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Income Tax Appellate Tribunal, DELHI BENCH ‘C’, NEW DELHI
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘C’, NEW DELHI Before Sh. N. K. Saini, AM and Smt. Beena A. Pillai, JM ITA No. 4256/Del/2014 : Asstt. Year : 2005-06 ITA No. 4257/Del/2014 : Asstt. Year : 2006-07 ITA No. 4258/Del/2014 : Asstt. Year : 2007-08 ITA No. 4259/Del/2014 : Asstt. Year : 2008-09 ACIT, Vs M/s Gee Ispat Pvt. Ltd., Central Circle-5, A-28, Sector 19, Rohini, New Delhi Delhi-110085 (APPELLANT) (RESPONDENT) PAN No. AACCG0954G ITA No. 5424/Del/2014 : Asstt. Year : 2005-06 ITA No. 5475/Del/2014 : Asstt. Year : 2006-07 ITA No. 5425/Del/2014 : Asstt. Year : 2007-08 ITA No. 5476/Del/2014 : Asstt. Year : 2008-09 M/s Gee Ispat Pvt. Ltd., Vs ACIT, A-28, Sector 19, Rohini, Central Circle-5, Delhi-110085 New Delhi (APPELLANT) (RESPONDENT) PAN No. AACCG0954G Assessee by : Sh. Gautam Jain & Piyush K. Kamal & Sh. Lalit Mohan, Advs. Revenue by : Sh. Sanjit Singh, CIT DR Date of Hearing : 09.05.2018 Date of Pronouncement : 31.05.2018 ORDER Per N. K. Saini, AM: These cross appeals by the department and the assessee are directed against the separate orders each dated 19.05.2014 of ld. CIT(A)-XXXI, New Delhi.
2 ITA Nos. 5424, 5425, 5475, 5476/Del/2014 & ITA Nos. 4256 to 4259/Del/2014 Gee Ispat Pvt. Ltd. 2. Since, the issues involved are common in these appeals which were heard together, so, these are being disposed off by this consolidated order for the sake of convenience and brevity.
The Registry has pointed out that the appeals filed by the assessee are barred by limitation by 63 days. The assessee moved application for condonation of delay for the assessment year 2005- 06 stating therein as under: “Hon'ble Sir(s), 1 The assessee has been filed an appeal against the order of learned Commissioner of Income Tax (Appeals) XXXI, New Delhi dated 19.05.2014 in ITA No 5424/D/2014. According to the statutory provisions contained in section 253 of the Act, the appeal has to be filed within sixty days of service of order of learned Commissioner of Income Tax (Appeals)-31, New Delhi. 2. In the instant case, the aforesaid order was served on the appellant on 06.06.2014 and, as such the captioned appeal was due to be filed by 05.08.2014 whereas the appeal has been filed on 07.10.2014 leading to a delay of 63 days. The delay so occurred in filing the instant appeal is inadvertent and bonafide. 2.1 It is submitted that since January 2014 factory of the assessee company has been shut down and, the company has laid off all its employees alongwith accounts/taxation staff. As a result, there is multiple litigation with banks and, other statutory authorities. Consequently there was a bonafide inadvertent delay in filing of appeal before the Hon'ble Tribunal. An Affidavit of the directors of the company along with documents in support of the above explanation is enclosed herewith as Annexure to Application. It is therefore prayed that, delay of 63 days in filing of the instant appeal may kindly be condoned, in
3 ITA Nos. 5424, 5425, 5475, 5476/Del/2014 & ITA Nos. 4256 to 4259/Del/2014 Gee Ispat Pvt. Ltd. view of the provision contained in section 253 of the Act. 2.2 It is submitted that instant delay was not caused on account of laches, malafide intention and gross negligence on the part of the applicant/appellant. 2.3 Reliance is placed on following judicial pronouncements: i) (2002) AIR 1201 RamNath Sao v Gobardhan Sao and Others "Thus it becomes plain that the expression "sufficient cause" within the meaning of Section 5 of the Act or Order 22 Rule 9 of the Code or any other similar provision should receive a liberal construction so as to advance substantial justice when no negligence or inaction or want of bona fides is imputable to a party. In a particular case whether explanation furnished would constitute "sufficient cause" or not will be dependent upon facts of each case. There cannot be a straitjacket formula for accepting or rejecting explanation furnished for the delay caused in taking steps. But one thing is clear that the courts should not proceed with the tendency of finding fault with the cause shown and reject the petition by a slipshod order in over-jubilation of disposal drive. Acceptance of explanation furnished should be the rule and refusal, an exception, more so when no negligence or inaction or want of bona fides can be imputed to the defaulting party. On the other hand, while considering the matter the courts should not lose sight of the fact that by not taking steps within the time prescribed a valuable right has accrued to the other party which should not be lightly defeated by condoning delay in a routine-like manner. However, by taking a pedantic and hypertechnical view of the matter the explanation furnished should not be rejected when stakes are high and/or arguable points of facts and law are involved in the case, causing enormous loss and irreparable injury to the party against whom the lis terminates, either by
