M/S. NOVA IRON & STEEL LTD.,NEW DELHI vs. DCIT, LTU, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : “E” NEW DELHI

BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER

ITA.No.2159/Del./2014 Assessment Year 2007-2008

M/s. Nova Iron & Steel Ltd., F-Block, 1st Floor, vs. The DCIT, LTU, Central Circle- International Trade Tower, 19, Nehru Place, New Delhi. New Delhi. 110001 PAN AAACN0407F (Appellant) (Respondent)

For Assessee : Shri Ashwanikumar, C.A. & Shri Adityakumar, C.A. For Revenue : Smt.Shafali Swaroop, CIT-DR & Ms. Renu Amitabh, CIT-DR

Date of Hearing : 24.10.2017 Date of Pronouncement : 31.10.2017

ORDER PER BHAVNESH SAINI, J.M.

This appeal by assessee-company has been directed

against the order of the Ld. CIT(A)-XII, New Delhi, dated 20th

January, 2014 for the A.Y. 2007-2008. Earlier, this appeal was

dismissed for default. However, the miscellaneous application

2 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

filed by assessee-company was allowed. Accordingly, the earlier

order was recalled and appeal was re-fixed for hearing on

merits.

the parties and perused the material on record.

challenged the addition of Rs.3.18 crores on account of

unexplained cash credit under section 68 of the I.T. Act,

disallowing the loss of Rs.24,16,422 of current year and brought

forward losses of the earlier year to be carried forward and

charging of interest under section 234A/234B of the I.T. Act.

company maintaining books of account on mercantile basis.

The nature of business of assessee-company is manufacturing.

A search and seizure operation was carried out at the various

premises of M/s. Today Homes and Infrastructure Pvt. Ltd., and

its group concerns and Associated Persons (hereinafter called

as “Today Group of Cases”) on 26th November, 2009 and finally

3 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

concluded on 25th January, 2010. The assessee-company is one

of the Associated/ Group concerns of Today Group of Cases.

During the course of search and seizure operation at various

premises of Today Group of Cases, many books of account or

documents belonging to the assessee-company were found and

seized and hence, the A.O. observed that pre-requisite condition

to initiate proceedings under section 153C of the I.T. Act was

fulfilled. The A.O. recorded necessary satisfaction for initiating

the proceedings under section 153C of the I.T. Act. Notice under

section 153C/1543A was issued to the assessee-company to file

return of income within 15 days. The assessee-company

submitted before A.O. that the original return filed on 30th

October, 2007 declaring total loss at NIL may be treated as its

return of income in response to the notice under section 153C

of the I.T. Act.

4.1. The A.O. noted brief background of Today Group of

Cases in the assessment order that it is engaged in real estate

and hospitality business activities in NCR and other parts of the

4 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

country since 2004. In real estate segment, the group has

constructed and is constructing residential units and

commercial projects. The group is making huge investments in

hotel projects also. Recently, it has entered into power sector

also. The key persons behind Today Group of Cases are

Gulshan Kumar Gambhir and R.K. Gambhir. The basic

information leading into the search was that Today Group was

generating and investing lot of unaccounted income in the

business of real estate, hotels and power sector through its

various flag ship/key Companies. The names are noted in the

assessment order which includes the assessee-company as

well.

4.2. The A.O. observed that the funds have been infused

in these key companies in the form of share capital/share

premium/ share application money/loans and advances

against the properties or projects etc., from various paper

companies which are controlled by Gambhir brothers through

their trusted peoples/employees. These companies floated by

5 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

Today Group of Cases or Gambhir brothers inturn received

accommodation entries from various entry operations in lieu of

cash given to them through the mediators and this is nothing

but unaccounted income of the Today Group. The A.O. noted

how the Today group was operating for providing the

cash/unaccounted money. As per the evidence gathered during

the course of investigation, the amount have been found to be

transferred from various concerns of V.K. Jain and S.K. Jain

(Jain Brothers) who are entry operators. The details of the

amount received by the paper companies of Today group are

noted in the assessment order. The A.O. on perusal of the record

found that assessee-company is group concern of M/s. Today

Homes and Infrastructure Pvt. Ltd., and during assessment

year under appeal, the assessee-company has received Rs.3.18

crores from M/s. Double Star Builders Pvt. Ltd., which belong

to Today group of cases. It was noted that these companies did

not have any business or books of account. Various companies

floated by Gambhir brothers who have transferred money are

noted in the assessment order. The A.O. noted various facts

6 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

which are apparent from the details mentioned in the

assessment order that almost all these companies have been

incorporated in the year 2005 to 2007 just before date/period

entry taken by them from the entry operator. Many companies

have been strike-off as per ROC record as they were defaulter

in filing the annual returns with ROC. These are also defaulters

in filing income tax returns as well. These companies have a

common address. In order to find out the existence as well as

details of business activity of these companies of Today group,

a survey under section 133A of the Act was also conducted on

26.11.2009 at the Registered Office of these Companies. The

persons available at these three Registered Offices have stated

that neither books of account are maintained nor any business

activities are carried out by these Companies from these

premises. During survey, no Company was found to be running

from these premises and no books of account and other record

were found. The A.O. referred to statement of Shri Jagdish

Prasad, Shri Harsh Talwar, Shri Rajesh Gupta, in the

assessment order. The A.O. also noted that search was also

7 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

conducted at the residential premises of some of the Directors

of the entry level companies of Today group viz., Shri Vinay

Subhikhi, Shri Ashok Chopra and Shri Gurmit Singh in which

they have admitted that these Companies have been controlled

by Gambhir brothers and they are dummy Directors. The A.O.

