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Income Tax Appellate Tribunal, BANGALORE BENCH ‘ C ’
Before: SHRI SUNIL KUMAR YADAV & SHRI JASON P BOAZ
Per Bench : These are a bunch of seven appeals. The assessee's appeals for Assessment Years 2005-06 and 2007-08 are directed against the orders of the Commissioner of Income Tax (Appeals)-11, Bangalore dt.14.3.2016
2 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 and for Assessment Years 2008-09 to 2010-11 against a common order dt.27.2.2015. Both Revenue and the assessee have filed cross appeals against the orders of the CIT (Appeals) dt.22.5.2015 for Assessment Year 2011-12. Since common / inter-connected issues were involved, these appeals were heard together and are being disposed off by way of this common order for the sake of convenience. These appeals will be disposed of hereunder in seriatum. Assessee's appeal in ITA No.911/Bang/2016 for A.Y. 2005-06. 2. Briefly stated, the facts of the case are as under :- 2.1 A search and seizure action under Section 132 of the Income Tax Act, 1961 (in short 'the Act') was conducted in the case of this assessee on 19.7.2010. Subsequently a notice under Section 153A of the Act dt.21.9.2010 was issued to the assessee and in response thereto, return of income was filed on 31.1.2012. The assessment was completed under Section 153A r.w.s. 143(3) of the Act vide order dt.28.3.2013, wherein the income of the assessee was determined at Rs.7,49,56,900 in view of an addition of Rs.1,83,50,000 as unexplained cash credit under Section 68 of the Act. The assessee's appeal was dismissed by the learned CIT (Appeals) vide the impugned order dt.14.3.2016. 3.1 Aggrieved by the order of the CIT (Appeals) – 11, Bangalore dt.14.3.2016 for Assessment Year 2005-06, the assessee has filed this appeal before the Tribunal, wherein it has raised the following grounds :-
3 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 1. “ That the order of the authorities below in so far as it is against the appellant is against the law, facts, circumstances, natural justice, without jurisdiction, bad in law and all other known principles of law.
That the total income computed and total tax computed is hereby disputed.
The proceedings of search and all other subsequent proceedings are bad in law, without jurisdiction and invalid.
The notice u/s 153A and subsequent proceedings are without jurisdiction and bad in law.
The order u/s 143(3) r.w.s 153A is bad in law, invalid, time barred and infructuous.
The authorities below erred in not providing sufficient and adequate opportunity to the appellant as required under law, thereby violating the principles of natural justice, hence the order requires to be cancelled.
The CIT-Appeals erred in dismissing the ground on validity of search.
The AO erred in initiating proceedings u/s 153A and thereafter passing an order in the absence of any abatement as is envisaged in the law.
The authorities below erred in making addition of Rs. 1,83,50,000/- as alleged cash credit in the hands of the assessee.
The authorities below erred in relying on material and statements without furnishing the same to the assessee before passing the assessment order.
4 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 11. The authorities below erred in relying on statements without providing opportunity to cross examine. 12. That the approval granted u/s 153D of the Act is not as per law. 13. The appellant denies the liabilities of interest u/s 234B, 234C and 234D of the Act. Further prays that the interest if any should be levied only on returned income. 14. No opportunity has been given before levy of interest u/s 234B, 234C and 234D of the Act. 15. Without prejudice to the appellant’s right of seeking waiver before appropriate authority, the appellant begs for consequential relief in the levy of interest u/s 234B, 234C and 234D of the Act. 16. The levy of interest u/s 234D is against the express provisions of the law. 17. For the above and other grounds and reasons which may be submitted during the course of hearing of the appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered.”
3.2 In written submissions, the assessee has submitted as under :-
“ The assessee is a Public Limited Company. For the above assessment year, the assessee filed its return of income on 19.09.2005 declaring total income of Rs. 5,66,06,899/- (PB page 1). The search and seizure operation purportedly u/s 132 of the Income Tax Act, 1961, was carried on in pursuance of warrant of authorization dt. 16.07.2010 in the case of M/s BMM Ispat Limited at No. 114, Danapur, Mariyammanahalli, Hospet. The search was conducted on 19.07.2010, 20.07.2010, 21.07.2010, 22.07.2010, 13.09.2010 and on 14.09.2010. During the course of search, documents listed in A/BMMIL/01, A1/BMMIL/01, A2/BMMIL/1, A3/BMMIL/01 were seized (panchanamas are found in PB pages 176 to 205). It may be noted that none of the documents so seized are incriminating in nature. All the documents are maintained
5 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 during the regular course of business. As such, the search and subsequent proceedings are all not as per the law. Further, notice u/s 153A was issued on 21.09.2010 calling for filing the return of income. Assessee filed the return of income on ‘without prejudice’ basis on 31.01.2012 declaring total income of Rs. 5,66,06,899/- (PB page 3). The assessment u/s 143(3) r.w.s 153A was completed by making additions of Rs. 1,83,50,000/- u/s 68 towards alleged cash credit. As per the AO, the assessee has received 1,83,50,000/- as share capital from 13 parties listed in para 2.2 of the assessment order. According to the AO, the said share capital amounted to unexplained cash credit in the hands of the assessee. The AO has mentioned that certain enquiries were carried out by him and was not able to get satisfactory information. Without making available the results of enquiry and investigation carried out by the AO, the assessee was called to explain the said receipt in the form of share capital. Ex facie, the transaction required no explanation as it is share capital received from various shareholders through a/c payee cheques, the details of which are already available with the AO. In such cases section 68 of the Act, cannot be invoked. The notice issued was not specific and was vague. The AO had sought reply without furnishing the evidence or information in his possession. The Ld.CIT-A who confirmed the order of the AO by reiterating the reasons given in the asst. order and ignored the argument of the assessee on the issue of lack of incriminating material and also binding decision of the Hon’ble Supreme Court in Lovely Exports – 216 CTR 195 (CLPB page 509). In this regard it is submitted neither the notice u/s 142(1) nor the asst. order makes a mention of any seized material which is incriminating in nature. The intimation u/s 143(1) of the Act was passed on 24.10.2005 (PB page 1A). The time limit for issue of notice u/s 143(2) of the Act was 30.09.2006 and since no notice u/s 143(2) of the Act has been issued the assessment stands concluded. Even in such cases, no reassessment u/s 153A can be made unless there is incriminating material. The assessee places reliance on the following decisions: All cargo global logistics limited vs DCIT - 147 TTJ 513– Bombay ITAT (SB). Kusum Gupta vs. DCIT - 35 CCH 432 - Delhi ITAT - CLPB page 403/409 to 411 CIT vs Kabul Chawla - 380 ITR 573 - Delhi HC.
Since there is no material seized in the hands of the assessee based on which the addition has been made, the assessment and the addition requires to be vacated at the threshold itself. Without prejudice, even on merits it is seen that the assessee had received share capital from 13 persons in the AY 2005-06 and
6 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 have sold the same in the later year. The genuineness or otherwise the source of investment etc and resultant addition if any should be made only in the hands of the shareholder and not the recipient company as held by the Supreme Court in Lovely Exports.
Hence even on merits there is no case for the department. Since the material sought by the assessee in the possession of the department inspite of request, the order suffers for non-adherence to principles of natural justice. Even on this basis the addition requires to be vacated.
The assessee’s written submissions before CIT-A are found in pages 17 to 31 and rely on the same. On the issue of approval granted u/s 153D, it is the contention of the assessee that the approval has been granted without application of mind and in a mechanical manner. In support of its contention, the following case laws are relied on: 1) Chhugamal Rajpal vs. S.P.Chaliha & Ors - 79 ITR 603 – SC. 2) CIT vs. Akil Gulamali Somji - 84 CCH 53 - Mum HC. 3) Smt.Shreelekha Damani vs. DCIT - 173 TTJ 332 - Bombay ITAT. 4) AAA Paper Marketing Ltd vs ACIT - ITA 167/Lkw/2016 - Lucknow ITAT. The grounds on interest u/s 234A/B/C are consequential in nature.”
3.3 Before us, apart from being heard the learned Standing Counsel for Revenue put forth written submissions which are extracted hereunder :-
“ Search under section 132 of the Act was conducted in the case of the assessee on 19/7/2010. Notice under section 153A of the Act issued on 21/9/2000 and served on 28/9/2010. 2. ADDITION OF UNEXPLAINED CREDITS UNDER SECTION 68 OF THE ACT i. During the course of assessment it was noticed that number of shares of the company is on 31/3/2004 was 10,000 with the total value of Rs one lakh. For the year ending 31/3/2005 the number of shares, shareholders and the value of shares a
7 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 revised to 2505 000, the number of shareholders to 26 and value of shares to Rs.2,50,50,000/– the list of 13 new shareholders has been tabulated at page 2, 3 and 4 of the assessment order. The notices issued under section 133 (6) of the Act to the parties mentioned that Sl.No. 1, 2, 3, 9, 10 and 12 been returned by postal authorities with the endorsement “no such person/not known/not found”. The person at Sl.No. 5 denied the transaction and also knowledge about the assessee. ii. The result of the enquiry was show cause to the assessee. The assessee failed to discharge the burden of genuiness and identity of the 13 persons. As the assessee failed to establish the identity of the shareholder, creditworthiness and genuiness of the transaction, the Assessing Officer treated a sum of Rs.1,83,50,000/– as an unexplained credit under section 68 of the Act. The above finding has been confirmed by the Appellate Commissioner. REPLY TO ASSESSEE SUBMISSIONS i. The assessee has relied on the addition of the Supreme Court in the case of Lovely Exports 216 CTR 195. The above judgement is not applicable in the facts and circumstances of the present case. In the case before the Supreme Court the identity, creditworthiness and genuiness of the shareholder was not in dispute. In the circumstances, the Supreme Court held that the same cannot be considered in the hands of the company. ii. The requirement of identifying the shareholder, creditworthiness and genuiness has been reiterated by Bombay High Court in the case of the Gagan Deep Infrastructure 394 ITR 680 after applying the law laid down by the Supreme Court in the case of Lovely Exports. As the above order and has not been discharged by the assessee, reliance on the judgement of the Supreme Court in the case of Lovely Exports is misplaced. iii. Further contention of the assessee that in view of the time-limit for issue of notice under section 143 (2) of the Act being expired on the date of search, no assessments can be made without the aid of incriminating material seized from the assessee and relates to the impugned year is incorrect. On plain reading of section 153A of the Act, section does not contemplate either incriminating material
8 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 found in the course of search or undisclosed income being unearthed in the course of search. As per the law laid down by the Supreme Court in the case of Calcutta Knitwear (2014) 362 ITR 673 (SC), section has to be read in plain and reading new words into the section is not permissible. If the contention of the assessee is to be accepted regarding incriminating material, the same would amount to rewriting of the section 153A of the Act. iv. The above position has also been clearly held by the jurisdictional High Court in the case of Canara Housing (2015) 274 CTR 122 and further being held by the High Court in the case of IBC knowledge Park (2016) 385 ITR 346. The same principle has been reiterated by Delhi High Court in the case of Anilkumar Bhatia (2013) 352 ITR 493. The same principle has been reiterated by various high courts including Kerala High Court in ST.Francis Clay Décor Tiles 385 ITR 624 and (2016) 73 Taxman.com 173 (Kerala) in the case of Dr.P.Sasikumar. v. In view of the judgement of the High Court in the case of Canara Housing, proceedings under section 153A of the Act is not confined only to the incriminating material found and seized in the case of the assessee. The material available with the Assessing Officer also can be used for the purpose of assessment under section 153A of the Act. The said fact has also not been disturbed in the judgement of IBC knowledge Park and the same is clear as per para- 54 of the judgement. The further contention o f the assessee that approval granted under section 153D of the Act is without application of mind and in mechanical manner is incorrect. The approval has been granted strictly in conformity with the provisions of the Act. Wherefore it is respectfully prayed that the appeal filed by the assessee may be rejected in the interest of justice and equity.” 3.4.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial
9 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 pronouncements cited. In the case on hand, the assessee filed its return of income for Assessment Year 2005-06 on 2.9.2005 and the return was processed under Section 143(1) of the Act on 24.10.2005 (copy placed at page 1A – Paper Book). Therefore, the time limit for issue of notice under Section 143(2) of the Act was upto 30.9.2006. Since no notice there under was issued within the time specified by law, the assessment for Assessment Year 2005-06 does not abate as per the provisions of Sec. 153A of the Act and re-assessment if any must be carried out on the basis of incriminating material found during search.
