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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
PER MAHAVIR SINGH, JM:
These cross appeals by different assessees and Revenue are arising out of the orders of Commissioner of Income Tax (Appeals)-48, Mumbai [in short CIT(A)], in appeal No. CIT(A)-48/I.T.-394 & 396/DCCC- 2(2)/2015-16, of even date 03.02.2017. The Assessments were framed by the Dy. Commissioner of Income Tax, Central Circle 2(2), Mumbai (in short ‘DCIT’/ AO) for the A.Y. 2011-12 vide orders of even date 18.03.2016 under section 143(3) r.w.s 153A of the Income Tax Act, 1961 (hereinafter ‘the Act’).
Revenue’s appeals in and 1928/Mum/2017 for AY 2011- 12
These two appeals by Revenue, against the different assessees, are arising out of the orders of CIT(A) deleted the addition made by AO on account of unexplained share capital/ premium under section 68 of the Act, deleted by holding that there is no incriminating material found during the course of search and original assessments are unabated. For this Revenue has raised identically words grounds in both the appeals and the grounds raised as under: - “In the case of Tanish Estate Developers Pvt. Ltd. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition made in order u/s 153A r. w. a 143(3) of the I.T. Act, 1961 stating that in the absence of any incriminating material additions cannot be made following the decision in the case of M/s Continental Warehousing Corporation (Nhava Sheva) Limited without appreciating that the Department has not accepted the decision and SLP has been filed in the Supreme Court against the said order On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in deleting the addition made in order u/s 153A r.w.s. 143(3) of the IT. Act, 1961 stating that in the absence of any incriminating material additions cannot be made following the decision in the case of M/s Continental Warehousing Corporation (Nhava Sheva) Limited without appreciating that the Department has not accepted the decision and SLP has been filed in the Supreme Court against the said order.”
Since the facts and circumstances are exactly identical in both the cases and additions are exactly identical, hence, we will take the facts from Tanish Estate Developers Pvt. Ltd. and will decide the issue.
Briefly stated facts are that search action under section 132 of the Act was carried out on 25.07.2013 at the residential and business premises of Sourabh H Bora Group of Companies. The proceedings u/s 153A was initiated by issuing notice u/s 153A on 21.08.2014. In response, the assessee vide letter dated 21.12.2015 requested the AO to treat the original return filed on 30.09.2011 declaring the total income of Rs.3,601/- as the return in response to 153A of the Act. The AO issued the statutory notices dated 22.12.2015 directing the assessee to furnish various details of share application money received by the assessee. In response, the assessee vide letter dated 08.01.2016 and another letter dated 06.02.2016 furnished the relevant details on record. Further, the assessee vide letter dated 08.01.2016 submitted the various documents such as CIN, PAN, registered office address, IT return acknowledgement receipt, bank transactions, share application forms, board resolution, details of project funding, deployment of funds, evidence of shareholders being public listed companies and their annual results filed before Bombay Stock Exchange. The AO vide notice under section 142(1) of the Act requested the assessee to produce the directors for examination and issued the summons under section 131 of the Act to the shareholders calling for their source of funds. The shareholders, in reply, filed their respective replies and furnished documentary evidences on assessment record. The AO was not satisfied with the submissions of the assessee and by replies furnished by the shareholders and rejected the assessee's contention as under:-
“I now deal with the assessee's submission as under:-
As per the provision of section 153A, the assessment is required to be made for the six assessment years immediately prior to the year in which search was carried out Therefore the proceedings u/s. 153A has been correctly initiated to assess the income accordingly.
It is immaterial whether all the entries were recorded in books of accounts prior to the search. What the assessee was required to establish the genuineness of the transactions with these patties which the assessee failed to do.
As regards roving enquires, it may be noticed that there had been no roving enquiries but all the investigation has been specific and to the point The assessment of A.Y.2011-12 was completed u/s. 143(1). The case was never scrutinized either u/s, 143(3) or u/s. 147 of the Income Tax Act 1961. Therefore, the assessing officer can rightly look into all the issue whether any incriminating material was found during the course of search or not As regards the assessee's contention that no trail of any cash was found, in the proceedings like such, the cash trail is never found. It has to be inferred from the facts and circumstances of the case. That is precise reasons that the assessee was asked to establish the genuineness of the transactions by producing the directors for examination on oath to ascertain the circumstances in which investment was made and what the source of funding of such investment The assessee has been repeatedly asked to produce the directors. The assessee has taken a plea that it had no command over such patties. What is most intriguing is that when such parties can invested huge funds with the assessee's company, then why they cannot attend on the request of the assessee before the assessing officer to protect their investment. Such circumstances only prove the mala tide of the transactions.
