PRIME CENTRE AND DEVELOPERS PRIVATE LTD.,,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX,,

PER D. KARUNAKARA RAO, AM :

There are 3 appeals filed by the assessee under consideration involving A.Yrs. 2007-08, 2009-10 and 2012-13. ITA Nos.285 & 286/PUN/2016 are filed against the consolidated order of CIT(A)-13, Pune, dated 15-12-2015 for the A.Yrs. 2007-08, 2009-10 and ITA No.287/PUN/2016 is filed against the order of CIT(A)-13, dated 15-12-2015. Therefore, these appeals are taken up for adjudication in this composite order.

We shall first take up the appeal of the assessee for the A.Y. 2007-08.

2 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

ITA No.285/PUN/2016 A.Y. 2007-08

“1. The order of the Commissioner of Income Tax (Appeals)-13 Pune IS opposed to Law and the principles of natural justice.

3 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

the following additional ground, which is legal in nature, and requested for

admitting the same. The said additional ground is extracted as under :

“The assessee submits that the notice issued u/s.153C for this year is bad in law since no incriminating evidence was found pertaining to the assessee for this year and accordingly, the asst. completed is also null and void.

The addition on account of non-genuine share application money u/s.68 of

the Act, another addition on account of unexplained expenditure u/s.69C of

the Act are the issues on merits. Further, the legal issue relates to the

validity of the notice issued u/s.153C of the Act in the absence of any

incriminating documents, is the other issue raised in the additional ground

for both the A.Yrs. 2007-08 and 2009-10. We shall take up the legal issue

first for adjudication. We shall proceed to narrate the facts of the case and

the seizure details of the documents.

assessee belongs to Pride Group along with Pride Purple Builders Pvt. Ltd.,

4 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

and Pride Housing Construction Pvt. Ltd. Assessee is engaged in the

business of Real Estate. There was search and seizure action u/s.132 of the

Act on the Pride Group of cases on 07-09-2011. Search action was concluded

on 19-12-2011. No cash seizure and other valuables was mentioned in the

order of the AO. The search action resulted in seizure of various documents

pertaining to/belonging to the assessee. Details of the documents shall be

discussed in the later paragraphs of this order. There was no disclosure of

unaccounted income in the case of the assessee for the assessment years

under consideration. Consequent to the search action, AO issued notice

dated 07-03-2013 u/s.153C of the Act. In response, assessee furnished the

return of income on 16-04-2013 declaring Nil income which is same as that of

the originally return of income furnished on 30-12-2007.

share application money (SAM) from various investor companies. The

statements were recorded from Mr. Jagdish Purohit, entry operator, Mr.

Pradeep Gupta, facilitator, Auditors of the various investor companies and

Mr. Arvind Jain, CMD of the Pride Group in an attempt to tax the entire share

application money raised in this year in the hands of the assessee u/s.69C of

the Act. The statements are placed at pages 37 to 45 of the paper book.

However, Mr. Jagdish Purohit retracted the said statement on 19-10-2011

issued u/s.131 of the Act. Retraction statement is placed at pages 53 and 54

of the paper book. It is the case of the Revenue that Mr. Jagdish Purohit

provided accommodation entries for introducing share application money in

the books of the assessee using various investor companies incorporated/

audited by Mr. Pradeep Gupta at the request of Mr. Arvind Jain, CMD of the

Pride Group of cases. At the end of the assessment proceedings u/s.153C

r.w.s. 143(3) of the Act, AO made addition of Rs.1.15 crores (rounded off) for

5 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

the A.Y. 2007-08 and Rs.5 crores was added for the A.Y. 2009-10. In

addition, AO also made addition on account of commission paid to Mr.

Jagdish Purohit for providing the services of giving the said accommodation

entries. While doing so, AO analysed the investor companies and their profit

making abilities, their business operations, their common addresses,

common Directors, their credit worthiness etc. Assessee requested for the

cross examination of Mr. Jagdish Purohit, retraction of his statement as per

the provisions of section 68 of the Act and various limbs of it, i.e. identity and

credit worthiness of the investor companies etc., before concluding against

the assessee. Relevant conclusion of the AO is extracted here as under :

“5.4 Conclusion : The above facts clearly establish that these companies are shell companies and there is circular transaction of flow of-fund-through share transfer and no actual business have been done by these companies and all created for money laundering only.

Further, it has proves beyond doubt that persons who are directors and who have signed the return of these companies such as Shri Ramavtar Prajapat, Eknath Mandavkar, D N Jha, etc are persons of no means. They are just the class-IV employees of Shri Jagdish Purohit who are getting salary of hardly about Rs.3000/- to 5000/- p.m. They are not even aware of the fact that they are directors of some companies. They do not have any idea even of the business of the company where they are director. They just follow the instructions of their master. Shri Jagdish Purohit in his statement dated 19.10.2011 has confirmed the fact that Shri Hitesh Navinchandra Rajgor, Shri Eknath Narayan Mandavkar, Shri Praveen Sawant, Sh'ri Milan Mukherjee, Shri Faterao Gawas, Shri Kailas Prasad Purohit, Shri Ramavtar Prajapati, Shri Shantichandra Bhandari, etc. are either his employees or his relatives or people whom he knows. He has further stated that these people are merely signatories, and are made Directors on his instructions. He' has further added that' generally, these person's donor have knowledge of the affairs of the company and they work on the instructions given by him. All the activities and day to day affairs of these companies are controlled and managed by him. Similarly, in the statements of Shri Hitesh Rajgor, Avinash Dhum etc. this has been ascertained that these persons are the puppets of Shri Pradeep Gupta, their employer. All these facts prove beyond doubt that, with the help of professionals such as Shri Pradeep Gupta, the entry providers like Shri Jagdish Prasad Purohit, by forming numerous fictitious companies assists various business houses to introduce their own unaccounted money in their books of accounts by paying certain percentage of commission. Merely because the transaction has routed through banking channel, that do not give it the colour of genuinity. Moreover when Shri Jagdish Prasad Purohit was specifically asked about the modus operandi, he has clearly narrated the procedure by way of which the unaccounted money in the form of cash is being introduced in the books of account of the prospective companies interested in converting their unaccounted money and bring it back to the books.

6 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

As discussed above, from the statement of Shri Jagdish Purohit, it is crystal clear that Shri Arvind Jain, the chairman and the managing director of the Pride group approached Shri Jagdish Prasad Purohit, the entry provider and the controller of 'n' number of Mumbai and Kolkata based fictitious companies and requested for accommodation entries in the form of share capital. Shri Jagdish Purohit has clearly mentioned that "as per requirement of Shri Arvind Jain and his group" it was decided that share capital will be introduced with a premium in a ratio of 10:90. All the book entries were introduced against cash payment made by Pride group.

Further he has also confirmed that the requisite amount of cash was handed over by Pride group at Mumbai and against which he had given the accommodation entries- in the form of share capital. Further, in Q No.14 Shri Jagdish Purohit also admitted the percentage of commission at which these entries are generally provided. Not only this, but he also admitted that he will work out his income in the form of commission on entries provided to Pride group and offer the amount to tax.