4 ITA Nos. 5424, 5425, 5475, 5476/Del/2014 & ITA Nos. 4256 to 4259/Del/2014 Gee Ispat Pvt. Ltd. default or inaction and defeating valuable right of such a party to have the decision on merit. While considering the matter, courts have to strike a balance between resultant effect of the order it is going to pass upon the parties either way." [Emphasis Supplied] ii) (1998) 7 SCC 123 N. Balakrishan v. M. Krishnamurthy "It must be remembered that in very case of delay, there can be some lapse on the part of the litigant concerned. That alone is not enough to turn down his plea and to shut the door against him. If the explanation does not smack of mala fides or it is not put forth as part of dilatory strategy, the court must show utmost consideration to the suitor. But when there is reasonable ground to think that the delay was occasioned by the party deliberately to gain time, then the court should lean against acceptance of the explanation. While condoning the delay, the court should not forget the opposite party altogether. It must be borne in mind that he is a loser and he too would have incurred quite large litigation expenses" [Emphasis Supplied] iii) 167 ITR 471 (SC) Collector, Land Acquisition vs. Mst. Katiji & Ors. "The expression '"sufficient cause" employed by the legislature is adequately elastic to enable the courts to apply the law in the meaningful manner which sub serves the needs to justice - that being the life -purpose of the existence of the institution of courts. It is common knowledge that this court has been making a justifiably liberal approach in matters instituted in this court. But the message does not appear to have percolated down to all the other courts in the hierarchy".
5 ITA Nos. 5424, 5425, 5475, 5476/Del/2014 & ITA Nos. 4256 to 4259/Del/2014 Gee Ispat Pvt. Ltd. 3. Therefore, it is most respectfully prayed that delay of 63 days in filing of the instant appeal may kindly be condoned u/s 253 of the Act.” Yours sincerely, M/s Gee Ispat (P) Ltd. Sd/- (Director) 4. In support of the above, the Directors of the assessee filed an affidavits each dated 27.02.2018 which are placed on record. Similar applications have been filed for the assessment years 2006- 07 to 2008-09.
During the course of hearing, the ld. Counsel for the assessee reiterated the contents of the aforesaid application and submitted that there was a reasonable cause in filing the appeals belated. Therefore, the delay may be condoned.
In his rival submissions, the ld. CIT DR objected and submitted that there was no reasonable cause in filing the appeals belated, therefore, delay may not be condoned.
After considering the submissions of both the parties and the material on record, it appears that the assessee company had been shut down since January 2014 and it had laid off all its employees, so there was a reasonable cause in filing the appeals belated. Accordingly, the delay in filing the appeals is condoned and the appeals are admitted.
6 ITA Nos. 5424, 5425, 5475, 5476/Del/2014 & ITA Nos. 4256 to 4259/Del/2014 Gee Ispat Pvt. Ltd. 8. At the first instance, we take up the cross appeals for the assessment year 2005-06. The grounds raised by the assessee in its appeal read as under: “1. The order passed by the Ld. CIT(A)-XXXI confirming the addition of Rs. 51,00,000/- u/s 68 is bad in law and nature because of: a) No incriminating material was found during the search as such upholding the addition without any cogent search material is illegal. b) The Ld. CIT(A)-XXXI ignored the fact that the report of the Income Tax Inspector deputed to verify the existence of these subscribers itself inscribed the existence of these subscribers and the same were not confronted by the assessee. c) The Ld. CIT(A) has erred in refusing the acceptance of additional evidence under Rule 46A submitted during the course of hearing thereby denying the legitimate right of the assessee to adduce evidences during the appea.1 process. d) That the Ld. CIT(A) has erred the submission of the assessee duly acknowledged by him that the assessee has submitted the required documents i.e. ITR, Balance Sheet, Confirmations, PAN, Bank Statement of the subscribers at the time of hearing duly acknowledged by the AO in his Assessment order, duly noted by him thereby rejection of the acceptance of these documents is illegal. 2. The assessee craves leave for the addition, modification, alteration of any of the above grounds of appeal.” 9. The grounds raised by the department in its appeal read as under:
7 ITA Nos. 5424, 5425, 5475, 5476/Del/2014 & ITA Nos. 4256 to 4259/Del/2014 Gee Ispat Pvt. Ltd. “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.29,86,532/- made by the Assessing Officer on account of disallowance of pre-operative expenses. 3. The appellant craves leave to add, amend any/all the ground of appeal before or during the course of hearing of the appeal.”