Such production of director becomes more necessary when such impugned patties filed letter in assessment proceedings u/s. 153A, 153C of the Income Tax Act 1961 in their own case that all the funds in their respective companies were manage by Shri Shirish C Shah. Copies of such letters had already been provided to the assessee.
The assessee in its submission also argued that the book value of shares post issue is Rs. 967/- and thus no premium was charged.
I do not agree with the assessee. The book of value of share pre-issue was only Rs. 10/- and the assessee charged huge premium without any justification. The book value post issue is immaterial.”
The AO, in view of the above finding and also the fact that similar search under section 132 of the Act was conducted on Shri Shirish C. Shah under section 132 of the Act, wherein in the statement Shri Shirish C. Shah admitted for issuing bogus share capital. But the AO has not relied upon the statement of Shri Shirish C. Shah and held that the entire addition is based on independent inquiries. Therefore, he denied that there is no need of any cross examination of Shri Shirish C. Shah. Finally, the AO added the share capital / premium of ₹ 3.71 crore as unexplained cash credit within the meaning of section 68 of the Act. Aggrieved, assessee preferred the appeal before CIT(A).
The CIT(A) noted that the assessee filed original return of income on 30-09-2011 under section 139(1) of the Act and the due date of the issuance of notice under section 143(2) of the Act was 30-09-2012. No notice under section 143(2) of the Act was issued before the date of search under section 132 of the Act which was on 25.07.2013. Consequence to search under section 132 of the Act, notice under section 153A of the Act was issued on 21.08.2014. The CIT(A) noted that there are no proceedings pending whatsoever in response to original return filed by assessee under section 139(1) of the Act and in such circumstances once, no incriminating material is found during the course of search, no addition can be made in the hands of the assessee while framing the assessment under section 153A of the Act. The CIT(A) after considering the remand report and submissions of the assessee deleted the addition by observing in Para 10.1 to 10.10 as under: - “10. 1. I have given my careful consideration to the rival submissions, perused the material on record and duly considered the factual matrix of the case as also the applicable legal position. The issue raised with regards to the jurisdiction of the A.O. to make the addition in the absence of any incriminating materials is dealt as hereunder.
10.2. It is clear that the appellant is particularly aggrieved since there was no incriminating material found during the course of search. Neither any assets, documents nor any other materials in any other form have been found / seized in the course of search. In the assessment order and even in the remand report of the A.O., there is no whisper about incriminating materials relating to the appellant or the linkage between the additions made and the material found during the search proceeding conducted u/s. 132 of the Act. The A.O. has not disputed the facts as narrated by the appellant in its submission. There being no dispute regarding the fact that no incriminating materials were found, which could have been considered as the basis for the additions made, only the legal issue is required to be addressed as to whether the A.O. can make any additions while making the assessments u/s.153A for the impugned year.
10.3. The assessment for the impugned assessment year i.e. A.Y.2011-12 has not abated as it was not pending as on the date of search i.e. 25/07/2013. Therefore, the second proviso to Section 153A(1) does not apply and the assessment already made has attained finality. It is a settled principle as decided by the Courts that in such case additions can be made only on the basis of incriminating materials found during the course of search. It has been so held by the Hon’ble Jurisdictional Bombay High Court in the case of Continental Warehousing Corporation (supra) as well as Delhi High Court in the case of Kabul Chawla (supra). The appellant has also drawn my attention to the decision in the case of Anil Mahavir Gupta (supra) wherein Mumbai ITAT has applied these principles even in a case where no assessment was made u/s. 143(3) prior to the search and the return filed stood accepted u/s. 143(1) of the Act. The relevant observation of I- Hon'ble ITAT is reproduced below:
"Quite clearly, the Tribunal in the case of Shri Govind Agarwal (supra) has upheld that making of an addition in an assessment under section 153A of the Act, without the backing of incriminating material, is unsustainable even in a case where the original assessment on the date of search stood completed under section 143(1) of the Act, thereby resulting in non-abatement of such assessment in terms of the Second Proviso to section 153A(l) of the Act. Notably, the Tribunal has referred to various decisions, including the judgment of the Hon'ble Rajasthan High Court in the case of Jai Steel (India) (supra)."