3.4.2 We have carefully perused the order of assessment for Assessment Year 2005-06 dt.28.3.2013 and also the copy of panchanama and Annexures & details of seized material as per panchanama (copies placed at pages 176 to 205 of Paper Book) and find that the order of assessment does not mention any incriminating material seized from the assessee on the basis of which any addition has been made. Therefore, the addition of Rs.1.83,50,000 under Section 68 of the Act as unexplained cash credit is clearly not based on any incriminating material seized from the assessee.
3.4.3 In this context, the jurisdictional High Court of Karnataka in the case of CIT Vs. Lancy Constructions in ITA No.528 to 531/2014 has held as under :-
10 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 “ 4.2.2 In this regard, the Hon'ble Karnataka High Court in the case of CIT Vs Lancy Constructions in its order in ITA Nos.528 to 531 has held as under :
“ In our view, if assessment is allowed to be reopened on the basis of search, in which no incriminating material is found, and merely on the basis of further investigating the books of accounts which have been already submitted by the assessee and accepted by the Assessing Officer at the time of regular assessment, the same would amount to the Revenue getting a second opportunity to reopen the concluded assessment, which is not permissible under the law. Merely because a search is conducted in the premises of the assessee, would not entitle the revenue to initiate the process of reassessment, for which there is a separate procedure prescribed in the statute. It is only when the conditions prescribed for reassessment are fulfilled that a concluded assessment can be reopened. The very same accounts which were submitted by the assessee; on the basis of which assessment had been concluded cannot be reappreciated by the Assessing Officer merely because a search had been conducted in the premises of the assessee.”
3.4.4 Further, the Hon'ble Karnataka High Court in the decision rendered in M/s. IBC Knowledge Park Pvt. Ltd., ITA No.403/2009 dt.28.4.2016 has explained the entire scope and principles governing the
11 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 provisions of Sec. 153A and 153C of the Act. In their judgment, the Hon'ble Court has considered several decisions on this issue including Lancy Constructions (supra) cited by the assessee and Canara Housing Development Co. (2015) 274 CTR 122 (Kar) cited by Revenue. In its decision, in the case of IBC Knowledge Park Pvt. Ltd. (ITA No.403/2009 dt.28.4.2016) the Hon'ble Karnataka High Court has held that notice under Section 153A of the Act can be issued only if it is during a valid search when certain incriminating materials are detected. At paras 45 to 49 of its decision, the Hon'ble High Court has held as under :
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3.4.5 In the case on hand, the assessment for Assessment Year 2005- 06 has been completed as the time limit for issue of notice had expired on 30.9.2006; before the date of search on 28.9.2010. Therefore, since no assessment was pending, there was no question of abatement of assessment. Respectfully, following the decisions of the Hon'ble Karnataka High Court in the case of IBC Knowledge Park Pvt. Ltd. (supra), we hold that for Assessment Year 2005-06 no assessment had abated and therefore the assessment under Section 143(3) r.w.s. 153A of the Act could have been made based only on incriminating documents / material found and seized in the course of search. That clearly not being the factual matrix in the case on hand, since no incriminating material was found / seized the order of assessment for Assessment Year 2005-06 passed under Section 143(3) r.w.s. 153A of the Act vide order dt.14.3.2013 is cancelled. Consequently, the original assessment and income returned as per the original return of income filed on 19.09.2005 at Rs.2,66,06,899 stands restored. Assessee's appeal is allowed in terms of Grounds 1, 2, 4, 5, 7 and 8.
20 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 4. Since we have allowed the assessee's appeal on the issue of validity of assessment, the other grounds of appeal raised on merits are not being adjudicated.
In the result, the assessee's appeal for Assessment Year 2005-06 is allowed as indicated above.
Assessee's appeal in ITA No.912/Bang/2016 for A Y 2007-08.
This appeal by the assessee is directed against the order of the CIT (Appeals) – 11, Bangalore dt.14.3.2016 for A.Y. 2007-08.
Briefly stated, the facts of the case are as under :-
7.1.1 A search and seizure action under Section 132 of the Act was conducted in the case of Sri Dinesh Kumar Singhi, Bharat Mines and Minerals and the assessee on 19.7.2010. Pursuant to search, the assessee was issued a notice under Section 153C of the Act dt.22.1.12012 for Assessment Year 2007-08 and in response thereto, the assessee filed return of income on 11.2.2013 declaring a loss of Rs.4,40,07,830 and also filed a letter dt.5.2.2013; recorded at pages 1 & 2 of the order of assessment, which reads as under :-
“ This has reference to the notice issued by you u/s.153C of the Act and subsequent notice and letter issued by you dt.2.1.2013 and 28.1.2013 respectively, having reference No.AABCH3700J/DCIT/CC-1(2)/2012-13. In this regard, kindly note that the materials listed in the notice do not belong to us. It would have been desirable that an opportunity should have been given before holding that the seized material seized in the
21 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 course of search in case of M/s. Bharath Mines and Minerals and M/s. BMM Ispat Ltd. belong to the company. In view of this, the action taken u/s.153C of the Act is not as per law and requires to be dropped. ; However we are filing the returns ‘under protest’ as you have threatened to initiate proceedings u/s.276CC of the Act. Kindly note that, in the absence of valid notice, your jurisdiction to assess the income under Section 153C is nonexistent. It may further be noted that the company is no longer in existence and no notice can be issued on a non-existing company as held by the Hon'ble Supreme Court in the case of Marshall Sons & Co. (India) Ltd. Vs. Income Tax Officer in 233 ITR 809. There is neither undisclosed income nor income escaping assessment so as to warrant notice under Section 153C. Accordingly the proceedings be dropped in the interest of justice and render justice.” 7.1.2 The assessment was completed under Section 153C r.w.s. 143(3) of the Act vide order dt.28.3.2013 for Assessment Year 2007-08, wherein the assessee's income was determined at NIL in view of the addition of Rs.45,46,226 as per the original assessment order dt.18.12.2009 and fresh addition of Rs.4,77,43,723 on account of unaccounted production. The assessee's appeal for Assessment Year 2007-08, was dismissed by the CIT (Appeals) – 11, Bangalore dt.14.3.2016.
Aggrieved by the order of the CIT (Appeals) -11, Bangalore dt.14.3.2016 for Assessment Year 2007-08, the assessee has filed this appeal, wherein it has raised the following grounds :-
“ That the order of the authorities below in so far as it is against the appellant is against the law, facts, circumstances, natural justice, without jurisdiction, bad in law and all other known principles of law.
22 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015
That the total income computed and total tax computed is hereby disputed.
The proceedings of search and all other subsequent proceedings are bad in law, without jurisdiction and invalid.
The notice, proceedings and order are invalid in as much the same has been made against a non-existent entity.
The notice u/s 153C and subsequent proceedings are without jurisdiction and bad in law.
The order u/s 153C r.w.s 143(3) is bad in law, invalid, time barred and infructuous.
The authorities below erred in not providing sufficient and adequate opportunity to the appellant as required under law, thereby violating the principles of natural justice, hence the order requires to be cancelled.
The CIT-Appeals erred in dismissing the ground on validity of search. 9. The authorities below erred in making addition of Rs. 1,93,47,798/- as unaccounted production of Sponge Iron and clandestine removal of the same. 10. The authorities below erred in making addition of Rs. 55,22,060/- as unaccounted production of MS Billets and clandestine removal of the same. 11. The authorities below erred in making addition of Rs. 2,28,73,865/- as unaccounted production of TMT Bars and clandestine removal of the same.
That the approval granted u/s 153D of the Act is not as per law.
23 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015
For the above and other grounds and reasons which may be submitted during the course of hearing of the appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered.”
9.0 Before us, the learned Authorised Representative for the assessee and the ld. Standing Counsel for Revenue were heard and written submissions were filed by both parties which are extracted hereunder :-
Assessee's Submissions
“ In this case a notice u/s 153C of the Act dt.22.11.2012 was issued addressed as hereunder: ‘’To M/s.HKT Mining Pvt Ltd’’
The said notice was served on BMM Ispat Limited. The assessee in its reply dt.05.02.2013 (PB page 2) replied stating that the said HKT Mining Pvt ltd stood merged with BMM Ispat Limited and issue of notice in the name of HKT Mining Pvt Ltd is not as per law in as much HKT Mining Pvt Ltd is non- existent company on the date of issue of notice and no assessment proceeding can be held in the hands of non – existent company. Ignoring the reply filed by the assessee, the AO went on and completed the assessment in the name of HKT Mining Pvt Ltd vide order dt.28.03.2013. The AO while took notice of the assessee’s objections in para 2.2 page 2 of the assessment order rejected the contention of the assessee and framed the assessment in the name of HKT Mining Pvt Ltd, a non-existent company. The Ld.CIT-A who noted the arguments of the assessee in para 8.1 rejected and reiterated the stand of the AO.
[PAN OF HKT MINING PVT LTD- AABCH3700J, PAN OF BMM ISPAT LTD - AACCB3556B, notice of demand is in the name of HKT Mining Pvt Ltd with PAN of HKT]
24 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 In this case HKT Mining Pvt Ltd stood merged with BMM Ispat Limited wef 01.04.2007 vide order of Karnataka High Court dt.09.01.2009 vide para 18 (PB page 33) and as per the scheme para 7 (PB page 70) extracted hereunder: ‘’ Legal Proceedings If any suit, appeal or any other proceedings of whatsoever nature (hereinafter called “Proceedings”) by or against the Transferor Company be pending, the same shall not abate, be discontinued or in any way be prejudicially affected by reason of the transfer of the undertaking of the Transferor Company or anything contained in this scheme; but the Proceedings may be continued, prosecuted and enforced by or against the Transferee Company in the same manner and to the same extent as it would be or might have been continued, prosecuted and enforced by or against the Transferor Company, if this scheme had not been made. On and from the Effective date, the Transferee Company shall and may initiate any legal proceedings for and on behalf of the Transferor Company. ‘’ and from the appointed date the company seized to exist and no proceeding can be taken against the company. Any order against the non existent company is a nullity and void. In a similar circumstance Hon’ble ITAT Bangalore in the case of GE Medical Systems in CLPB page 427 para 4.4.2 has held that the order is a nullity and void. Similarly in the case of CIT vs Indu Surveyors & Loss Assessors Pvt Ltd - ITA 365 to 368, 371,372/2013 - Delhi HC CLPB page 465 has held in para 7 as under: ‘’7. In identical circumstances, in cases arising out of the same search, this Court has by its order dated 19th August, 2015 in the Revenue's appeals ITA Nos.582, 584, 431, 533, 432 & 433 of 2015 (Pr. Commissioner of Income Tax (Central-II) v. Images Credit And Portfolio Pvt. Ltd.) and order dated 29th September, 2015 in ITA Nos.745, 746,748, 749 and 750/2015 (Pr.Commissioner of Income Tax (Central-2) v. M/s Mevron Projects Pvt. Ltd.) invalidated the assessment proceedings against the Assessee in those cases which, on account of having merged with another entity with effect from a date anterior to the search, also no longer existed on the date of search, on the date of the issue of notice and consequent assessment order passed under Section 153 C of the Act.’’
Accordingly it is prayed that the assessment be vacated as invalid.
On merits the AO has made an addition of Rs. 1,93,47,798/-, Rs. 55,22,060/- and Rs. 2,28,73,865/- as unaccounted production of Sponge Iron, MS Billets and TMT Bars respectively.
This addition has been made as alleged removal of goods and unaccounted income arising from the same. The AO’s action is not as per law and the assessee is not aware as to how the said conclusion was arrived at. There is no discussion about the Settlement Commission Order or any other nature. The
25 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 issue has never been raised for the assessee’s clarification. There is no such clandestine removal of goods as is alleged by the AO in the assessment order. Consequently the order suffers from non adherence to the principles of natural justice and hence the addition be deleted. Hence, the assessment u/s 153C of the Act is bad in law and unsustainable and requires to be quashed.” 9.2 Revenue’s submissions.