The main grievance of the assessee in this appeal relates to the addition made in the absence of any incriminating material found during the course of search.
The facts of the case in brief are that the original return of income was filed by the assessee on 31.10.2005 declaring a loss of Rs.2,46,66,340/-. Thereafter, a search was conducted on 07.01.2010 at the assessee’s premises and notices u/s 153A of the Income Tax Act, 1961 (hereinafter referred to as the Act) were issued on 08.11.2010. The assessee vide reply dated 08.12.2010 filed the return declaring the same loss as was declared in the original return of income. However, the AO framed the assessment u/s 153A/143(3) of the Act vide order dated 29.12.2011 making an addition of Rs.51,00,000/- on account of share application money and disallowed a sum of Rs.29,86,532/- out of the expenses debited in the profit and loss account amounting to Rs.34,12,036/-.
Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted that the assessment had not been framed on
8 ITA Nos. 5424, 5425, 5475, 5476/Del/2014 & ITA Nos. 4256 to 4259/Del/2014 Gee Ispat Pvt. Ltd. the basis of material seized u/s 132 of the Act, therefore, it was bad in law.
The ld. CIT(A) after considering the submissions of the assessee observed that during the course of search at the assessee’s premises blank singed Share Transfer Forms of some of the descript companies, who were shown as investors in the share capital of the assessee company were found and seized and that the action u/s 132 of the Act revealed that shares held by nondescript companies had been transferred to the Directors and their family members at much lower price. He, therefore, did not agree with the submissions of the assessee that the assessment had not been framed on the basis of seized material. The ld. CIT(A) sustained the addition of Rs.51,00,000/-. He also rejected the application of the assessee for admitting the additional evidences under Rule 46A of the Income Tax Rules, 1962. However, the disallowance of Rs.29,86,532/- was deleted by observing that the expenditure had not been doubted by the AO. He also observed that even trial run of machine would amount to “put to use”, so there was no valid justification in holding the power and fuel expenses incurred on running the machines as preoperative to be capitalized.
Now the department is in appeal against the relief granted by the ld. CIT(A) while the assessee is in appeal against the sustenance of addition and had challenged the validity of the assessment framed u/s 153A r.w.s. 143(3) of the Act in the absence of any incriminating material found during the course of search.
9 ITA Nos. 5424, 5425, 5475, 5476/Del/2014 & ITA Nos. 4256 to 4259/Del/2014 Gee Ispat Pvt. Ltd. 15. The ld. Counsel for the assessee submitted that the additions/disallowances made were not based on any incriminating material found as a result of search on the assessee company on 07.01.2010. It was further submitted that it is a case of non-abated assessment as the original returns of income were filed much earlier than the search operation as per following details: Assessment Year Return filed on 2005-06 31.10.2005 2006-07 4.12.2006 2007-08 14.10.2007 2008-09 30.09.2009 16. It was further submitted that since no notice u/s 143(2) of the Act was issued for the assessment years 2005-06 and 2008-09 and the assessments were framed u/s 143(3) of the Act for the assessment years 2006-07 and 2007-08. Therefore, the original assessment proceedings had attained finality much prior to the date of search on 07.01.2010. The assessee also filed chronological sequence of events which read as under: 1 CHRONOLOGICAL SEOUENCE OF EVENTS Sr. No. Particulars Assessment years 2005-06 2006-07 2007-08 2008-09 i) Original Return of Income (supported by audited financial statement and tax audit report) Date 31.10.2005 4.12.2006 14.10.2007 30.9.2008 Income Declared (2,46,66,340) Nil Nil 2,82,28,086 ii) Original Assessment Date of order 30.12.2008 30.12.2009 Section 143(1) 143(3) 143(3) 143(1)