10.4 The AO, in para 4.25 of assessment order stated that "Though the facts related to search u/s. 132 of the Income Tax Act, 1961 in the case of Slid Shirish C. Shah had been mentioned in the assessment order, but none of the statements of Shri Shirish C. Shah had been relied upon. The conclusion had been drawn based on independent enquiries. Therefore the question of cross examination of Shri Shirish C Shah by the assessee does not arise."
Based on above stated finding of the AO, it is observed that there is no contrary statement of Shri Shirish C. Shah against the appellant and AO has chosen not to rely on his statement and for similar reasons the cross examination has not been allowed to the appellant. The Ac's contention that the conclusion in assessment has been drawn on the basis of independent enquiries also suggests that no incriminating materials has been found during course of search.
10.5 The AO's contention, in remand report, that the books of accounts of the assessee were seized during search wherein the share capital obtained by appellant from various companies of Shri Shirish C. Shah were appearing and based on entries recorded in appellant's books of accounts, the enquiries were conducted during course of assessment and accordingly, the additions were made in assessment order. The AO's contention cannot be accepted since regular books of accounts found and seized during search cannot be treated as incriminating material. The appellant, prior to search, has furnished the audited balance sheet on disclosing the share capital received during the year. The AO has not pointed any discrepancies in entries recorded in appellant's books of accounts seized during search vis-a-vis return of income filed the appellant. Nothing has been unearthed during search, except audited books of accounts found and seized during search. I find force in appellant’s contention that if the audited books of accounts are treated as incriminating material, then each case would automatically fall within the ambit of incriminating material since the assessee is mandatorily required to maintain the books of accounts. The AO has not pointed out any defect in entries recorded in books of accounts seized during search and has not rejected the books of accounts u/s 145(3) of the Act. The incriminating material would mean the evidences unearthed during search.
10.6. The Hon'ble ITAT, Mumbai Special bench in the case of All Cargo Global Logistics Ltd vs. DClT 147 TTJ 513 has decided that 'the addition in non abated assessment could only be made on the basis of incriminating material, which in the context of relevant provisions means - (0 books of account, other documents, found in the course of search but not produced in the course of original assessment, and (i))undisclosed income or property discovered in the course of search 10.7 The Hon'ble High Court of Bombay in the case of CIT vs. Vikram. Doshi (256 ITR 0129) has decided that since the transactions in question were disclosed in returns which were the subject-matter of regular assessment. The same ought to have been assessed in the regular assessment and not in the block assessment."
10.8 The Hon'ble Mumbai ITAT in the case of Deepak Agarwal vs. ACIT (2014) 40 CCH 0311 Mum. Trib. decided that "the assessment under section 1534 will be made on the basis of incriminating material which in the context of relevant portions means books of account, other documents, found in the course of search but not produced in the course of original assessment and undisclosed income or property discovered in the course of search.
10.9 The Hon'ble Mumbai ITAT in the case of First Global Stock broking (P) Ltd v. ACIT (115 TTJ 0173) decided that "Bank account having been disclosed to the Department, addition on account of entries appearing in this account cannot be made in the block assessment'.
In view of the above stated judicial decisions, it is held that the regular books of accounts found and seized during search cannot be regarded as incriminating material.
10.10 As it has been held that there is no incriminating material and evidence found during the course of search and respectfully following the settled judicial precedents on the issue. I allow the legal ground raised by the appellant and direct the A.O. to delete the addition made while making the assessments u/s. 153A of the Act..”
Aggrieved, now Revenue came in second appeal before Tribunal.