Further enquiries caused at Kolkata have also revealed that most of the entry provider companies are bogus and non-existing and the concerned persons from the companies which have been traced out have admitted that these entries were purchased by Pride group by paying cash and also commission amount. Even in Kolkata, Shri Jagdish Prasad Purohit was found to be main person who had arranged and provided entries to Pride group through the companies controlled by him. The result of enquiries along with relevant statements carried out in connection with the issue of share application money was communicated to the assessee group. The results were not only brought to the notice of the assessee group but in the light of various facts the assessee group was asked to show cause as to why the amount (worked out as per different annexures enclosed to the letter dated 27.12.2012) along with commission amount of @ 0.75% should not be treated as unaccounted income of the Pride group and taxed accordingly. However, merely stating that the entries have received through cheques and that all the relevant persons/concerns are alive and assessed to tax, the assessee tried to defend his case.

As mentioned earlier, merely for the reason that entries have been routed through the banking channel does not mean that entries are genuine. The assessee's argument does not hold good in the light of following facts:

1] The existence of various companies who have applied for and in turn received share equity in Pride group companies is in its self is doubtful as

(i) Most of the companies are not traceable

(ii) Their directors are then persons of no means knowing nothing about the company

(iii) The financial results of the companies' shows that they have paltry income still huge amount of share premium has been received by them. It is really unable to understand as on what basis the investor companies who have made investments' in these companies that too by paying huge premium and who in turn have invested the entire amount in some other companies like those of Pride group have made investments.

(iv) In the cases of some companies even in the year of their incorporation, they have received unbelievable amount of share premium.

7 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

(v) Almost all the investor companies have received huge share premium and they have invested in equity shares of other companies by paying substantial premium.

(vi) The profit and loss account of these companies show very meager transactions which do not support the fact that they have received any share premium on the basis of any performance.

(vii) In some cases, the investor companies have received huge trade advance which again has been invested for purchase of share equity of different companies wherein substantial premium has been paid.

(viii) The statement of Shri Jagdish Prasad Purohit clarifying that he controls most of the Mumbai and Kolkata based companies who have provided entries to Pride group clearly reveals the nature of the entire transaction. (ix) Finally the admission of Shri Jagdish Prasad Purohit that he has acted as an entry provider by accepting cash and certain percentage of commission from Pride group' as per their requirement gives full stop to the: entire discussion and the issue. 2] As far as assessee's argument that all the persons I concerns are alive and duly assessed to Tax is concerned, it is requirement of these concerns to get incorporated and subjected to various rules and regulation to achieve their ulterior mala-fide motive of converting-unaccounted money black money of various businessmen and-bring it back' to their business e.g. in order to incorporate a company, may be genuine or fictitious, it needs to comply to the ROC (Registration of Company) norms, it need to have some directors, bogus or genuine, PAN, some kind of business, though bogus or on paper. Now after completing the formalities of ROC or applying for PAN, a fictitious company is registered or PAN has been allotted to it, the same does not prove its genuineness. The fact that the companies which subscribed to the shares were borne on the file of ROC is again a natural fact. Every company incorporated under the Company Act 1956 has to comply to the statutory formalities. That these companies were complying with such formalities does-not add any credibility or evidentiary value. It does not ipso facto prove that the transactions are genuine. Assessee's contention is that these persons I concerns are alive and assessed to Tax, but how this proves that the transaction carried out by these companies are genuine? Moreover the person by name "Jagdish Prasad Purohit", the entry provider himself has admitted that he is controlling most of the companies who have provided share application entries is more than sufficient to disbelieve the assessee's claim.

3] Coming back to the merits of the case in the present case, the statement of Shri Jagdish Prasad Purohit wherein he has admitted certain facts is crucial. The statement of Shri Jagdish Prasad Purohit, the entry provider, explains his modus operandi to help assessee having unaccounted monies to convert the same into accounted monies. The statements (recorded at Mumbai as well as at Kolkata) refer to the practice of taking cash and issuing cheques in the guise of subscription to share capital, for a consideration in the form of commission. As pointed out, names of several companies which figured. In the statements given by the above persons also figures as share applicants subscribing to the share of the group concerns of assessee group. This is more than sufficient to show that the source of the unaccounted' monies was the coffers of the assessee.

4] The material available with the Department in the form of seized documents, the enquiries conducted the evidence gathered the admissions given by different person between self confessed "accommodation entry

8 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

providers' whose business is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription and the assessee group. The material gathered by the Department shows that the share subscriptions were collected as part of a pre- meditated plan - a smokescreen- conceived and executed with the connivance or involvement of the assessee group. 5] In order to prove the fact beyond doubt that the -assessee group has received share subscription in a natural course of business the assessee has to prima facie prove i) The identity of the subscriber ii) The genuineness of the transaction viz. whether it has been transmitted through indisputable channels iii) The credit worthiness or financial strength of the subscriber iv) The onus would not stand discharged if the subscriber denies or repudiates (disagrees) the transaction set by the assessee.

In the present case the assessee group has failed to prove these facts despite of the fact that specific communication vide show cause letter dated 27.12.2012 was made with the assessee group whereby it was communicated that all material facts are going against the assessee. However, the assessee did not discharge the liability of disproving the facts communicated to him. During assessment proceedings again opportunity was given to substantiate its stand in this regard. However, mainly relied on the fact that share has been allotted to parties and modes of transactions are through cheque only. However, creditworthiness and genuineness of such transactions were not established. Accordingly, share application received in the hand of assessee is treated as unexplained cash credit and added back in the income of assessee. The quantum of disallowance is based on quantum of share application money received during the year as per annexure-1. Accordingly, Rs.1,15,00,000/- is added back in the income of assessee.”

relating to the validity of the notice issued u/s.153C of the Act. Before the

First Appellate authority also, there is no issue relating to the validity of the

said notice. However, the CIT(A) confirmed the said addition on merits.

Aggrieved with the same, the assessee filed the present appeal before the

Tribunal with the grounds/additional grounds extracted above.

BEFORE THE TRIBUNAL

No.3 of this order, Ld. Counsel for the assessee submitted that the same is

9 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

undisputedly legal in nature and therefore, the same should be admitted

before going into the merits of the addition. AO was merely on the issue of

the applicability of the provisions of section 68 of the Act and was on the

merits of the addition of SAM. However, there are adequate details on the

seizure of documents belonging or pertaining to the infusion of SAM into the

assessee company through the investor company relevant to the A.Y. 2009-

process, Ld. AR furnished the details of the seized materials pertaining to the

assessee on one side and the investor companies, who introduced the SAM on

the other.

dutifully.

admission of this additional ground, we are of the opinion that the additional

ground, being legal in nature, needs to be admitted in the interest of

administration of justice. We find no fresh facts are required to be

investigated. All the material necessary for adjudication are already available

on record. Therefore, the additional ground is admitted for adjudication in

the following paragraphs in view of the various binding precedents on this

issue. We keep out reliance on the judgment in the case of NTPC Ltd. and

others.

adjudication of the legal issue raised in the additional ground, Ld. Counsel for

the assessee drew our attention to the outcome of the search action and

analysed the documents seized by the Department pertaining to/belonging to

the assessee under consideration. In this regard, Ld. Counsel took us

10 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

through each document seized by the department relating to SAM and

submitted that the generic details of the same documents pertaining to the

investor companies, who invested share application money in the assessee

company. These documents include Memorandum of Association, Articles of

Association, Incorporation Certificate, Share Application, Board Resolutions,

PAN card, Income-Tax returns, Acknowledgements, Bank Statements,

Financial Statements, Annual Accounts, Annual reports etc. In this regard,

Ld. AR brought our attention to the seized papers and submitted that all the

above referred documents are basically accounted ones or recorded ones in

the Govt. records and does not involve any incrimination of any kind.

