K R CHAWLA CONSULTING PVT LTD.,NEW DELHI vs. DCIT CENTRAL CIRCLE 25, NEW DELHI

With reference to ground no.3, ld. AR submitted that the assessments framed for AYs 2011-12 to 2013-14 u/s 153C of the Act are bad in law, without jurisdiction and barred by limitation, since six years have to be reckoned from the date of recording of satisfaction by the AO of the assessee (AO of searched person and assessee are common) which in the instant case is 18.01.2021 and thus assessment could have been validly framed u/s 153C of the Act for AYs 2014-15 to 2019-20 only. Therefore, he submitted that assessment framed for AYs 2011-12 to 2013-14 are bad in law, without to 1125/Del/2023 jurisdiction and beyond the scope of assessment framed u/s 153C of the Act and thus, are liable to be quashed as such. In this regard, he placed reliance on the judicial pronouncements i.e. Pr. CIT vs. Karina Airlines International Ltd. (Del.) 165 taxmann.com 421 and CIT vs. Jasjit Singh 458 ITR 437 (SC).

On the other hand, ld. DR for the Revenue agreed that the satisfaction was recorded on 18.01.2021, however he also brought to our notice page 3 of the paper book filed by the Revenue wherein the satisfaction was recorded by the AO of the searched person on 15.05.2019. Based on various decisions on this issue, he agreed that the first three years are outside the scope of section 153C assessment, not four years.

After considering the submissions of both the parties, we noticed that the satisfaction recorded by the Assessing Officer of the assessee was only on 18.01.2021, therefore, the assessment proceedings initiated u/s 153C in AYs 2011-12, 2012-13 & 2013-14 are outside the jurisdiction. Accordingly, the assessment of these assessment years are set aside as void ab initio. Hence, grounds raised

Brief facts of the case are, a search was conducted u/s 132(1) of the Act in the case of Shri Harvansh Chawla, Delhi and based on the material found, a notice u/s 153C of the Act was issued online through ITBA system on 19.01.2021. In response, assessee had filed return of income on 01.02.2021 showing income of Rs.25,45,846/-. The notices u/s 143(2) and 142(1) were issued and served on the assessee. In response, ld. AR of the assessee attended and submitted the relevant information as called for. The Assessing Officer observed in the assessment order that based on the information available on record, it was noticed that assessee has taken a bank limit of Rs.20 crores @ 12.3% interest per annum and the repayment was made on monthly basis, the assessee was asked to furnish copy of loan account, etc. Further the assessee has taken loan of Rs.65.50 crores against the mortgage property at Gurgaon and the assessee was asked to submit the details of loan taken etc. Further it was found that in the Valuation Report dated 08.04.20210 submitted by K.R. Tawlar, Chartered Engineer, Government Approved Valuer, commercial property of K.R. Chawla Consulting Pvt. Ltd., Gurgaon, monthly rental of the said property was reported at Rs.1,90,53,692/-. On analysing the ITR, it was noticed that the to 1125/Del/2023 assessee has not shown any rental income from the said property during the relevant year. Based on the above, the assessee was asked to submit the relevant information. Since the addition was proposed by the Assessing Officer relating to rental income, we shall discuss only the issue relating to rental income only. We observed from the assessment order that assessee has submitted as under :- “C. With reference to your query in respect of estimated monthly rental value of property at Gurgaon of Rs.1,90,53,692/- reported by the valuer in his valuation report dated 08.04.2010 not shown in the ITR of the assessee we would like to submit that the agreement for letting out the property on rent was never been materialized and hence rent was neither accrued nor received by the assessee company. As no rent was received and hence there is no question of showing rental income in the return of the assessee company.”

Aggrieved, assessee is in appeal before us raising following grounds of appeal :- “1 That having regard to the facts and circumstances of the case, and in law Ld. CIT (A) erred in dismissing the appeal without giving reasonable opportunity of being heard and is contrary to the principles of natural justice and the order so passed is not sustainable on various legal and factual grounds.

Furthermore, with respect it is stated that assessments for A Y 2014-15 to 2016-2017 were final/completed on the date of recording of satisfaction by the AO of the assessee i.e. 15.5.2019.

On the other hand, ld. DR for the Revenue submitted that assessee has not utilised various opportunities granted by the ld. CIT (A) and ld. CIT (A) has sustained the addition made by the Assessing Officer and he relied on the findings of the Assessing Officer.

Considered the rival contentions and material placed on record. We observed that a document was found during the search conducted in the case of Harvansh Chawla and valuation report was dated 08.04.2010 seized from the premises of Harvansh Chawla. Since the valuation report was 09.04.2010, the material found in the search pertains to AY 2011-12. Since the valuation report was dated 08.04.2010, we are in agreement with the submission of the ld. AR that it was only a valuation per se and there is no record which shows that the above said property was rented out as per the valuation report found during the search. It is another matter whether the valuation report can be termed as incriminating material without corroborating with the assessee’s books of account or return of income. It is settled law that incriminating material found during the course of search is year specific was that addition could be made in the case of unabated to 1125/Del/2023 assessment. Since the material found/valuation report is dated 08.04.2010 it cannot be considered as an incriminating material. Even the Assessing Officer has not verified and recorded a satisfaction that this valuation report was actual or the same was acted upon by the assessee. Merely because certain documents were found in the premises of third party, the same cannot be utilised to make the addition as incriminating material without there being corroboratory evidence to show that such income was not offered to tax. In this case, we observed that merely based on the availability of valuation report, the Assessing Officer proceeded to make addition without properly giving explanation how it can be treated as incriminating material in the case of the assessee, as held in the case of CIT vs. Sinhgad Technical Education Society 397 ITR 344 (SC) wherein Hon’ble Supreme Court observed as under :- “18. The ITAT permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through to 1125/Del/2023 the Satisfaction Note and the material which Was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred.”

Respectfully following the same, we are inclined to delete the addition made by the Assessing Officer and sustained by the ld. CIT (A) and the appeal for AY 2014-15 being is allowed.

Since the facts in other AYs i.e. 2015-16 & 2016-17 are exactly similar, our above findings in AY 2014-15 are applicable mutatis mutandis in AYs 2015-16 and 2016-17. Accordingly, the appeals being & 1325/Del/2023 for AYs 2015-16 & 2016-17 filed by the Assessee are allowed. 17. In the result, all the six appeals filed by the assessee stand allowed. Order pronounced in the open court on this 20TH day of November, 2024.