“ Search under section 132 of the Act was conducted in the case of the Bharat mines and minerals on 19/7/2010. Certain documents belonging to the assessee were found and seized. Proceedings under section 153C of the Act has been initiated after recording satisfaction required under section 150 3C of the Act. 2. The assessee company of M/s.HKT Mining Private Limited amalgamated with M/s.BMM Ispat Ltd. the assessee raised an objection regarding correctness of insulation of the proceedings on the nonexisting company. The Assessing Officer rejected the same and completed the assessment. The same has been upheld by the Appellate Commissioner. The order of assessment in the name of M/s.HKT Mining Private Limited is in accordance with law as the order of assessment and the period of assessment is in respect of the period during which M/s.HKT Mining Private Limited was in existence and carrying on the business. As M/s.HKT Mining Private Limited has been amalgamated with M/s.BMM Ispat Ltd , opportunity of hearing has been granted. 3. Insofar as the merits of the case of consent, The Directorate General of Central Excise, Intelligence, Bangalore conducted search in the premises of M/s. HKT Mining Pvt Ltd and found suppressor production and also clandestinely removal of TMT Broads for the period FY 2006 – 07 and 2007 – 08. Who The assessee filed application before the Customs and Central Excise Settlement Commission with regard to the unaccounted quantity and its assessable value. The assessee admitted certain quantity of unaccounted sponge iron was used by itself for manufacturing MS Billets and unaccounted TMT bars were removed clandestinely. The assessee being successor company in view of the amalgamation, worked out the unaccounted and quantity of TMT bars before the settlement commission assessable value at Rs.4,77,43,723/–.
26 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 4. The assessing officer has treated the unaccounted income of the assessee in view of the admission before the settlement commission and the same has been rightly upheld by the Appellate Commissioner. Hence the unaccounted income from sale of unaccounted TMT bars as admitted by the assessee is justified. Wherefore it is prayed that the appeal filed by the assessee be rejected in the interest of Justice and equity.” 10. Ground No.4 - Validity of notice, proceedings and
Asst. Order against non-existent entity.
10.1 We have considered the rival submissions, perused and carefully considered the material on record; including the judicial pronouncements cited. The preliminary issue raised in this appeal by the assessee is that M/s. HKT Mining Pvt. Ltd. was amalgamated with M/s. BMM Ispat Limited w.e.f 1.4.2007 vide order of the Hon'ble Karnataka High Court dt.9.1.2009. In this assessment year, the notices under Section 153C and 143(2) of the Act, dt.22.11.2012 were issued in the name of M/s. HKT Mining Pvt. Ltd. and the order of assessment passed under Section 153C r.w.s. 143(3) of the Act dt.28.3.2013 was also passed in the name of HKT Mining Pvt. Ltd. All the above notices and orders, are issued in the name of M/s. HKT Mining Pvt. Ltd. under its PAN AABCH3700J which is a non-existent entity on the date of the order of assessment i.e. 28.3.2013 as all these events have occurred subsequent to the appointed date of merger 1.4.2007 as approved by the Hon'ble Karnataka High Court vide order dt.9.1.2009. Evidently, the Assessing Officer was aware of the merger / amalgamation as is clear from the
27 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 details recorded by him at para 2.2 of the order of assessment, and inspite of this he proceeded to issue notices and frame the order of assessment in the name of M/s. HKT Mining Pvt. Ltd. under PAN - AABCH3700J; which entity had already ceased to exist consequent to the merger / amalgamation i.e. w.e.f. ;1.4.2007.
10.2 In this regard, the Hon'ble Karnataka High Court in the case of CIT Vs. Intel Technology India (P) Ltd. reported in 380 ITR 272 (Kar) has held that framing an assessment against a non-existing entity is not a procedural irregularity, but a jurisdictional defect which goes to the root of the matter. While dismissing revenue’s appeal, the Hon'ble Court held that the proceedings were initiated against a non-existing assessee company even after amalgamation with the successor company, and therefore the assessment was not valid and the revenue was not entitled to the benefit of Sec. 292B of the Act. In coming to this decision, the Hon'ble Karnataka High Court referred to para 6 of the decision of the Hon'ble Delhi High Court in the case of Spice Infotainment Ltd. Vs. CIT (2012) 247 CTR (Delhi) 500.
10.3 In view of the facts and circumstances of this case as discussed above and in the light of the decisions of the Hon'ble Karnataka High Court in this case of CIT Vs. Intel Technology India Pvt. Ltd. (supra) and of the Hon'ble Delhi High Court in the case of Spice Infotainment Ltd. (supra), from which we draw support, we hold that the order of assessment for Assessment Year 2007-08 dt.28.3.2013 is invalid and
28 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 accordingly cancelled as the same was passed after the appointed date of 1.4.2007 on a non-existent entity. Consequently, ground No.4 of assessee's appeal is allowed.
In view of our decision on ground No.4 of the assessee's appeal on the issue of validity of assessment, we do not deem it appropriate to take up for consideration and adjudicate the other grounds and issues raised by the assessee.
In the result, the assessee's appeal for Assessment Year 2007-08 is allowed as indicated above.
Assessee's appeals in ITA Nos.779 to 781/Bang/2015
for Assessment Years 2008-09 to 2010-11.
These three appeals by the assessee are directed against the order of the CIT (Appeals) – 11, Bangalore dt.27.2.2015 for Assessment Years 2008-09 to 2010-11.
Briefly stated, the facts of the case are as under :-
14.1 A search and seizure action under Section 132 of the Act was conducted at the assessee's premises on 19.7.2010. Pursuant thereto, notices under Section 153A of the Act were issued to the assessee for Assessment Year 2008-09 to 2010-11. In response thereto, the assessee filed returns of income for these assessment years on 30.1.2012. The assessments for these Assessment Years 2008-09 to 2010-11 were
29 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 completed under Section 153A r.w.s. 143(3) of the Act vide orders dt.28.3.2013. The assessee's appeals for these years were dismissed vide the combined order of the CIT (Appeals) – 11, Bangalore dt.27.2.2015.
15.1 Aggrieved by the orders of the CIT (Appeals) – 11, Bangalore dt.27.2.2015 for Assessment Years 2008-09 to 2010-11, the assessee has filed these appeals in which it has raised the following grounds :-
For Asst. Year 2008-09
“ That the order of the authorities below in so far as it is against the appellant is against the law, facts, circumstances, natural justice, without jurisdiction, bad in law and all other known principles of law. 2. That the total income computed and total tax computed is hereby disputed.
The proceedings of search and all other subsequent proceedings are bad in law, without jurisdiction and invalid. 4. The notice u/s 153A and subsequent proceedings are without jurisdiction and bad in law. 5. The order u/s 143(3) r.w.s 153A is bad in law, invalid, time barred and infructuous. 6. The authorities below erred in not providing sufficient and adequate opportunity to the appellant as required under law, thereby violating the principles of natural justice, hence the order requires to be cancelled. 7. The CIT-Appeals erred in dismissing the ground on validity of search. 8. The AO erred in initiating proceedings u/s 153A and thereafter passing an order in the absence of any abatement as is envisaged in the law.
30 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 9. The CIT-Appeals erred in refusing to rely on the decision of the Special Bench in All Cargo Global Logistics Limited on the issue of abatement of assessment. 10. The authorities below erred in making addition of Rs. 1,73,07,617/- as alleged removal of goods and thereby considering that the said income arising there from is unaccounted. 11. The authorities below erred in making addition of Rs. 16,71,82,094/- as unaccounted cash payments made to Mrs. Ambika Ghorpade and M/s KMIORE. 12. Without prejudice, the authorities below failed to telescope and offer relief to the assessee as is required in law. 13. The authorities below erred in relying on material and statements without furnishing the same to the assessee before passing the assessment order. 14. The authorities below erred in relying on statements without providing opportunity to cross examine. 15. That the approval granted u/s 153D of the Act is not as per law. 16. The appellant denies the liabilities of interest u/s 234A, 234B, 234C and 234D of the Act. Further prays that the interest if any should be levied only on returned income. 17. No opportunity has been given before levy of interest u/s 234A, 234B, 234C and 234D of the Act. 18. Without prejudice to the appellant’s right of seeking waiver before appropriate authority, the appellant begs for consequential relief in the levy of interest u/s 234A, 234B, 234C and 234D of the Act. 19. The levy of interest u/s 234D is against the express provisions of the law. 20. For the above and other grounds and reasons which may be submitted during the course of hearing of the appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered.”
31 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 For Asst. Year 2009-10
That the order of the authorities below in so far as it is against the appellant is against the law, facts, circumstances, natural justice, without jurisdiction, bad in law and all other known principles of law. 2. That the total income computed and total tax computed is hereby disputed. 3. The proceedings of search and all other subsequent proceedings are bad in law, without jurisdiction and invalid. 4. The notice u/s 153A and subsequent proceedings are without jurisdiction and bad in law. 5. The order u/s 143(3) r.w.s 153A is bad in law, invalid, time barred and infructuous. 6. The authorities below erred in not providing sufficient and adequate opportunity to the appellant as required under law, thereby violating the principles of natural justice, hence the order requires to be cancelled. 7. The CIT-Appeals erred in dismissing the ground on validity of search. 8. The AO erred in initiating proceedings u/s 153A and thereafter passing an order in the absence of any abatement as is envisaged in the law. 9. The CIT-Appeals erred in refusing to rely on the decision of the Special Bench in All Cargo Global Logistics Limited on the issue of abatement of assessment. 10. The authorities below erred in making addition of Rs. 19,06,35,900/- as unaccounted cash payments made to Mrs. Ambika Ghorpade and M/s KMIORE. 11. Without prejudice, the authorities below failed to telescope and offer relief to the assessee as is required in law. 12. The authorities below erred in relying on material and statements without furnishing the same to the assessee before passing the assessment order.
32 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 13. The authorities below erred in relying on statements without providing opportunity to cross examine. 14. The approval granted u/s 153D of the Act is not as per law.The appellant denies the liabilities of interest u/s 234C of the Act. Further prays that the interest if any should be levied only on returned income. 15. No opportunity has been given before levy of interest u/s 234C of the Act. 16. Without prejudice to the appellant’s right of seeking waiver before appropriate authority, the appellant begs for consequential relief in the levy of interest u/s 234C of the Act. 17. For the above and other grounds and reasons which may be submitted during the course of hearing of the appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered.”
For Asst. Year 2010-11
“ That the order of the authorities below in so far as it is against the appellant is against the law, facts, circumstances, natural justice, without jurisdiction, bad in law and all other known principles of law. 2. That the total income computed and total tax computed is hereby disputed.
The proceedings of search and all other subsequent proceedings are bad in law, without jurisdiction and invalid. 4. The notice u/s 153A and subsequent proceedings are without jurisdiction and bad in law. 5. The order u/s 143(3) r.w.s 153A is bad in law, invalid, time barred and infructuous. 6. The authorities below erred in not providing sufficient and adequate opportunity to the appellant as required under law,
33 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 thereby violating the principles of natural justice, hence the order requires to be cancelled. 7. The CIT-Appeals erred in dismissing the ground on validity of search. 8. The AO erred in initiating proceedings u/s 153A and thereafter passing an order in the absence of any abatement as is envisaged in the law. 9. The CIT-Appeals erred in refusing to rely on the decision of the Special Bench in All Cargo Global Logistics Limited on the issue of abatement of assessment. 10. The authorities below erred in making addition of Rs. 15,27,27,045/- as unaccounted cash payments made to Mrs. Ambika Ghorpade and M/s KMIORE. 11. Without prejudice, the authorities below failed to telescope and offer relief to the assessee as is required in law. 12. The authorities below erred in relying on material and statements without furnishing the same to the assessee before passing the assessment order. 13. The authorities below erred in relying on statements without providing opportunity to cross examine. 14. The approval granted u/s 153D of the Act is not as per law. 15. The appellant denies the liabilities of interest u/s 234A, 234B and 234C of the Act. Further prays that the interest if any should be levied only on returned income. 16. No opportunity has been given before levy of interest u/s 234A, 234B and 234C of the Act. 17. Without prejudice to the appellant’s right of seeking waiver before appropriate authority, the appellant begs for consequential relief in the levy of interest u/s 234A, 234B and 234C of the Act. 18. For the above and other grounds and reasons which may be submitted during the course of hearing of the appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered.”
34 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 15.2 In the course of proceedings before us, both the assessee and revenue, apart from oral arguments, have also put forth written submissions which are extracted hereunder :-
15.3 Assessee's Submissions
“ ITA No.779/Bang/2015 A.Y. 2008-09 - BMMIL.