Elaborating the same, Ld. Counsel submitted that the said documents are in

the knowledge of the Government, i.e. Income-tax Department, Ministry of

Corporate Affairs, Registrar of Companies etc. and therefore, the documents

seized by the Department involving the assessee constitute incriminating

documents. Ld. AR also submitted that the said documents are never

declared illegal or invalid under any law. Therefore, the issue of notice

u/s.153C of the Act to the assessee based on such non-incriminating

documents is invalid and unsustainable in law.

explaining the details of the share application money received by the assessee

from 6 companies in the A.Y. 2007-08. The names of the said companies are

given below :

Sl.No. Name of the company 1 Crescent Leasing Limited 2 Keshav Engineering Co. Private Ltd. 3 Maanor Investments Pvt. Ltd. 4 Sharbhang Commercial Co Pvt. Ltd. 5 Kedia Banijya Udyog Pvt. Ltd. (Jayashree Finvest Private Limited) 6 Sarvodaya Beopar Ltd.

11 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

application money is received are listed below :

Sr.No. Name of the company 1 Anjani Vinimay Private Limited. 2 Megamart Exim Pvt. Ltd. 3 Nova Goods Pvt. Ltd. 4 Rukmani Tie Up Private Limited (Atindra Infrastructure Private Limited.) 5 Fairmont Venture Private Limited. 6 Kumaon Engineering Company Private Limited. 7 Blazer Venture Private Limited. 8 Moto Soft-Tel Private Limited (Dhanlaxmi Software Private Limited) 9 Tridev Multi Trade Private Limited. 10 Twinstar Multi Trade Private Limited 11 Jmd Sounds Ltd. 12 Kush Hindustan Entertainment Limited 13 Natraj Vinimay Private Limited 14 Lexus Infotech Limited (Triangular Infocom Limited) 15 Kapindra Multi Trade Private Limited.

different paragraphs of the written submissions and submitted that in view of

the Supreme Court judgment in the case of CIT Vs. Sinhgad Technical

Education Society in Civil Appeal No.11080/2017 and others, dated 29-08-

2017, the decision of Pune Bench of the Tribunal in the case of Bharati

Vidyapeeth Medical Foundation Vs. ACIT and vice versa in ITA Nos.917 to

922/PN/2010 and others, dated 28-04-2011 and also Bharati Vidyapeeth

Medical Foundation Vs. ACIT and vice versa in ITA Nos.959/PN/2010 and

others, dated 28-04-2011 apart from others. The notice issued by the AO

u/s.153C in the absence of any documents with any incrimination is invalid

and unsustainable in law. Ld. Counsel for the assessee also discussed the

general nature of the seized documents basing on which no valid notice can

be issued u/s.153C of the Act. He also submitted that it is not the case of

the Revenue that considering the accommodation entry allegation, the cash is

ploughed back to the assessee and there is evidence gathered during search

12 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

action against the assessee in support of the same. He also analysed the

retracted statement of Mr. Jagdish Purohit and statement of Mr. Pradeep

Gupta are unsustainable relying on various decisions, such as in the case of

Best Infrastructure India Pvt. Ltd. 47 CCH 159 (Del.), CIT Vs. Harjeev Agarwal

and Late Raj Pal Bhyatia 237 CTR 1 (Del.)

various judgments of High Courts/decisions of Tribunal. Referring to the

order of Tribunal in the case of Nova Iron and Steel Ltd. Vs. DCIT in ITA

No.2159/Del/14, Ld. Counsel submitted that, with similar/comparable facts,

the notice issued u/s.153C of the Act was held as invalid by the Tribunal.

Ld. Counsel read out relevant facts and submitted that in that case also, the

fact of introducing equity involving investor-companies, the allegation of

seizure of non-incriminating documents etc., are the common facts. Further,

referring to the said decision of the Tribunal, Ld. Counsel submitted that

this is a case where there is allegation of accommodation entries and the

statements were recorded from the accommodation entry providers, as in case

of the present assessee. There is also an allegation of shell companies as they

were having common addresses and Directors etc. The Delhi Bench of the

Tribunal in the case of Nova Iron and Steel Ltd. Vs. DCIT (supra) decided the

issue against the Revenue and in favour of the assessee. Further, on similar

propositions, Ld. Counsel for the assessee relied on the following case laws :

i. Pr. CIT Vs. Sunny Infra Projects Ltd. 2017-TIOL-810-Del-HC ii. Ravnet Solutions Pvt. Ltd. 93 taxmann.com 59 iii. DCIT Vs. Sagar Nahta 82 taxmann.com 344 (Kol.) iv. Bharati Vidyapeeth – ITA Nos. 917 to 922/PN/2010, dt. 28-04- 2011 v. Pr.CIT Vs. Index Securities Pvt. Ltd. 86 taxmann.com 84 (Del.) vi. Pr.CIT Vs. Smt. Sunita Bai 78 taxmann.com 274 (Kar.) vii. DCIT Vs. Royal Cartoons Pvt. Ltd. – ITA No. 472/Coch/2013 (TM)

13 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

assessee submitted that the Delhi High Court in the case of SSP Aviation Ltd.

Vs. DCIT 364 ITR 188 (Del.) and the decision of Pune Bench of the Tribunal

in the case of ITO Vs. Phadnis Clinic Pvt. Ltd. 59 taxmann.com 101 (Pune

Trib.) belonging to the period prior to the said Supreme Court judgment in the

case of Sinhgad Technical Education Society (supra). Otherwise, the facts in

those cases are also distinguishable and not comparable to the facts of the

present case. Referring to the decision of Tribunal in the case of Phadnis

Clinic Pvt. Ltd. (supra), Ld. Counsel submitted that this is a case where

company claimed depreciation on an asset which was originally belonged to

the Directors who took the loan from the banks for buying the premises on

which depreciation claimed by the company. Search action in this case

resulted in seizure of various papers showing the ownership of the asset by

the Director and claim as made by the company where the owner is a

Director. Further, Ld. Counsel submitted that the investor companies are not

the shell companies as they are very much active on the website of Registrar

of Companies and Ministry of Corporate affairs, Govt. of India. It is also the

fact that the AO did not disturb the returns filed by the said investor

companies and the same is evident from the fact that no protective additions

are made in the hands of those companies. Referring to another decision of

Pune Bench of the Tribunal in the case of Eshan Minerals Pvt.Ltd. Vs. DCIT

and vice versa in ITA No. 834/PN/2014 and ITA No.1242/PUN/2014, dated

18-10-2017, Ld. Counsel submitted that this is relied upon by the Ld. DR

where the basic documents includes pre-signed application forms and blank

sale bills, pre-signed bank receipts and blank transfer forms, declaration etc.,

which no where comparable to the entire bunch of documents which are very

much accounted and disclosed to the Government authorities as per the

provisions of relevant Acts. Eventually, it is the case of Ld. Counsel for the

14 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

assessee that AO never relied on any seized papers which is unaccounted and

therefore, there is no incriminating material and notice u/s.153C of the Act is

invalid and unsustainable.

Counsel for the assessee submitted that the Revenue did not seize any paper

whatsoever pertaining to/belonging to the assessee. It is the case of Ld.

Counsel that considering the fact that no seizure of any documents, leave

alone the incriminating documents, the notice issued u/s.153C of the Act for

the A.Y. 2007-08 is required to be held as invalid and unsustainable in law.

