M/S. SHERAWALI YARNS PVT. LTD.,NEW DELHI vs. ACIT, MEERUT

This appeal by the assessee is directed against the order dated 11th March, 2015 of the CIT(A), Meerut, relating to Assessment Year 2005-06.

The facts of the case, in brief, are that the assessee is a company engaged in the business of trading and investment in shares. It filed its return of income on 19th September, 2005 declaring loss of Rs.320/-. The case was selected for scrutiny and in response to notice u/s 143(2) dated 20th September, 2006 and notice u/s 142(1) dated 3rd August, 2007, the counsel of the assessee appeared before the Assessing Officer from time to time and explained the return. The Assessing Officer, in the order dated 6th December, 2007 passed u/s 143(3) of the IT Act, accepted the share capital of Rs.51 lakhs and share premium of Rs.4,50,00,000/- received from two companies on the basis of the various documents/details filed before him and on the basis of the information called for u/s 133(6) of the IT Act.

During the course of assessment proceedings, the Assessing Officer, on perusal of the balance sheet, noted that the assessee company has received equity share capital of Rs.51 lakhs and share premium of Rs.4,50,00,000/- in cash during the year under consideration. The Assessing Officer asked the assessee, vide questionnaire dated 18th 2 October, 2012 to furnish details as to how the premium was worked out by the issue managers, auditors, etc., and the copies of the working and material relied on. In absence of any compliance to the statutory notices issued by the Assessing Officer from time to time to prove the identity, credit worthiness and capacity of the share applicants and genuineness of the transactions, the Assessing Officer invoked the provisions of section 68 of the Act and relying on the decision of the Hon'ble Delhi High Court in the case of CIT vs. Nova Promotors & Finlease (P) Ltd. (2012) 18 taxmann.com 217 (Del), made an addition of Rs.17,42,50,000/- to the total income of the assessee.

Before the CIT(A), the assessee made elaborate submissions. It was submitted that the issue of increase in share capital were examined in the original assessment for assessment year 2005-06 and no adverse finding was given by the Assessing Officer in the order passed u/s 143(3). It was submitted that on the date of search, assessment for assessment year 2005-06 was not pending and no incriminating document relating to the issue of increase of share premium was found or seized during the search. The assessee submitted that the details which were called for by the Assessing Officer were also submitted by the assessee during the course of original assessment proceedings. Referring to the decision of the Mumbai Bench of the Tribunal in the case of All Cargo Global Logistics Ltd. vs. DCIT, it was submitted that no addition can be made. The decision of the Hon'ble Allahabad High Court in the case of CIT Meerut vs. Nav Bharat Duplex Ltd. (2013) 35 taxmann. 289 was also brought to the notice of the CIT(A).

However, the ld.CIT(A) was also not satisfied with the arguments advanced by the assessee and upheld the addition made by the Assessing Officer by observing as under:-

Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds:-

The ld. counsel for the assessee, referring to the copy of the ‘Panchnaama’ dated 4th December, 2010, copy of which is placed at pages 5 to 9 of the paper book, submitted that only the bank account of the assessee was searched and no search at the business premises of the assessee has taken place. Referring to the assessment order passed u/s 153A/143(3) of the IT Act, he submitted that the Assessing Officer made an addition on account of share application money u/s 68 of the IT Act amounting to Rs.5,01,00,000/- and no addition was made on account of such bank deposit. He submitted that the original assessment was completed u/s 147/143(3) and no incriminating material was found during the course of search. Referring to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla, reported in 380 ITR 573 (Del), he submitted that the Hon'ble High Court in the said decision has held that jurisdiction u/s 153A cannot be assumed in case of a completed assessment on the date of search when no incriminating materials were found during the course of search. Relying on various other decisions including the decision of the Hon'ble Delhi High Court in the case of DCIT vs. Meeta Gutgutia reported in 395 ITR 526, he submitted that Hon'ble High Court in the said decision has held that invocation of section 153A to reopen concluded assessments of assessment years earlier to year 6 of search was not justified in absence of incriminating material found during search qua each assessment year. He submitted that the above decision of Hon'ble Delhi High Court was challenged by the Revenue and the SLP filed by the Revenue has been dismissed by the Hon'ble Supreme Court as reported in 96 taxmann.com 468. He also relied on the following decisions:- i) CIT vs Sinhgad Technical Education Society, 397 ITR 344; ii) INTAS Pharmaceuticals Ltd. vs. DCIT – IT (SS) A no.807to 809/Ahd/2010 and batch of other appeals, order dated 14.08.2015. iii) ACIT vs. Goldmohur Design & Apparel Park Ltd., 96 taxmann.com 375; iv) CIT vs. Smt. Shaila Agarwal, 346 ITR 130 (Allahabad).

He accordingly submitted that in absence of any incriminating material found during the course of search no addition can be made u/s 153A/143(3) in case of a completed assessment.

