DCIT, NEW DELHI vs. M/S. M.A. PROJECTS (P) LTD., NEW DELHI

PER BEENA A PILLAI, JUDICIAL MEMBER Present Cross appeals have been filed by revenue and assessee against order dated 13/11/13 passed by Ld.CIT (A)-1, New Delhi for assessment year 2007-08 on the following grounds of appeal: “1. The CIT(A) erred in admitting additional evidence under Rule 46A. 2. That the CIT(A) erred in law and on facts of the case in deleting the addition of Rs.3,50,00,000/- on account of cash credit made by the AO.

ITA 565/Del/2014 Assessment Year : 2007-08 DCIT vs. M.A.Projects (P) Ltd., New Delhi & C.O.257/Del/2014 3. That the CIT(A) erred in law and on facts of the case in deleting the addition of Rs.1,75,00,000/- on account of commission @ 0.5%. 4. That the CIT(A) erred in law and on facts of the case in deleting the addition of Rs.14,00,000/- on account of unsecured loans. 5. (a) The order of the CIT(A) is erroneous and not tenable in law and on facts. (b) The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of hearing of the appeal.” Cross Objection 257/Del/2014 “The Ld.CIT(A) erred both in law and on facts in not quashing the entire addition of Rs.3,65,75,000/- on the basis of legal ground that the additions in question have no relation whatsoever to the material or evidence found in the course of search and there were no pending assessment proceedings on the date of search abating under second proviso to S.153A(1).” 2. Brief facts of the case are as under: Assessee for the year under consideration had filed return of income declaring ‘nil’ income. A search and seizure operation was carried out in the premises of Mahesh Mehta group of cases on 30/06/09. As per search warrant and punchnama assessee company was also covered under section 132/133A of the Income Tax Act, 1961 (the Act). Case was centralised along with other cases of Mahesh Mehta group of cases/companies. Subsequently notice under section 153A of the Act was issued in response to the above assessment years on 13/04/10 for furnishing of returns. Assessee

ITA 565/Del/2014 Assessment Year : 2007-08 DCIT vs. M.A.Projects (P) Ltd., New Delhi & C.O.257/Del/2014 filed return of income, originally filed as per provisions of section 139 of the Act for the year under consideration on 13/04/10. 2.1. Assessing Officer thereafter issued notice under section 143(2) read with 142(1) of the Act along with questionnaire in response to which Authorised Representative of assessee attended assessment proceedings from time to time and furnished required information/details as called for. Ld.AO observed that assessee during the year had shown no business activity being carried out, however, assessee diversified its funds to sister concerns/companies, where the Directors were having substantial interest. It was observed that these companies were engaged in property transaction and as noticed during the course of search, profits earned was not disclosed properly by these companies. The assessment was completed by Ld.A.O. at an income of Rs.3,65,75,000/- after making following additions: • addition u/s 68 of the Act on account of cash credit - Rs.3,50,00,000/- • addition on account of commission at 0.5%- Rs.1,75,000/- • addition on account of unsecured loans- Rs.14,00,000/- 2.2. Aggrieved by additions made, assessee preferred appeal before Ld.CIT(A). Before Ld.CIT(A), apart from challenging additions made by Ld.AO, assessee challenged validity of assessment proceedings under section 153A of the Act, which was not based on any seized materials.

ITA 565/Del/2014 Assessment Year : 2007-08 DCIT vs. M.A.Projects (P) Ltd., New Delhi & C.O.257/Del/2014 2.3. Ld.CIT(A) upheld the assessment proceedings but deleted additions on the basis of the documents filed by assessee as additional evidence. 3. Aggrieved by order of Ld.CIT(A) revenue as well as assessee are in cross appeals before us. 4. In appeal filed by revenue addition deleted by Ld.CIT(A) is under challenge and with the admission of additional evidence under rule 46A. 4.1. In the Cross Objection, assessee, has challenged legality of assessment order passed under section 153A of the Act. Since this issue raised in Cross Objection goes to root of addition, we are proceeding to adjudicate the Cross Objection raised by assessee first. At the outset Ld.AR relied upon decision of Coordinate Bench of the Tribunal in the case of ACIT vs. MKR Construction Pvt.Ltd., in ITA No. 5444/Del/2013 along with CO No. 128/Del/2014 for Assessment Year 2004-05. It was submitted that M/s MKR Construction Pvt. Ltd. was also one of the group concerns of Mahesh Mehta on whom search was conducted. 4.2. On perusal of order of this Tribunal in ACIT vs. MKR Construction Pvt.Ltd., it is observed that similar addition was made without there being any material or information gathered during the course of search. Ld. AR placed reliance upon the copy of the punchnama placed at page 14-18 along with the copy of the statement of Sh. Mahesh Mehta under section 132 (4) of the Act placed at page 19-24 of paper book. From, punchnama it has been