also referred to seized paper found from M/s. Today Homes and

Infrastructure Pvt. Ltd., which are in respect of DIN No. and the

digital signatures and pass word of various persons and noted

that one person can file I.T. return and papers with ROC etc.,

by using the digital signature. All these Companies have been

controlled by Gambhir brothers. It was noted that these

companies are not doing any business activities. It was also

found that Jain brothers were engaged in the business of

providing accommodation entries in the from of share

application money/share capital/share premium/unsecured

loans etc., in lieu of the commission etc., which are controlled

by dummy persons and operated from the same address. The

Jain brothers have provided accommodation entries to various

persons of Today group. The summary of modus operandi of

8 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

Jain brothers to provide entry to Today group is also mentioned

in the assessment order. The A.O. therefore, observed that

Today group received accommodation entries from Jain

brothers in lieu of the consideration through mediator Mr.

Chawla and ultimately, it was found that assessee-company

has received Rs.3.18 crores from M/s. Double Star Builders Pvt.

Ltd., which is the group concern of M/s. Today group. The

details of various documents/books of account seized during

the course of search and seizure action at the residential and

business premises of the Jain brothers showed the receipt of

cash and providing accommodation entries to M/s. Double Star

Builders Pvt. Ltd., which is an entry level company of Today

Group and M/s. Double Star Builders Pvt. Ltd., later on gave

loans/advances to the assessee-company through banking

channel.

4.3. The A.O. in view of the above facts, issued show

cause notices to the assessee-company as to why addition of

Rs.3.18 crores be not made considering the unexplained credit

9 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

under section 68 of the I.T. Act. The assessee-company was

provided copies of all the documents, books of account found

and seized during the course of search action.

4.4. The assessee-company filed written reply before A.O.

which is reproduced in the assessment order in which the

assessee-company briefly explained that assessee-company is

not at all aware of any person by name Mr. Chawla, the alleged

mediator, or the Jain brothers mentioned in the show cause

notice. It was submitted that no adverse/serious allegation can

be levelled against the assessee-company on the basis of

inference drawn from the documents seized from the control

and possession of third party. It was explained that documents

were purportedly found from Jain brothers etc. Assessee-

company has nothing to do with these documents. They can

explain seized papers. Even the full particulars of mediator Mr.

Chawla has not been provided and brought on record. The

assessee-company has already discharged the onus of

establishing genuineness of the amount received from M/s.

10 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

Double Star Builders Pvt. Ltd., It was also submitted that there

is no evidence, whatsoever, has been brought on record and

made available to assessee-company that any cash have been

given by assessee-company in lieu of taking any

accommodation entry. It was submitted that assessee-company

has returned the amount in question of Rs.3.18 crores to the

aforesaid party in A.Y. 2009-2010 and there is NIL balance on

account of this party. The assessee-company produced

sufficient evidence before A.O. to prove the genuineness of the

transaction in the matter. The department has failed to prove

through any evidence that the cash actually moved out

of/emanated from the coffers of the assessee-company which

subsequently found its way back to the assessee-company in

the form of accommodation entry. The proposed addition is

unsustainable. The assessee-company received the amount in

question through banking channel which are reflected in the

books of account of the assessee-company. The assessee-

company proved the identity of the lender, its creditworthiness

11 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

and genuineness of the transaction. Therefore, no addition

should be made against the assessee-company.

4.5. The A.O. after considering the submissions of the

assessee-company noted that assessee-company has already

submitted copy of PAN, confirmations, bank statement of the

creditor etc. in respect of the credit entries received in the books

of account and claimed to have discharged its onus as per the

provisions of Section 68 of the I.T. Act. The A.O. however, noted

that the other evidences available on record do not support the

explanation of the assessee-company. The A.O. noted that

merely because amount in question have been returned is

immaterial because it would not absolve the assessee-company

of its responsibility of discharging its onus within the meaning

of Section 68 of the I.T. Act. The A.O. also noted that the

department is entitled to lift the corporate veil to bring out the

real nature of series of transactions routed through different

entities controlled by same set of people. The A.O. by referring

to judicial pronouncements held that the transactions should

12 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

stand the trust of human probability. The A.O. ultimately held

that a sum of Rs.3.18 crores has been found credited in the

books of account of the assessee-company. The immediate

source of this amount has been found to be from M/s. Double

Star Builders Pvt. Ltd., Thereafter, the sum have been shown to

be sourced from different entities of Jain brothers. The A.O. in

view of these discussions held that assessee-company was

failed to pass the test of genuineness of the transaction within

the meaning of Section 68 of the I.T. Act and accordingly, made

the addition under section 68 of the I.T. Act, 1961 of Rs.3.18

crores. The A.O. also noted that assessee-company did not file

returns under section 153C within time, therefore, business

loss claimed by the assessee-company to be carried forward

under section 72(1) of Act were not allowed to be carried

forward.