So far as the merit of the case is concerned, he submitted that the original assessment in this case was completed u/s 147/143(3) on 6th December, 2007 and the details which the Assessing Officer called for during the course of assessment proceedings u/s 153A/143(3) of the IT Act were already on the record as they were filed by the assessee during the course of original assessment proceedings. The same were considered by the then Assessing Officer and were accepted by him. Now, there is no new material fact available with the Assessing Officer even after the search and seizure action u/s 132 of the IT Act which could be a cause for making a fresh assessment and making an addition on account of share application money. The Assessing Officer has not made any further inquiry after the search so as to find out that whatever details furnished during the course of original assessment proceedings/reassessment proceedings were incorrect or false. Since the assessee has established the identity and credit worthiness of the share applicants and the genuineness of the transaction and the Assessing Officer, after considering he submissions made by the assessee has accepted such share application and share premium as explained, therefore, in absence of any contrary material in the possession of the Assessing Officer, he cannot take a different view and put the assessee to a further test of producing the share applicants after a gap of so many years. He submitted that although these details were available in the assessment records of the assessee, the Assessing Officer in the order passed by him has not at all considered the same. Even though this was brought to the notice of the CIT(A), he has also not considered the argument of the assessee that all details were available in the assessment records since these details were filed during the course of original assessment proceedings. He accordingly submitted that when the fixed deposits seized during the course of search formed part of the regular books of account and, therefore, could not be construed as incriminating material and since no other incriminating material was found during the course of search, therefore, no addition can be made in the hands of the assessee in the absence of any adverse material especially when the original assessment was completed u/s 143(3)/147 accepting the share capital and share premium. Therefore, both legally and factually no addition can be made in the hands of the assessee.

The ld. DR, on the other hand, heavily relied on the order of the Assessing Officer and CIT(A). He submitted that the assessee during the year under consideration has issued equity shares of Rs.51,00,000/- on premium of Rs.4,50,00,000/-. Despite being given adequate opportunity, the assessee failed to furnish justification for such huge premium. Further, the assessee has failed to furnish documentary evidence in support of identity and credit worthiness of the share applicant and the genuineness of the transaction. Therefore, the ld. CIT(A) was fully justified in sustaining the addition made by the Assessing Officer. So far as the arguments of the ld. counsel for the assessee that in absence of any incriminating material found during the course of search, no addition can be made u/s 153A/143(3) in case of a completed assessment is concerned, the ld. AR, referring to the decision of the Hon'ble Allahabad High Court in the case of CIT vs. Raj KumarArora reported in 367 ITR 517, submitted that the Hon'ble Allahabad High Court in the said decision has held that the Assessing Officer has power to reassessee returns of assessee not only for undisclosed income found during the course of search operation, but also with regard to material available at the time of original assessment. Similar view has been taken by the Hon'ble Allahabad High Court in the case of CIT vs. Kesarwani Zarda Bhandar Sahson Allahabad In of 2014.

So far as the decision of the Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla (supra) relied by the ld. counsel is concerned, he submitted that the Hon'ble Kerala High Court has held that assessment proceedings generated by issuance of a notice u/s 153A(1)(a) can be concluded against interest of the assessee including making additions even without any incriminating material being available against the assessee in search u/s 132 on the basis of which notice was issued u/s 153A. The ld. DR submitted that the Hon'ble Kerala High Court, while deciding the issue against the assessee has considered the following decisions:-

The ld. counsel for the assessee in his rejoinder submitted that the decision of the Hon'ble Allahabad High Court in the case of Raj Kumar Arora (supra) is of no help to the Revenue for the reason that the High Court has only held that the assessment can be framed u/s 153A even if no incriminating material was found based on the material existing at the time of original assessment. The assessment can be of the undisclosed income found during the search and of income based on the material available at the time of original assessment. He submitted that it would be a complete misreading of the judgment of the Allahabad High Court to suggest that if an issue has been examined at the time of original assessment, it can be revisited or reviewed merely because search was taken place particularly when no material of any kind is found to indicate that the income determined at the time of original assessment needs to be interfered with. This is neither the import of the decision of the Hon'ble High Court nor by any stretch of imagination can such an interpretation be drawn from the ratio of the said decision. He submitted that the argument of the ld. DR that whether there be any material or not, the search by itself gives the power to the Assessing Officer to review his own order is misleading. He submitted that in the case of Raj Kumar Arora (supra), there was no scrutiny assessment and the material available at the time of original assessment was not examined nor any view for or against the assessee was taken by the Assessing Officer while making the original assessment. Further, the Revenue cannot rely on the same set of material for arriving at two contrary findings at two different points of time while the level of authority taking the decisions is same. Referring to the decision of the Ahmedabad Bench of the Tribunal in the case of INTAS Pharmaceuticals Ltd. vs. DCIT in IT (SS)A No.807/Ahd/ 2010, he submitted that the Tribunal has considered the decision of the Hon'ble Allahabad High Court in the case of Raj Kumar Arora (supra) and held that the said decision deals with the scope of section 153A and not that of assumption of jurisdiction which stands on a different footing. He reiterated that the Hon'ble Delhi High Court in the case of Meeta Gutgutia (supra) has held that reopening of completed assessment was not justified in the absence of incriminating material and the SLP filed by the Revenue has been dismissed by the Hon'ble Supreme Court on the question of law raised by the Revenue. He submitted that although the dismissal of SLP may not amount to laying down of a law, but, the fact remains that the Hon'ble Supreme Court did not find any infirmity in the view taken by the Delhi High Court that in the absence of incriminating material the concluded assessment cannot be reopened u/s 153A.