AO and the CIT(A). Further, Ld. DR for the Revenue brought our attention to

the clean language of the provisions of section 153C and submitted that there

is no requirement of any incriminating documents for issue of notice

u/s.153C of the Act. Mere seizure of documents pertaining to/belonging to

the assessee is the adequate requirement as per the said provisions. Ld. DR

submitted that mere initiation of search action on the Pride Group as a basis

of allegation that the group is engaged in introducing the substantial

quantum of unaccounted income in the garb of share application money.

Further, relying on the statements of Mr. Jagdish Purohit and Mr. Pradeep

Gupta, Ld. DR submitted that the said statement reveals the modus operandi

of systematic introduction of their accounted money of the assessee through

the shell companies and the same should constitute colourable device. The

requirement of lifting of the corporate wheel on the transaction was also

mentioned in the arguments. Narrating the commonality of address/directors

of the investor companies, Ld. DR submitted that these companies constitute

shell companies as they suffer from the said unusual features. Regarding the

retraction statements, Ld. DR submitted that the retraction is not accepted by

15 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

the AO and therefore the original statements are dependable. Relying on the

original statements, Ld. DR submitted that the accommodation entries are

given at the request of Mr. Arvind Jain, CMD of the Pride Group by raising

the cash payment and by giving commission to the entry providers. Ld. DR

also cited that the admittance of Mr. Pradeep Gupta regarding the formation

of various companies at the instruction of Mr. Jagdish Purohit. Ld. DR

submits that these investor companies are owned by the employees of Mr.

Jagdish Purohit, has only meager income. Further, he submitted that the

said investor companies hardly has any business operations as well as

income which is capable of generating funds for subscribing towards the

share application money with premium Ld. DR submitted that the assessee

contributed Rs.23 lakhs in the A.Y. 2007-08 towards share capital and paid

the premium of Rs.92 lakhs totaling to gross share application money of

Rs.1.15 crores. In similar proportion, the share application money was

reported in the A.Y. 2009-10. Regarding the seizure of any document leave

alone incriminating documents for the A.Y. 2007-08, Ld. DR has nothing to

say except relying on the plain language of the provisions of section 153C of

the Act. Further, Ld. DR relied on the following decisions and prayed that the

notice issued u/s.153C of the Act in both the assessment years, i.e. 2007-08

and 2009-10 should be sustained :

DECISION OF TRIBUNAL – LEGAL ISSUE ON VALIDITY OF NOTICE

validity of notice issued u/s.153C of the Act and perused the orders of the

Revenue as well as the paper book filed before us.

16 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

A. The case of the assessee on this issue include that the notice under the

said section for the A.Y. 2007-08 is required to be quashed for the reason that

no document whatsoever was seized in the search action conducted u/s.132

of the Act pertaining to/belonging to the assessee. There is no dispute on

this fact.

With reference to the validity of the notice for the A.Y. 2009-10, the

assessee contends that the said notice is invalid and unsustainable as the

documents seized for this year includes accounted or reported documents in

the books of account of the assessee or in the records of various Govt.

departments, i.e. Income Tax Department, Ministry of Corporate Affairs,

Registrar of Companies etc. Relying on the Apex Court judgment in the case

of Sinhgad Technical Education Society (supra) and many others the notice

issued u/s.153C of the Act is unsustainable when the documents seized are

only non-incriminating ones.

B. On the other hand, in connection with appeal for A.Y. 2009-10, the

case of the Revenue is that the very seizure of some documents pertaining

to/belonging to the assessee is sufficient for invoking the provisions of section

153C of the Act and therefore, the notice issued for both the assessment

years is valid. Further, with reference to appeal for A.Y. 2007-08, where no

documents are seized, Ld. DR rely heavily on the orders of the AO/CIT(A).

both the parties, we find it relevant to analyse the documents-centric

arguments thoroughly in the following paragraphs. Relevant details are

already briefed in the preceding paragraphs that search action took place on

07-09-2011. The documents seized by the Revenue during search and

17 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

seizure action in the Pride Group pertaining to/belonging to the assessee are

given below :

A. A.Y. 2007-08

Details of the Seized Papers which relates to share application money received in A.Y.2007-08 from the following companies are NIL. The names of investor companies are tabulated as under :

Sl.No. Name of the investor companies – A.Y. Seized documents 2007-08 1 Crescent Leasing Limited 2 Keshav Engineering Co. Private Ltd. 3 Maanor Investments Pvt. Ltd. 4 Sharbhang Commercial Co Pvt. Ltd. NIL 5 Kedia Banijya Udyog Pvt. Ltd. (Jayashree Finvest Private Limited) 6 Sarvodaya Beopar Ltd.

B. A.Y. 2009-10 :

Details of the Seized Papers which relates to share application money received in A.Y.2009-10 by the following investor companies are tabulated investor- wise.

Srl.No. Name of the investor Details of seized documents company (1) (2) (3) 1 Anjani Vinimay Private Memorandum of Association, Articles of Limited. Association, incorporation certificate, share Application and Board Resolution, Certificate from Applicant, PAN Copy, Income Tax Ackn. A.Y.2007-08 2 Megamart Exim Pvt. Ltd. Memorandum of Association, Articles of Association, incorporation certificate, share Application and Board Resolution, PAN Copy, Income Tax Ackn. A.Y.2007-08 3 Nova Goods Pvt. Ltd. Memorandum of Association, Articles of Association, incorporation certificate, share Application, List of Directors, PAN Copy, Income Tax Ackn. A.Y.2007-08, Balance sheet and P & L for F.Y.2006-07, Bank statement. 4 Rukmani Tie Up Private Memorandum of Association, Articles of Limited (Atindra Association, incorporation certificate, Infrastructure Private share Application and Board Resolution, Limited.) PAN Copy, Income Tax Ackn. A.Y.2007-08 5 Fairmont Venture Private Memorandum of Association, Articles of Limited. Association, incorporation certificate, share Application and Board Resolution, PAN Copy

18 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

6 Kumaon Engineering Memorandum of Association, Articles of Company Private Limited. Association, incorporation certificate, share Application and Board Resolution, PAN Copy, Income Tax Ackn. A.Y.2007-08

7 Blazer Venture Private Share Application, PAN Copy. Limited. 8 Moto Soft-Tel Private Memorandum of Association, Articles of Limited (Dhanlaxmi Association, incorporation certificate, Software Private Limited) share Application and Board Resolution, PAN Copy 9 Tridev Multi Trade Private Memorandum of Association, Articles of Limited. Association, incorporation certificate, share Application and Board Resolution, PAN Copy, Income Tax Ackn. A.Y.2007-08 10 Twinstar Multi Trade Memorandum of Association, Articles of Private Limited Association, incorporation certificate, share Application and Board Resolution, PAN Copy, Income Tax Ackn. A.Y.2007-08 11 Jmd Sounds Ltd. Memorandum of Association, Articles of Association, incorporation certificate, share Application and Board Resolution, Annual Report F.Y.2006-07 12 Kush Hindustan Memorandum of Association, Articles of Entertainment Limited Association, incorporation certificate, share Application and Board Resolution 13 Natraj Vinimay Private Memorandum of Association, Articles of Limited Association, incorporation certificate, share Application and Board Resolution 14 Lexus Infotech Limited Memorandum of Association, Articles of (Triangular Infocom Association, incorporation certificate, Limited) share Application and Board Resolution 15 Kapindra Multi Trade Memorandum of Association, Articles of Private Limited. Association, incorporation certificate, share Application and Board Resolution, Annual Report F.Y.2006-07

documents whatsoever was seized by the Department pertaining to/belonging

to the assessee for the A.Y. 2007-08.

