DCIT, CC-4(1), KOLKATA, KOLKATA vs. M/S MAAN STEEL & POWER LTD., KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘A’ BENCH, KOLKATA (Before Sri J. Sudhakar Reddy, Accountant Member & Sri A. T. Varkey, Judicial Member)

I.T.A No.1192/Kol/2017 Assessment Year: 2011-12

Deputy Commissioner of Income Tax, Central Circle-4(1), Kolkata............................…..Appellant M/s. Maan Steel & Power Ltd…….................................……………………………......…...Respondent [PAN : AACCG 1590 N] Appearances by: Shri A.K. Nayak, CIT-DR, appeared on behalf of the appellant. Shri A. K. Tulsiyan, FCA, appearing on behalf of the Respondent. Date of concluding the hearing : December 13, 2018 Date of pronouncing the order : February 6th , 2019 ORDER Per J. Sudhakar Reddy, AM :-

This appeal filed by the revenue is directed against the order of the Learned Commissioner of Income Tax (Appeals)-21, Kolkata, (hereinafter the “ld.CIT(A)”), passed u/s. 250 of the Income Tax Act, 1961 (the ‘Act’), dt. 23/03/2017, for the Assessment Year 2011-12. 2. The assessee is a company and it filed its original return of income on 30/09/2011 for the Assessment Year 2011-12 declaring total loss of Rs.82,96,760/-. A search and seizure operation u/s 132 of the Act, was conducted at the business and residential premises of Maanheruka Group at Kolkata and other places, on 13/12/2012. Thereafter the Assessing Officer issued notices u/s 153A dt. 07/10/2013 for the Assessment Year 2011-12 and was served upon the assessee on 08/10/2013. In response to the notice, the assessee filed revised return declaring the same income as filed in the original return. The Assessing Officer completed the assessment u/s 153A r.w.s. 143(3) of the Act on 30/03/2015 determining total income of the assessee at Rs.78,40,440/-. 4.1. Aggrieved the assessee carried the matter in appeal. The ld. First Appellate Authority granted part relief. He relied on the decisions of the Hon’ble Calcutta High Court in the case of PCIT vs. Salasar Stock Broking Limited (ITA No.264 of 2016) dt.

2 M/s. Maan Steel & Power Ltd I.T.A No.1192/Kol/2017 Assessment Year: 2011-12 24.08.2016 and the judgment in the case of CIT vs. Veerprabhu Marketing Ltd. [2016] 73 taxmann.com 149 (Calcutta) and held that, incriminating material is a prerequisite for making additions in an assessment framed u/s 153A/143(3) of the Act, wherever assessments for the respective Assessment Years have not abated. He pointed out that the Hon’ble Jurisdictional High Court has concurred with the judgment of the Hon’ble Delhi High Court in the case of CIT vs. Kabul Chawla (2016) 380 ITR 0573 (Del). He further relied upon a number of decisions of the ITAT Kolkata Bench and deleted all the additions made in the assessment u/s 153A/143(3), on the ground that they were not based on any incriminating material found during the course of search and seizure proceedings and as the assessments for this Assessment Year has not abated. 5. Aggrieved the revenue is in appeal before us on the following grounds:- “That on the facts and in the circumstances of the case the ld. Commissioner of Income Tax (Appeal) has erred in allowing assessee’s appeal by observing that the addition of Rs.1,60,00,000/- made by the Assessing Officer in the assessment order passed under section 153A/143(3) is not based on any incriminating documents/papers seized during the search operation without calling for independent enquiry regarding existence of seized material and the merit of the case.”

3 M/s. Maan Steel & Power Ltd I.T.A No.1192/Kol/2017 Assessment Year: 2011-12 substance of his submission is that the statements recorded during the course of survey and search operations undertaken by the department in an independent and unconnected proceedings on several persons, who are allegedly entry operators/brokers and the establishment of the cash trail of the various transactions constitute incriminating material, which can be the basis for making an addition in an assessment u/s 153A r.w.s. 143(3) of the Act. Further reliance was placed on the judgment of the Hon’ble Kerala High Court in the case of E.N. Gopakumar v. Commissioner of Income-tax (Central) [2016] 75 taxmann.com 215 (Kerala) and the judgment in the case of CIT vs. St. Francis Clay Decor Tiles 385 ITR 624 (Ker) for the proposition that no incriminating material is necessary for making an addition in an assessment u/s 153A r.w.s. 143(3) of the Act.