We have considered the rival arguments made by both the sides and perused the material available on record. We find the original assessment in the instant case was completed u/s 147/143(3) of the IT Act on 6th December, 2007 determining the total loss at Rs.320/-. A search u/s 132 of the IT Act was conducted in the case of bank account of the assessee on 12.11.2010. We find during the said search, an amount of Rs.3,67,62,755/- in shape of term deposits were found in the bank account of the assessee which was seized. Since the assessee did not file the requisite details as called for by the Assessing Officer to substantiate the identity and credit worthiness of the share applicants and genuineness of the transactions, the Assessing Officer made addition of Rs.5,01,00,000/- being the share capital of Rs.51,00,000/- and share premium of Rs.4,50,00,000/- received by the assessee during the impugned assessment year. Although it was submitted before the CIT(A) that no incriminating material was found during the course of search and the Assessing Officer in the assessment completed u/s 147/143(3) has accepted such share capital and share premium and no contrary material was found during the course of search or after post search inquiry, the ld.CIT(A) sustained the addition made by the Assessing Officer, the reasons for which have already been reproduced in the preceding paragraphs. It is the submission of the ld. counsel for the assessee that in absence of any incriminating material found during the course of search, no addition u/s 153A/143(3) can be made in the case of a completed assessment. Although he relied on various decisions of the Hon'ble Delhi High Court and that of the coordinate Benches of the Tribunal, however, we find the issue stands decided against the assessee by the decision of the jurisdictional High Court in the case of CIT vs. Raj Kumar Arora (supra) wherein it has been held that the Assessing Officer has power to reassess returns of the assessee not only for undisclosed income found during the search operation, but also with regard to material 13 available at the time of original assessment. Similar view has been taken by the Hon'ble Allahabad High Court in the case of CIT vs. Kesarwani Zarda Bhandar Sahson, Allahabad (supra) wherein it has been held that the Assessing Officer has power to reassess returns of the assessee not only for undisclosed income found during search operation, but also with regard to material available at the time of original assessment. In view of the binding decisions of the jurisdictional High Court, we are unable to accept the contention of the ld. counsel for the assessee that in the absence of any incriminating material found during the course of search, the initiation of proceeding u/s 153A are not valid. Therefore, the legal ground raised by the assessee stands dismissed.

Now, coming to the merit of the case, it is an admitted fact that in the order passed u/s 147/143(3) on 6th December, 2007, the Assessing Officer had examined the issue of share premium and share application money. On the basis of various details filed by the assessee as required by the Assessing Officer, no addition was made and the issue of share premium was accepted without making any addition. We find, the Assessing Officer at page 1 of the assessment order passed u/s 147/143(3) has mentioned as under:-

We find during the course of search, no incriminating documents were found so as to prove that the documents filed during the course of original assessment proceedings are false or untrue. A perusal of the ‘Panchnama’ appearing on pages 5-9 of the paper book shows that no search was conducted at the business premises of the assessee and the warrant was issued only in the name of the bank account of the assessee maintained with Oriental Bank of Commerce from where the fixed deposits were seized. These fixed deposits forming part of the regular books of account, in our opinion, cannot be held as incriminating material. The original assessment records were very much available with the Assessing Officer. Although the assessee did not appear before the Assessing Officer, however, it was the duty of the Assessing Officer to go through the past records of the assessee before making any addition in the ex parte order that too passed u/s 153A/143(3). Although the assessee submitted before the CIT(A) that the issue of share premium was examined by the Assessing Officer during the assessment proceedings u/s 147/143(3) proceedings, however, we find the ld.CIT(A) for reasons best known to him, closed his eyes and sustained the addition made by the Assessing Officer on the ground that the assessee did not appear before the Assessing Officer. Under these circumstances, we find merit in the argument of 15 the ld. counsel for the assessee that the Revenue cannot rely on the same set of material for arriving at two contrary findings at two different points of time while the level of authority taking the decision remains the same. In our opinion, when the assessee during the course of reassessment proceedings had filed the requisite details such as the copies of share applications, bank statements including details of allotment, premium charge, etc., and nothing adverse was found during the course of search proceedings and considering the fact that nothing adverse during post search inquiries was found to negate the documents already filed at the time of the reassessment proceedings, the present Assessing Officer, on the same set of material cannot take a different view than the view already taken by his predecessor at the time of original assessment merely because a search has taken place. In view of the above discussion, we are of the considered opinion that the addition made by the Assessing Officer and sustained by the CIT(A) is not justified. Accordingly, the Assessing Officer is directed to delete the addition made by him u/s 68 of the IT Act. The grounds of appeal raised by the assessee on merit are accordingly, allowed.