The assessee is a Public Limited Company. For the above assessment year, the assessee filed its return of income on 21.10.2008 declaring total income of Rs. 1,75,52,460/- (PB page 32). A notice u/s 153A was issued on 21.09.2010 calling for filing the return of income (PB page 34). Assessee filed the return of income on ‘without prejudice’ basis on 31.01.2012 declaring total income of Rs. 1,75,52,460/- (PB page 35). During the course of assessment proceedings, the AO issued several notices u/s 143(2) and 142(1) which was duly complied by the assessee. The assessment u/s 143(3) rws 153A was completed on 28.3.2013 computing the income at Rs. 20,20,42,170 and also levied an interest u/s 234 A/B/C. The brief facts on the additions are hereunder:- 1. Addition of Rs. 1,73,07,617/- as unaccounted production of TMT Bars. This addition has been made as alleged removal of goods and unaccounted income arising from the same. The AO’s action is not as per law and the assessee is not aware as to how the said conclusion was arrived at. There is no discussion about the Settlement Commission Order or any other nature. The issue has never been raised for the assessee’s clarification in any of the notices mentioned above. Consequently the order suffers from non adherence to the principles of natural justice and hence the addition be deleted. 2. Addition of Rs. 16,71,82,094/- as unaccounted cash payments Sum of Rs. 16,71,82,094/- has been added substantively in the hands of the assessee and protectively in the hands of M/s Bharath Mines and Minerals. As mentioned in para 3.2 of the assessment order, the AO has discussed at length various materials alleged to have been seized from others other than the assessee and also statements said to have been made by various people. No
35 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 notice or proposal has been given to the assessee before making the said addition. In para 2.28 of the assessment order, it is said that notice dt. 07.01.2013 was served on the assessee on 11.01.2013. It is also said that the assessee had filed a reply on 28.02.2013. Neither any notice was served on the assessee nor is any reply filed by the assessee. There appears to be a mistake on part of the AO in mentioning that the above notice has been issued. Further, none of the material in the assessment order has been made available to the assessee. This addition is based on surmise and not on the basis of fact. There is no such purchase as is alleged in the order is made by the assessee for which any expenditure has been claimed. The allegation of permit and without permit is all fanciful and lacks substance. Without prejudice, the AO ought to have issued a notice u/s 153C if he was of the view that the material seized from Mr. Bharath S Ghorpade belongs to the assessee. In the absence of valid notice u/s 153C, such an addition could not be made and also the annexure to the assessment order consisting of Page 1 to 13 cannot be relied on. It may be seen that even the so called material is not complete and is only selective. Such scribbled and unintelligible material cannot be relied on for making the assessment. The AO has clearly erred in not issuing a show cause notice to the assessee and making addition solely based on surmise. Hence the said addition requires to be deleted. The notices issued u/s 142(1) of the Act dt 06.03.2013 and on 11.03.2013 as mentioned supra are bad in law as it relates to several years and such issue of notice is not permitted under the law. Hence, the additions in the assessment order u/s 153A of the Act is bad in law and unsustainable. The Ld CIT-A has confirmed the above additions by summarizing the reasons given in the assessment order and has failed to appreciate the law on the issue as well as the arguments of the assessee. In this regard the assessee submits that the assessee had filed original return on 21.10.2008 (PB page 32) and the same was processed u/s 143(1) dated 05.03.2010 (PB page 33). The time for issue of notice u/s 143(2) expired on 30.09.2009. Since the time for issue of notice u/s 143(2) having expired it is a case of no abatement and a concluded assessment, such concluded assessments cannot be revisited unless there is incriminating material seized from assessee and relates to the impugned year. The assessee relies on the following case laws:
36 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 1)All cargo global logistics limited vs DCIT - 147 TTJ 513– Bombay ITAT (SB) – CLPB page 563 2)Kusum Gupta vs. DCIT - 35 CCH 432 - Delhi ITAT - CLPB page 403/409 to 411 3)CIT vs Kabul Chawla - 380 ITR 573 - Delhi HC – CLPB page 170/171
In this case neither any notice nor assessment order mentions any material seized from the assessee. The only seized material seized from the assessee is as per panchnama pages 175 to 205 being A/BMMIL/01, A1/BMMIL/01, A2/BMMIL/1, A3/BMMIL/01. There is no reference to such seized material, moreover the material seized is not incriminating in nature. In such cases it has been held that no assessment u/s 153A can be made and requires to be vacated as held in
1) CIT vs Lancy Constructions - ITA 528 to 531/2014 - KAR HC – 2) CIT vs Continental Warehousing Corporation - 374 ITR 645 - Bombay HC 3) Jai Steel (India) vs ACIT - 259 CTR 281 - RAJASTHAN HC 4) PCIT vs Desai Construction Pvt Ltd - 387 ITR 552 - GUJ HC 5) CIT vs Kabul Chawla - 380 ITR 573 - Delhi HC.
Secondly, the AO made an addition of Rs.16,71,82,094 based on certain material seized from Bharat S Ghorpade and Dinesh Kumar Singhi mentioned A/BSG/01 , A/BSG/02 and A/DKS-1. These materials does not belong to the assessee and no proceeding u/s 153C has been held before use of the aforesaid material against the assessee. It has been held in the following case laws that unless 153C proceeding is done no assessment can be made based on seized material seized from third parties. 1) Vijaybhai N. Chandrani vs. ACIT - 333 ITR 436 - Guj HC 2) Hon’ble Bangalore ITAT in Senate vs. DCIT - 181 TTJ 562 3) P.Srinivas Naik vs ACIT - 114 TTJ 856 - ITAT Bangalore 4) PCIT vs Vinita Chaurasia - 394 ITR 758 - DEL HC
There has been reference to statements on oath from Bharat S Ghorpade , Karthikeya M Ghorpade , Ambika Ghorpade and others. However no copies
37 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 have been given to the assessee in the absence of furnishing of copies and offering for cross examination. Said statements cannot be held against the assessee. In this case no explanation has been called from the assessee by giving any notice during the assessment proceedings. The AO in para 2.28 page 23 mentions that a notice dated 7.1.2013 was served on the assessee on 11.1.2013 and the assessee has submitted the reply on 28.02.2013. These facts are incorrect. Neither any notice was given nor any reply has been filed by the assessee. Hence the addition is made without giving any opportunity and is against the principles of natural justice. In this regard the assessee relies on the decision of Supreme Court in Suraj Mall Mohta & Co. vs A.V.Visvanatha Sastri & Anr - 26 ITR 1 (CLPB page 143). The perusal of the discussion by the AO does not bring out any fact that either there has been such purchases or any such payment. In fact the AO himself is confused and is in dilemma as to who has entered into such alleged transaction. The AO’s dilemma is visible in the conclusion drawn in para 3.12 page 35 of assessment order running page 62 extracted as under: ‘’ The term ‘BMM’ includes M/s.Bharat Mines and Minerals, a partnership firm and M/s.BMM Ispat Ltd. Both these concerns have made purchases of iron ore. Therefore in the absence of the details of purchases made by the assessee as admitted in its books from M/s.KMIORE and Ambika Ghorpade, the entire cash payments are assessed substantively in the hands of M/s.BMM Ispat Ltd and protectively in the hand of M/s.Bharat Mines and Minerals.’’ Hence even the AO is not sure as to who the assessee and what is the nature of transaction and why it requires to be added. Under such circumstances the addition lacks substance and not supported by any evidence requires to be deleted. Adverting to addition of Rs.1,73,07,617/- towards unaccounted production of TMT bars, again the said addition is not made based on the incriminating material found during search. In such absence the addition requires to be deleted as explained supra. On the issue of approval u/s 153D the assessee relies on the submissions given supra for AY 2005-06. The grounds on interest u/s 234A/B/C are consequential in nature.”
38 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 “ ITA 780/Bang/2015 – Asst. Year 2009-10 – BMMIL
The assessee for the above assessment year filed its return of income on 29.09.2009 declaring book profit of Rs. 2,82,23,130/- (PB page 64). Further, notice u/s 153A was issued on 21.09.2010 calling for filing the return of income (PB page 65). Assessee filed the return of income on ‘without prejudice’ basis on 31.01.2012 declaring book profit of Rs. 2,82,23,130/- (PB page 66). The assessee has submitted all the details sought for and clarified on the issues raised in the notices. Strangely, the AO has completed the assessment by computing the total loss of Rs. 14,08,09,180/- after making additions of Rs. 19,06,35,900/-. However book profit of Rs. 2,82,23,130/- is considered to arrive at the tax liability since book profit was in excess of income declared under the normal provision of the Act. The assessee is dismayed by the additions especially when requisite opportunity was not given. The brief facts on the additions are hereunder:- 1) Addition of Rs. 19,06,35,900/- as unaccounted cash payments The AO has said that for the reason stated in the assessment order for AY 2008-09 in the assessee’s own case, sum of Rs. 19,06,35,900/- has been added. The arguments mentioned supra for AY 2008-09 in ITA 779/B/15 relating to issues on opportunity, 153C and on merits holds good for the impugned year as well and the asseessee relies on the same. On the issue of approval u/s 153D the assessee relies on the submissions given supra for AY 2005-06. The grounds on interest u/s 234A/B/C are consequential in nature.” “ ITA 781/Bang/15 – Asst. Year 2010-11 – BMMIL
The assessee for the above assessment year filed its return of income on 23.09.2011 declaring book profit u/s 115JB of Rs. 49,90,10,625/- (PB page 93). A notice u/s 153A was issued on 21.09.2010 calling for filing the return of income (PB page 92). Assessee filed the return of income on ‘without prejudice’ basis on 31.01.2012 declaring book profit of Rs. 53,55,38,900/-(PB page 94). The assessee has submitted all the details sought for and clarified on the issues raised in the notices. Strangely, the AO has completed the assessment by
39 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 computing the total income of Rs. 19,05,87,980/- after making additions of Rs. 15,27,27,045/-. However book profit of Rs. 53,55,38,900/- is considered for arriving at the tax liability since book profit was in excess of income declared under the normal provision of the Act. The assessee is dismayed by the additions especially when requisite opportunity was not given. The brief facts on the additions are hereunder:- 1) Addition of Rs. 15,27,27,045/- as unaccounted cash payments The AO has said that, for the reason stated in the assessment order for AY 2008-09 in the assessee’s own case, sum of Rs. 15,27,27,045/- has been added. The AO has issued a notice dated 20.3.2013 (PB pg 106-107), a consolidated notice for AY 10-11 and AY 11-12 proposing to make addition of Rs. Rs.3,21,53,235/- for AY 10-11 and Rs.1,84,75,078 for AY 11-12 based on seized material A/BSG/01 seized from Bharat S Ghorpade. However though the proposal was made for Rs. 3,21,53,235/- he proceeded to make addition of Rs.15,27,27,045 based on the reasons given in AY 08-09. Addition is made based on seized material A BSG/02 besides A/BSG/01 though no notice proposing to add based on A/BSG/02 has been given. In this regard the assessee relies on the decision of Supreme Court in Suraj Mall Mohta & Co. vs A.V.Visvanatha Sastri & Anr - 26 ITR 1 (CLPB page 143). For the reasons and arguments mentioned supra in AY 08-09 and AY 09-10, it is submitted that the addition may be deleted. On the issue of approval u/s 153D the assessee relies on the submissions given supra for AY 2005-06. The grounds on interest u/s 234A/B/C are consequential in nature.”