Further, the above table for the A.Y. 2009-10, vide Col.3, demonstrate

that the documents seized include Memorandum of Association, Articles of

Association, Incorporation Certificate, Board Resolution, PAN copy,

acknowledgements, Financial Statements, Annual Report etc. Out of the

above, it is clear that the copies of Memorandum of Association, Articles of

Association and Incorporation Certificate are the regular correspondence with

19 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

the Govt. authorities. The Income-tax returns, PAN card details are in the

knowledge of Income-Tax Department. The Board Resolutions, Incorporation

Certificates are the correspondence with the company itself. The bank

statements and the final statements are undisputedly accounted ones and

they are not unaccounted documents. Therefore, it is the argument of Ld.

Counsel on the fact that accounted documents are seized and the same

cannot constitute incriminating documents. Considering the Apex Court

judgment in the case of Sinhgad Technical Education Society (supra) and

other judgments (supra), we are of the opinion that the arguments of Ld.

Counsel for the assessee on this line has to be allowed and the arguments of

Ld. DR for the Revenue are required to be dismissed.

u/s.153C of the Act for the years, when the incriminating material or in the

presence of merely non-incriminating material are seized in the case of

concluded assessments, it is a settled legal proposition that such non-abated

assessments need not be disturbed unless there exists any incriminating

material which should be the basis for making sustainable additions.

Rigours for the assessee in attending to the assessment proceedings are

generally numerous and assessee has already undergone the same during the

regular assessment proceedings. Reopening the same u/s.153C of the Act

merely based on certain non incriminating material is an unnecessary burden

or hardship for the assessee. It is in this context the Apex Court in the case

of Sinhgad Technical Education Society (supra) apart from many other

decisions, did not approve the issue of such notices u/s.153C of the Act in

the absence of any incriminating material. In fact, if there are certain issues

which are required to be necessarily considered for re-assessment, there are

other provisions in the statute such as section 148 of the Act or section 263

20 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

of the Act for bringing the concealed income to tax subject to the conditions

specified in the said sections. The provisions of section 153C are highly

specialized ones and the same are to be cautiously invoked by the

Department. It is a settled legal proposition that the existence of “assessment

year specific incriminating material” is the requirement for reopening the

concluded assessment u/s.153C of the Act.

Revenue’s allegation about the bogus nature of the investor companies

enlisted above. The case of the Revenue is that these companies constitute

bogus companies floated by Mr.Jagdish Purohit and Mr. Pradeep Gupta at

the instance of Mr. Arvind Jain, CMD of the company and worked as conduit

for ploughing in accounted cash of the assessee in the form of share

application money. The circumstantial evidences, i.e. commonness of the

addresses and Directors, Auditors etc. are relied. Further, statements of Mr.

Jagdish Purohit and Mr. Pradeep Gupta were also relied on by the Ld. DR for

the Revenue.

Jagdish Purohit and Mr. Pradeep Gupta relied upon by the Revenue stands

retracted and the retraction is not proved to be incorrect although the same

was rejected by the AO in the assessment proceedings. The retraction was

given in a reasonable time soon after the search is completed on 19-12-2011.

Further, the fact that the investor companies are very much active and not

struck of in the records of Registrar of Companies/Ministry of Corporate

Affairs was also cited as a reference to state that the companies cannot be

considered as bogus or shell companies. The inaction of the AO in disturbing

the claims in the assessments of investor companies was also heavily relied

upon.

21 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

and on perusal of the documents placed before us in this regard, we find the

facts relevant to non-striking of the investor companies in the records of

Registrar of Companies/Ministry of Corporate Affairs is undisputed. We also

find the documents and the financial statements etc., are very much

accounted in the records of both Income-Tax Department as well as the

Registrar of Companies/Ministry of Corporate Affairs. AOs of the respective

companies have not taken adverse decision against the said companies so far

as the subscription of the share application money by them are concerned. It

is also undisputed fact that search action which is an ultimate event to

happen to any person, which invades into the privacy of the person, did not

yield any evidence to suggest that the cash was supplied to Mr. Arvind Jain,

CMD of the Pride Group or his companies to Mr. Jagdish Purohit or Mr.

Pradeep Gupta for subscribing towards the share application money into the

assessee company. Not even circumstantial and indirect evidences were

found during the search action in respect of the allegation of the Revenue.

Considering these undisputed facts, we are of the opinion that the allegations

of the Revenue should constitute mere surmises and unsupported ones.

Further, no protective additions were also made by the AOs in the hands of

the investor companies, i.e. shell companies. In the absence of any adverse

inferences on those companies, the investor companies are required to be

considered as valid and legal.

Purohit and Mr. Pradeep Gupta, it is undisputed fact that the statements

were retracted and the retraction documents are placed in the paper book.

The AO merely rejected the said retraction on the ground of no force on the

deposers who gave the statements u/s.131 of the Act. In this regard, the

22 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

arguments of the assessee is that on similar or comparable facts, the Delhi

Bench of the Tribunal in the case of Nova Iron and Steel Ltd. (supra) held that

the statements of Mr. Jagdish Purohit and Mr. Pradeep Gupta and the

allegations of the Revenue cannot contribute to the incrimination of the

documents which are otherwise accounted in the books of account of the

assessee. Narrating the facts of the case, Ld. Counsel for the assessee

submitted that similar documents were seized in the said case also and

statement of entry operations and the accountants were relied upon by the

AO for issue of notice u/s.153C of the Act. Further, we have compared the

facts of the present case with that of the Nova Iron and Steel Ltd. Vs. DCIT

(supra) and find they are broadly comparable. The investor companies who

introduced the capital to Nova Iron and Steel Ltd. which were struck down in

the records of Registrar of Companies. The Delhi Bench of the Tribunal held

that the taintedness of such investor companies does not contribute any

incrimination to the non-incrimination material seized by the Department

involving the said assessee. There are number of decisions for the

proposition that notice issued u/s.153C of the Act based on non-

incriminating material such as unaccounted Balance sheet, Annual reports,

Memorandum of Association etc. are not valid and unsustainable in law.

For the sake of completeness, the comparison of facts between the case

of the Assessee, Nova Iron and Steel Ltd. and Sunny Infraproject cases are

tabulated here as under :

Sr. Assessee’s case Nova’s case Sunny Infraproject’s No. case 1 Assessee is part of Pride The assessee was part In this case, assessee Group and there was a of Today Group of cases is part of Minda search on Pride Group. In and there was a search Group which was course of search, the balance on the said group. In searched. In the sheets, Memorandum of the course of search, course of search, Association, Income Tax Dept. seized books of copy of balance Returns of the companies accounts of the assessee sheet, Income tax which had invested share and accordingly, notice returns, Auditor’s