order passed under section 153C of the I.T. Act as illegal and

bad in law before the Ld. CIT(A). The assessee-company also

13 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

challenged the addition of Rs.3.18 crores against the loss of

Rs.24,64,664 declared by assessee-company. The assessee-

company also challenged the disallowance of loss of

Rs.24,16,422 of current year and brought forward losses of

earlier years to be carried forward before Ld. CIT(A). The

assessee-company reiterated the same submissions as made

before A.O. and written submissions of assessee-company are

reproduced in the impugned order in which the assessee-

company briefly explained that assessee-company proved

identity of the investor, his creditworthiness and genuineness

of the transaction. Therefore, no addition can be made. The

department cannot ask assessee to prove source of the source.

The assessee-company relied upon the decision of the Hon’ble

Supreme Court in the case of CIT vs. Orissa Corporation (P)

Ltd., (1986) 159 ITR 78 (SC), decision of Gujarat High Court in

the case of DCIT vs. Rohini Builders (2002) 256 ITR 360 (Guj.),

decision of Guwahati High Court in the case of CIT vs. Nemi

Chand Kothari (2003) 264 ITR 254 (Gau.) and decision of

Hon’ble Delhi High Court in the case of Mod Creations Pvt. Ltd.,

14 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

(2013) 354 ITR 282 (Del.). The Ld. CIT(A), however, dismissed

the appeal of assessee-company. His findings in paras 2 to 4 of

the order are reproduced as under :

“Ground No.2:

2.1. I have considered the grounds raised in appeal and the facts of the case. I have also considered the submission filed by the AR of the appellant. 2.2. The appellant has raised ground against issue of proceedings u/s 153C of the Act without recording of the valid satisfaction by the Assessing Officer. 2.3. The Assessing Officer has, in the order of assessment, stated that the notice u/s 153C/153A was issued after recording the necessary satisfaction for initiation of the proceedings u/s 153C of the Act. In view of this, the ground raised against recording of satisfaction does not stand. Ground raised in appeal is dismissed.

3.1 I have considered the grounds raised in appeal and the facts of the case. I have also considered the submission filed by the AR of the appellant.

15 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

3.2 The appellant has raised ground against treating the amount of Rs.3,18,00,000/- as accommodation entry. The appellant has vehemently contended against treating the amount as appellant's own money, earned through unaccounted transactions routed through a series of transactions. The appellant has raised ground stating that there is no evidence to support such appellant allegation.

3.3 The Assessing Officer has held that the amount of Rs.3,18,00,000/- credited in the books of accounts of the assessee fails to pass the test of genuineness within the meaning of section 68 of the Act, hence the same is income of the assessee u/s 68 of the Act.

3.4 The amount is found credited in the books of account of assessee. The Assessing Officer has held that the immediate source has been found to be from M/s Double Star Builders Pvt. Ltd. Thereafter, the sum has been shown to be sourced from different entities of the Jain Brothers. The Assessing Officer has disclosed these facts in detail in section "H" of the order of assessment. 3.5 In the instant case, cash has been routed through a series of entities beginning from Jain Brothers and ending in the group company of Today group in the form of series of cheques. There is clear evidence that cash

16 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

was paid to Jain Brothers and in turn cheques were received from the Jain Brothers through a series of entities controlled by them. It is the assessee's own money earned through unaccounted transactions/ means that has been routed through a series of transactions in the light of the evidence on record, circumstances and totality of the context. A live connection of the records has been established between cheques/pay orders/bankers cheques issued by the Jain Brothers to the various companies of the Today group. A direct connection is seen between the transactions through banking channels on the one side and cash received from intermediaries on the other side. There are series of transactions spanning over a period of three years which are corroborated by the evidence found in the records seized in the case of Jain Brothers with the assessee group.

3.6 The Assessing Officer has brought on record substantial corroborative evidence which has been discussed in detail in the order of assessment wherein it is seen that the assessee cannot be allowed the benefit of doubt on account of jottings made by a third party on its accounts.

17 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

3.7 It is a fact that the sum of Rs.3,18,00,000/- was credited in the books of accounts of the assessee. The immediate source of the amount is from M/s Double Star Builders Pvt. Ltd. Thereafter, the sum is shown to be sourced from different entities of the Jain Group. The transactions have not taken place in a month or two but are spread over a period of 43 months for different entities of the Today Group running into approximately more than thousand individual transactions.

