ACIT, NEW DELHI vs. M/S. MOOLCHAND STEELS PVT. LTD., UTTAR PRADESH

This appeal is preferred by the department against the order dated 10.02.2015 passed by the Ld. CIT (Appeals)-23, New Delhi for assessment year 2006-07 wherein vide the impugned order, the Ld. CIT (A) has deleted the addition of Rs. 80 lakh made by the Assessing Officer on account of share application money and share premium u/s 68 of the Income Tax Act, 1961 (hereinafter referred to as "the Act").

Assessment year 2006-07 1.1 The assessee has also filed an application under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963.

2.0 Brief facts of the case are that a search and seizure operation u/s 132 of the Act was carried out in the case of the assessee as well as the group companies on 4.8.2011. A notice u/s 153A of the Act was issued on 22.12.2013 and the assessee filed the return of income on 11.2.2014 declaring an income of Rs. 4,05,332/-. During the course of assessment proceedings, the Assessing Officer noted that the assessee company had, during financial year 2005-06, issued 20000 shares to M/s Geefcee Finance Limited having a face value of Rs. 100/- per share at a premium of Rs. 300/- per share totaling to Rs. 80 lakh.

The Assessing Officer also noted that M/s Geefcee Finance Limited was engaged in the activity of providing entries. The Assessing Officer sought information from M/s Geefcee Finance Limited u/s 133(6) of the Act. Summons u/s 131 of the Act were also issued to M/s Geefcee Finance Limited to furnish the required information. However, no response was received from M/s Geefcee Finance Limited. The assessee was also asked to establish the genuineness of share capital and after considering Assessment year 2006-07 the submissions of the assessee, the Assessing Officer made an addition of Rs. 80 lakh u/s 68 of the Act.

2.1 Aggrieved, the assessee approached the Ld. First Appellate Authority and challenged the addition on merits. The assessee also challenged the addition on the legal ground that the same was not based on any incriminating material found as a result of search. The Ld. CIT (A) dismissed the assessee’s legal ground but deleted the addition on merits and also noted that the original assessment was completed u/s 143(3) of the Act wherein the issue of share capital had been scrutinized and accepted by the AO holding the same as share capital. The Ld. CIT (A) also held that now treating the same share capital as unexplained in the assessment proceedings u/s 153A of the Act was a change of opinion not backed by any evidence.

2.2 Aggrieved by the aforesaid findings of the Ld. CIT (A), the department is now in appeal before the ITAT challenging the act of the Ld. CIT (A) in deleting the aforesaid addition of Rs. 80 lakh.

2.3 The assessee has also filed an application under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963 on the ground that the addition in respect of share capital was made without Assessment year 2006-07 considering the fact that during the course of search, no incriminating documents in respect of share capital were found.

3.0 The Ld. AR argued at length submitting that the assessee had moved application under Rule 27 of the Income Tax Appellate Tribunal Rules 1963. It was also submitted that the ground raised in the application was specifically raised as ground no. 1.7 before the Ld. CIT (A). The ld. AR prayed that the application under Rule 27 may be admitted.

4.0 In response, the Ld. C.I.T. DR opposed the assessee’s prayer for admitting of application under Rule 27 of the Act.

5.0 Having heard both the parties on the issue of admitting the application moved by the assessee under Rule 27 of the Income Tax Appellate Tribunal Rules 1963, we are of the considered opinion that in an appeal before the ITAT, the respondent is entitled to support the order of the appellate authority even on a ground which has been decided against it even though it may not have filed any appeal against such an order. Accordingly, we deem it fit to admit the assessee’s application made under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963 wherein the assessee has taken the following ground:-

“1. That the learned CIT (A) has erred in law and on facts in overlooking the basic fact that no document 4 Assessment year 2006-07 much less incriminating material was found during the course of search and the assessment as contemplated under section 153A is not a de novo assessment and as such, the additions so made by Assessing Officer which are beyond incriminating/seized materials are liable to be deleted in totality.”

6.0 The Ld. AR vehemently argued that it is apparent from the assessment order itself that the impugned addition was not made on the basis of any incriminating material found and seized during the course of search and therefore, in view of the judgment of the Hon’ble Delhi High Court in the case of CIT vs. Kabul Chawla reported in 380 ITR 573 (Delhi), addition was not sustainable.

7.0 In response, the Ld. CIT DR submitted that the department was relying on the statement of one Shri Tarun Goyal, which has been referred to by the Assessing Officer in Para 4.1 of the assessment order, and this statement itself was the incriminating material based on which the addition had been made. The Ld. CIT DR also placed reliance on the judgment of the Hon’ble Kerala High Court in the case of E.N. Gopukumar vs. CIT reported in (2016) 75 taxmann.com 215 (Kerala) wherein the Hon’ble Kerala High Court had held that additions could be made even when no incriminating material was found against the assessee in search Assessment year 2006-07 u/s 132 of the Act. The Ld. CIT DR submitted that this judgment of the Hon’ble Kerala High Court had been passed after duly considering the case of CIT vs. Kabul Chawla (supra). Reliance was also placed on the judgment of the Hon’ble Delhi High Court in the case of Smt. Dayawanti vs. CIT reported in 390 ITR 496 (Del) wherein the Hon’ble Delhi High Court had held that where the inferences drawn in respect of undeclared income of assessee were premised on material found as well as statements recorded in the course of search operations, the additions were justified.