7.1. He relied on certain case-law to submit that deposits made in the earlier year cannot be taxed in the current Assessment Year. He pointed out on facts that no cash deposits were allegedly made in this Assessment Year. He further argued that the addition cannot be made based on the cash trial because the assessee was not provided with the copy of the bank statement of those third parties which allegedly formed a

4 M/s. Maan Steel & Power Ltd I.T.A No.1192/Kol/2017 Assessment Year: 2011-12 chain of companies and in the companies in which the alleged cash deposits were made. He further submitted that copy of the alleged statement recorded from those third parties who are allegedly part of the chain of companies who are the bank account holders of the alleged chain of companies were not provided to the assessee nor any opportunity was given to the assessee to cross-examine them. He submitted that he assessee was kept in dark and no material whatsoever collected by the Assessing Officer was confronted to the assessee. He argued that material collected behind the back of the assessee cannot be used to make an addition without confronting the assessee with such material. He relied on a number of case laws including DCIT vs. M/s. Mann Capital Services Pvt. Ltd., ITA No.1193/Kol/2017 dated 07.12.2018.

7.1.1. He further argued that no evidence was brought on record by the Assessing Officer to prove that the alleged cash deposits in the bank account of third parties was in fact the assessee’s money and that it had flown from the coffers of the assessee company. Thus, he submits that the addition cannot be based on such material which is never confronted to the assessee.

7.2. On the argument of the ld. D/R that the alleged statements from several entry operators as being the basis of the addition in question, he submitted that the addition in these cases were not based on any of these statements by the Assessing Officer. He argued that the fact that all these alleged entry operators had retracted from the statements allegedly made by them is not denied by the Assessing Officer. He further argued that the copies of the alleged statements were not provided to the assessee nor any opportunity given for cross-examining these persons. He further relied on the judgment of the Hon’ble Madras High Court in the case of CIT vs S. Kader Khan Son [2008] 300 ITR 157 for the proposition that the statements recorded during the course of survey cannot be used as evidence. He relied on the order of the ld. CIT(A) and submitted that the same should be upheld in view of the binding decisions of the Hon’ble Jurisdictional High Court on this matter. He distinguished the judgment of the Hon’ble Kerala High Court and submitted that even otherwise, the judgment cannot be followed in view of the binding nature of the judgment of the Hon’ble Jurisdictional High Court.

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8.1. We first consider the legal position as to whether, an addition can be made in an assessment u/s 153A r.w.s. 143(3) of the Act, which is not based on any incriminating material found during the course of search and seizure, when the assessment for the Assessment Year in question has not abated. In the case on hand, the assessee filed its original return of income on 30.09.2011. The time limit for issual of notice u/s 143(2) of the Act, was 30/09/2012. The search and seizure operation was conducted in this case on 13/12/2012. The statutory period for issual of notice u/s 143(2) of the Act, in the case of impugned Assessment Year had expired prior to the date of search operation. Hence the assessment for the impugned Assessment Year has not abated.

8.2. On the legal position, we find that the various Courts of law under similar circumstances have held as follows:- CIT,Kolkata-III Vs. Veerprabhu Marketing Limited [2016] 73 taxmann.com 149 (Calcutta) : In this case The Honourable Calcutta High Court expressed the following views: “We are in agreement with the views of the Karnataka High Court that incriminating material is a pre-requisite before power could have been exercised under section 153C read with section 153A. In the case before us, the assessing officer has made disallowances of the expenditure, which were already disclosed, for one reason or the other. But such disallowances were not contemplated by the provisions contained under section 153C read with section 153A. The disallowances made by the assessing officer were upheld by the CIT(A) but the learned Tribunal deleted those disallowances.”

PCIT-2, Kolkata Vs. Salasar Stock Broking Limited (ITAT No. 264 of 2016) dated 24.08.2016 : (Calcutta)

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In this case, the Honorable Jurisdictional High Court observed that the Ld. ITAT, Kolkata was of the opinion that the assessing officer had no jurisdiction u/s 153A of the I.T. Act to reopen the concluded cases when the search & seizure did not disclose any incriminating material. In taking the aforesaid view, the Ld. ITAT relied upon the judgments of Delhi High Court in the case of CIT(A) Vs. Kabul Chawla in ITA No. 707/2014 dated 28.08.2014. The Court also observed that more or less an identical view has been taken by this Bench in ITA No. 661/2008 in the case of CIT Vs. Veerprabhu Marketing Limited. Considering the above facts, the Honorable High Court did not admit the appeal filed by the Department. It held as follows:-

“Subject matter of challenge is a judgement and order dated 18th December, 2015 by which the learned Tribunal dismissed an appeal preferred by the Revenue registered as ITA No.1775/Kol/2012 and allowed a cross-objection registered as CO-30/Kol/2013 both pertaining to the assessment year 2005- 06. The learned Tribunal was of the opinion that the Assessing Officer had no jurisdiction under Section 153A of the Income Tax Act to reopen the concluded cases when the search and seizure did not disclose any incriminating material. In taking the aforesaid view, the learned Tribunal relied upon a judgement of Delhi High Court in the case of CIT[A] vs. Kabul Chawla in ITA No.707/2014 dated 28th August, 2014. The aggrieved Revenue has come up in appeal.” ....In that view of the matter, we are unable to admit the appeal. The appeal is, therefore, dismissed.”