3.8 In view of the facts stated in the order of assessment, the case laws mentioned by the Assessing Officer, the Assessing Officer has correctly added the amount of Rs.3,18,00,000/- as assessee's income from undisclosed sources u/s 68 of the I.T. Act. The case laws relied upon by the appellant are distinguishable on facts. The same is upheld in appeal. Ground raised in appeal is dismissed.

4.1. I have considered the grounds raised in appeal and the facts of the case. I have also considered the submission filed by the AR of the appellant.

4.2. The appellant has raised ground against set off and

18 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

carry forward of brought forward business loss and unabsorbed depreciation against the income of the current year. 4.3. Assessing Officer has stated in the order of assessment that the return of income filed in response to the notice u/s 153C/153A, was filed well after the time allowed u/s 153A/153C r.w.s. 139(1) of the Act. 4.4. Section 139(3) requires the filing of return within the time stipulated as per section 139(1) of the Act if any loss is sustained and is intended to be carried forward under sub section (1) of section 72. In the instant case, as per the provisions of section 153A/153B r.w.s. 139(1) of the Act, the appellant was required to file its return of income within 15 days of the service of notice u/s 153C/153A of the Act which was issued him in its case on 25.05.2011 whereas the return of income was filed on 11.07.2007 much after the time allowed as per the provisions of section 153A/153C r.w.s 139(1) of the Act. Accordingly the business losses stated to be claimed as eligible to carried forward u/s 72(1) of the Act, do not qualify for the claim.

4.5. The stand taken by the Assessing Officer is as per the provisions of the Act whereas the appellant has raised grounds against the same. The Assessing Officer has

19 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

correctly not allowed the carry forward of loss claimed under section/72(1) of the Act. The case laws relied upon by the appellant are distinguishable on facts. The ground raised in appeal is dismissed.”

additional ground of appeal which reads as under :

“That the order dated 20-01-2014 passed u/s 250 (6) of the Income-tax Act. 1961 by the Ld Commissioner of Income- Tax (Appeals) XI, New Delhi is against law and facts on the file in as much as he was not justified to uphold the validity of issue of notice and consequent proceedings u/s 153C of the Income-tax Act, 196, notwithstanding the fact that the conditions precedent for initiating proceedings under the said Section were not satisfied, particularly considering the fact that no incriminating material/documents were found during the course of search”

Counsel for the Assessee Shri Ashwanikumar, C.A. and Ld. CIT-

D.R. Ms. Renu Amitabh, on additional ground as well as on

merits. The Ld. D.R. seeks time to produce some material

recovered during the course of search to prove the same belong

20 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

to the assessee-company on which addition is made. However,

till date no incriminating material, if found in search qua

additions have been filed. We decide the appeal on the basis of

submissions of both parties and material on record.

search was conducted in Today group of cases and assessee-

company was not subjected to search. The A.O. made addition

on account of unexplained credit under section 68 of the I.T.

Act and disallowed loss of the current year brought forward

losses which are part of the record and mentioned in the books

of account of the assessee-company. He has submitted that

since no incriminating material/documents were found during

the course of search against the assessee-company and it is not

proved that any incriminating material belong to the assessee-

company, therefore, conditions of Section 153C of the I.T. Act

are not satisfied in this case. He has submitted that additional

ground is legal in nature and can be decided on the basis of the

21 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

material already brought on record and therefore, the same may

be admitted for hearing and disposal of the appeal.

the authorities below and objected to the admission of the

additional ground at this stage. The Ld. D.R. contended that

A.O. has already mentioned seized material found during the

course of search which is sufficient to initiate the proceedings

under section 153C of the I.T. Act against the assessee-

company. The A.O. has also mentioned specifically that during

the course of search of Today group of cases, many books of

account or documents belonging to the assessee-company were

found. Therefore, the A.O. was satisfied to initiate the

proceedings under section 153C of the I.T. Act against the

assessee-company. The Ld. D.R. therefore, submitted that

additional ground may not be admitted.

submitted that assessee-company received genuine credits in

assessment year under appeal. The assessee-company filed

22 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

confirmation of the creditor, its bank account, copy of the

income tax return and balance sheet, copies of the same are

also filed in the paper book. The A.O. did not doubted the

documents filed by the assessee-company. The amount of the

loan have been returned in subsequent assessment years 2008-

09 and 2009-10 through banking channel, copies of the

confirmation of accounts are filed at pages 113 and 114 of the

paper book. The assessee-company thus, proved the identity of

the creditor, its creditworthiness and genuineness of the

transaction in the matter. The Learned Counsel for the Assessee

also relied upon the following decisions.

10.1. Decision of the Hon’ble Delhi High Court in the case

of CIT vs. Dwarkadhish Investment Pvt. Ltd., (2011) 330 ITR

298 (Del.) in which it was held that assessee need not to prove

“source of the source”.