Before us, the learned CIT Departmental Representative, Shri R Manjunatha Swamy relied on the assessment order. He could not controvert the case law relied on by the CIT(A) in the case of CIT vs Continental Warehousing Corporation (Nhava Sheva) Ltd. (2015) 374 ITR 645 (Bom). Despite a specific query raised by the Bench, the learend CIT Departmental Representative, could not produce or could not state that there is incriminating material was found during the search relating to this share application money/ share premium added by AO while completing the assessment under section 153A of the Act. On the other hand, the learned Counsel for the assessee relied on the decision of Continental Warehousing Corporation (supra) and CIT vs. Murli Agro Products Pvt. Ltd. [2014] 49 taxmann.com 172 (Bombay). The relevant portion of the judgment reads as under: - “31. We, therefore, hold that the Special Bench's understanding of the legal provision is not perverse nor does it suffer from any error of law apparent on the face of the record. The Special Bench in that regard held as under:-
“The provision under section 153A is applicable where a search or requisition is initiated after 31.5.2003. In such a case the AO is obliged to issue notice u/s 153A in respect of 6 preceding years, preceding the year in which search etc. has been initiated. Thereafter he has to assess or reassess the total income of these six years. It is obligatory on the part of the AO to assess or reassess total income of the six years as provided in section 153A(1)(b) and reiterated in the 1st proviso to this section. The second proviso states that the assessment or reassessment pending on the date of initiation of the search or requisition shall abate. We find that there is no divergence of views in so far as the provision contained in section 153A till the 1st proviso. The divergence starts from the second proviso which states that pending assessment or reassessment on the date of initiation of search shall abate. This means that an assessment or reassessment pending on the date of initiation of search shall cease to exist and no further action shall be taken thereon. The assessment shall now be made u/s 153A. The case of Ld. Counsel for the assessee is that necessary corollary to this provision is that completed assessment shall not abate. These assessments become final except in so far and to the extent as undisclosed income is found in the course of search. On the other hand, it has been argued by the Ld. Standing Counsel that abatement of pending assessment is only for the purpose of avoiding two assessments for the same year, one being regular assessment and the other being assessment u/s 153A. In other words these two assessments coalesce into one assessment. The second proviso does not contain any word or words to the effect that no reassessment shall be made in respect of a completed assessment. The language is clear in this behalf and therefore literal interpretation should be followed. Such interpretation does not produce manifestly absurd or unjust results as section 153A (i)(b) and the first proviso clearly provide for assessment or reassessment of all six years. It may cause hardship to some assesses where one or more of such assessments has or have been completed before the date of initiation of search. This is hardly of any relevance in view of clear and unambiguous words used by the legislature. This interpretation does not cause any absurd etc. results. There is no casus omissus and supplying any would be against the legislative intent and against the very rule in this behalf that it should be supplied for the purpose of achieving legislative intent. The submissions of the Ld. Counsels are manifold, the foremost being that the provision u/s 153A should be read in conjunction with the provision contained in section 132(1), the reason being that the latter deals with search and seizure and the former deals with assessment in case of search etc, thus, the two are inextricably linked with each other.
Before proceeding further, we may now examine the provision contained in sub-section (2) of section 153, which has been dealt with by Ld. Counsel. It provides that if any assessment made under subsection (1) is annulled in appeal etc., then the abated assessment revives. However, if such annulment is further nullified, the assessment again abates. The case of the Ld. Counsel is that this provision further shows that completed assessments stand on a different footing from the pending assessments because appeals etc. proceedings continue to remain in force in case of completed assessments and their fate depends upon subsequent orders in appeal. On consideration of the provision and the submissions, we find that this provision also makes it clear that the abatement of pending proceedings is not of such permanent nature that they cease to exist for all times to come. The interpretation of the Ld. Counsel, though not specifically stated, would be that on annulment of the assessment made u/s 153(1), the AO gets the jurisdiction to assess the total income which was vested in him earlier independent of the search and which came to an end due to initiation of the search.
The provision contained in section 132 (1) empowers the officer to issue a warrant of search of the premises of a person where any one or more of conditions mentioned therein is or are satisfied, i.e. - a) summons or notice has been issued to produce books of account or other documents but such books of account or documents have not been produced, b) summons or notice has been or might be issued, he will not produce the books of account or other documents mentioned therein, or c) he is in possession of any money or bullion etc. which represents wholly or partly the income or property which has not been and which would not be disclosed for the purpose of assessment, called as undisclosed income or property. We find that the provision in section 132 (1) does not use the word "incriminating document". Clauses (a) and (b) of section 132(1) employ the words "books of account or other documents". For harmonious interpretation of this provision with provision contained in section 153A, all the three conditions on satisfaction of which a warrant of search can be issued will have to be taken into account.
Having held so, an assessment or reassessment u/s 153A arises only when a search has been initiated and conducted. Therefore, such an assessment has a vital link with the initiation and conduct of the search. We have mentioned that a search can be authorised on satisfaction of one of the three conditions enumerated earlier. Therefore, while interpreting the provision contained in section 153A, all these conditions will have to be taken into account. With this, we proceed to literally interpret to provision in 153A as it exists and read it alongside the provision contained in section 132(1).