The ‘A’ Bench of the Delhi ITAT, recently in the case of Anurag Dalmia vs. DCIT in ITA Nos. 5395 & 5396/DEL/2017; Assessment Years: 2006-07 & 2007-08, dt. 15/02/2018, has explained the law on this issue in the following manner:- “12. We have heard the rival submissions, perused the relevant material placed on record and the finding given in the impugned order with respect to legal issue raised vide ground no.5 by the assessee that the additions made in this year are beyond the scope of assessment u/s.153A, as no incriminating material was found during the course of search for the impugned Assessment Year; and the assessment had attained finality and was not abated in terms of 2nd Proviso to Section 153A. As stated above, the original return of income was filed in July, 2006 and said return was duly accepted and processed u/s. 143(1) vide intimation dated 25.05.2007. Since no notice u/s. 143(2) was issued thereafter or any other proceedings have been commenced to disturb said return of income, accordingly, it had attained finality much prior to the date of search which was on 20.01.2012. Hence in terms of 2nd Proviso to Section 153A the assessment for the Assessment Year 2006-07 was not pending and accordingly, has to be reckoned as unabated assessment. Under the jurisdiction of Hon'ble Delhi High Court, the law is well settled that in case of unabated assessment, the additions which can be roped-in, in the assessments framed u/s.153A, would only

7 M/s. Maan Steel & Power Ltd I.T.A No.1192/Kol/2017 Assessment Year: 2011-12 be with regard to any incriminating material or evidence unearthed or found during the course of search. If no incriminating material has been found during the course of search, then no addition can be made in the assessment years where assessments had attained finality. The relevant observations and the ratio laid down would be discussed in the later part of this order. 15. Now coming to the ratios laid down by the Hon’ble Jurisdictional High Court, first of all, in the case of Kabul Chawala (supra), the Hon'ble Court after discussing the issue threadbare and analysing the various judgments of different High Courts laid down the following legal proposition in terms of scope of addition which can be made u/s. 153A(1) which are as under:- “37. On a conspectus of Section 153A (1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section

8 M/s. Maan Steel & Power Ltd I.T.A No.1192/Kol/2017 Assessment Year: 2011-12 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.” This judgment of the Hon'ble Delhi High Court has been followed in several judgments not only by the Hon'ble Delhi High Court but also by other Hon'ble High Court like, Pr. CIT vs. Somaya Construction Pvt. Ltd. 387 ITR 529 (Guj), CIT vs. IBC Knowledge Park Pvt. Ltd. 385 ITR 346 (Kar) and CIT vs.Gurinder Singh Bawa reported in 386 ITR 483. In the latest judgment the Hon'ble Delhi High Court in Pr. CIT vs. Meeta Gutgutia, their Lordships reiterated the same principle after discussing and analyzing catena of decisions including that of Anil Kumar Bhatia (supra) and Dayawanti Gupta. The Hon'ble HighCourt observed and held as under:- “62. Subsequently, in Principal Commissioner of Income Tax-1 v. Devangi alias Rupa {supra), another Bench of the Gujarat High Court reiterated the above legal position following its earlier decision in Principal Commissioner of Income Tax v. Saumya Construction P. Ltd. {supra) and of this Court in Kabul Chawla (supra). As far as Karnataka High Court is concerned, it has in CIT v. IBC Knowledge Park P. Ltd. {supra) followed the decision of this Court in Kabul Chawla (supra) and held that there had to be incriminating material qua each of the AYs in which additions were sought to be made pursuant to search and seizure operation. The Calcutta High Court in CIT-2 v. Salasar Stock Broking Ltd. {supra), too, followed the decision of this Court in Kabul Chawla (supra). In CIT v. Gurinder Singh Bawa {supra), the Bombay High Court held that: “6...once an assessment has attained finality for a particular year, i.e., it is not pending then the same cannot be subject to tax in proceedings under section 153A of the Act. This of course would not apply if incriminating materials are gathered in the course of search or during proceedings under section 153A of the Act which are contrary to and/or not disclosed during the regular assessment proceedings.” 63. Even this Court has in CIT v Mahesh Kumar Gupta {supra) and The Pr. Commissioner of Income Tax-9 v. Ram Avtar Verma {supra) followed the decision in Kabul Chawla (supra). The decision of this Court in Pr. Commissioner of Income Tax v. Kurele Paper Mills P. Ltd. {supra) which was referred to in Kabul Chawla (supra) has been affirmed by the Supreme Court by the dismissal of the Revenue's SLP on 7th December, 2015.” 18. Post the judgment of Meeta Gutgutia (supra), also the same principle have been reiterated in the case of PCIT vs. Best Infrastructure (India) Pvt. Ltd. (supra), wherein the Hon'ble High Court held that during the course of search, statement

