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Facts
During a search and seizure operation on the premises of M/s SRS Group, it was found that the assessee company had received share capital for AY 2008-09 from entities that themselves had received funds from Kolkata-based shell companies. The Assessing Officer (AO) treated this share capital as bogus and made an addition to the assessee's income.
Held
The Tribunal held that the assessment under Section 153A was initiated without any incriminating material found in the search that was directly related to the assessee. The Tribunal followed the precedent that assessment under Section 153A is only valid if incriminating material is unearthed during the search. Therefore, the reassessment was quashed.
Key Issues
Validity of assessment under Section 153A without incriminating material found during search; Whether share capital received was genuine or represented routed unaccounted funds.
Sections Cited
153A, 143(3), 132(1)(A)
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Income Tax Appellate Tribunal, DELHI BENCH “F”, DELHI
Before: SH. S. RIFAUR RAHMAN & SH. SUDHIR KUMAR
PER SUDHIR KUMAR, JUDICIAL MEMBER:
This appeal by the assessee is directed against the order of the Commissioner Of Income Tax (Appeals)-2, Gurgaon [hereinafter referred to as “Ld. CIT(A)”] vide order dated 28.02.2018 arising out of the assessment order dated 20.3.2015 under section 153C r.w.s. 143(3) of the Income Tax Act, 1961 (hereinafter referred as “Act”) pertaining to A.Y. 2008-09.
The assessee raised the following grounds in appeal:
1. That having regard to the fact and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of the AO in assuming jurisdiction and issuing of notice u/s. 153A of the Act.
2. That in any case and in view of the matter, the assessment framed under section 153A(1)(b) of the Act, is bad in law and against the facts and circumstances of the case.
3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of the AO in making addition of Rs.1,27,05,000/- on account of share capital received by the company and that too in the proceedings u/s. 153A of the Act.
4. That in any case and in any view of the matter, action of the Ld. CIT(A) in confirming the action of the AO in making addition of Rs. 1,27,05,000/- is bad in law and against the facts and circumstances of the case.
5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of the AO in passing the impugned order without giving adequate opportunity of being heard.
6. That the appellant craves the leave to add, alter or amend the grounds of appeal at any stage and all the grounds are without prejudice to each other.
3. The brief facts of the case are that by virtue of authorization of the Director of Income Tax (Investigation), Delhi, under section 132(1)(A) in the case of the assessee, the residential as well as business / office premises of M/s SRS Group, of cases were subjected to search and seizure operations on 09.05.2012. During the previous year relevant to the assessment year 2008-09, the assessee was drawing income from business and profession and in accordance with the provisions of section 153A of the Income Tax Act, 1961, a notice dated 6.8.2023, u/s. 153A(1)(a) was issued and properly served upon the assessee, requiring to file its return of income in respect of assessment year 2008-09, an assessment year falling within the six assessment years immediately preceding the assessment year relevant to the previous year in which search was conducted. In this case, the search was conducted on 09.05.2012. In response to the said notice, the assessee filed its return of income, duly verified and signed as per the provisions of section 140 of the Act, returning a total income of Rs. 76,660/- on 10.09.2013. Notices under section 143(2) and 142(1) alongwith a questionnaire were issued to the assessee on 19.8.2014, which were duly served upon the assessee and in response to the said notices, the Ld. ARs attended the proceedings from time to time. On the premises of the SRS group a search and seizure operation was carried out on 09.05.2012. During the course of that search operation certain documents were found and seized. During the course of search and post search enquiries it was found that the assessee had received share capital during the period relevant to assessment year 2008-09 from such companies which had received share capital from the Kolkata based paper/brief case companies. During the course of assessment proceedings also the same was confirmed, accordingly, a show cause notice dated 27.01.2015 and 30.01.2015 were served upon the assessee as per detail given below:- “2. During the course of search and seizure operation and post search inquiries it was found that during the period relevant to AY 2008-09 following companies were in receipt of share capital from Kolkata based bogus / briefcase companies, which has been proved to be bogus share capital in the hands of the said companies. From those companies you had received money directly in your company during the same period.