23 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

capital was found and u/s.153C was issued to Account, Trial accordingly, notice u/s.153C the assessee. Balances were seized was issued. and accordingly, notice u/s.153C was issued to the assessee. 2 The notice u/s.153C has The notice u/s.153C The notice u/s.153C been challenged on the was in that case was in that case ground that no incriminating challenged on the challenged on the evidence was found during ground that no ground that no the course of search. incriminating evidence incriminating was found during the evidence was found course of search. during the course of search. 3 The Dept. has alleged that the The Dept. found that Along with Minda assessee has received Today Group had Group, search was accommodation entry from received accommodation also conducted on Mr. Shri Jagdish Purohit entries from Shri V.K. Santosh Kumar Jain, Jain and Shri S.K. Jain alleged entry operator who are the alleged who had accepted in entry operators his statement that he was providing accommodation entries to companies of Minda Group. 4 The share application money The AO has noted that In Para 7 of the order, received is from companies most of the companies Hon’ble High Court which are not struck off from have been incorporated has observed that the the ROC records before the amount is Ld. AO had issued received from the entry notice to the investor operator. Many companies and he companies are was not satisfied considered as Shell with the replied and it companies and has was alleged by the been struck off from the Ld. AO that they are ROC record. paper companies. 5 In the assessee’s case, the In Para 12.8 of the In Para 11 & 12 of amount received on account order, Hon’ble ITAT has the order, Hon’ble of share capital has been mentioned that the loans H.C. has stated that duly accounted in the books. and advances received the documents in the Further, the balance sheets, are disclosed in the form of balance sheet, Income tax returns, share books and therefore, the P&L Account, application forms of the same could not be Auditor’s Account, investor companies are all treated as an Income tax returns accounted and therefore, incriminating material and Trial balances cannot be considered as an for issue of notice cannot be considered incriminating evidence for u/s.153C. as an incriminating issue of notice u/s.153C. evidences to issue notice u/s.153C. 6 In the assessee’s case also, On Para 49 of the order, There is not reference there is no material found Hon’ble ITAT has held in the order regarding during search that cash was that no material was any material found given to the alleged entry found that the amount indicating cash given. operators. received was bogus by giving cash and taking cheque.

24 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

On considering the above arguments, we are of the opinion that the facts of

above cases are comparable to the facts of the present case under

consideration.

issuance of notice u/s.153C of the Act in the absence of any incriminating

material which is the subject matter of adjudication before us, has been dealt

with by various judicial fora.

when the AO is satisfied that ;

(a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A...............

This is the position after the amendment by the Finance Act, 2005. However,

the said provisions are explained various decisions including that of Apex

Court in the case of Sinhgad Technical Education Society 397 ITR 344 and

the Coordinate Bench of the Tribunal in the case of Sinhgad Technical

Education Society Vs. ACIT 50 SOT 89 which is relevant for the following

proposition :

“Conclusion :

Where no assessment year specific incriminating material or document is found, assessments of such assessment years cannot be disturbed by invoking the provisions of s.153C; in the absence of any reference to any assessment year specific incriminating information or document relatable to the assessee for the assessment years in question in the reasons recorded by the AO, impugned assessment under s.153C is bad in law.”

25 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

in the case of CIT Vs. Sinhgad Technical Education Society in Civil Appeal

No.11080/2017 and others dated 29-08-2017 vide Para No.11 of the

judgment. For the sake of completeness, the said observations of the Apex

Court are reproduced here 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 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.

19) We, thus, find that the ITAT rightly permitted this additional ground to be raised and correctly dealt with the same ground on merits as well. Order of the High Court affirming this view of the Tribunal is, therefore, without any blemish. ……………”

Vidyapeeth Medical Foundation in ITA No. 959/PN/2010 and others, dated

28-04-2011 is relevant for the similar legal proposition. For the sake of

completeness, the operational para on this legal issue is reproduced herein

below :

“24. Appeals by the Assessee - AY 2004-05: In connection with the AYs at sl no (ii) above ie AYs 2004-05, admittedly, there is some seizure of the documents as evident from the satisfaction note. We are convinced that the said ledger is an accounted one. Further, the reasoning given by us in the order in the case of Sinhgad Technical Education Society (supra) apply to the issue in these appeals mutatis mutandis. In other words, the views approved by this bench in the case of Sinhgad Technical Education Society (supra) and Kumar Company (supra) are affirmed by the said Judgment of the Gujarat High Court

26 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

in the case of Vijaybhai N Chandani 231CTR 474 (Guj) and mere appearance of names does not mean anything as section 153C of the Act is intended for taxing the undisclosed income of the third party based on the material/others seized during the search action. As such, only the unaccounted and incriminating material or others listed in the said section are only seized during the search and the accounted documents should not be seized. Seizure of the documents is aimed at the unearthing of the unaccounted income of the assessee assessable u/s 153A or the other third parties subjected assessment u/s 153C of the Act. When the documents do not indicate any undisclosed income, the ledger in the instant case, what is the relevance of such document? Such ledger constitutes merely an accounted one with no financial implications. Thus, the documents, the ledger in the instant case relevant for the AY 2004-05, with no financial implications can neither be considered incriminating nor be considered capable of springing satisfaction to any AO that there is scope of undisclosed income in respect of the third party assessable u/s 153C of the Act. Accordingly, the legal grounds raised in all these appeals of the assessee relating to the validity of the notice u/s 153C of the Act are allowed in favour of the assessee in respect of all the AYs under consideration. Further, we are of the considered opinion that the adjudication of the other grounds relating to the other legal and merit oriented issues is merely an academic exercise. Therefore, the relevant grounds in all the four appeals are dismissed as academic.”

with the legal issue are extracted as follows :

“a. Nova Iron and Steel Ltd. v. DCIT [ITA No.2159/Del/14]

In this case, there was search on the premises of M/s. Today Homes and Infrastructure Pvt. Ltd. and its group concerns. The assessee company was part of Today group of cases. In the course of search, books of accounts and documents belonging to the assessee company were found and seized and hence, the learned A.O. issued notice u/s.153C to the assessee company. The learned A.O. noted that the said group was generating unaccounted income and the firms were infused in various companies in the form of share capital I share premium through various paper companies. The A.O. noted that the assessee company had received an amount of Rs.3.18 Crs. routed through various companies and the same was taxed u/s.68. It was further noted by the A.O. that almost all companies through whom the funds were received had been stuck off as per the ROC record and they were defaulters in filing annual returns with ROC. These companies had common addresses and the dept. had also conducted survey on the other companies. During the survey, it was found that no business was carried out by the lender companies. The A.O. also referred to the statement of a few persons who had admitted that they were dummy directors.

The A.O. also referred to the seize paper found which contained the information relating to Director number, digital signature and password. The A.O. alleged that the funds were routed by providing accommodation entries and therefore, he made an addition u/s. 68. The assessee contended that the notice issued u/s.153C was bad in law and secondly, even on merits, no addition was warranted. Hon'ble ITAT has considered the relevant facts of the case. Firstly, it admitted the additional ground raised before it regarding validity of notice u/s.153C on the basis of the decision of Hon'ble Supreme Court in the case of Sinhagad Technical Education Society [397 ITR 344]. Thereafter, Hon'ble ITAT has further held in para 12.8 of the order that the dept. has recover documents from third parties. It has further noted that the loans and advances received by

27 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

the assessee are mentioned and disclosed to the revenue prior to search. Therefore, these books of accounts cannot be said to be incriminating evidence. It is also noted that no evidence was found in the course of search that the money belonged to the assessee. No evidence was found that cash was given by the assessee to take any loan. Accordingly, it has been held that in the absence of any material to prove that the loan received was bogus, the requirement for issue of notice u/s.153C was not satisfied and accordingly, in para 12.9, Hon'ble ITAT has held that the notice issued u/s.153C was bad in law.

b. Pr. CIT v. Sunny Infra Projects Ltd. [2017-TIOL-810-Del H.C.]