ITA 565/Del/2014 Assessment Year : 2007-08 DCIT vs. M.A.Projects (P) Ltd., New Delhi & C.O.257/Del/2014 pointed out that nothing relating to share application money was found during search in case of present assessee and that answers to various questions raised in the statement of Sh. Mahesh Mehta, recorded during search did not refer to any share application money nor anything is mentioned about assessee linking with any document seized for assessment year under consideration before us. The only relevant question that has been referred to in the statement recorded, regarding assessee before us is as under: “Q.9. Kindly refer to bunch A-5 seized from your residence containing 102 pages and your attention is specifically initiated to page 97-99. Kindly state the facts of this transaction in detail. Ans. This bunch of paper is related to correspondence and agreement in respect of property Plot No.115 Phase -1, Udyog Vihar, Gurgaon, owned by the company M/s Raj Refillers and Fire safety Equipment (P) Ltd. which was owned by way of shareholding by Mr. Rakesh Kumar Garg S/o Devi Das Garg and Santosh Kumar Garg S/o Devi Das Garg vide agreement dated 04.09.2007 placed in this bunch at page 77 to 80. This property was transferred to me and my wife Smt. Kusum Mehta (50% share each) by way of transfer of 3500 equity shares for consideration of Rs .2.18 crores. Apart from this we had also repaid unsecured loans of the shareholders of approximately Rs. 3 crores. In this way total consideration for acquiring the property held in the company was Rs.5.l8 crore. Transfer of shares from Rakesh Garg and Santosh Garg in my name and wife's name by Haryana State Industrial and Infrastructure Development Corporation Ltd. vide letter dated 14.l2.2007 placed at page 101 of the bunch. To get out of this litigation myself and my wife agreed to transfer their entire shareholding to members of Arora Family (c/o Lambada Microwave) 475, Udyog vihar, Phase-IV, Gurgaon, Haryana. Initially the draft agreement was prepared on 22.02.2008 which is placed on page 97 to 99 of the bunch whereas

ITA 565/Del/2014 Assessment Year : 2007-08 DCIT vs. M.A.Projects (P) Ltd., New Delhi & C.O.257/Del/2014 as in capacity of sellers myself and my wife agreed to transfer to the shares to Mr Kunjan Arora S/o Ramesh Arora or their nominee for total consideration of Rs.25,00,01,100/- (Rupees Twenty Five Crores Eleven Hundred only) It was agreed that at the time of signing of agreement, amount of Rs. 18,50,01,100/- (Rupees Eighteen Crore Fifty Lacs Eleven Hundred only) and remaining amount of Rs.6.50 crore would be paid at the time of provisional transfer and final transfer of plot to Mr.Kunjan Arora or his nominee. However, later on, in actual transaction date of payment have undergone variation and it was orally agreed that out of this total consideration of Rs.25,00,01,100/- expenses for transfer with HSIIDC (approx. 1.5 crore ) would be deducted from the consideration. Till date I have received Rs. 18,50,01,100/-. Substantial part of Rs. 6.93 crore were received in June 2009 itself. Now, shares are to be transferred in the name of nominee of Mr.Kunjan Arora i.e. Deepti Arora W/o Kunjan Arora and Ramesh Arora father of Kunjan Arora. Santos Garg has already transferred shares in favour of nominee of Kunjan Arora in F.Y. 2008-09, Remaining formalities are likely to be completed in the coming month and balance payment could be received by me after FTL. Q.10. In what way, this amount ofRs.18,50,01,100/- is received in your books of accounts ? Ans. As per my direction and direction of my wife, the entire amount was received in the companies M/s M.A. Projects (P) Ltd. and M/s M.K.R. Construction (P) Ltd.”

