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Income Tax Appellate Tribunal, DELHI BENCH “A”, NEW DELHI
Before: SHRI R. K. PANDA & MS. SUCHITRA KAMBLE
O R D E R
PER R. K. PANDA, AM :
This appeal filed by the Revenue is directed against the order dated 03.05.2010 of CIT(A)-III, Delhi relating to assessment year 2001-02. The assessee filed the Cross Objection against the appeal filed by the Revenue. For the sake of convenience, these were heard together and are being disposed of by this common order.
Facts of the case, in brief, are that the assessee is a company and is engaged in the business of investment in shares and securities, sale/purchase of shares and securities. A search and seizure operation u/s 132 was conducted in M/s Flex Group of cases. Certain documents/books of accounts belonging to the assessee company were seized from the premises of Shri Harish Chaturvedi, Shri Manvinder Singh and M/s Flex Industries Ltd. in whose names/cases warrants of authorization had been issued. In response to notice u/s 153C, the assessee filed return of income on 08.06.2007 declaring income of Rs.18,004/-.
However, the assessee had paid taxes on books profit of Rs.52,82,705/- u/s 115JB of the I.T. Act. The assessee had filed his original return of income u/s 139 on 15.10.2001 declaring income of Rs.18,004/- and has also paid taxes on book profit of Rs.52,82,705/- u/s 115JB of the I.T. Act.
The Assessing Officer issued notices u/s 142(1) and 143(2) along with questionnaire. During the course of assessment proceedings, the Assessing Officer observed that the assessee earned income from short term capital gain amounting to Rs.74,30,429/- from the transaction of shares of NIIT. From the details furnished by the assessee, the Assessing Officer noted that 29,084 shares of NIIT were sold through his broker for Rs.5,96,65,183/- which were purchased for a consideration of Rs.5,22,34,753/-. This resulted in the short term capital gain of Rs.74,30,429/-. Since the assessee company basically was to trade/deal in shares and securities as a core activity, the Assessing Officer rejected the claim of short term capital gain and treated the income as business income.
Before the ld. CIT(A), apart from challenging the merit of the case, the assessee challenged the validity of section 153A proceedings on the ground that no books of account/documents belonging to the assessee were found or seized.
The assessee referred to the satisfaction recorded by the Assessing Officer u/s 153C and submitted that the action u/s 153C has been taken on the basis of certain documents seized from the premises of Shri Manvinder Singh and M/s Flex Industries Ltd.. However, the condition precedent for invoking the provisions of section 153C is that the Assessing Officer of the person in whose case the search has been conducted will record the satisfaction on the basis of documents seized during the search belonging to such other person and hand over the documents, books of accounts and other assets to the Assessing Officer having jurisdiction over the case of such person. Since the Assessing Officer has not properly assumed the jurisdiction u/s 153C as no books of accounts/documents or other assets belonging to the assessee were found and seized from the premises of Shri Manvinder Singh and M/s Flex Industries Ltd., therefore, the Assessing Officer has not legally assumed the jurisdiction u/s 153C of the I.T. Act. Relying on various decisions the assessee argued that the assumption made u/s 153A/153C should be cancelled.
Based on the argument advanced by the assessee and following the decision of the Hon’ble Supreme Court in the case of NTPC reported in 229 ITR 383, the ld. CIT(A) accepted/admitted the additional ground. He referred to the satisfaction note recorded by the Assessing Officer which reads as under :-
“Search & Seizure operation in M/s Flex Group of cases was conducted on 23.02.2006. During the course of this search, certain documents/ books of accounts belonging to the assessee company were seized from the premises of Sh. Harish Chaturvedi (Party A-2), Sh. Manvinder Singh (Party A-10) and M/s Flex Industries ltd. (now M/s. Uflex Ltd. Party B-2) in whose names/cases warrants of authorization had been issued. The documents seized from various premises are listed as under : Party Nos. Premises Annexure Page Nos. A-2 Residence of Sh. Harish Chaturvedi A-1 38,91,92 and95 A-10 Residence of Sh. Manvinder Singh A-4 38 to 57 A-10 -do- A-9 9,19 and 20 -do- -do- A-5 -do- -do- A-9 9,19 and 20 B-2 Office of Flex Industries Ltd. A-1 66 to 70, 91 to 81,82, 83 and 84 to 90, 91 to 112, 113 and 119 B-2 -do- A-7 88 to 91, 92 to 95 and 96 to 99 B-2 -do- A-34 5 and 6
“In the light of the above, I am satisfied that the above case is fit for assessment u/s 153C in accordance with the provisions of section 153A of the I.T. Act as the seized documents listed above belong to M/s A.R. Leasing Pvt. Ltd. being a person other than the person where the search has been initiated. Hence, in order to assess/reassess the income of the given assessee notice u/s 153C is hereby issued for assessment years 200-01 to 2005-06.”