10.2. Judgment of the Hon’ble Supreme Court in the case

of CIT vs. Orissa Corporation (P.) Ltd., (1986) 159 ITR 78 (SC)

in which it was held as under :

23 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

“In this case the assessee had given the names and

addresses of the alleged creditors. It was in the

knowledge of the revenue that the said creditors were

the income-tax assessees. Their index number was in

the file of the revenue. The revenue, apart from issuing

notices under section 131 at the instance of the

assessee, did not pursue the matter further. The

revenue did not examine the source of income of the

said alleged creditors to find out whether they were

credit-worthy or were such who could advance the

alleged loans. There was no effort made to pursue the

so-called alleged creditors. In those circumstances, the

assessee could not do any further. In the premises, if

the Tribunal came to the conclusion that the assessee

had discharged the burden that lay on him, then it

could not be said that such a conclusion was

unreasonable or perverse or based on no evidence. If

the conclusion was based on some evidence on which

24 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

a conclusion could be arrived at, no question of law as

such could arise.

The High Court was, therefore, right in refusing to refer

the questions sought for.”

10.3. Decision of Hon’ble Gauhati High Court in the case

of CIT vs. Nemi Chand Kothari reported at (2003) 264 ITR 254

(Gauhati.) in which it has been held as under :

“Under section 68 of Income Tax Act creditor’s

creditworthiness has to be judged vis-à-vis

transactions, which have taken place between

assessee and creditor, and it is not business of

assessee to find out source of money of his creditor or

genuineness of transactions, which took place

between creditor and sub-creditor and/or

creditworthiness of sub-creditors for these aspects

may not be within special knowledge of assessee.”

25 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

10.4. Decision of Hon’ble Gujrat High Court in the case of

DCIT vs. Rohini Builders (2002) 256 ITR 360 (Gujrat) in which

it was held as under :

“Assessee had discharged initial onus by providing

identity of the creditors by giving their complete

address, GIR numbers/permanent account numbers

and copies of assessment orders wherever readily

available. Assessee had also proved capacity of

creditors by showing that amounts were received by

account payee cheques drawn from bank accounts of

creditors. Repayment of loans and interest thereon

was also made by account payee cheques by

assessee and tax also had been deducted at source

on interest payments and remitted.”

10.5. Decision of Hon’ble Delhi High Court in the case of

CIT vs. Mod Creations Pvt. Ltd., (2013) 354 ITR 282 (Del.) in

which it was held as under :

26 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

“The Tribunal has adopted an erroneous approach on

the aspects of genuineness of the transactions in issue

and the creditworthiness of the persons/creditors who

lent money to the assessee. The first aspect, i.e.,

identity of the creditors was established before any of

the authorities below. It will have to be kept in mind

that section 68 only sets up a presumption against the

assessee whenever unexplained credits are found in

the books of account of the assessee. It cannot but be

again said that the presumption is rebuttable. In

refuting the presumption raised, the initial burden is

on the assessee. This burden, which is placed on the

assessee, shifts as soon as the assessee establishes

the authenticity of transactions as executed between

the assessee and its creditors. It is no part of the

assessee’s burden to prove either the genuineness of

the transactions executed between the creditors and

the sub-creditors nor is it the burden of the assessee

to prove the creditworthiness of the sub-creditor.”

27 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

10.6. As regards the brought forward losses of earlier

years, details are filed at page-58 of the paper book. The

assessee filed original return of income on 30th October, 2007.

Notice under section 153C was issued on 25th May, 2011 and

the assessee filed return of income under such section on 11th

July, 2011. Therefore, A.O. should not have denied brought

forward losses to the assessee.

below and submitted that assessee failed to prove genuineness

of the transaction in the matter because of the material

collected by the department during the course of search in

Today Group of cases. Ld. D.R. submitted that since assessee

failed to prove identity and capacity of the creditor and has

received accommodation entry, therefore, addition was rightly

made by the authorities below. The Ld. D.R. relied upon the

following decisions :

(1) CIT vs. Nipun Builders & Developers (P.) Ltd., 350 ITR 407.

(2)CIT vs. Nova Promoters & Finlease (P) Ltd., 342 ITR 169

28 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

(3) CIT vs. Ultra Modern Exports (P.) Ltd., 220 Taxman 165.

(4) CIT vs. Frostair (P.) Ltd., 210 Taxman 221

(5) CIT vs. N.R. Portfolio Pvt. Ltd., (2013) 214 Taxman 408.

(6) CIT vs. Empire Builtech (P.) Ltd., 366 ITR 110

(7) CIT vs. MAF Academy (P) Ltd., 361 ITR 258

(8) CIT vs. Focus Exports (P.) Ltd., 228 Taxman 88

(9) N.K. Proteins Ltd., vs. CIT 2017-TIOL-23-SC-IT

(10) N.K. Proteins Ltd., vs. CIT 2016-TIOL-3165-HC-AHM-IT.

department has set-up a case against the assessee-company on

the basis of search conducted in the case of Today group of

cases on 26.11.2009 which was finally concluded on 25th

January, 2010. It is mentioned by the A.O. that this Group is

controlled by Gambhir brothers. The assessee-company is

stated to be the Group concern of Today Group of cases. It is

also mentioned in the assessment order that Today group is in

real estate and hospitality business activities in NCR and other

29 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

parts of the Country and made huge investments in hotel

projects etc. These funds are invested in the Group Companies

controlled by Gambhir Brothers. The Jain Brothers invested in

Today Group of cases who have also made other investments in

other concerns including the creditor M/s. Double Star Builder

Pvt. Ltd. In this connection, it is relevant to reproduce the

provisions of Section 153C of the I.T. Act relevant to assessment

year in appeal which reads as under:

“153C.Assessment of income of any other person.- (1) Notwithstanding anything

contained in section 139, section 147,

section 148, section 149, section 151 and

section 153, where the Assessing Officer is

satisfied that any money, bullion, jewellery

or other valuable article or thing or books of

account or documents, seized or

requisitioned belongs or belong to a person

other than the person referred to in section

30 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

153A, then, the books of account or

documents or assets seized or requisitioned

shall be handed over to the Assessing

Officer having jurisdiction over such other

person] [and that Assessing Officer shall

proceed against each such other person and

issue such other person notice and assess

or reassess the income of such other person

in accordance with the provisions of section

153A.

[Provided that in case of such other person,

the reference to the date of initiation of the

search under section 132 or making of

requisition under section 132A in the second

proviso to Section 153A shall be construed as

reference to the date of receiving the books of

account or documents or assets seized or

31 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

requisitioned by the Assessing Officer having

jurisdiction over such other person.]

[(2) Where books of account or documents or

assets seized or requisitioned as referred to

in sub-section (1) has or have been received

by the Assessing Officer having jurisdiction

over such other person after the due date for

furnishing the return of income for the

assessment year relevant to the previous

year in which search is conducted under

section 132 or requisition is made under

section 132A and in respect of such

assessment year—

(a) no return of income has

been furnished by such other

person and no notice under

sub-section (1) of section 142

has been issued to him, or

32 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

(b) a return of income has been

furnished by such other person but

no notice under sub-section (2) of

section 143 has been served and

limitation of serving the notice under

sub-section (2) of section 143 has

expired, or

(c) assessment or reassessment, if

any, has been made, before the date

of receiving the books of account or

documents or assets seized or

requisitioned by the Assessing

Officer having jurisdiction over such

other person, such Assessing Officer

shall issue the notice and assess or

reassess total income of such other

33 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

person of such assessment year in the manner provided in section 153A.]

12.1. It is clear from the language of Section 153C of the

I.T. Act that before issuing notice under section 153C of the I.T.

Act, the primary condition that has to be fulfilled is that the

money, bullion, documents etc., seized should belong to such

other person. If this condition is not satisfied, no proceedings

could be taken under section 153C of the I.T. Act.

12.2. In the present case, it is an admitted fact that since

no search was conducted in the case of the assessee-company

and the A.O. proceeded to make assessment under section

153C of the I.T. Act against the assessee-company and made

the addition on the basis of the entries contained in the books

of account of the assessee-company found during the course of

search, it would have to be seen whether Revenue has brought

on record any material to prove that any incriminating material

found during the course of search belongs to the assessee-

company or that whether A.O. is able to satisfy the conditions

34 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

of Section 153C of the I.T. Act, in the present case. The

additional ground is legal in nature and all the relevant facts

and material are available in the orders of the authorities below

and on record. The additional ground being legal in nature and

goes to the route of the matter, therefore, it should be admitted

for the purpose of disposal of the appeal. In support of our view,

we rely upon the decision of the Hon’ble Supreme Court in the

case of National Thermal Power Company reported in 229 ITR

383 and also another decision of the Hon’ble Supreme Court in

the case of CIT vs. Sinhgad Technical Education Society (2017)

397 ITR 344 (SC) in which the Hon’ble Supreme Court held as

under :

“Held, dismissing the appeals, (i) that the Tribunal

permitted the assessee to raise the additional ground

on the ground that it was a jurisdictional issue taken

up on the basis of facts already on record, that under

section 153C of the Act, incriminating material which

was seized had to pertain to the assessment years in

35 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

question, and that the documents which were seized

did not establish any co-relation, document-wise, with

these four assessment years. The Tribunal found that

the material disclosed in the satisfaction note

belonged to assessment year 2004-05 or thereafter.

The Tribunal rightly permitted this additional ground

to be raised and correctly dealt with the ground on the

merits as well. The High Court was right in affirming

this view of the Tribunal.

Decision of the Bombay High Court in CIT v. Sinhgad

Technical Education Society [2015] 378 ITR 84 (Bom)

affirmed.

(ii) That the assessment order passed by the

Assessing Officer covered eight assessment years. For

six assessment years the assessment was under

section 153C of the Act. The assessment order was set

aside only in respect of four of those assessment years

and on a technical ground. The objection pertaining to

36 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

the four assessment years in question did not relate to

the other tax assessment years, namely, 2004-05 and

2005-06. Nor did this decision have a bearing in

respect of assessment for assessment year 1999-

2000 or assessment year 2006-07. The necessary

consequence would be that the conclusions of the

Assessing Officer in his assessment order regarding

the activities of the trust not being genuine and not

carried out in accordance with the trust deed or

cancellation of registration, denial of benefits of

sections 11 and 12 would not be affected by this

judgment.”