15.4.1 Revenue’s submissions are as under :
“ Assessment Year 2008-09 (ITA No.779/Bang/2015)
i. During the course of search it was found that Mrs Snehalatha Singhi entered into raising and processing contracts with mine owners M/s.Karthikeyas Manganese and Iron Ores Pvt Ltd (KMIORE) and Mrs.Ambika Ghorpade (AKG). The processed ore was handed over by
40 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 Mrs Snehalatha Singhi to the mine owners and the mine owners in turn sell the ore to the entities owned by Mr.DineshKumar Singhi i.e Bharat Mines and Minerals and BMM Ispat. The mines KMIORE belongs to Mr.Karthik M Ghorpade and and his wife Mrs Ambika Ghorpade. The mines have been termed as new mines (NM) and old mines (OM) as per the timing of start of the mining lease of two mines. The profit has been shared between the mine owners and the assessee in the ratio of 70: 30. ii. The seized document reflected sale of iron ore from the above two mines “with” and “without” permits to BMM group. The seized material reflected payment of sale consideration to the mine owners both in cheque and cash from BMM group. The cheque component has been accounted by the mine owners and cash component has not been offered for taxation. The seized document has been scanned and placed at page 5 and 6 of the order of assessment in the case of assessee who for Assessment Year 2008–09. Statements of the Shri Dinesh Kumar Singhi, Mrs Ambika Ghorpade, Sri Kartikeya Ghorpade, Sri Bharat Ghorpade were recorded and the material found, the statements of each other were confronted and all the persons have admitted transaction outside the books and payment of consideration for iron ore in cash and receipt of the cash. The relevant statements have been extracted in the order of assessment in the case of the assessee for Assessment Year 2008–09 from page 11 to 23. iii. On analysis of the entire documents and the statements, it is clear that: – a. BMM group is carrying on the activity of extraction, excavation and processing of iron ore in the mines of KMIORE and AKG in the name of Mrs Snehalatha Singhi. b. The entire quantity of iron ore with and without permits is purchased by BMM group and the same has been admitted by sellers and the purchasers.
41 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 c. Sellers have admitted cash payments reflected in the seized materials received from Shri Dinesh Kumar Singhi. d. Shri Dinesh Kumar Singhi has admitted cash payment of Rs.1.40 crores for billing for April 2010 and Rs.1.43 crores for billing in the month of March 2010. e. From the above documents it is clear that the entire sum of Rs 64 crores has been paid by Sri Dinesh Kumar Singhi of BMM, as he has purchased the entire ore from the sellers KMIORE and AKG. f. In connection with the material found and seized in the case of Shri Bharat Ghorpade, Shri Dinesh Kumar Singhi has admitted recordings of transactions pertaining to the assessee. REPLY TO ASSESSEE SUBMISSIONS i. The contention of the assessee that the material indicating the purchase of iron ore “with permit” and “without permit” were not made available to the assessee and addition is based on surmise is incorrect. The above material has been confronted to the concerned persons and the same has been accepted by them. The relevant statements recorded have been extracted in the order of assessment and also the seized material has also been scanned and placed in the order of assessment. In view of the above contention of the assessee is not acceptable. ii. Further contention of the assessee that in view of the time-limit for issue of notice under section 143 (2) of the Act being expired on the date of search, no assessments can be made without the aid of incriminating material seized from the assessee and relates to the impugned year is incorrect. On plain reading of section 153A of the Act, section does not contemplate either incriminating material found in the course of search or undisclosed income being unearthed in the course of search. As per the law laid down by the Supreme Court in the case of Calcutta Knitwear (2014) 362 ITR 673 (SC), section has to be read in plain and reading new words into the section is not permissible. If the contention of the assessee is to be
42 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 accepted regarding incriminating material, the same would amount to rewriting of the section 153A of the Act. iii. The above position has also been clearly held by the jurisdictional High Court in the case of Canara Housing (2015) 274 CTR 122 and further being held by the High Court in the case of IBC knowledge Park (2016) 385 ITR 346. The same principle has been reiterated by Delhi High Court in the case of Anilkumar Bhatia (2013) 352 ITR 493. The same principle has been reiterated by various high courts including Kerala High Court in ST.Francis Clay Décor Tiles 385 ITR 624 and (2016) 73 Taxman.com 173 (Kerala) in the case of Dr.P.Sasikumar. iv. In view of the judgement of the High Court in the case of Canara Housing, proceedings under section 153A of the Act is not confined only to the incriminating material found and seized in the case of the assessee. The material available with the Assessing Officer also can be used for the purpose of assessment under section 153A of the Act. The said fact has also not been disturbed in the judgement of IBC knowledge Park and the same is clear as per para- 54 of the judgement. v. The contention of the assessee that seized documents relied on by the assessee was found in the case of other person, the same cannot t be considered in the assessment under section 153A of the Act unless proceedings under section 153C are initiated is incorrect. vi. Search was conducted in the case of the assessee and proceedings were initiated under section 153A of the Act in the case of the assessee. The purpose of proceedings under section 153A of the Act is for assess or reassess the total income for the period referred to in the section. Section 153C of the Act contemplates assess or reassessment of the total income in the case of the other person contemplated in the section. In view of the assessments already being reopened and pending under section 153A of the Act, the parallel proceedings under section 153C of the Act is not contemplated under the Act. vii. Without prejudice to the above contention, the jurisdictional High Court in the case of Canara Housing has held that proceedings under section 153A of the Act is not confined to the seized material and the Assessing
43 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 Officer is empowered to assess or reassess the total income on the basis of the material found in the course of any other proceedings or the material in possession of the Assessing Officer or any other material found in the course of search. In view of the above law laid down by the jurisdictional High Court in the case of Canara Housing, though the material found in the possession of the other person, the Assessing Officer was justified in considering the same in the proceedings under section 153A of the Act. Further the Act does not contemplate parallel proceedings under section 153A and 153C of the Act. The acceptance of the contention of the assessee would be contrary to the scheme of the chapter dealing with search assessments. 3. LEGALITY OF THE EXPENDITURE ON PURCHASE OF IRON ORE “WITH” AND “WITHOUT”PERMITS i. The Assessing Officer rightly arrived at a conclusion that the payments made for purchase of iron ore without permit is not an allowable expenditure as the same was in violation of the law governing the mining activity and transport of iron ore. It is further found that the consideration received towards sale of iron ore without permit has been inflated against the ore sold with permit and the same is reflected from the seized material placed at page 28, 33 and who4 of the order of assessment. The Explanation to Section 37(1) of the Act is applicable and the same has been rightly disallowed by the Assessing Officer. ii. This Hon’ble Court in the case of M/s.ILC Industries Ltd has clearly held that mining activity carried out without having permissions required under the Mines and Minerals (Development and Regulation)Act (MMDR Act) would amount to illegal activity and the expenditure is not allowable in view of Explanation to section 37(1) of the Act. Attention of this Hon’ble Tribunal is invited to para 35 of the order in ITA 767 – 771/B/2014 dated 20/9/2016. The further contention o f the assessee that approval granted under section 153D of the Act is without application of mind and in mechanical manner is incorrect. The approval has been granted strictly in conformity with the provisions of the Act.
44 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 Wherefore it is respectfully prayed that the appeal filed by the assessee may be rejected in the interest of justice and equity.”
15.4.2 For Assessment Years 2009-10 & 2010-11, Standing Counsel for Revenue has reiterated and relied upon the submissions put forth for Assessment Year 2008-09 (supra), as the Assessing Officer has recorded the reasons for initiation of proceedings under Section 147 of the Act on almost similar grounds for these two assessment years 2009-10 & 2010- 11 as he had done for Assessment Year 2008-09.
16.1 Ground No.7 (For Asst. Years 2008-09 to 2010-11) - We have
heard the rival contentions and perused and carefully considered the
written submissions filed, the judicial pronouncements cited and the
other material on record. On the issue of validity of search in Ground
No.7 (supra), it was contended that the issue be decided in accordance
with the decision of the Hon'ble Karnataka High Court in the case of C.
Ramaiah Reddy (339 ITR 210) and that of the Hon'ble Apex Court in the
case of Ess Dee Aluminium Ltd. Vs. DDIT.
16.2 We are, however, not inclined to adjudicate this issue raised in
Ground No.7 in the light of the recent amendment in Finance Act, 2017
to Sec. 132 of the Act by which the Tribunal is precluded from examining
45 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 this issue and, therefore, decline to go into the issue of validity of the
search action. The ITAT is a creation of statute and has to apply the law
as laid down in the Act. In this view of the matter, this issue is decided
against the assessee and consequently Ground No.7 of assessee's
appeals for A.Y. 2008-09 to 2010-11 are dismissed.
Ground Nos.1 to 6, 8 & 9 (For A.Y. 2008-09)
17.1 The main contentions in the assessee's arguments put forth on
other legal grounds is that in the case on hand there was no seizure of
any incriminating material relevant to the impugned Assessment Year
2008-09 and further there is no mention of any incriminating or adverse
material in the order of assessment that refers to the assessee, BMM
Ispat Ltd. Consequently, the assessment for Assessment Year 2008-09
does not abate as per the provisions of Sec. 153A of the Act and
therefore no reassessment can be made; as has been done in the case on
hand.
17.2.1 We have perused the order of assessment for Assessment
Year 2008-09 dt.28.3.2013; copy of the material seized as per copy of
46 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 panchanama (placed at Paper Book pages 176 to 205); containing
Annexures of the seized material, at files A/BMMIL/01, A1/BMMIL/01,
A2/BMMIL/01 and A3/BMMIL/01 and the copy of the reasons recorded
for issue of notice u/ 153A of the Act. From a perusal of the reasons
recorded for issue of notice under Section 153A of the Act and the order
of assessment for Assessment Year 2008-09, we find that the material
utilized for completing the assessment under Section 153A r.w.s. 143(3)
of the Act is not based on material seized in the case of the assessee but
is on the basis of material seized in the case of other assessees which are
(i) A/BSG/01 & A/BSG/02 seized from Bharat S Ghorpade and (ii) A/DKS-1
seized from Dinesh Kumar Singhi. There is no mention of any
incriminating material seized from the assessee. In the case on hand the
time limit for issue of notice under Section 143(2) of the Act for
Assessment Year 2008-09 was 31.10.2009 since the original return was
filed on 21.10.2008 and processed under Section 143(1) of the Act on
30.9.2009. We find that no notice thereunder has been issued within the
time specified and consequently the assessment for this year does not
47 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 abate and therefore reassessment, if any, is to be carried out on the
basis of incriminating material found in the course of search.
17.2 In this regard, the Hon'ble Karnataka High Court in the case of CIT
Vs Lancy Constructions in its order in ITA Nos.528 to 531 has held as
under :
“ In our view, if assessment is allowed to be reopened on the basis of search, in which no incriminating material is found, and merely on the basis of further investigating the books of accounts which have been already submitted by the assessee and accepted by the Assessing Officer at the time of regular assessment, the same would amount to the Revenue getting a second opportunity to reopen the concluded assessment, which is not permissible under the law. Merely because a search is conducted in the premises of the assessee, would not entitle the revenue to initiate the process of reassessment, for which there is a separate procedure prescribed in the statute. It is only when the conditions prescribed for reassessment are fulfilled that a concluded assessment can be reopened. The very same accounts which were submitted by the assessee; on the basis of which assessment had been concluded cannot be reappreciated by the Assessing Officer merely because a search had been conducted in the premises of the assessee.” 17.2.3 Further, the Hon'ble Karnataka High Court in the decision
rendered in M/s. IBC Knoweldge Park Pvt. Ltd., ITA No.403/2009
dt.28.4.2016 has explained the entire scope and principles governing the
provisions of Sec. 153A and 153C of the Act. In their judgment, the
Hon'ble Court has considered several decisions on this issue including
Lancy Constructions (supra) cited by the assessee and Canara Housing
48 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 Development Co. (2015) 274 CTR 122 (Kar) cited by Revenue. In its
decision, in the case of IBC Knowledge Park Pvt. Ltd. (ITA No.403/2009
dt.28.4.2016) the Hon'ble Karnataka High Court has held that notice
under Section 153A of the Act can be issued only if it is during a valid
search when certain incriminating materials are detected. At paras 45 to
49 of its decision, the Hon'ble High Court has held as under :
49 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015
50 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015
51 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015
52 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015
53 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015
54 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015
55 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015
56 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015
17.2.4 In the case on hand, the assessment for Assessment Year
2008-09 has been completed as the time limit for issue of notice had
expired on 31.10.2006; before the date of search on 28.9.2010.
Therefore, since no assessment was pending, there was no question of
abatement of assessment. Respectfully, following the decisions of the
Hon'ble Karnataka High Court in the case of IBC Knowledge Park Pvt. Ltd.
(supra), we hold that for Assessment Year 2008-09 no assessment had
abated and therefore the assessment under Section 143(3) r.w.s. 153A of
the Act could have been made based only on incriminating documents /
material found and seized in the course of search. That clearly not being
the factual position in the case on hand, since no incriminating material
was found / seized, we are of the view and hold the order of assessment
for Assessment Year 2008-09 passed under Section 143(3) r.w.s. 153A of
the Act vide order dt.28.3.2013 is bad in law and accordingly cancelled.