4.3. Further in response to question no.15 raised by authorities, Sh.Mahesh Mehta offered for taxation additional unaccounted income in other concerns relevant for assessment year 2009-10 and 2010-11 but nothing has been surrendered or offered to tax relating to present assessee for assessment year under consideration before us.

ITA 565/Del/2014 Assessment Year : 2007-08 DCIT vs. M.A.Projects (P) Ltd., New Delhi & C.O.257/Del/2014 4.4. It has been submitted by Ld.AR that nothing incriminating was found during search in case of assessee, relating to impugned additions for year under consideration and therefore no addition can be made within the scope of assessment under section 153A of the Act, more particularly when assessment has not abated, and statutory limit for issue of notice under section 143 (2) has expired. 5. On the contrary Ld.CIT,DR submitted that once Assessing Officer is required under law to assess or reassess for Assessment Years covered under section 153A, then Assessing Officer (A.O.) has all the powers to examine all the issues, including issues arising out of original return of income or assessment. She submitted that powers envisaged upon A.O. under section 153A of the Act are unfettered. By placing reliance upon decision of Hon’ble Delhi High Court in case of CIT vs Anil Kumar Bhatia reported in 352 ITR 493, she submitted that Hon’ble High Court has held that A.O. under section 153A is to assess total income for assessment year not restricting to seized materials. 5.1. We have perused the submissions advanced by both the sides in the light of the records placed before us. We have also perused the decision of Hon’ble Delhi High Court in the case of CIT vs Anil Kumar Bhatia (supra). We refer to the following observations of Hon’ble High Court in the case of CIT vs Anil Kumar Bhatia (supra): “22. ………………………………… If it is not in dispute that the document was found in the course of the search of the assessee, then Section 153A is triggered. Once the Section is triggered, it appears mandatory for the Assessing Officer to issue

ITA 565/Del/2014 Assessment Year : 2007-08 DCIT vs. M.A.Projects (P) Ltd., New Delhi & C.O.257/Del/2014 notices under Section 153A calling upon the assessee to file returns for the six assessment years prior to the year in which the search took place. 23. We are not concerned with a case where no incriminating material was found during the search conducted under Section 132 of the Act. We, therefore, express no opinion as to whether Section 153A can be invoked even in such a situation. That question is therefore left open.” 5.2. On perusal of punchnama placed in paper book at page 14, it is observed that assessee’s name nowhere appears, and seized materials are in case of Sh.Mahesh Mehta, M/s. Mahesh Wood Products Pvt. Ltd. Further, the statement recorded under section 133 (4) of Sh.Mahesh Mehta do not refer to any seized material relating to share application money received by assessee for the year under consideration. 5.3. In a subsequent decision by Hon’ble Delhi High Court in the case of CIT vs Kabul Chawla reported in 380 ITR 570, Hon’ble Court observed and held as under: “35. In Commissioner of Income Tax v. Continental Warehousing Corporation (Nhava Sheva) Ltd. [2015] 58 Taxmann.Com 78 (Bom) the question addressed by the Bombay High Court was whether the scope of assessment under Section 153A encompasses additions, not based on any incriminating material found during the course of search? It was held that no addition could be made in respect of the assessments that had become final in the event no incriminating material was found during search. The Bombay High Court relied on

ITA 565/Del/2014 Assessment Year : 2007-08 DCIT vs. M.A.Projects (P) Ltd., New Delhi & C.O.257/Del/2014 the earlier decision in CIT v. M/s. Murli Agro Products Ltd. (supra) and discussed the scope and ambit of the proceedings for assessment and reassessment of total income under Section 153A (1) of the Act and the provisos thereto. One of the specific pleas taken by the Assessee was that if no incriminating material was found during the course of search in respect of an issue then no addition in respect of any issue can be made to the assessment under Sections 153A and 153C. It was observed that the assessment or reassessment under Section 153A arises only when a search has been initiated and conducted and, therefore, "such an assessment has a vital link with the initiation and conduct of the search." The Court then reproduced and affirmed the decision of the Special Bench of the ITAT in All Cargo Global Logistics Ltd. v. Deputy Commissioner of Income Tax [2012] 23 taxmann.com 103 (Mum.) (SB) and answered the question as regards the scope of the assessment of total income as under: "53. ....We are of the view that for answering this question, guidance will have to be sought from section 132(1). If any books of account or other documents relevant to the assessment had not been produced in the course of original assessment and found in the course of search in our humble opinion such books of account or other documents have to be taken into account while making assessment or reassessment of total income under the aforesaid provision. Similar position will obtain in a case where undisclosed income or undisclosed property has been found as a consequence of search. In