12.3. Considering the facts of the case in the light of above

decisions, it is clear that additional ground being legal in nature

and all material facts are available on record and it being the

jurisdictional issue, we admit the additional ground for the

purpose of hearing and disposal of appeal.

37 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

12.4. The Hon’ble Gujrat High Court in the case of

Vijaybhai N. Chandrani vs. ACIT (2011) 333 ITR 436 (Guj.) held

as under :

“Sections 153A, 153B and 153C of the Income-tax Act,

1961, lay down a scheme for assessment in case of

search and requisition. Section 153C which is

similarly worded to section 158BD of the Act, provides

that where the Assessing Officer is satisfied that any

money, bullion, jewellery or other valuable article or

thing or books of account or documents seized or

requisitioned belongs or belong to a person other than

the person referred to in section 153A he shall proceed

against each such other person and issue such other

person notice and assess or reassess income of such

other person. However, there is a distinction between

the two provisions inasmuch as under section 153C

notice can be issued only where the money, bullion,

jewellery or other valuable article or thing or books of

38 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

account or documents seized or requisitioned belong to

such other person, whereas under section 158BD if

the Assessing Officer was satisfied that any

undisclosed income belongs to any person, other than

the person with respect to whom search was made

under section 132 or whose books of account or other

documents or assets were requisitioned under section

132A, he could proceed against such other person

under section 158BC. Thus a condition precedent for

issuing notice under section 153C and assessing or

reassessing income of such other person, is that the

money, bullion, jewellery or other valuable article or

thing or books of account or documents seized or

requisitioned should belong to such person. If the

requirement is not satisfied, recourse cannot be had to

the provisions of section 153C.

Held, allowing the petition, that admittedly, the three

loose papers recovered during the search proceedings

39 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

did not belong to the petitioner. It was not the case of

the Revenue that the three documents were in the

handwriting of the petitioner. In the circumstances,

when the condition precedent for issuance of notice

was not fulfilled action taken under section 153C of

the Act stood vitiated.”

12.5. The Hon’ble Bombay High Court in the case of CIT

vs. Lavanya Land Pvt. Ltd., (2017) 397 ITR 246 (Bom.) held as

under :

“It is clear that before issuing notice under section

153C of the Income-tax Act, 1961, the primary

condition that has to be fulfilled is that the money,

bullion, documents, etc., seized should belong to such

other person. If this condition is not satisfied, no

proceedings could be taken under section 153C.

The JC group was a partner in the Mumbai

Special Economic Zone and Navi Mumbai Special

40 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

Economic Zone projects of India. This group had float-

ed various companies to purchase large chunks of

land in the vicinity of the special economic zones. The group's real estate operations were being handled by

V, G and D. D was also the managing land

transactions outside the Mumbai Special Economic

Zone. The assessee was one of the companies floated

by this group to purchase land outside the Mumbai

Special Economic Zone. During search of D's

residence, certain incriminating documents were

seized and his statement was recorded. A show cause

notice was issued to the assessee informing it that Rs. 38.45 crores, which was a sum reflected from the

documents seized from D's residence and Rs. 4 crores

in addition, which was evidenced by loose documents in the form of cash receipts, were found during search

and seizure proceedings. The assessee was called

upon to explain and show cause why these amounts

should not be treated as unexplained expenditure

41 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

under section 69C of the Act, since the assessee did

not provide any explanation with regard to the

documents seized under section 132 of the Act for the

assessment years from 2003 to 2009 and 2009-10.

The assessment order was passed and the additions

were made. The unexplained expenditure was

apportioned to all the land companies floated by the

JC- group. The Tribunal held that an entry in the hooks of account maintained in the regular course of

business is relevant for the purpose of considering the

nature and impact of a transaction, but notings on

slips of paper or loose sheets of paper were required

to be supported or corroborated by other evidence.

There was a distinction between loose papers found

from the possession of the assessee and similar

documents found from a third person. The documents

were not found from the possession of the assessee

but from the possession of a third person i.e., D. Mere

mention of the names of the villages where the

42 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

companies might have purchased lands would not

give any basis to assume, presume or surmise that the

names of the companies were mentioned in the documents. The Tribunal set aside the order of the

Commissioner (Appeals) pertaining to the assessment

year 2008-09 holding that the action under section

153C of the Act was bad in law. On appeal :

Held, dismissing the appeal, that the finding that

section 153C was not attracted and its invocation was

bad in law was not based just on interpretation of

section 153C but after holding that the ingredients

thereof were not satisfied in the present case. That

was an exercise carried out by the Tribunal as the last

fact finding authority. Therefore, the finding was a

mixed one. There was no substantial question of law

arising from such an order which alternatively

considered the merits of the case as well. The deletion

of the addition was justified.”