57 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 Consequently, the original assessment and income returned as per the
original return of income filed on 21.10.2009 stands restored. Assessee's
appeal for Assessment Year 2008-09 is allowed in terms of Grounds 1 to
6 and 8 & 9.
Since we have allowed the assessee's appeal for Assessment Year
2008-09 in view of our findings rendered above at paras 17.1 to 17.2.4 of
this order (supra), we do not deem it necessary to adjudicate on the
other grounds 10 to 20 raised on merits, by the assessee.
In the result, the assessee's appeal for Assessment Year 2008-09 is
partly allowed.
Assessee's appeals in ITA Nos.780 & 781/Bang/2015
for A.Ys 2009-10 and 2010-11.
Grounds 1 to 6, 8, 9 & 14.
20.1 In these grounds (supra), the assessee has challenged the
validity of search (Ground No.7) which we have dismissed (supra) and
consequently contended that all subsequent proceedings such as
issue of notices under Section 153A of the Act, orders of assessment
58 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 passed under Section 153A r.w.s. 143(3) of the Act for these
assessment years are all bad in law. However, except for raising these
grounds, the assessee has not urged these contentions before us in
the course of hearings of these appeals. Be that as it may, from a
perusal of the record before us and the assessee's own written
submissions for Assessment Years 2009-10 and 2010-11 (extracted
supra), we find that the notices under Section 153A of the Act issued
on 21.9.2010 (copy at page 65 of Paper Book) for Assessment Year
2009-10 and (copy at page 92 of Paper Book) for Assessment Year
2010-11 have been issued well in time. Therefore the assessments
for these assessment years 2009-10 and 2010-11 had not abated as
contended by the assessee. In these circumstances, we are of the
opinion that these grounds are rendered infructuous and accordingly
dismissed.
59 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015
We have already held in the earlier paragraphs for earlier
Assessment Years that assessment u/s.153A r.w.s. 143(3) of the Act
could have been made only on the basis of incriminating material found
and seized in the course of search of the assessee by following the
decision of the Hon'ble jurisdictional High Court in the case of IBC
Knowledge Park P. Ltd. (supra). This principle equally applies to these
assessment years as well since no incriminating material was found and
seized. Consequently, in the light of the record before us, we find that
aforesaid additions / disallowances of Rs.19,06,35,900 and
Rs.15,27,27,045 for Assessment Years 2009-10 & 2010-11 factually
unsustainable and therefore delete the same. Consequently, Ground
Nos.10 to 13 for Assessment Years 2009-10 & 2010-11 are allowed.
60 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015
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61 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 22. Ground Nos.15 to 18 - Charging of interest u/s.234A,
234B & 234C of the Act.
In these grounds (supra), the assessee denies itself liable to be
charged interest under Section 234A, 234B and 234C of the Act and that
too without being afforded any opportunity before charging of the same.
The charging of interest is consequential and mandatory and the
Assessing Officer has no discretion in the matter. This view has been
upheld by the Hon'ble Apex Court in the case of Anjum Hon'ble
Ghaswala (252 ITR 1) (SC) and we therefore uphold the action of the
Assessing Officer in charging the said interest. The Assessing Officer is,
however, directed to recompute the interest chargeable under Section
234A, 234B and 234C of the Act, if any, while giving effect to this order.
In the result, the assessee's appeal for Assessment Years 2009-10 &
2010-11 are partly allowed.
Assessee's appeal in ITA No.1106/Bang/2015 Department’s appeal in ITA No.1113/Bang/2015
62 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 24. These are cross appeals, one by the assessee and the other by
Revenue, directed against the order of the CIT (Appeals) – 11, Bangalore
dt.22.5.2015 for Assessment Year 2011-12.
Briefly stated, the facts of the case are as under :-
25.1 A search and seizure operation under Section 132 of the Act was
conducted in the assessee's case on 19.7.2010. The assessee filed its
return of income for Assessment Year 2011-12 on 31.1.2012 declaring
total income of Rs.45,63,86,880. The assessment was concluded under
Section 153A r.w.s. 143(3) of the Act vide order dt.28.3.2013, wherein
the assessee's income was determined at Rs.130,24,08,180 in view of the
following additions / disallowances :-
(i) Cash credits : u/s.68 : Rs.56,40,00,000. (ii) Unaccounted payment / expenditure : Rs.12,95,46,334.
25.2 Aggrieved by the order of assessment dt.28.3.2013 for
Assessment Year 2011-12, the assessee filed an appeal before the CIT
(Appeals) – 11, Bangalore. The learned CIT (Appeals) vide the impugned
order dt.22.5.2015, allowed the assessee partial relief by –
63 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 (i) deleting the addition of Rs.56.40 Crores on account of cash credits
u/s.68 of the Act and
(ii) upholding the Assessing Officer’s disallowance of unaccounted
expenditure / payments amounting to Rs.12,95,46,334.
Both, Revenue and the assessee, being aggrieved by the order of
the CIT (Appeals) – 11, Bangalore dt.22.5.2015 for Assessment Year
2011-12, have filed cross appeals.
Assessee's appeal.
26.1 In the assessee's appeal, the grounds raised are as under :-
“ That the order of the authorities below in so far as it is against the appellant is against the law, facts, circumstances, natural justice, without jurisdiction, bad in law and all other known principles of law.
That the total income computed and total tax computed is hereby disputed.
The proceedings of search and all other subsequent proceedings are bad in law, without jurisdiction and invalid.
The order u/s 143(3) r.w.s 153D is bad in law, invalid, time barred and infructuous.
64 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 5. The authorities below erred in not providing sufficient and adequate opportunity to the appellant as required under law, thereby violating the principles of natural justice, hence the order requires to be cancelled.
The CIT-Appeals erred in dismissing the ground on validity of search.
The authorities below erred in making addition of Rs. 12,95,46,334/- as unaccounted cash payments made to Mrs. Ambika Ghorpade and M/s KMIORE.
Without prejudice, the authorities below failed to telescope and offer relief to the assessee as is required in law.
The authorities below erred in refusing to set off brought forward business loss of Rs.15,27,74,965/-. 10. The authorities below erred in relying on material and statements without fully furnishing the same to the assessee before passing the assessment order.
The authorities below erred in relying on statements without providing opportunity to examine/cross examine.
The approval granted u/s 153D of the Act is not as per law.
The appellant denies the liabilities of interest u/s 234A, 234B and 234C of the Act. Further prays that the interest if any should be levied only on returned income.
No opportunity has been given before levy of interest u/s 234A, 234B and 234C of the Act.
65 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 15. Without prejudice to the appellant’s right of seeking waiver before appropriate authority, the appellant begs for consequential relief in the levy of interest u/s 234A, 234B and 234C of the Act.
For the above and other grounds and reasons which may be submitted during the course of hearing of the appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered.” Revenue’s appeal.
26.2 In Revenue’s appeal, the grounds raised are as under :-
“ (i) The learned CIT (Appeals) has erred in deleting the addition made protectively towards unexplained cash credits / unaccounted payments.
(ii) For the above and other grounds that may be agitated during the course of appeal, the order of the learned CIT (Appeals) may be set aside and that of the Assessing Officer restored.”
Before us, apart from putting forth oral arguments, both the
assessee and revenue have filed written submissions which are extracted
hereunder :-
27.1 Assessee's Submissions (ITA No.1106/Bang/2015 – A.Y. 2011-12)
“ The assessee for the above assessment year filed its return of income on 28.09.2011 declaring total income of Rs. 45,86,01,060/-. Further, assessee filed the return of income on ‘without prejudice’ basis on 31.01.2012 declaring total income of Rs. 45,60,86,880/-. The assessee submitted all the details sought for and clarified on the issues raised in the notices. Strangely, the AO has completed the assessment by computing the total income of Rs. 1,30,24,08,180/- after making additions of
66 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 Rs. 69,35,46,334/-. The assessee is dismayed by the additions especially when requisite opportunity was not given. The additions are as hereunder: 1) Unexplained cash credit in the form of Share Application Money of Rs. 56,40,00,000/- - this addition was protectively made in the hands of the assessee and the Ld. CIT-A has deleted the same. The department is in appeal on this issue in ITA 1113/B/15. 2)Addition of Rs. 12,95,46,334/- as unaccounted cash payments – On this issue the assessee is in appeal. The AO has said that for the reason stated in the assessment order for AY 2008-09 in the assessee’s own case, sum of Rs. 12,95,46,334/- has been added. The AO has issued a notice dated 20.3.2013 (PB pg 106-107), a consolidated notice for AY 10-11 and AY 11-12 proposing to make addition of Rs. Rs.3,21,53,235/- for AY 10-11 and Rs.1,84,75,078 for AY 11-12 based on seized material A/BSG/01 seized from Bharat S Ghorpade. However though the proposal was made for Rs. 3,21,53,235/- he proceeded to make addition of Rs.15,27,27,045 based on the reasons given in AY 08-09. Addition is made based on seized material A BSG/02 besides A/BSG/01 though no notice proposing to add based on A/BSG/02 has been given. In this regard the assessee relies on the decision of Supreme Court in Suraj Mall Mohta & Co. vs A.V.Visvanatha Sastri & Anr - 26 ITR 1 (CLPB page 143). For the reasons and arguments mentioned supra in AY 08-09, AY 09-10 and AY 2010-11 in ITA 779 to 781/B/15 it is submitted that the addition may be deleted. Further, the AO has refused to set off brought forward business loss of Rs. 15,27,74,965/-. The same may be given to the assessee. On the issue of approval u/s 153D the assessee relies on the submissions given supra for AY 2005-06. The grounds on interest u/s 234A/B/C are consequential in nature.”