In this case, search action was conducted in the case of Minda Group and one Shri Santosh Kumar Jain who was considered to be an entry operator. In his statement, Shri Jain admitted that he was providing accommodation entries. The A.O. noted that the assessee had received share capital from Bahuguli Properties Ltd., concerned controlled by Shri Jain. The A.O. issue notice u/s.153C to the assessee company on the basis of the documents seized during the course of search on Minda Group. Hon'ble H.C. held that the documents on the basis of which notice u/s.153C was issued were basically copies of balance sheet abstracts, auditor's account, companies general profile, income tax return, trial balances. After considering the documents found, Hon'ble H.C. has held that the notice issued u/s 153C was invalid in law because the documents seized did not indicate any income which was not disclosed by the assessee in the original return.

c. Ravnet Solutions Pvt. Ltd. [93 Taxmann.com 59] In this case, search was conducted on Assem Gupta Group of cases who was allegedly engaged in providing accommodation entries to several beneficiaries. Subsequently, search was also conducted on the assessee. The assessee company have received share premium and the same was taxed u/s.68 by the learned A.O. before Hon'ble ITAT, the assessee stated that the addition was not warranted in the absence of any incriminating evidence found as a result of search. On perusal of the facts, it was held that no incriminating evidence was found in the course of search and the addition was deleted.

d. DCIT v. Sagar Nahta [82 Taxmann.com 344 (Kol)] The assessee was a practicing C.A. Following the search and seizure action in Bhushan Group of Company, search was conducted on the assessee wherein certain documents belonging to 31 companies were found. The A.O. alleged that the assessee has provided accommodation entries and thereby earn commission. Hon'ble ITAT held that no evidence was brought on record to prove that the assessee had earn commission. Further, no material was brought on record to establish the money trade and accordingly, the addition was deleted.

e. Bharati Vidyapeeth [ITA No. 917 - 922/PN/10] –

In this case, there was search on Shri R. D. Shinde and on the basis of the material seized from him, notice u/s 153C was issued to Bharati Vidyapeeth. In that case, the allegation of the dept. was that the assessee was charging capitation fee and the dept. the dept. was also recorded the statement of Shri Shinde wherein he had confirmed the said fact. The assessee contended that the documents seized did not indicate any incriminating evidence. Further, the inward register for applications received under management quota was found. It was stated that near register without any details regarding cash received cannot be said to be incriminating and accordingly, Hon'ble ITAT held that the notice issued U/S 153C was bad in law. Similar is the ratio laid down in the case of Bharati Vidyapeeth Medical Foundation [ITA No. 959-967/PN/10].

28 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

f. Pr. CIT v. Index Securities Pvt. Ltd. [86 Taxmann.com 84 (Del)] In this case, a search and seizure action was conducted on Jagat Group and its directors. In the course of search, trial balance and balance sheet of the assessee was found and on that basis, notice u/s.153C was issued to the assessee company. Thereafter, the learned A.O. completed the asst. by making an addition on account of share application money received by the assessee. The validity of notice issued u/s.153C was challenged by the assessee. In that context, Hon'ble court held in para 31 of the order that as per the decision of Hon'ble Supreme Court in the case of Sinhagad Technical Education Society, for issue of notice u/s.153C, the documents seized must be incriminating and must relate to each of the asst. years which are sought to be reopened. Accordingly, the notice issued u/s.153C was held to be invalid in law.

g. Pr. CIT v. Smt Sunita Bai [78 Taxmann.com 274 (Kar)] In this case, the issue raised before Hon'ble H.C. was whether notice u/s.153C could be issued when there was no incriminating document or evidence discover during the course of search. On this issue, Hon'ble Court has held that in the absence of any incriminating evidence, no notice u/s.153C can be issued. h. DCIT v. Royal Cartons Pvt. Ltd. [ITA No.472/Coch/2013 (TM)] In this case, it has been held by Hon'ble Third Member that in the absence of incriminating material, notice u/s.153C cannot be issued by the A.O. It is also held that the document found should indicate that for the year under consideration, the assessee had not offered the income to tax.”

From the above, it is evident that the expression “documents” refers to in the

sub-section (1) of section 153C of the Act, needs to be understood in the

context of incriminating documents.

for the Revenue. The decision of Delhi High Court in the case of Ganpati

Fincap Services Pvt. Ltd. Vs. CIT 82 taxmann.com 408 (Delhi) is found

delivered in the context of the expression “documents belonging to assessee”

but also in the context of “ non-incriminating documents”. After analyzing

the documents seized, the details of which are analysed in the satisfaction

note (Para 6 of the judgment), the Hon’ble High Court held that the

documents so discussed in the said satisfaction note cannot be considered

non-incriminating and the documents so discussed in the note not only

includes accounted profit and loss account, balance sheet etc. but also an

unsigned indemnity bond, unsigned Memorandum of understanding between

29 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

the outgoing Directors of the company and the Buyers of the Company.

Considering the unsigned papers, the Hon’ble High Court has come to the

conclusion that the said documents can be considered as incriminating

documents. After analyzing the same, we find the decision cannot be applied

to the facts of the present case where all the documents seized are the ones

which are already either reported to the Govt. authorities are pertaining to the

assessee company which are duly recorded in the books of account or others.

There are no unsigned Memorandum of understandings or indemnity bonds

as in the case of Ganpati Fincap Services Pvt. Ltd. (supra).

Court relied by the Ld. DR for the Revenue in the case of CIT Vs. RRJ

Securities Ltd. 79 taxmann.com 115 (SC). The issue in this case relates to

the validity of notice issued u/s.153C of the Act when the seizure includes

hard disk working papers belonging to RRJ Securities Ltd., The Hon’ble High

Court of Delhi held that such hard disk did not contain any incriminating

material. Therefore, the notice issued u/s.153C of the Act is not validly

issued on the basis of said hard disk. Of course, the SLP was admitted by the

Supreme Court against the said order of Delhi High Court.

Considering the above legal proposition on the issue of validity of notice

u/s.153C of the Act as well as the nature of non-incriminating material seized

in the case on hand for A.Y. 2009-10, we are of the opinion that notice issued

u/s.153C of the Act is not valid. The documents seized pertaining

to/belonging to the assessee is only non-incriminating documents.

Regarding the validity of similar notice for A.Y. 2007-08, we find no document

whatsoever was seized. Therefore, the fate of such notice is placed as much

worse position. Therefore, the additional ground raised by the assessee for

30 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

both the assessment years are decided in favour of the assessee and against

the Revenue.

raised by the assessee on merits, we find the adjudication of the same

becomes an academic exercise. Therefore, the regular grounds raised by the

assessee are dismissed as academic.

ITA No.286/PUN/2016 A.Y. 2009-10

and the arguments of the representatives are same as that of appeal ITA

No.285/PUN/2016 for A.Y. 2007-08. Therefore, the finding given on the

additional ground in A.Y. 2007-08 apply to this assessment year too.

Accordingly, the additional ground is allowed and the regular grounds raised

by the assessee are dismissed.

ITA No.287/PUN/2016 A.Y. 2012-13

“1. The Ld.CIT(A) erred in not appreciating the contention of the appellant that the re-assessment u/s.143(3) was bad in law and void ab-initio, since it was passed. a) Without following the principles of natural justice. b) Without verifying the submissions and evidences submitted by appellant. 2. The Ld.CIT(A) has erred in confirming the addition of Rs.36,63,681/- u/s.14A of the Act, 1961 made by the AO disregarding the submissions made by the appellant company that the provisions of section 14A are not applicable to the appellant company as no exempt income has been earned or received by the appellant company.