9 M/s. Maan Steel & Power Ltd I.T.A No.1192/Kol/2017 Assessment Year: 2011-12 recorded u/s. 132(4) by themselves does not constitute incriminating material and assumption of jurisdiction by the Assessing Officer u/s.153A solely based on statement is unsustainable when there is no incriminating material found during the course of search. Again in the case of PCIT vs. Dharampal Premchand Ltd., in ITA No.512 to 514/206, the Hon'ble Delhi High Court held that ratio laid down in the case of Kabul Chawla, Meeta Gutgutia, still holds ground and the Revenue’s contention that the matter should be referred to a larger bench was turned down. Apart from these judgments, there are catena of other judgments of other High Courts laying down similar ratio and proposition. The main underlying principle permeating in all the judicial precedents is that, in the case of the unabated assessment which had attained finality on the date of search, which are reckoned as unabated assessments, no addition over and above the originally assessed income can be made sans any incriminating material found or unearthed during the course of search. The principle reiterated time and again is that something should be found as a result of search which is incriminating in nature so as to implicate the assessee and acquire jurisdiction to make the addition, because for the completed assessment, or in other words, assessment which are not abated, the Assessing Officer is required to make reassessment u/s.153A which is only possible when any incriminating material has been found during the course of search.” The Hon’ble Delhi High Court in the case of Pr. CIT vs. Kurule Paper Mills P. Ltd. [2016] 380 ITR 571 (Delhi) held as follows:- 1. The Revenue has filed the appeal against an order dated 14.11.2014 passed by the Income Tax Appellate Tribunal (ITAT) in 3761/Del/2011 pertaining to the Assessment Year 2002-03. The question was whether the learned CIT (Appeals) had erred in law and on the facts in deleting the addition of Rs. 89 lacs made by the Assessing Officer under Section 68 of the Income Tax Act, 1961 ('ACT') on bogus share capital. But, the issue was whether there was any incriminating material whatsoever found during the search to justify initiation of proceedings under Section 153A of the Act. 2. The Court finds that the order of the CIT(Appeals) reveals that there is a factual finding that "no incriminating evidence related to share capital issued was found during the course of search as is manifest from the order of the AO." Consequently, it was held that the AO was not justified in invoking Section 68 of the Act for the purposes of making additions on account of share capital. 3. As far as the above facts are concerned, there is nothing shown to the court to persuade and hold that the above factual determination is perverse. Consequently, after considering all the facts and circumstances of the case, the Court is of the opinion that no substantial question of law arises in the impugned order of the ITAT which requires examination. 4. The appeal is, accordingly, dismissed.

The department had filed special leave petition before the Hon’ble Apex Court against the above judgment of the Delhi High court. (Pr CIT V KURULE PAPER MILLS P. LTD: S.L.P (C) No-34554 of 2015[ 2016] 380ITR (st) 64-Ed)..

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The Hon’ble Apex court dismissed the special leave petition filed by the department. The relevant Para as mentioned in the ITR is reproduced as under. “Their Lordships Madan B.Lokur and S.A.Bobde JJ dismissed the Department’s special leave petition against the judgment dated July 06,2015 of the Delhi High Court in I.T.A No 369 of 2015, whereby the High Court held that no substantial question of law arose since there was a factual finding that no incriminating evidence related to share capital issued was found during the course of search and that the assessing officer was not justified in invoking section 68 of the Act for the purpose of making additions on account of share capital” 9. Applying the propositions of law laid down in the above case-law to the facts of the case on hand, we find that the only addition made for these Assessment Years is of share application money received u/s 68 of the Act and disallowance of donation paid. No incriminating material has been found during the course of search. The alleged statements recorded from entry operators have been admittedly retracted by them and the Assessing Officer has not based the additions on these statements. Even otherwise, when copies of the alleged statements recorded by the revenue officials have not been given to the assessee, no addition can be made based on such evidence which is not confronted to the assessee. The contents of the statements are also not brought out in the assessment order. Only a general reference is made that there were certain statements recorded from various entry operators by the investigation wing. No addition can be made on such general observations. We also find that the assessee has not been given an opportunity to cross-examine any of these persons, based on whose statements, the ld. D/R claims that the additions have been made. The Hon’ble Supreme Court in the case of Kishinchand Chellaram vs. CIT, 125 ITR 713 (SC) had held that the opportunity of cross-examination must be provided to the assessee. The Jurisdictional High Court in the case of CIT Vs Eastern Commercial Enterprises (1994) 210 ITR 103 (Kol HC) held as follows:- As a matter of fact, the right to cross-examination a witness adverse to the assessee is an indispensable right and the opportunity of such cross-examination is one of the cornerstones of natural justice. 9.1. Even otherwise, it is not clear as to which of these statements were recorded during the course of search operation u/s 132 of the Act or whether the statements were recorded during the course of any survey operations u/s 133A of