67 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 27.2 Department’s Submissions. (ITA No.1113/Bang/2015 A.Y. 2011-
12)
“ CASH PAYMENTS MADE TO MRS AMBIKA GHORPADE AND M/S.KMIORE The Assessing Officer has adopted the reasons assigned in the order of assessment for 2008–09 in the case of the assessee. The submissions for Assessment Year 2008–09 in the case of the assessee is relied on and stated below for convenience. i. During the course of search it was found that Mrs Snehalatha Singhi entered into raising and processing contracts with mine owners M/s.Karthikeyas Manganese and Iron Ores Pvt Ltd (KMIORE) and Mrs.Ambika Ghorpade (AKG). The processed ore was handed over by Mrs Snehalatha Singhi to the mine owners and the mine owners in turn sell the ore to the entities owned by Mr.DineshKumar Singhi i.e Bharat Mines and Minerals and BMM Ispat. The mines KMIORE belongs to Mr.Karthik M Ghorpade and his wife Mrs Ambika Ghorpade. The mines have been termed as new mines (NM) and old mines (OM) as per the timing of start of the mining lease of two mines. The profit has been shared between the mine owners and the assessee in the ratio of 70: 30. ii. The seized document reflected sale of iron ore from the above two mines “with” and “without” permits to BMM group. The seized material reflected payment of sale consideration to the mine owners both in cheque and cash from BMM group. The cheque component has been accounted by the mine owners and cash component has not been offered for taxation. The seized document has been scanned and placed at page 5 and 6 of the order of assessment in the case of assessee who for Assessment Year 2008–09. Statements of the Shri Dinesh Kumar Singhi, Mrs Ambika Ghorpade, Sri
68 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 Kartikeya Ghorpade, Sri Bharat Ghorpade were recorded and the material found, the statements of each other were confronted and all the persons have admitted transaction outside the books and payment of consideration for iron ore in cash and receipt of the cash. The relevant statements have been extracted in the order of assessment in the case of the assessee for Assessment Year 2008–09 from page 11 to 23. iii. On analysis of the entire documents and the statements, it is clear that: – a. BMM group is carrying on the activity of extraction, excavation and processing of iron ore in the mines of KMIORE and AKG in the name of Mrs Snehalatha Singhi. b. The entire quantity of iron ore with and without permits is purchased by BMM group and the same has been admitted by sellers and the purchasers. c. Sellers have admitted cash payments reflected in the seized materials received from Shri Dinesh Kumar Singhi. d. Shri Dinesh Kumar Singhi has admitted cash payment of Rs.1.40 crores for billing for April 2010 and Rs.1.43 crores for billing in the month of March 2010. e. From the above documents it is clear that the entire sum of Rs 64 crores has been paid by Sri Dinesh Kumar Singhi of BMM, as he has purchased the entire ore from the sellers KMIORE and AKG. f. In connection with the material found and seized in the case of Shri Bharat Ghorpade, Shri Dinesh Kumar Singhi has admitted recordings of transactions pertaining to the assessee. REPLY TO ASSESSEE SUBMISSIONS i. The contention of the assessee that the material indicating the purchase of iron ore “with permit” and “without permit” were not made available to the assessee and addition is based on surmise is incorrect. The above material has been confronted to the concerned persons and the same has been
69 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 accepted by them. The relevant statements recorded have been extracted in the order of assessment and also the seized material has also been scanned and placed in the order of assessment. In view of the above contention of the assessee is not acceptable. ii. Further contention of the assessee that in view of the time- limit for issue of notice under section 143 (2) of the Act being expired on the date of search, no assessments can be made without the aid of incriminating material seized from the assessee and relates to the impugned year is incorrect. On plain reading of section 153A of the Act, section does not contemplate either incriminating material found in the course of search or undisclosed income being unearthed in the course of search. As per the law laid down by the Supreme Court in the case of Calcutta Knitwear (2014) 362 ITR 673 (SC), section has to be read in plain and reading new words into the section is not permissible. If the contention of the assessee is to be accepted regarding incriminating material, the same would amount to rewriting of the section 153A of the Act. iii. The above position has also been clearly held by the jurisdictional High Court in the case of Canara Housing (2015) 274 CTR 122 and further being held by the High Court in the case of IBC knowledge Park (2016) 385 ITR 346. The same principle has been reiterated by Delhi High Court in the case of Anilkumar Bhatia (2013) 352 ITR 493. The same principle has been reiterated by various high courts including Kerala High Court in ST.Francis Clay Décor Tiles 385 ITR 624 and (2016) 73 Taxman.com 173 (Kerala) in the case of Dr.P.Sasikumar. iv. In view of the judgement of the High Court in the case of Canara Housing, proceedings under section 153A of the Act is not confined only to the incriminating material found and seized in the case of the assessee. The material available with the Assessing Officer also can be used for the purpose of assessment under section 153A of the Act. The said fact has also not been disturbed in the judgement of IBC knowledge Park and the same is clear as per para-54 of the judgement. v. The contention of the assessee that seized documents relied on by the assessee was found in the case of other person, the same cannot be
70 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 considered in the assessment under section 153A of the Act unless proceedings under section 153C are initiated is incorrect. vi. Search was conducted in the case of the assessee and proceedings were initiated under section 153A of the Act in the case of the assessee. The purpose of proceedings under section 153A of the Act is for assess or reassess the total income for the period referred to in the section. Section 153C of the Act contemplates assess or reassessment of the total income in the case of the other person contemplated in the section. In view of the assessments already being reopened and pending under section 153A of the Act, the parallel proceedings under section 153C of the Act is not contemplated under the Act. vii. Without prejudice to the above contention, the jurisdictional High Court in the case of Canara Housing has held that proceedings under section 153A of the Act is not confined to the seized material and the Assessing Officer is empowered to assess or reassess the total income on the basis of the material found in the course of any other proceedings or the material in possession of the Assessing Officer or any other material found in the course of search. In view of the above law laid down by the jurisdictional High Court in the case of Canara Housing, though the material found in the possession of the other person, the Assessing Officer was justified in considering the same in the proceedings under section 153A of the Act. Further the Act does not contemplate parallel proceedings under section 153A and 153C of the Act. The acceptance of the contention of the assessee would be contrary to the scheme of the chapter dealing with search assessments. LEGALITY OF THE EXPENDITURE ON PURCHASE OF IRON ORE “WITH” AND “WITHOUT”PERMITS The Assessing Officer has adopted the reasons assigned in the order of assessment for 2008–09 in the case of the assessee. The submissions for Assessment Year 2008–09
71 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 in the case of the assessee is relied on and stated below for convenience. a. The Assessing Officer rightly arrived at a conclusion that the payments made for purchase of iron ore without permit is not an allowable expenditure as the same was in violation of the law governing the mining activity and transport of iron ore. It is further found that the consideration received towards sale of iron ore without permit has been inflated against the ore sold with permit and the same is reflected from the seized material placed at page 28, 33 and who4 of the order of assessment. The Explanation to Section 37(1) of the Act is applicable and the same has been rightly disallowed by the Assessing Officer. b. This Hon’ble Court in the case of M/s.ILC Industries Ltd has clearly held that mining activity carried out without having permissions required under the Mines and Minerals (Development and Regulation)Act (MMDR Act) would amount to illegal activity and the expenditure is not allowable in view of Explanation to section 37(1) of the Act. Attention of this Hon’ble Tribunal is invited to para 35 of the order in ITA 767 – 771/B/2014 dated 20/9/2016. The further contention o f the assessee that approval granted under section 153D of the Act is without application of mind and in mechanical manner is incorrect. The approval has been granted strictly in conformity with the provisions of the Act. Wherefore it is respectfully prayed that the appeal filed by the assessee may be rejected in the interest of justice and equity.” Assessee's Appeal in ITA No.1106/Bang/2015 (A.Y. 2011-12)
Grounds 1 to 6 and 12 - Validity of Search
72 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 28.1 On the issue of validity of the search, the assessee placed reliance
on the decision of the Hon'ble Karnataka High Court in the case of C.
Ramaiah Reddy (339 ITR 210) (Kar) and the decision of the Hon'ble Apex
Court in the case of Ess Dee Aluminium Ltd. Vs. DDIT wherein the Hon'ble
Court has held as under :-
“ The petitioners have approached this Court only on the ground that under section 246A of the Income Tax Act, 1961, the Commissioner of Income Tax (Appeals) has no jurisdiction to examine the validity of the search operations carried out under Section 132 of the said Act. Learned Senior Counsel appearing for the petitioners has further submitted that the foundation of the assessment made hereunder in the search operations carried out against the petitioners. We are of the considered opinion that if the assessment order which is based on the search operations is under challenge, the validity of the search proceedings can also be gone into by the Commissioner of Income Tax (Appeals).”
28.2 However, in the light of the amendment in Finance Act, 2017 to
Sec. 132 of the Act by which the Tribunal is precluded from examining
this issue, we decline to get into the issue of validity of search action.
The ITAT is a creation of statute and has to apply the law as laid down in
the Act. In this view of the matter, this issue is decided against the
assessee and the grounds raised in this regard are dismissed.
73 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 Consequently, Grounds 1 to 6 and 12 raised by the assessee challenging
the validity of search are dismissed.
We have already held in the earlier paragraphs for earlier
Assessment Years that assessment u/s.153A r.w.s. 143(3) of the Act
could have been made only on the basis of incriminating material found
and seized in the course of search of the assessee by following the
decision of the Hon'ble jurisdictional High Court in the case of IBC
Knowledge Park P. Ltd. (supra). This principle equally applies to these
assessment years as well since no incriminating material was found and
seized. Consequently, in the light of the record before us, we find that
aforesaid addition / disallowance of Rs.12,95,46,334 for this assessment
year factually unsustainable and therefore delete the same.
Consequently, Ground Nos.10 to 13 for Assessment Year 2011-12 is
allowed.
74 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015
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75 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015
Ground No.9 - Set off of Brought Forward Business Loss
– Rs.15,27,79,968.
30.1 In this ground, the assessee assails the action of the authorities
below for denying the assessee's claim for set off of brought forward
losses of earlier years amounting to Rs.15,27,74,965.
30.2 We have heard both parties and perused and carefully considered
the material on record. On an appraisal of the orders of the authorities
below, we find that they have denied the assessee's claim stating that
since no loss has been determined in the order of assessment for the
earlier year under Section 153A dt. .03.13, the assessee's claim cannot
be allowed. However, in our view how and on what basis the Assessing
Officer has arrived at this finding is not clear from the order of
assessment. No working of the earlier years position on this issue of
brought forward losses has been made. In the computation of income
on page 5 of the order of assessment for Assessment Year 2011-12, in
76 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 the case on hand, the Assessing Officer simply denies the assessee's
claim stating -
“Add : brought forward business loss adjusted by assessee as there is no loss as per order u/s. 153A dt. .03.13.”
Which earlier assessment orders the Assessing Officer’s observation
refers to is not clear.
30.3 In this factual matrix of the case, we deem it appropriate to set
aside the findings of the authorities below on the issue of assessee's
aforesaid claim for set off of brought forward losses of earlier years
amounting to Rs.15,27,74,965 and restore the matter to the file of the
Assessing Officer for fresh examination and consideration thereof, after
affording the assessee adequate opportunity of being heard and to put
forth submissions / details in this regard which shall be duly considered.
We hold and direct accordingly. Consequently, Ground No.9 of
assessee's appeal is allowed for statistical purposes.
77 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 Revenue’s Appeal in ITA No.1113/Bang/2015 for A.Y. 2011-12.
Grounds (i) and (ii) - Protective addition of unexplained
Cash credits - Rs.56.40 Crores.
33.1 In these grounds (supra), Revenue assails the order of the learned
CIT (Appeals) in deleting the additions made protectively towards
complained cash credits / unaccounted payments.
33.2 In the course of assessment proceedings, the assessee was
required to show cause why the share application money of –
(i) Rs.27.40 Crores received from M/s. BPO Finance & Investment Pvt.
Ltd., Kolkata and
(ii) Rs.29.00 Crores received from M/s. Panchmukhi Properties Pvt. Ltd.
should not be treated as its unexplained income as the Assessing Officer
was of the view that the credit worthiness and the transactions of the
aforesaid two entities was not genuine. Brushing aside the assessee's
contentions in letter dt.20.12.2013, that the aforesaid that the aforesaid
transactions were through normal banking channels and established
both the identity, credit worthiness of the above two parties, the
Assessing Officer was of the view that the assessee has not discharged its
78 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 onus in this regard and made an addition of Rs.56.40 Crores as
unexplained cash credits of the assessee under Section 68 of the Act on
protective basis, since he had made the same addition of Rs.54.60 Crores
in the hands of Sri Dinesh Kumar Singhi and Smt. Snehalatha Singhi on
substantive basis. On appeal, the learned CIT (Appeals) deleted the
aforesaid protective addition of Rs.56.40 Crores in the assessee's hands;
holding as under at para 8 on pages 9 and 10 of the impugned order :-
…………………………..