S.No. Name of the company Amount (In Rs.) 1. Naaz Builders Pvt. Ltd. 6500000 2. Akash Infratrade Pvt. Ltd. 1995000 3. First Realtrade Pvt. Ltd. 3000000 4. Daksh Developers Pvt. Ltd. 1210000 Total 12705000
In light of above, you are show caused as to why this share capital received by you may not be treated as bogus and may not be added to the total income of your company. You reply in this respect should reach this office by 05.02.2015 otherwise the case will be decided on the basis of the information available with this office.” 3.1 The assessee filed its reply vide letter dated 5.2.2015. After considering the same, AO noted that neither the assessee company nor the companies from which the assessee received share capital had worth/creditworthiness, for either receiving or giving such share premium i.e. a premium of Rs. 190/- on the face value of Rs. 10/- per share. The assessee company has shown returned income of Rs. 76,660/- with a total turnover of Rs. 1,23,31,800/- for the period relevant to assessment year 2008-09. The AO also noted that the companies from which the assessee company had received share capital also did not had any worth or creditworthiness but they also got share capital from Kolkata based companies which have already proved to be paper companies and are providing accommodation entries only. AO further noted that going through the income tax returns and the balance sheets of the three companies from where the assessee company had received share capital, it is crystal clear that the companies are mere conduit for transfer of unaccounted funds as there is no substantial business activities and there is no creditworthiness is shown with regard to the source of investment and also the justification of share premium and also observed that income tax returns and the balance sheets and the manner and fashion the funds are transferred is nothing but layering in the web of companies formed for channelizing unaccounted funds. The assessee has not disclosed this income suo moto and without the search operation, this income would have been unearthed had there been no search on the premises of the assessee. Therefore, AO made the addition of Rs. 1,27,05,000/- and assessed the total income at Rs. 1,27,81,660/- u/s. 153A of the Act. Against the above action, assessee preferred the appeal before the Ld. CIT(A), who vide his impugned order dated 28.02.2018 has dismissed the appeal of the assessee by observing as under:- …7.6 To sum up, the appellant is a private limited company and the entire share capital has been received from the entities who are not related to it in any way. These share subscribers did not have their own profit making apparatus and were not involved in any business activity. The subscription to the share capital has been made by the companies through rotation of money. The money, no doubt has been received through the banking channels but do not reflect genuine business activity. Mere rotation of the money through the bank accounts does not reflect the creditworthiness of the share subscribers and even genuineness of the transaction. Any person, who would invest money, would certainly seek return or income as consideration. The appellant company did not give any dividend to the subscribers. The profit motive which is normally present in case of investment is totally absent.
Also, the appellant company is a private limited company and has not come out with any public issue nor made any advertisement for issuance of share capital. However, in two days there is infusion of huge share capital of Rs. 2,90,00,000/- through private placement. In the case of private limited companies, generally the persons known to the directors or shareholders directly or indirectly buy or subscribe to the shares. There is a close proximity between the directors, shareholders and investors. The appellant cannot simply furnish the details and remain quiet when the AO asks then to establish the identity and creditworthiness of the shareholders as also the genuineness of the transaction. 7.8 In the light of the above discussion, it is evident that the appellant has received its own unaccounted funds routed through seven Kolkata based ‘Jamakharchi’ companies aggregating to Rs. 2,90,00,000/-. Also the connection of these Kolkata based companies with Sh. Santosh Shah and Sh. Praveen Agarwal the operators who controlled the ‘Jamakharchi Companies and have already acknowledged their ownership and operations. Further, as discussed above, the appellant received the share application money through the bank accounts of M/s Naaz Builders Pvt. Ltd. and Kalakriti Engineers India Ltd. which had received same amount from Kolkata based companies.
This leaves no scope for any doubt that the share application money is appellant’s own money routed through layers of companies in an effort to give it a grab of legitimacy and genuineness and should be taxed in the hand of the appellant. Since the appellant was ultimate beneficiary of these funds, the addition made by the Assessing Officer is confirmed. The grounds of appeal are therefore dismissed.”
4. Aggrieved, assessee is in appeal before the Tribunal.
5. We have heard both the sides and perused the records. At the time of hearing, Ld. AR for the assessee has filed a small Paper Book containing incriminating material relied upon by the AO during the course of hearing which the Ld. DR has filed during the hearing in the shape of copy of statement given by Shri Naresh Kumar Goyal of M/s SRS Company which was recorded by Narendra Singh, DD(IT), Unit-3, New Delhi but no such incriminating material was filed to prove that the incriminating material found in search is related to the assessee. However, the same were found from other premises and not from the assessee company. Ld. AR for the assessee also relied upon the copy of Panchnama Pages 3-9 of the Paper Book and stated that no incriminating material was recorded and hence, no such assessment can be made u/s. 153A of the Act against the assessee. He further argued that the search was conducted on 09.05.2022, assessee filed the income tax return on 05.06.2008 and notice should be issued upto, 30.9.2009 so the assessment year 2008-09 was the unabated assessment year. It is submitted that copy of Income tax return was filed at page no. 168 of the Paper Book which was filed by the assessee on 5.6.2008 and no notice has been issued before 30.9.2002 to the assessee and the assessment year was the unabated assessment year. This is unabated assessment year. In view of above, assessment framed needs to be quashed. Ld. Departmental Representative relied upon the order of the lower authorities. She also submitted that blank share application forms signed by the Directors of SRS Group found and seized during search during the search proceedings on which basis the assessment was completed. We find that the Hon’ble High Court in the case of CIT (Central) vs. Kabul Chawala 380 ITR 573 in which the Hon’ble court held that assessment completed under section 153A only if some incriminating material unearthed during the search. In this case no incriminating material was found related to the assessee during the search. The Ld. D R filed the statement recorded by the authority but no blank share application forms signed by the Directors of SRS Group were filed, which was said to be recovered during the search. The AO has completed the assessment order related to unabated year in the absence of incriminating material.
6. In view of the aforesaid factual matrix and following the precedent, the reassessment is hereby quashed and accordingly, the jurisdictional, ground of the assessee is allowed and other grounds raised by the assessee are hereby left open.
7. In the result the appeal of the assessee is allowed. Order pronounced in the open court on 23.01.2026. Sd/- Sd/-