The provision comes into operation if a search or requisition is initiated after 31.5.2003. On satisfaction of this condition, the AO is under obligation to issue notice to the person requiring him to furnish the return of income of six years immediately preceding the year of search. The word used is "shall" and, thus, there is no option but to issue such a notice. Thereafter he has to assess or reassess total income of these six years. In this respect also, the word used is "shall" and, therefore, the AO has no option but to assess or reassess the total income of these six years. The pending proceedings shall abate. This means that out of six years, if any assessment or reassessment is pending on the date of initiation of the search, it shall abate. In other words pending proceedings will not be proceeded with thereafter. The assessment has now to be made u/s 153A (1)(b) and the first proviso. It also means that only one assessment will be made under the aforesaid provisions as the two proceedings i.e. assessment or reassessment proceedings and proceedings under this provision merge into one. If assessment made under sub-section (1) is annulled in appeal or other legal proceedings, then the abated assessment or reassessment shall revive. This means that the assessment or reassessment, which had abated, shall be made, for which extension of time has been provided under section 153B.
The question now is - what is the scope of assessment or reassessment of total income u/s 153A (1) (b) and the first proviso? We are of the view that for answering this question, guidance will have to be sought from section 132(1). If any books of account or other documents relevant to the assessment had not been produced in the course of original assessment and found in the course of search in our humble opinion such books of account or other documents have to be taken into account while making assessment or reassessment of total income under the aforesaid provision. Similar position will obtain in a case where undisclosed income or undisclosed property has been found as a consequence of search. In other words, harmonious interpretation will produce the following results: - a) In so far as pending assessments are concerned, the jurisdiction to make original assessment and assessment u/s 153A merge into one and only one assessment for each assessment year shall be made separately on the basis of the findings of the search and any other material existing or brought on the record of the AO, (b) in respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search.”
We find from the facts of the case that there is no incriminating material referred by the AO, while framing the assessment and making addition of share capital/ premium. Admittedly, for the relevant AY 2011- 12, the original return of income filed by the assessee under section 139(1) of the Act on 30.09.2011. Search under section 132 of the Act was conducted on the assessee on 25.07.2013. Due date for issuance of notice under section 143(2) of the Act was 30.09.2012 but no such notice was issued before the date of search. It seems that the original return filed by assessee disclosing the share capital / premium received in the balance sheet enclosed with the return of income has become final. There is no enquiry or assessment proceeding pending as on the date of search. It means that the assessment proceedings for the relevant assessment year was in abated as on the date of search. We also find that the AO in this remand report, called by the CIT(A), vide dated 09.01.2017 admitted that there is no incriminating material found during the course of search and the relevant remand report dated 18.01.2017 reads as under: - “2. Please refer to the letter dated 9" Jan 2017 on the subject matter. My reply to the points raised is as under :-
A Whether the addition made by the AG is based on any incriminating material found and seized during the course of search? a. During the course of search, books of accounts of the assessee were seized wherein share capital obtained by the assessee from the various conduit companies of Shri Shirish C. Shah were appearing. Based on the entries in the books of accounts, inquiries were conducted during the course of assessment proceedings and the additions were made.
B. Whether the addition is based on any enquiry made on the incriminating material found and seized during the course of search? a. During the course of search, books of accounts of the assessee were seized wherein sham capital obtained by the assessee from the various conduit companies of Shri Shirish C. Shah were appearing. Based on the entries in the books of accounts, inquiries were conducted during the course of assessment proceedings and the additions were made.
C. Whether any reference to the incriminating material is made by the appellant in the statement recorded during the course of search and the addition is based thereon? a. When the assessee was confronted with the details of impugned share capital, the assessee confirmed the entries appearing in the books of accounts.
3. I shall be happy to provide any other information if any required submitted.”
In view of the above facts of the present case that there is no incriminating material found during the course of search relating to addition made by the AO of share capital / premium and there is no abatement of assessment and further following the ratio of Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (supra), we confirm the orders of CIT(A) deleting the addition.
Now, coming to cross appeals of assessee in and 2118/Mum/2017 in the case of Tanish Estate Developers Pvt. Ltd. & Tanish Projects Pvt. Ltd. respectively for AY 2011-12. The issue raised by assessee is on merits. Since, we have already dismissed the Revenue’s appeal and confirmed the order of CIT(A), deleting the addition on the issue of jurisdiction i.e. there is no incriminating material for framing of assessment on unabated assessment, we need not to go into the merits of the case. The learned Counsel for the assessee also agreed that these assessee’s appeals have become infructuous.
In the result, the appeals of Revenue are dismissed and the appeals of assessee are dismissed as infructuous.
Order pronounced in the open court on 24-08-2018.