ITA 565/Del/2014 Assessment Year : 2007-08 DCIT vs. M.A.Projects (P) Ltd., New Delhi & C.O.257/Del/2014 other words, harmonious interpretation will produce the following results: (a) Insofar as pending assessments are concerned, the jurisdiction to make original assessment and assessment u/s 153A merge into one and only one assessment for each assessment year shall be made separately on the basis of the findings of the search and any other material existing or brought on the record of the AO, (b) in respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search" 36. Ultimately in Continental Warehousing (supra), the Bombay High Court answered the question framed by it as under: "a. In assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s 153Afor which assessments shall be made for each of the six assessment years separately; b. In other cases, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means - (i) books of account, other documents, found in the course of search but not produced in the course of original assessment, and (ii) undisclosed income or property discovered in the course of search." Summary of the legal position

ITA 565/Del/2014 Assessment Year : 2007-08 DCIT vs. M.A.Projects (P) Ltd., New Delhi & C.O.257/Del/2014 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". 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."

ITA 565/Del/2014 Assessment Year : 2007-08 DCIT vs. M.A.Projects (P) Ltd., New Delhi & C.O.257/Del/2014 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 were not produced or not already disclosed or made known in the course of original assessment.” 5.4. On the basis of the above observations by Hon’ble Delhi High Court in the case of CIT vs. Kabul Chawla (supra), this Tribunal in the case of ACIT versus MKR Construction Pvt.Ltd.(supra), held as under: “11. Thus, following the above aforesaid proposition of law and admitted fact of the case are that there is no incriminating material qua the ssessment year for which impugned addition has been made, we hold that such an addition cannot be roped in in the assessment order passed u/s 153A. Accordingly, same is directed to be deleted. So far as the reliance placed by Ld.CIT, DR on the judgment of Anil Kumar Bhatia, we find that the Hon’ble 12

ITA 565/Del/2014 Assessment Year : 2007-08 DCIT vs. M.A.Projects (P) Ltd., New Delhi & C.O.257/Del/2014 High Court itself had clarified that there is no incriminating material was found during the course of search and, therefore, no express opinion as to whether the addition can be made u/s 153A was made by their Lordships. The relevant observation in para 23 of the judgment is reproduced here under.- “We are not concerned with a case where no incriminating material was found during the search conducted u/ s 132 of the Act. We, therefore, express no opinion as to whether Section 153A can be invoked even in such a situation. That question is therefore left open." Hence, the reliance placed by the Learned CIT DR on this judgment is wholly misplaced. 12. Accordingly, we allow the grounds raised in the Cross Objection by deleting the entire addition made by the Assessing Officer on the ground that it is beyond the scope of assessment made uj s 153A. Since we have quashed the "addition on the legal ground therefore, the grounds raised by the revenue has been rendered infructuous and purely academic in nature and therefore grounds raised by the revenue is dismissed and revenue's objections raised by the assessee is allowed. 5.5. Respectfully following the same we also allow the legal issue raised by assessee in the Cross Objection. Since we have quashed the assessment proceedings itself, the grounds raised by revenue becomes academic in nature and are dismissed. 6. In the result the Cross Objection filed by assessee stands allowed and the appeal filed by Revenue stands dismissed. Order pronounced in the Open Court on 04th May, 2018.

Sd/- Sd/- (R.K.PANDA) (BEENA A PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER Dt. 04th May, 2018 *mv

ITA 565/Del/2014 Assessment Year : 2007-08 DCIT vs. M.A.Projects (P) Ltd., New Delhi & C.O.257/Del/2014