10 ITA Nos. 5424, 5425, 5475, 5476/Del/2014 & ITA Nos. 4256 to 4259/Del/2014 Gee Ispat Pvt. Ltd. iii) Date of Notice u/s 153A (as a 8.11.2010 8.11.2010 8.11.2010 8.11.2010 result of search carried on 7.1.2010 on "Gee Ispat Group of cases") iv) Date of filing of Income Reply dated Reply dated Reply dated Reply dated 8.12.2010 Tax Return in response to 8.12.2010 8.12.2010 8.12.2010 notice u/s 153 A v) Assessment u/s 153A/143(3) or 143(3) Date of order 29.12.2011 29.12.2011 29.12.2011 29.12.2011 Income Assessed (1,65,79.808) 8.48,92,299 7,65,01,434 11,91,54,460 Addition on account of share 51,00,000 8.62,50,000 4,69,50,000 4,50,000 V application money/share capital and share premium received by the appellant company and held as unexplained cash credit u/s 68 of the Act. Disallowance on account of 29,86,532 --------- -------- -------- pre-operative expenses Addition made on account of --------- 53,50,000 2,37,77,225 4,50,00,000 unsecured loans Disallowance on account of excessive claim of --------- 37,07,507 8,92,250 --------- deprecation Disallowance by invoking of section 35D of the Act on account of preliminary --------- 2,96,175 --------- --------- expenses. Disallowance of expenses --------- --------- 2,26,188 5,63,008 Addition made on account of undisclosed income as per --------- --------- --------- 3,07,71,221 seized statement of affairs vi) CIT(A) Order Date of CIT(A) 19.5.2014 19.5.2014 19.5.2014 19.5.2014 Findings Partly allowed Partly Partly Partly allowed allowed allowed Addition on account of share 51,00,000 8.62,50,000 4,69,50,000 4,50,000 application money/share (Upheld) (Upheld) (Upheld) (upheld) capital and share premium received by the appellant company and held as unexplained cash credit u/s 68 of the Act
11 ITA Nos. 5424, 5425, 5475, 5476/Del/2014 & ITA Nos. 4256 to 4259/Del/2014 Gee Ispat Pvt. Ltd. Disallowance on account of 29,86,532 --------- --------- --------- pre-operative expenses (Deleted) Addition made on account of 53,50,000 2,37,77,225 4,50,00,000 unsecured loans (Deleted) (Deleted) (Deleted) 10,00,000 (Upheld) Disallowance on account of --------- 37,07,507 8,92,250 --------- excessive claim of (Deleted) (Deleted) deprecation Addition made on account of 3,07,71,221 undisclosed income as (Deleted) per seized statement of affairs
The ld. Counsel for the assessee submitted that none of the documents found as a result of search was incriminating material. A reference was made to page nos. 19 & 20 and 148 & 149 of the assessee’s paper book. It was pointed out that in the assessment order also, the AO had not even noted about any alleged seized document or material found as a result of search which could be said to be incriminating material, therefore, the addition made by the AO u/s 153A of the Act in the absence of any incriminating material was not tenable. The reliance was placed on the following case laws: � CIT Vs Meeta Gutgutia 395 ITR 526 (Del.) � CIT Vs Sinhgad Technical Education Society 378 ITR 84 (Bom.) � Anurag Dalmia Vs DCIT in ITA No. 5395 & 5396/Del/2017 order dated 15.02.2018 � Jaipuria Infrastructure Developers (P) Ltd. Vs ACIT in ITA No. 5522 & 5523/Del/2015 order dated 27.06.2016 � Pr. CIT Vs Sunrise Finlease (P) Ltd. 252 Taxman 407 (Guj.) � CIT Vs Kabul Chawla 380 ITR 573 (Del.) � Pr. CIT Vs Lata Jain 384 ITR 543 (Del.) � CIT Anil Kumar Bhatia 352 ITR 493 (Del.)