31 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

is not pressing Ground No.1. Accordingly, the said ground is dismissed as

such. That leaves the only issue to be adjudicated in this appeal is the

disallowance made by the AO u/s.14A r.w. Rule 8D of the I.T. Rules, 1962.

u/s.132 of the Act on the Pride Group of cases on 07-09-2011. Assessee filed

return of income on 28-09-2012 declaring income of Rs.24,49,378/-. On

verification of the balance sheet of the assessee, AO noticed that assessee

made investment of Rs.14.17 crores and assessee has also taken loan for

such investment and paid Rs.69,55,060/-. Assessee claimed that assessee

did not earn any income on such investment and assessee utilized own funds

for making such investment. AO opined that there is always an element of

indirect expenditure for earning such as exempt income, which the assessee

has neither identified nor offered to tax. Eventually, the AO relying on the

judgment of Hon’ble Bombay High Court in the case of Godrej & Boyce Vs.

DCIT and the decision of Delhi Bench of the Tribunal in the case of M/s.

Cheminvest Ld. Vs. ACIT in ITA No.87/Del./2008 and others quantified the

disallowance u/s.14A of the Act at Rs.36,63,681/.

appeal before the CIT(A). Before the CIT(A), assessee submitted that the

32 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

investments is made out of idle funds and not made out of any borrowed

funds. The same is evidenced by way of audited financial statements. He

further submitted no borrowed funds are utilized for making these

investments and no interest cost is incurred. Assessee relied on various

decisions including that of the judgment of Hon’ble jurisdictional High Court

in the case of CIT Vs. HDFC Bank Ltd. The CIT(A) upheld the addition made

by the AO by holding as under :

“3.10 It is matter of common sense that the Appellant has to incur some expenditure to keep track of the receipt of tax-free income, for its accounting as well as taking investment decisions. Such expenditure is incurred towards salaries of administrative staff, accounting staff and of treasury personnel, stationery, communication and other miscellaneous expenses. Such expenditure may or may not be substantial. The magnitude of such expenditure would depend on the facts of the case. However, in no circumstances, the expenditure can be stated to be nil. Therefore, the Appellant’s claim of nil expenditure is incorrect. Honourable Chennai ITAT in the case of Lakshmi Ring Travellas (TS-210-ITAT-2012-CHEN) held that when assessee claims that no expenditure was incurred, the AO has to presume incurring of such expenditure u/s.14(2). Similar decision was rendered by the Honourable Mumbai ITAT in the case of Auchtel Products Limited Vs. ACIT (2012-ITRV-ITAT-MUM-109).

3.11 Having concluded that the Appellant’s claim of no expenditure is incorrect, the Rule 8D, does not grant any discretion to any authority; either to AO or to appellate authority to make any ad-hoc disallowance. In fact, the Rule 8D is inserted to avoid ad-hoc disallowances. Some time, the amount of the disallowance arrived at by application of Rule 8D could be excessive, however, in my view, law has to be applied as it is in absence of any discretion granted to the authority. The honourable Delhi ITAT in the case of Joint Investment Private Limited Vs. ACIT (2014) 50 taxmann.com 271 (Delhi) has held that the word ‘shall’ used in section 14A(2) makes it mandatory for the AO to compute the disallowance under Rule 8D. Accordingly, I dismiss the Appellant’s arguments that the learned AO has incorrectly invoked the Rule 8D.

3.12 In view of the above, I confirm the disallowance made by the learned AO u/s.14A of Rs.36,63,681/-.”

Tribunal with the grounds raised above on this issue.

Revenue authorities. There is no dispute that assessee did not earn any

exempt income during the year under consideration which became part of the

total income of the assessee. Therefore, the issue has to be decided in the

33 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

present appeal is if the disallowance u/s.14A of the Act is called for when

exempt income is not earned by the assessee and not included in the total

income of the assessee. We find it is a settled issue that when no exempt

income is earned by the assessee for making investments and when the

investments are made from the own funds of the assessee, no disallowance

u/s.14A read with Rule 8D is called for. Various decisions are in existence for

the proposition that disallowance if any u/s.14A of the Act should not exceed

the exempt income which formed part of the total income of the year under

consideration. Considering these facts and relying on the Hon’ble Bombay

High Court in the case of Reliance Utilities and Power Ltd. (supra), judgment

in the case of CIT Vs. HDFC Bank Ltd., 366 ITR 505 and the judgment of the

Hon’ble Delhi High Court in the said case Cheminvest Limited Vs. CIT 347

ITR 272 (Del.), we find it is obvious inference that assessee has adequate

interest free funds and assessee also earned profits in the current year. All

these interest free funds are sufficient enough to take care of the exempt

income yielding investments considering the principle of presumption laid

down by the various courts.

Pest Control India Pvt. Ltd., Vs. DCIT and vice versa in ITA Nos. 5048 & ITA

No.5608/Mum/2016, dated 31-10-2017 has restricted the disallowance to

the exempt income earned by the assessee. The said finding of the Tribunal

given in Para Nos. 7 to 11 is extracted here as under :

“7. We have heard the rival submissions, perused the orders of the authorities below and the case laws relied upon. The Assessing Officer computed the disallowance u/s. 14A r.w. Rule 8D at ₹.38,43,918/- and the Ld.CIT(A) recomputed the disallowance at ₹.5,10,601/- which comprises of ₹.3,42,870/- under Rule 8D(2)(ii) and ₹ 1,67,731/- under Rule 8D(2)(iii). This calculation of the Ld.CIT(A) appears to be proper and justified.

34 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

"Whether in the facts and circumstances of the case, the Hon'ble ITAT is justified in law to hold that the disallowance made under section 14A read with Rule 8D cannot exceed the exempt income, in the absence of any such restriction being there in the relevant section or rule?"

The Hon'ble High Court affirmed the order of the ITAT in holding that the disallowance u/s. 14A r.w. Rule 8D as worked out by the Assessing Officer is not in accordance with law for the reason that Assessing Officer has disallowed entire tax exempt income and this is not permissible in view of the judgment of the Hon'ble Delhi High Court.

making the investments. Therefore, considering the binding precedents on

35 ITA Nos. 285 to 287/PUN/2016 Prime Centre and Developers Pvt. Ltd.,

this issue, the order of the CIT(A) requires reversal on this issue. Accordingly, we reverse the order of CIT(A) and delete the disallowance made by the AO. Thus, the Ground Nos. 2 to 4 raised by the assessee are allowed in favour of the assessee.

Order pronounced on 14th day of August, 2018.

Sd/- Sd/- िवकास अव�थी /VIKAS AWASTHY) (डी डी डी. क�णाकरा राव डी (िवकास अव�थी िवकास अव�थी िवकास अव�थी क�णाकरा राव क�णाकरा राव/D. KARUNAKARA RAO) क�णाकरा राव �याियक सद�य �याियक सद�य/JUDICIAL MEMBER लेखा सद�य लेखा सद�य/ACCOUNTANT MEMBER �याियक सद�य �याियक सद�य लेखा सद�य लेखा सद�य

पुणे / Pune; �दनांक / Dated : 14th August, 2018. Satish

आदेश क� �ितिलिप अ�ेिषत आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : आदेश क� �ितिलिप अ�ेिषत आदेश क� �ितिलिप अ�ेिषत अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT (Appeals)-13, Pune. 4. The Pr. CIT (Central), Pune. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “ए” ब�च, 5. पुणे / DR, ITAT, “A” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

आदेशानुसार / BY ORDER, // True Copy //

व�र� िनजी सिचव / Sr. Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.