79 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 33.3 The ld. Standing Counsel for Revenue argued vehemently
against the action of the learned CIT (Appeals) in deleting the protective
addition of Rs.56.40 Crores. In written submissions filed before us, the
ld. Standing Counsel submitted as under :-
“ UNEXPLAINED CASH CREDIT IN THE FORM OF SHARE APPLICATION MONEY i. The above controversy has been in detail examined by the Assessing Officer in the course of assessment for Assessment Year 2010 – 11 in the case of Sri Dinesh Kumar Singhi. The share application money has been substantively assessed in the case of Shri Dinesh Kumar Singhi and Mrs Snehalatha Singhi. ii. The above issues have been disputed and contested by the above two individuals and hence Appellate Commissioner was not correct in deleting the same on the ground that the same has been considered on substantial basis in the hands of the about two individuals. iii. The above issue has been contested by the individuals in separate appeals and are part of this batch appeals before this Hon’ble Tribunal. Subject to result of the said appeals, it is prayed to confirm the additions in the hands of the assessee. iv. The written submissions made in the case of Shri Dinesh Kumar Singhi on the above issue are extracted below for convenience. “UNEXPLAINED INVESTMENT IN SHARES APPLICATION MONEY i. During search it was found that company by name M/s.BPO Finance and Investments Private Limited (BPO), Kolkatta has issued and subscribed shares of Rs 10 per share aggregating to Rs.1,99,98,700/–. Further it was found that during the year the assessee and his wife have acquired 100% of the above issued and subscribed share capital. The shares were purchased from various parties by the assessee as listed in page 2 to 4 of the assessment
80 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 order. The assessee in total has acquired 60% of the total shares issued and subscribed. In view of the acquisition of 100% of the issued and subscribed share capital of the above company, took over reserves and surplus of the above company at Rs.125,40,64,500/– as on 31/3/2010. ii. Similarly another company by name M/s.Panchamukhi Properties Private Limited (PPPL) Kolkatta issued and subscribed shares of Rs10 per share aggregating to Rs.2,22,91,950/–. The assessee purchased 60% of the shares and his wife purchased remaining 40% of the issued and subscribed shares. The details are tabulated in page 5 and 6 of the assessment order. In view of the acquisition of 100% of the issued and subscribed share capital of the above company, took over reserves and surplus of the above company at Rs .101,39,38,050/– as on 31/3/2010. iii. The close relatives of the assessee acquired 50 shares out of 22,29,195 shares. iv. The assessee and his wife by acquiring hundred percent of shares by paying a sum of Rs.1,99,98,700/– acquired control over an amount of Rs.125,40,64,500/– in respect of M/s.BPO Finance and Investments Private Limited. Similarly by paying a sum of Rs.2,22,91,450/– acquired control over an amount of Rs.101,39,38,050/–. v. In view of the disproportionate cost of purchase, enquiries were conducted regarding genuiness of the above transactions. During the course of search proceedings it was found that four companies owned and controlled by the assessee and his wife received share application money from M/s.BPO Finance and Investments Private Limited and M/s.Panchamukhi Properties Private Limited during the financial years 2009–10 and 2010–11 totalling to Rs 142.45 crores. vi. During the search proceedings the assessee was requested to give details of the companies which provided the share application money and the directors of the companies. The assessee failed to provide details of the companies and the directors. Summons issued to the assessee did not yield any result. Despite the assessee and his wife being 100% shareholders of the above two companies, the same was not revealed at any point of investigation. The post-search
81 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 investigation revealed 100% shares being owned by the assessee and his wife. vii. The enquiries conducted by the revenue regarding genuiness of the about two companies has resulted as under: – a) companies are not located in the address given b) Companies were not existing at the registered address for mission to ROC. c) No directors of the companies were available at the given address. d) No books of accounts found at the address. e) No director of the companies appeared during course of survey proceedings. f) From the balance sheets obtained from the ROC about two companies revealed that companies do not have any fixed assets, no business activities for number of years and are involved only in fund transfer. viii. On the basis of the above material the companies BPO and the PPPL were considered as shell entities with no independent business. The above companies were merely used as conduits to plug back unaccounted funds into the four group companies named above. The result of enquiries demonstrated BPO and PPPL are not genuine investors and is modus of bringing in share application money is only a smoke screen. ix. Though assessee did not cooperate in providing details of the directors of the above said to companies, the Department obtained the same from the ROC and it was found that Ms.Soma Dutta, Mr.Ranjeet Singh Kothari and Nemichand Jain are directors of the PPPL and Mr.Radhakant Tiwari and Ms.Soma Dutt are directors of BPO. The assessee and his wife were also directors in both the companies during the Assessment Year 2010–11. The enquiries revealed that some of the directors or employees of Mr.Sagarmal Nahata was arranging funds at Kolkatta. One of the director was found to be watchmen. The directors were not residing at the addresses provided. The signed blank cheques of the companies were found in the possession of Mr.Sagarmal Nahata. x. In view of the disproportionate investment of acquiring to companies worth Rs 226 crores by paying a sum of Rs 4.02 crores the circumstantial evidence was considered by the Assessing Officer. At the time of search a document containing notings regarding payments made to various
82 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 parties including Kolkatta a/c was seized from the residence of the assessee. The details reflected at page 18 of the assessment order. In total sum of Rs.5,02,00,000/– has been shifted from Karnataka to some accounts in Kolkatta and the assessee failed to offer an explanation about the nature and source of the entries. Ledger accounts of the share application money received from BPO and PPPL in the books of M/s.BMM Ispat were obtained and examined. xi. On examination of the seized material and the Ledger accounts of BPO and PPPL the Assessing Officer arrived at a conclusion that the assessee has shifted money to the about two companies at Kolkatta to facilitate the investment of the Rs 5 crores into M/s.BMM ISPAT Ltd through the above shell companies. Further examination of the bank account of BMM Ispat Ltd revealed that Rs.5 crores has been received by the assessee and that establishes clear link to the content’s recorded in the seized page. The cash of Rs.5 crores is sent to Kolkatta along with commission of Rs.2 lakhs during 8th to 12th April 2010 and the amounts received by way of cheque in the bank accounts of BMM Ispat Ltd on 13/4/2010. This clearly indicates that the assessee own cash has been routed back to family owned four companies through BPO and PPP L and other associate companies in the form of share application money. xii. The notices issued to BPO and PPPL and to the parties who have sold shares to the assessee and his wife were returned by postal authorities unserved. The above aspect would clearly demonstrate the dubious nature of the purchase of shares by the assessee and his wife. The assessee was issued show cause notice proposing to treat share application money paid into four companies belonging to the assessee’s group to be treated as money introduced by the assessee. The assessee merely submitted that the entire transaction is taken place through cheque and at arms length price. xiii. The Assessing Officer considering the entire transaction treated 60% of share application money in BPO and PPPL as unaccounted investment by the assessee under section 69 of the Act. xiv. The Assessing Officer was correct in looking at the real transaction with respect to the share application money by lifting the veil and creating nexus with the investment to the
83 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 payments made by the assessee as found and reflected in the seized documents. The failure on the part of the assessee to demonstrate the issues raised by the Assessing Officer in the course of post-search investigation or during the assessment proceedings would further justify the devise adopted by the assessee for investing his own unaccounted money into the subsidiaries. A. REPLY TO ASSESSEE CONTENTIONS i. The contention of the assessee that the existence of BPO and PPPL cannot be doubted in view of the long existence before the assessee acquired the shares and the bank accounts maintained by the said companies. The failure on the part of the assessee being holder of 60% of the shares and 40% of shares by his wife to identify the genuiness of the company and also the directors of the company would demonstrate the object of the said two companies owned by the assessee and his wife. The Hon’ble Supreme Court in the case of Vodafone has clearly held that the companies without any business being carried out, being used as a conduit for device for avoidance of tax to be treated as shell companies and direct nexus to be created. ii. In view of the seized material reflecting payments towards Kolkatta account and the same amounts being reflected in BMM Ispat private limited and the same amounts being reflected as investment by the BPO and PPPL in the group companies of the assessee would establish the nexus beyond doubt and the same has been rightly taxed as an investment of the assessee. iii. As admitted by the assessee at page 16 of the written submissions, share application money has been considered in the hands of the shareholders, the assessee and his wife being 100% shareholders as unexplained investment.” Wherefore it is prayed to allow the appeal filed by the revenue in the interest of justice and equity.” 33.4 Per contra, the learned Authorised Representative for the
assessee contended that the addition of Rs.56.40 Crores should not have
84 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 been made in the case on hand, either on protective or substantive basis
and in this regard placed reliance on the submissions and arguments put
forth in the case of M/s. Singhi Holdings. In written submissions filed
before us, the assessee contends as under :-
“ The department is in appeal on the addition deleted by the CIT-A on the following issue: 1)Unexplained cash credit in the form of Share Application Money of Rs. 56,40,00,000/-. – the discussion by the AO is found in page 2 to 4 of the assessment order. It is the allegation of the AO that the share application money received from the following companies are not genuine: a) BPO Finance and Investments Pvt Ltd – Rs.27.40 crores b) Panchamukhi Properties Pvt Ltd – Rs.29 crores
The AO in para 2.4 of the assessment order has relied on the reasons mentioned in the case of Dinesh Kumar Singhi and Snehalatha Singhi for AY 2010-11 & 2011-12 for making the said addition protectively in the hands of the assessee.
The submissions made before CIT-A are found in PB pages 166 to 175N and the assessee relies on the same.
Similar addition has also been made protectively in the case of BMM cements Ltd, Ranjithpura Infrastructure Pvt Ltd and Singhi Holdings Pvt Ltd. The assessee relies on the arguments given in the case of Singhi Holdings Pvt Ltd in ITA 1112/B/15 for AY 2010-11.”
33.5.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncements cited. From the appraisal of the records before us, it emerges that the
85 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 assessee received share application money from two companies M/s BPO Finance & Investment Pvt. Ltd., Kolkata of Rs.26.00 crores and Rs.30.40 crores from M/s Panchmukhi Properties Pvt. Ltd., Kolkata, totaling to Rs.56.40 croers routed through normal banking channels. Investigations by the Departments authorities below reveal that Shri Dinesh Kumar Singhi and Snehalatha Singhi are owners and 100% share holders of the aforesaid two companies who introduced the share application money in the assessee company and it was in this context that the investments in the assessee company and its 4 group companies i.e M/s BMM Ltd., M/s BMM Cements Ltd., M/s Ranjitpura Infrastructure Pvt. Ltd., and M/s Singhi Holdings Pvt. Ltd., was brought to tax in the hands of Smt. Snehalatha Singhi and Shri Dinesh Kumar Singhi in the ratio of their share holding in the two aforesaid companies M/s BPO Finance & Investments Pvt. Ltd., and M/s Panchmukhi Properties Pvt. Ltd., on substantive basis u/s 69 of the Act. It is in this factual matrix of the case that the ld CIT(A) deleted the protective additions made u/s 68 in the case on hand.
33.5.2 With regard to the issue of share application money while dismissing the SLP filed by the Revenue, the Hon’ble Apex Court in the case of CIT Vs. Lovely Exports Pvt. Ltd., (Supra) has observed that:-
“Can the amount of share application money be regarded as undisclosed income u/s 68 of the IT Act, 1961? We find no merit in the Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO,
86 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 then the Department is free to proceed to re-open their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment.”
33.5.3 The Hon’ble Karnataka High Court in the case of CIT & Another Vs. Arunananda Textiles Pvt. Ltd., (33 ITR 116) held as under at paras 5 and 6 of its order:-
“5. The short question that arises for our consideration in this appeal is
"If the company has received share amount from the intending shareholders, is it required for the respondent- assessee to identify and establish the creditworthiness of the depositors." The question raised in this appeal is squarely covered by several judgments of the Supreme Court and also the judgment of this court passed in CIT v. ASK Brothers Ltd. [2011] 333 ITR 111 (Karn) wherein this court following the judgments of the Supreme Court in the case of CIT v. Lovely Exports P. Ltd. reported in [2008] 216 CTR (SC) 195; [2009] 319 ITR (St.) 5 (SC) and also in the case of CIT v. Steller Investment Ltd. [2001] 251 ITR 263 (SC) has ruled that it is not for the assessee to place material before the Assessing Officer in regard to the creditworthiness of the shareholders. If the company has given the addresses of the shareholders and their identity is not in dispute, whether they were capable of investing, the Assessing Officer shall investigate. It is not for the assessee -company to establish but it is for the Department to enquire with the investors about their capacity to invest the amount in the shares. Therefore, we are of the view that the substantial questions of law framed in this appeal are to be answered against the Revenue and in favour of the assessee. Accordingly this appeal is dismissed.”
87 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015 33.5.4 Respectfully following the decision of the Hon’ble Apex Court
in the case of Lovely Exports Pvt. Ltd., (Supra) which was followed by the
jurisdictional High Court in the case of CIT Vs. Arunananda Textile Pvt.
Ltd., (Supra), the addition made by the AO in respect of share application
money on protective basis as unexplained cash credits u/s 68 of the Act
and deleted by the ld CIT(A) in the impugned order cannot be treated as
unexplained cash credits in the hands of the assessee. Consequently, the
grounds (i) and (ii) raised by Revenue are dismissed.
In the result, Revenue’s appeal for Assessment Year 2011-12 is dismissed. 35. To sum up - (i) Assessee's appeals for Assessment Years 2005-06, 2007-08 to 2010-11 are partly allowed. (ii) Revenue’s appeal for Assessment Year 2011-12 is dismissed and assessee's cross appeal is partly allowed. Order pronounced in the open court on the 10th day of April, 2018.
Sd/- Sd/- (SUNIL KUMAR YADAV) (JASON P BOAZ) Judicial Member Accountant Member Bangalore, Dt. 10.04.2018 *Reddy gp
88 ITA Nos.911, 912, 779 to 781, 1106 & 1113/Bang/2015
Copy to : 1 Appellant 4 CIT(A) 2 Respondent 5 DR, ITAT, Bangalore 3 CIT 6 Guard File
Senior Private Secretary Income Tax Appellate Tribunal Bangalore.