11 M/s. Maan Steel & Power Ltd I.T.A No.1192/Kol/2017 Assessment Year: 2011-12 the Act. It is well settled that a statement recorded during the course of survey operation cannot be used as evidence under the Act. 10. Coming to the alleged cash trail, none of the material gathered by the Assessing Officer by way of bank account copies of various companies supposed to be part of the chain of companies was not confronted to the assessee. The alleged statements that were recorded from directors of these companies which formed this alleged chain were also not brought on record. Only a general statement has been made. There is no evidence whatsoever that cash has been routed from the assessee company to any of these chain of companies. There is no evidence that any cash was deposited by the assessee company. Moreover, there is no material whatsoever brought on record to demonstrate that the alleged cash deposit made in the bank account of a third party was from the assessee company. No opportunity to cross-examine any these parties was provided to the assessee. The bank statements based on which the cash trail was prepared are part of the disclosed documents and cannot be held as incriminating material.

10.1 The Judgment of the Hon’ble Kerala High Court in the case of E.N. Gopakumar vs. CIT (Supra) lays down a proposition, contrary to the propositions of law laid down by the Hon’ble Jurisdictional High Court in the case of CIT vs. Veerprabhu Marketing Ltd. (supra) and PCIT vs. Salasar Stock Broking Limited (supra).

10.2. Thus, none of these material gathered by the Assessing Officer can be categorized as incriminating material found during the course of search or found during the course of any other operation under the Act. Thus, we hold that the additions in question are not based on any incriminating material. The ld. CIT(A) on page 30 of his order held as follows:- “I have considered the findings of the AO in the assessment order, different case laws was brought on record and appeal orders passed by my predecessors on this legal issue. I find from the assessment order that during the search & seizure operations conducted u/s 132 of the IT Act, 1961, incriminating documents/papers were not seized. At least addition made by AO in the assessment order passed u/s 153A/143(3) are not based

12 M/s. Maan Steel & Power Ltd I.T.A No.1192/Kol/2017 Assessment Year: 2011-12 on any incriminating documents/ papers seized during the search operation. It would also not to be out of context to mention here that in this case, on the date of search, no assessment for this year was pending. Therefore, keeping in view the ratio decided by the jurisdictional bench of Kolkata tribunal in case referred above and the ratio decided by the Hon’ble Calcutta High Court in the case of Veer Prabhu Marketing Ltd (supra) in the light of CBDT’s decision of not filing SLP in this case in the Supreme Court and keeping in view the Apex court’s decision to dismiss SLP on the similar issue in the case of Pr CIT vs Kurele Paper Mills Pvt Ltd: SLP (C) No. 34554 of 2015 dt.07.12.2015, I am of this view that in order to maintain judicial continuity on this issue and respectfully following the ratio decided by the Hon’ble Calcutta High Court in the case of Veer Prabhu Marketing Ltd (supra), assessee’s appeal on ground no 1 is allowed and as such I am not inclined to adjudicate appeal on ground no. 1 on merit.”

Kolkata, the 6th day of February, 2019.

Sd/- Sd/- [A. T. Varkey] [J. Sudhakar Reddy] Judicial Member Accountant Member Dated : 06.02.2019 (RS, Sr. PS) Copy of the order forwarded to: 1. Deputy Commissioner of Income Tax, Central Circle-2(2), Kolkata 2. M/s Maan Steel & Power Ltd., 58/1, Sarat Bose Road, Kolkata – 700 025. 3. CIT(A)- 4. CIT- , 5. CIT(DR), Kolkata Benches, Kolkata.

//True copy// By order

Assistant Registrar ITAT, Kolkata Benches

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