12 ITA Nos. 5424, 5425, 5475, 5476/Del/2014 & ITA Nos. 4256 to 4259/Del/2014 Gee Ispat Pvt. Ltd. � CIT Vs Kurele Paper Mills P. Ltd. 380 ITR 571 (Del.) � CIT Vs MGF Automobiles Ltd. 241 Taxman 440 (Del.) � Pr. CIT Vs Ram Avtar Verma (2017) 395 ITR 252 � CIT Vs Harjeev Aggarwal 290 CTR 263 (Del.) � Suncity Projects (P) Ltd. Vs DCIT 46 CCH 320 (Del.) � CIT Vs All Cargo Gobal Logistics Ltd. in ITA No. 1969 of 2013 � CIT Vs Continental Warehousing Corporation (Nhava Sheva) Ltd. 374 ITR 645 � CIT Vs Gurinder Singh Bawa 386 ITR 483 � Pr. CIT Vs Saumya Construction (P) Ltd. 387 ITR 529 (Guj.) � Jai Steel India Vs ACIT 259 CTR 281 (Raj.) � CIT Vs IBC Knowledge Park (P) Ltd. 385 ITR 346 (Kar.) � Pr. CIT Vs Dipak Jashvantlal Panchal (2017) 397 ITR 153 (Guj.) 18. In his rival submissions, the ld. Sr. DR strongly supported the orders of the authorities below and furnished a written submission which read as under: “1. Search in the case of assessee group was conducted on 07.01.10 during the course of search at the assessee's premises blank signed share transfer forms of some of the companies who were shown as investors in the share capital of the assessee company were found and seized/para 4.1 of CIT(A) order]. The blank transfer forms duly signed by the allottees, blank affidavits were found and seized from the assessee's premises e.g. pages 9,10,12,15,16, 33, 34, 55, 56, 61 and 62 of annexure AA- 1 are blank sign share transfer forms of some of the share allottee companies such as M/s NEPC Industries Ltd, M/s Telstar Editing Pvt. Ltd, and M/s Soft Gate Technologies Pvt. Ltd, etc. [para 4.2.8 of CIT(A) order]. 2. The action u/s 132 and post search inquiries also revealed that shares allotted to nondescript companies at high premium had been subsequently transferred to the assessee company's directors and their family members at
13 ITA Nos. 5424, 5425, 5475, 5476/Del/2014 & ITA Nos. 4256 to 4259/Del/2014 Gee Ispat Pvt. Ltd. a much lower price them they were acquired by such nondescript companies. 3. The AO confirmed before the CIT(A) the details of the seized documents which supported the additions made by the AO [para 4.2.6 of CIT(A) order] 4. Share capital was introduced by the assessee company in 4 assessment years as follows: AY Share Capital (Rs) 2005-06 51,00,000 2006-07 8,62,50,000 2007-08 4,69,50,000 2008-09 4,50,000 This was done through a number of nondescript companies and persons who have subsequently transferred all their shares to the assessee company's directors and their family members at face value or even less. These facts came to light during search and post search enquiries. It was also revealed that these companies to whom shares had been issued at a huge premium which were subsequently transferred to the promoters at very low values, were essentially paper companies or persons who were not doing any business [para 4.2.8 of CIT(A) order]. This modus-operandi of the assessee has also been discussed in detail by the Assessing Officer. 5. The AO has discussed in detail that the features of the modus operandi of introducing share capital by the assessee company which were as follows: a) The assessee company is a Pvt. Ltd. company closely held by family of the promoters. b) In order to enhance their share capital the assessee company did not invite any application through an IPO etc.
14 ITA Nos. 5424, 5425, 5475, 5476/Del/2014 & ITA Nos. 4256 to 4259/Del/2014 Gee Ispat Pvt. Ltd.
c) Therefore it may be presumed that the persons investing in the share capital of the assessee company must be known to the promoters very well. d) It was however noted in post search inquiries that the persons paying the share application money had no business relations nor any transactions with the assessee company. Such persons were also not personally related to the promoters by way of family relations etc. e) It was also seen that these nondescript companies and persons who had allegedly invested in share capital of the assessee company have subsequently transferred all their shares to the assessee company's directors and their family members at face value or even less. f) Search at the assessee's premises led to the seizure of blank, share transfer forms duly signed by the allottees and affidavits of some of the companies/persons who were shown as investors in the share capital of the assessee company e.g. pages 9,10,12,15,16, 33, 34, 55, 56, 61 and 62 of annexure AA-1 are blank sign share transfer forms of some of the share allottee companies such as M/s NEPC Industries Ltd, M/s Telstar Editing Pvt. Ltd, and M/s Softgate Technologies Pvt. Ltd, etc g) The above points to the fact that the assessee company's promoters had adopted a modus operandi to "allot" shares to non descript companies/persons at a high premium and simultaneously obtained blank transfer forms, affidavits etc from such "allottees" to ensure that the shares are sold back to the promoters or their family members.
15 ITA Nos. 5424, 5425, 5475, 5476/Del/2014 & ITA Nos. 4256 to 4259/Del/2014 Gee Ispat Pvt. Ltd. h) This points to the fact that these entries have been arranged by professional entry providers who acted as a conduit between the assessee company and the alleged share capital providers. i) The assessee, as expected, could not furnish evidence to verify the identity, creditworthiness and genuineness of the stated transactions of these entities which had contributed the share capital. j) The AO in view of the above matrix of facts and circumstances specifically asked that the assessee produce the principal officers of the entities making contribution to the share capital. To this the AR submitted "as far as personal deposition of principal officers of the entities making contribution to the share capital, it is not possible to produce them". k) Thus the assessee failed to discharge the onus cast upon him u/s 68 of the Act to prove the identity, creditworthiness as well as the genuineness of the transactions in question. On the basis of the above seized material and investigations made in connection with the search the AO was completely justified in making the additions to the alleged share capital introduction by the assessee in the above four assessment years viz. A. Y 2005-06 to 2008-09. The assessment order passed was made u/s 153A on the basis of seized material and inquiries related thereto. The additions can in no manner be termed "arbitrary or made without any relevance or nexus with the seized material." 19. The reliance was placed on the following case laws: � CIT Vs Navodaya Castle Pvt. Ltd. (2014) 367 ITR 306 (Del.) � Prem Castings (P.) Ltd. Vs CIT (2017) 88 Taxmann.com 189 (All.) � CIT Vs Nipun Builders & Developers (P.) Ltd. 350 ITR 407 (Del.)