From perusal of the documents, he observed that the documents seized during the search cannot be termed to be indicating any limited interest of the ownership of the assessee in such documents. He further held that no addition has been made by the Assessing Officer on the basis of these documents.
Relying on various decisions, he held that the documents seized do not belong to the assessee and therefore, the Assessing Officer was not justifying in initiating the proceedings u/s 153C r.w.s. 153A of the I.T. Act. Therefore, the proceedings initiated u/s 153C are not in accordance with law. He, therefore, cancelled the assumption of jurisdiction u/s 153A r.w.s. 153C of the I.T. Act.
Aggrieved with such order of the ld. CIT(A), the Revenue is in appeal before the Tribunal with the following grounds :-
“1. On the facts and in the circumstances of the case, the CIT(A) has erred law and on facts in annulling the assessment made u/s 153C? 2. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts by holding that the seized documents, on the basis of which proceedings u/s 153C were initiated, do not belong to the assessee? 3. On the facts and in the circumstances of the case, the CIT(A) has erred in interpretating Section 153A/153C of the IT Act? 4. The order of the CIT(A) is erroneous and not tenable in law and on facts.
5. The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.”
8. The assessee has raised the following revised grounds in the Cross Objection :-
“1) It is contended that the provisions of Section 153A of the Income-tax Act, 1961 (the Act) are not applicable. 2) The assessment having stood completed before the date of search and no incriminating material found during the course of search, the determination of income u/s 153C/143(3) read with Section 153A of the Act is wrong and erroneous. 3) The above grounds of appeal are independent and without prejudice to one another. Your Appellant craves leave to add, alter, amend or withdraw any of the grounds of appeal at the time of hearing.”
We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the ld. CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. It is an admitted fact that the assessee in the instant case has filed the original return of income on 15.10.2001 and no notice u/s 143(2) was issued till 28.02.2003. Therefore, the assessment has become final. The search took place on 23.02.2006. The assessment by the time was completed and has not abated.
Further, it is also an admitted fact that the addition has not been made on the basis of any seized material, a finding by the ld. CIT(A) and not controverted by the Revenue. Even the assessment order shows that the Assessing Officer has simply treated the short term capital gain of Rs.74,30,429/- declared in the original return as business income and thereby denying the benefit of set off of long term capital loss. This otherwise indicates that the addition has not been made on the basis of any seized material/incriminating material.
Now, the law is well-settled that the complete assessment cannot be disturbed by making addition in the order passed u/s 153C/153A in absence of any incriminating material found during the course of search. Recently, the Hon'ble Supreme Court in the case of CIT-III, Pune vs. SINHGAD Technical Education Society vide Civil Appeal No.11080 of 2017 order dated 29.08.2017 has clearly laid down the law that in absence of any incriminating material relating to the concerned assessment year, no addition can be made in the order passed u/s 153C of the I.T. Act. The Hon’ble Delhi High Court in the case of Pr.CIT vs. Meeta Gutgutia reported in 395 ITR 526 has held that any and every document cannot be and is not an incriminating document. No addition can be made for a particular assessment year without there being an incriminating material qua that assessment year which would justify such an addition. The Jurisdictional High Court while deciding the issue has followed its earlier decision in the case of CIT vs. Kabul Chawala reported in 388 ITR 573 and various other decisions of different High Courts. Since in the instant case admittedly the assessment was completed and addition is not based on any incriminating material found during the course of search, therefore, the assumption of jurisdiction u/s 153C and passing of the other u/s 153C/153A is not in accordance with law. Therefore, the assessment order has to be quashed.
The grounds in Cross Objection are accordingly allowed. Since the assessee succeeds on this legal ground, the grounds raised by the Revenue become academic in nature and, therefore, are not being adjudicated.
In the result, the appeal filed by the Revenue is dismissed and the Cross Objection filed by the assessee is allowed. Order pronounced in the open Court on this 01st day of November, 2017.