(A) erred in assuming jurisdiction to assess u/s 153A /143(3) of the Act. 3.1 That on facts and in law block assessment u/s 153A is not warranted if search warrant was issued in joint names to search premises belonging to one assessee.
4. That the assessee craves leave to add, alter or amend any ground of cross objection on or at the time of hearing of the appeal.”
The ld. counsel for the assessee, at the outset, submitted that no incriminating material was found during the course of search and, therefore, in view of the decision of Delhi High Court in the case of CIT vs. Kabul Chawla reported in 380 ITR 573, the 4
ITA Nos.6465 & 6464/Del/2014 CO No.178 & 177/Del/2015 addition could not have been made by the Assessing Officer. Referring to the decision of the Tribunal in the case of ACIT vs. Baweja Export Pvt. Ltd., vide and CO No.180/Del/2015, order dated 14th March, 2019, she submitted that under identical circumstances the Cross Objection of the assessee was allowed and the appeal filed by the Revenue has been dismissed. Similar view has been taken by the Tribunal in other group concerns, namely, Smt. Harneet Kaur vs. ACIT, in ITA No.6626/Del/2016, order dated 25.02.2019, Shri Satinder Singh Madhok vs. ACIT and batch of appeals, vide common order dated 21st February,2017 and Satinder Singh Madhok vs. ACIT in ITA No.976/Del/2015, order dated 31st July, 2018, assessment year 2006-07. She accordingly submitted that since no incriminating material was found during the course of search and the entire addition has been made on the basis of post search enquiries, therefore, the Assessing Officer could not have made any addition. So far as the merit of the case is concerned, she relied on the order of the CIT(A).
The ld. DR, on the other hand, heavily relied on the order of the Assessing Officer.
We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and 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 Assessing Officer, in the instant case, made addition of Rs.1,57,90,000/- on account of bogus purchase of shares by the assessee company. We find the ld.CIT(A) deleted the & 6464/Del/2014 CO No.178 & 177/Del/2015 addition, the reasons for which have already been reproduced in the preceding paragraphs. It is the contention of the ld. counsel for the assessee as per grounds in the cross objection that the addition is based on post search enquiries and not based on any incriminating documents found during the course of search. A perusal of the assessment order shows that the Assessing Officer at para 5.1 of the assessment order while making the addition has mentioned as under:-
“5.1 On perusal of the profit and loss account for the year ended 31.03.2006 it is seen that the assessee made purchase of shares for an amount of Rs. 1,57,90,000/-. Vide questionnaire dated 14.08.2013 the assessee has been asked to provide the details of such purchases made of Rs. 1,57,90,000/- along with the name & address of the company for whose shares were purchased. The assessee company has also been also asked to produce the bills and others supporting documents towards such purchase.”
From the above, it is clear that the addition is not based on any incriminating material found during the course of search and the entire addition has been made on the basis of the purchase of shares already shown in the P & L Account. Therefore, the decision of the Hon'ble Delhi High Court in the case of Kabul Chawla (supra) is squarely applicable where it has been held that in case of completed assessments, the additions made without reference to any incriminating material found during the course of search are void ab initio. It has been again followed by the Hon'ble Delhi High Court in the case of CIT vs. Meeta Gutgutia. The various other decisions relied on by the ld. counsel for the assessee also support her case that in case of completed assessments, additions made without reference to any incriminating material found during the course of search are void ab initio. Since, admittedly, the assessment is not & 6464/Del/2014 CO No.178 & 177/Del/2015 based on any incriminating material found during the course of search and the addition is based on post search enquiries, therefore, the addition made by the Assessing Officer in the order passed u/s 153A/143(3) is void ab initio. We, therefore, allow the ground raised by the assessee in the Cross Objection. Since the assessee succeeds on this legal ground and the Cross Objection is allowed, therefore, the appeal filed by the Revenue is not being decided being academic in nature. Accordingly, the same is dismissed.
In the result, the appeal filed by the Revenue is dismissed and the Cross Objection filed by the assessee is allowed. & CO No.177/Del/2015, A.Y. 2006-07 – Ganpati Breweries Ltd.
The grounds raised by the Revenue in the appeal are as under:-
“1. The order of Ld. CIT (A) is not correct in law and facts. 2. On the facts and circumstances of the case the Ld. CIT (A) has erred in deleting the addition of Rs.1,79,75,000/- made by AO on account of bogus purchase of shares by the assessee company. 3. The appellant craves leave to add, amend any/all the grounds of appeal before or during the course of hearing of the appeal.”
11.1 The grounds raised by the assessee in its Cross Objection are as under:-
“1. That the order u/s 153A r.w.s. 143(3) of the Act dated 27.03.2014 passed by the Id. AO is bad on facts and in law. 1.1 That on the facts and in law the ld. AO has erred in not granting a proper opportunity of being heard and hereby violating the well settled principles of audi alteram partem.
& 6464/Del/2014 CO No.178 & 177/Del/2015 2. That on the facts and in the circumstances of the case, the ld. AO erred in making huge additions / disallowances to the total income without any incrementing evidence in support thereof.
3. That on facts and in law in absence of any information leading to action of search u/s. 132(1) of the Income Tax Act, 1961 the ld. CIT(A) erred in assuming jurisdiction to assess u/s 153A /143(3) of the Act. 3.1 That on facts and in law block assessment u/s 153A is not warranted if search warrant was issued in joint names to search premises belonging to one assessee.
That the assessee craves leave to add, alter or amend any ground of cross objection on or at the time of hearing of the appeal.”
After hearing both the sides, we find the grounds raised by the Revenue as well as the grounds raised by the assessee in its Cross Objection are identical to the grounds raised by the Revenue in and grounds raised by the assessee in CO No178/Del/2015. We have already decided the issue and the appeal filed by the Revenue has been dismissed and the Cross Objection filed by the assessee has been allowed. Following similar reasonings, the CO filed by the assessee is allowed and the appeal filed by the Revenue is dismissed.
In the result, both the appeals filed by the Revenue are dismissed and the COs filed by the assessees are allowed.
The decision was pronounced in the open court on 15.07.2019.