16 ITA Nos. 5424, 5425, 5475, 5476/Del/2014 & ITA Nos. 4256 to 4259/Del/2014 Gee Ispat Pvt. Ltd. � CIT Vs Nova Promoters & Finlease (P) Ltd. 342 ITR 169 (Del.) � CIT Vs Ultra Modern Exports (P.) Ltd. 40 Taxmann.com 458 (Del.) � CIT Vs Frostair (P.) Ltd. 26 Taxmann.com 11 (Del.) � CIT Vs N R Portfolio Pvt. Ltd. (2013) 29 Taxmann.com 291 (Del.) � CIT Vs Empire Builtech (P.) Ltd. 366 ITR 110 (Del.) � CIT Vs Focus Exports (P.) Ltd. 51 Taxmann.com 46 (Del.) � PCIT Vs Bikram Singh in ITA No. 55/2017 (Del.) � Rick Lunsford Trade & Investment Ltd. Vs CIT (2016) 385 ITR 399 (Cal.) � Rick Lunsford Trade & Investment Ltd. Vs CIT [2016-TIOL- 207-SC-IT] � CIT Vs N Tarika Properties Investment (P.) Ltd. (2013) 40 Taxmann.com 525 (Del.) � N Tarika Properties Investment (P.) Ltd. Vs CIT (2014) 51 Taxmann.com 387 (SC) � Konark Structural Engineering (P.) Ltd. Vs DCIT (2018) 90 Taxmann.com 56 (Bom.) 20. We have considered the submissions of both the parties and perused the material available on the record. In the present case, it is an admitted fact that the assessee filed the returns of income for the assessment years 2005-06 to 2008-09 on 31.10.2005, 04.12.2006, 14.10.2007 and 30.09.2008 respectively. The assessments were framed u/s 143(3) of the Act for the assessment ears 2006-07 & 2007-08 vide orders dated 30.12.2008 and 30.12.2009 respectively while the intimations were issued for the assessment years 2005-06 and 2008-09 u/s 143(1) of the Act. Since, no notice u/s 143(2) of the Act was issued to the assessee for the assessment years 2005-06 and 2008-09 within the stipulated period, therefore, it attained the finality much prior to the date of search u/s 132 of the Act which took place on 07.01.2010. As such, the
17 ITA Nos. 5424, 5425, 5475, 5476/Del/2014 & ITA Nos. 4256 to 4259/Del/2014 Gee Ispat Pvt. Ltd. assessments for the years under consideration were not abated and attained the finality.
As regards to the issue, as to whether the intimation u/s 143(1) of the Act can be considered as an assessment when the notice u/s 143(2) of the Act is not issued within the specified period. The Hon’ble Karnataka High Court in the case of CIT & Anr. Vs IBC Knowledge Park P. Ltd. (2016) 385 ITR 346 (supra) held as under: “A search was conducted on Y, Z and IBC on June 17, 2008. One of the offices of the assessee was in the same premises where the search took place. Certain documents belonging to the assessee were seized and the Assessing Officer of the persons in whose cases search was conducted transferred the documents to the Assessing Officer of the assessee under section 153C of the Act. Assessment orders under section 143(3) read with section 153C were passed for the assessment years 2004-05 to 2008-09. In respect of the assessment year 2004-05, the Tribunal noted that as on the date the search was con- ducted i.e., on June 17, 2008, no assessment proceeding was pending and as no undisclosed income was detected, the assessment made under section 153A read with section 153C of the Act the Tribunal quashed the assessment. For the assessment year 2005-06, though no order under section 143(3) had been passed, an intimation under section 143(1) had been issued. The Tribunal held that for the purpose of section 153A read with section 153C of the Act, an intimation under section 143(1) was also an order of assessment. It upheld the validity of the assessment for the assessment year 2005- 06.”