Apart from this, the Ld. CIT DR also placed reliance on the following judicial precedents in support of his contention that the addition could be made without any incriminating material having been found during the course of search:-

8.0 In rejoinder, the Ld. AR submitted that the judgment of the Hon’ble Delhi High Court in the case of Smt. Dayawanti vs. CIT (supra) had since been stayed by the Hon’ble Apex Court and, therefore, the judgment of the Hon’ble Delhi High Court in the case of CIT vs. Kabul Chawla (supra) would apply. The Ld. AR also submitted that the statement of Shri Tarun Goyal was not recorded during the course of search but before the date of search and, accordingly, it could not be considered as incriminating material found during the course of search. The Ld. AR also highlighted the fact that the issue of share capital had been duly considered in the original assessment order passed u/s 143(3) of the Act vide order dated 28.12.2007 wherein no addition had been made. It was submitted that this original assessment order was also passed after duly considering the fact that an earlier search had taken place on 6.3.2006 and the assessee’s returned income had been accepted.

9.0 We have heard the rival submissions and perused the material available on record. A perusal of the assessment order Assessment year 2006-07 shows that while making the impugned addition, there is no reference to any incriminating material which has been found during the course of search. It is also undisputed that the search took place on 4.8.2011 whereas the statement of Shri Tarun Goyal was recorded on 14.12.2010. Thus, the statement of Shri Tarun Goyal was recorded before the date of the search and the same cannot be considered to be a statement recorded during the course of search and, therefore, we do not agree with the contention of the Ld. CIT DR that the statement of Shri Tarun Goyal can be considered incriminating material in this regard. It is also undisputed that the assessee group, including the assessee company, was earlier subject to search and seizure operation on 6.3.2006 and the assessment was completed in the case of the assessee on 28.12.2007 u/s 143(3) of the Act wherein the returned income of Rs. 4,05,332/- was accepted. No undisclosed income was declared or assessed in respect of the assessee company including any share capital. Although the assessee had raised the ground of the addition being wrong in view of no incriminating material having been found during the course of search in ground no. 1.7 of its appeal before the Ld. CIT (A), the Ld. CIT (A) did not accept the contention of the assessee Assessment year 2006-07 on the ground that as the relief had already been allowed to the assessee on merits, it was not necessary to go into the legal issue. However, it is apparent from the order of the Ld. CIT (A) that there is no finding recorded by the Ld. CIT (A) also regarding any incriminating material having been found during the course of search. The Ld. CIT DR also could not point out towards any incriminating material which has been found during the course of search on the basis of which the addition of Rs. 80 lakh could have been justified except for the statement of Shri Tarun Goyal which we have already held as not being incriminating material qua the assessee. The Ld. CIT DR has relied on the judgment of the Hon’ble Kerala High Court in E.N. Gopakumar vs. CIT (supra). However, we note that the Jurisdictional High Court in the case of CIT vs. Kabul Chawla (supra) is squarely in favour of the assessee and the Hon’ble Delhi High Court being the jurisdictional High Court for the assessee we are bound to follow the law as laid down by the Hon’ble jurisdictional High Court. We also note that another judgment of the Hon’ble Delhi High Court in the case of Smt. Dayawanti vs. CIT (supra) has since been stayed by the Hon’ble Apex Court and, therefore, the judgment of the Hon’ble Delhi High Court in the case of CIT vs. Kabul Chawla Assessment year 2006-07 (supra) will have to be followed. In Para 37 of this judgement, the Hon’ble Delhi High Court has summarized the legal position as under:

“37. On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs “in which both the disclosed and the undisclosed income would be brought to tax”.

Assessment year 2006-07 iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material.” v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which Assessment year 2006-07 were not produced or not already disclosed or made known in the course of original assessment.”

9.1 As per Para (iv) above it has been held that though Section 153A does not say that addition should be strictly made on the basis of the evidence found in the course of the search, or other post search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment can be made without any reference or establishing any nexus with the seized material. Thus, as per this judgment, the existence of the seized material found during search is a must for making addition in those assessment years which have not abated. Therefore, in view of the above judgment of the Hon’ble Delhi High Court, respectfully following the same, it is our considered opinion that no addition could have been made u/s 68 of the Act in view of the fact that no incriminating material was found during the course of search to which this impugned addition could be related. Accordingly, we allow the ground raised by the assessee in its application filed under Rule 27 of the ITAT Rules, 1963 and hold that the Assessing Officer could not have made the impugned addition in absence of any incriminating material on record. In view of our holding thus, the Assessment year 2006-07 appeal filed by the department becomes in fructuous. Accordingly, we dismiss the grounds raised by the department.

10.0 In the result, the appeal filed by the department stands dismissed.

Order pronounced in the open court on 10th October, 2018.