18 ITA Nos. 5424, 5425, 5475, 5476/Del/2014 & ITA Nos. 4256 to 4259/Del/2014 Gee Ispat Pvt. Ltd. It has further been held as under: “That one of the conditions precedent for invoking a block assessment pursuant to a search in respect of a third party under section 158BD of the Act, i.e., recording satisfaction that undisclosed income belongs to the third party, which was detected pursuant to a search had not been complied with. Though documents belonging to the assessee were seized at the time of search operation, there was no incriminating material found leading to undisclosed income. Therefore, assessment of income of the assessee was unwarranted.” 22. In the present case also, the intimation was issued u/s 143(1) of the Act for the assessment years 2005-06 and 2008-09, however, the time to issue the notice u/s 143(2) of the Act had already expired before the search took place on 07.01.2010, therefore, the assessments for these years were not abated. In the instant case, the assessments were completed u/s 143(3) of the Act for the assessment years 2006-07 and 2007-08 much prior to the date of search on 07.01.2010. As such these assessments attained the finality and were not abated. The AO made the additions on account of share application money/share capital/ share premium and unsecured loans received by the assessee u/s 68 of the Act on the basis of the material which was already available on the record and considered in the regular assessments much prior to the search u/s 132 of the Act. The other additions were made by the AO on account of disallowances out of the expenses etc. which were relating to depreciation, preliminary expenses and other expenses etc. but those additions/disallowances were not on the basis of any incriminating material found during the course of search. In the
19 ITA Nos. 5424, 5425, 5475, 5476/Del/2014 & ITA Nos. 4256 to 4259/Del/2014 Gee Ispat Pvt. Ltd. present case, the only documents found were alleged blank signed share transfer form of the nondescript company which cannot be considered as incriminating material when nothing was mentioned on those documents. In the present case, the AO nowhere mentioned about any alleged seized documents or material found as a result of search which could be said to be incriminating material.
On a similar issue, the Hon’ble Gujarat High Court in the case of Pr. CIT Vs Dipak Jashvantlal Panchal (2017) 397 ITR 153 (supra) held as under: “Section 153A of the Income-tax Act, 1961, bears the heading "assessment in case of search or requisition". The heading of the section can be regarded as a key to the interpretation of the operative portion of the section and if there is no ambiguity in the language or if it is plain and clear, then the heading used in the section strengthens that meaning. From the heading of the section, the intention of the Legislature is clear, viz., to provide for assessment in case of search and requisition. When the very purpose of the provision is to make assessment in case of search or requisition, it goes without saying that the assessment has to have relation to the search or requisition. In other words, the assessment should be connected with something found during the search or requisition, viz., incriminating material which reveals undisclosed income. Thus, while in view of the mandate of sub-section (1) of section 153A of the Act, in every case where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish returns of income for the six years preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made, any addition or disallowance can be made only on the basis of material collected during the search or requisition.”
20 ITA Nos. 5424, 5425, 5475, 5476/Del/2014 & ITA Nos. 4256 to 4259/Del/2014 Gee Ispat Pvt. Ltd. 24. In the present case, since no incriminating material was found, therefore, the addition made by the AO u/s 153A of the Act was not justified.
On an identical issue, the Hon’ble Jurisdictional High Court in the case of CIT Vs Kabul Chawla (2016) 380 ITR 573 (supra) held as under: “The legal position that emerges on a perusal of section 153A and section 132 of the Income-tax Act, 1961, is as under : (i) Once a search takes place under section 132 of the Act, notice under section 153A(ll will have to be mandatorily issued to the person in respect of whom search was conducted requiring him to file returns for six assessment years immediately preceding the previous year relevant to the assessment year in which the search takes place. (ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such assessment years will have to be computed by the Assessing Officers as a fresh exercise, (iii) The Assessing Officer will exercise normal assessment powers in respect of the six years previous to the relevant assessment year in which the search takes place. The Assessing Officer has the power to assess and reassess the "total income" of the 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 assessment years in which both the disclosed and the undisclosed income would be brought to tax. (iv) Although section 153A 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 Assessing Officer 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
21 ITA Nos. 5424, 5425, 5475, 5476/Del/2014 & ITA Nos. 4256 to 4259/Del/2014 Gee Ispat Pvt. Ltd. the basis of the seized material, (v) In the 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 153A is relatable to abated proceedings (i.e., those pending on the date of search) and the word "reassess" to completed assessment proceedings, (vi) In so far 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 assessment year on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer, (vii) Completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A 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 were not produced or not already disclosed or made known in the course of original assessment.” 26. A similar view has been taken by the Hon’ble Jurisdictional High Court in the case of Pr. CIT Vs Meeta Gutgutia Prop. M/s Ferns “N” Petals (2017) 395 ITR 526 (supra) wherein it has been held as under: “Any and every document cannot be and is not an incriminating document. No addition can be made for a particular assessment year without there being an incriminating material qua that assessment year which would justify such an addition.” 27. Similarly, their Lordships of the Hon’ble Jurisdictional High Court in the case of Pr. CIT Vs Ram Avtar Verma (2017) 395 ITR 252 (supra) observed as under:
22 ITA Nos. 5424, 5425, 5475, 5476/Del/2014 & ITA Nos. 4256 to 4259/Del/2014 Gee Ispat Pvt. Ltd. “The Commissioner of Income-tax (Appeals), after considering the record, was of the opinion that the additions could not be justified, and accordingly granted relief, holding that no incriminating material was recovered during the search. The Revenue's appeal was rejected. The Income-tax Appellate Tribunal held as follows: "10. As per the paper book filed by the learned authorized representative showing the Panchnama from where learned Departmental representative could not point out any material found during the course of search which could give even remote possibilities of altering the income of the assessee based on any incriminating documents. Admittedly both the assessment years in these appeals are completed assessments in case of the assessee. The reliance placed upon by the learned authorized representative on the decision of the Hon'ble Delhi High Court in the case of C/T v. Kabul Chawla [2016] 380 ITR 573 (Delhi) where original assessment have been made under section 143(1) of the Act is apt and squarely covers issue in favour of the assessee. The Hon'ble High Court in paragraph No. 37 of that decision has held that no addition can be made in the hands of the assessee in the absence of any incriminating material unearthed during the course of search or requisition of documents. On reading of the order of the Assessing Officer we could not find that there is any incrimi- nating material referred to by the Assessing Officer which is found during the course of search for making these additions. Therefore, respectfully following the decision of the Hon'ble Delhi High Court in the case of CIT v. Kabul Chawla (supra) we confirm the order of the learned Commissioner of Income-tax (Appeals) and dismiss the appeal of the Revenue." The Revenue urges that the non obstante clause in section 153A together with section 158BD removes the barrier
23 ITA Nos. 5424, 5425, 5475, 5476/Del/2014 & ITA Nos. 4256 to 4259/Del/2014 Gee Ispat Pvt. Ltd. vis-a-vis restriction upon search assessments being confined to "undisclosed income". In other words, it is stated that none of the provisions confine the enquiry of the Assessing Officer to evaluating incriminating materials. This aspect, in the opinion of the court, was extensively dealt with in CIT v. Kabul Chawla [2016] 380 ITR 573 (Delhi) which has, by now, been followed consistently in several appeals. The non obstante clause, in the opinion of the court, was necessary, given that there is a departure from the pre-existing provisions, which applied for the previous years and had a different structure where two sets of assessment orders were made by the Assessing Officer during block periods. With the unification of assessment years for the block period, i.e. only one assessment order for each year in the block period, it was necessary for an overriding provision of the kind actually adopted in section 153A. But for such a non obstante clause, the Revenue could possibly have faced hurdles in regard to unadopted/current assessment years as well as reassessment proceedings pending at the time of the search in respect of which proceedings were to be completed under section 153A/ 153C. Having regard to the above directions, we are of the opinion that the Income-tax Appellate Tribunal's decision does not call for interference. Both the appeals are accordingly dismissed.” 28. In the present case, since no incriminating material was found during the course of search and the regular assessments for the years under consideration attained the finality. Therefore, the additions/disallowances made by the AO u/s 153A of the Act were not justified and the ld. CIT(A) wrongly sustained the additions/disallowances made by the AO. Accordingly, the same are deleted. As regards to the case laws relied by the ld. CIT DR is concerned, it is noticed that all those decisions relate to the
24 ITA Nos. 5424, 5425, 5475, 5476/Del/2014 & ITA Nos. 4256 to 4259/Del/2014 Gee Ispat Pvt. Ltd. additions made u/s 68 of the Act in the regular assessment and none of the cases relates to the assessment framed u/s 153A of the Act wherein additions were made in the absence of any incriminating material found during the course of search. Therefore, those decisions relied by the ld. CIT DR are distinguishable on facts of the present case. In that view of the matter, we allow the appeals of the assessee and do not see merit in the appeals of the department.
Since, the cases have been decided on the legal issues, no separate findings are being given on the other issues on merit raised by both the parties.
In the result, the appeals of the assessee are allowed and that of the department are dismissed. (Order Pronounced in the Court on 31/05/2018)
Sd/- Sd/- (Beena A. Pillai) (N. K. Saini) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 31/05/2018 *Subodh* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5.DR: ITAT ASSISTANT REGISTRAR