43 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

12.6. The Hon’ble Madras High Court in the case of CIT vs.

Late J. Chandrasekar (HUF) (2011) 338 ITR 61 (Mad.) held as

under :

“On the search conducted in the case of A and group

on November 25, 2003, material pertaining to "on-money"

payment paid to the assessee in respect of property

purchased from the assessee were seized. Based on that,

the Assessing Officer issued notice under section 153C of

the Income-tax Act, 1961, and reworked the capital gains.

The Commissioner (Appeals) and the Tribunal held that the

notice under section 153C was not valid. On appeal to the

High Court :

Held, dismissing the appeals, that the Assessing

Officer did not have the benefit of the seized material while

issuing the notice under section 153C. In the light of the fact

that the Revenue did not produce any material to show that

the materials were available at the hands of the Assessing

Officer at the time of issuing notice, the Tribunal rightly

44 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

came to the conclusion that he assumption of jurisdiction

under section 153C was not valid.”

12.7. The ITAT, Agra Bench in the case of ACIT, Circle-I,

Gwalior vs. Global Estate (2013) 142 ITD 740 (Agra) held as

under :

• The assessee had a case for quashing of proceedings

under section 153C. No material is produced to prove

that the Assessing Officer in the case of person

searched was satisfied that any money, bullion,

jewellery or other valuable article or things or books of

account or documents seized or requisitioned belongs

to or belong to a person other than the person referred

to in section 153A. • No material is produced before to show if any

satisfaction was recorded by the Assessing Officer in

that case that the material belongs to any person other

than the person with respect to whom search was

made under section 132. Department did not produce

45 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

any material to show if any such satisfaction as

required under section 153C was recorded by the

Assessing Officer in the case of person searched. No

material is produced in reference to above

requirement. • No material is also produced before to show that books

of account or documents or assets seized had been

handed over to the Assessing Officer having

jurisdiction over such other person. In the absence of

any adequate material produced by the department

contention of the assessee was justified that in this

case, the Assessing Officer had not recorded any

satisfaction that any seized document or material

belongs to any person other person searched. • Since the revenue is in appeal, therefore, burden was

upon them to prove that necessary ingredients of

section 153C have been complied with in this case

before invoking jurisdiction under section 153C.

46 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi. • It is added further here that the Assessing Officer has

not referred to any seized document or material in the

assessment orders on the basis of which, additions on

merit have been made. Therefore, the conditions of

section 153C as noted above are also not satisfied in

this case. Therefore, there is no infirmity in the order

of the Commissioner (Appeals) in quashing the

proceedings under section 153C.”

12.8. In the present case, it is an admitted fact that no

recovery has been made from the possession of the assessee-

company. The department believed the third party documents

recovered from Today Group of cases which are not supported

by Gambhir Brothers, Jain Brothers or the alleged broker Mr.

Chawla. The books of account of assessee-company were found

during the course of search in which loans and advances

received by the assessee-company are mentioned and disclosed

to the Revenue prior to search. These books of account,

therefore, could not be treated as incriminating material against

47 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

the assessee-company. No evidence was found during the

course of search that any money (cash credit) belongs to the

assessee-company. No evidence was found during the course of

search to the effect that Gambhir Brothers and Jain Brothers

have made investments directly in the assessee-company. At

the time of search, it was found that cash credits already

appearing in the books of account and assessee-company

returned the amount of the cash credits in subsequent years

up-to A.Y. 2009-2010 through banking channel prior to the

search. The material collected in the search at the most prove

the modus operandi of Gambhir Brothers, Jain Brothers and

Mr. Chawla-Mediator to make available funds to them. No

evidence against the assessee-company was found in the search

or othterwise to prove that assessee-company has received any

accommodation entry. The lender company M/s. Double Star

Builder Pvt. Ltd., did not make any statement against the

assessee-company. The assessee-company denied any

investment by Mediator-Mr. Chawla. Thus, the A.O. drawn an

inference against the assessee-company on the basis of seized

48 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

documents but none of the documents seized speaks against

the interests of the assessee-company. No material or evidence

was found during the course of search that cash was given by

assessee-company to take any loan or credits or it actually

emanated from the coffers of the assessee-company. In support

of this proposition, we rely upon the decision of the Hon’ble

Delhi High Court in the case of CIT vs. Value Capital Shares

Pvt. Ltd., 307 ITR 334.

12.9. In this case, the A.O. made addition for failure to

explain source of the source i.e., the source of creditor M/s.

Double Star Builders Pvt. Ltd., who allegedly took entry from

Jain Brothers through Today Group of cases which is not

permissible in Law. The Hon’ble Delhi High Court in the case of

CIT vs. Dwaradhish Investment (P.) Ltd., (2011) 330 ITR 298

(Del.) and Hon’ble Allahabad High Court in the case of Zafa

Ahmed & Co. vs. CIT 30 Taxmann.com 269 held that assessee

need not to prove the source of the source. Thus, the condition

precedent for issuing notice under section 153C and assessing

49 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

or re-assessing the income of such other person, is that the

money, bullion, jewellery or other valuable article or thing or

books of account or documents seized or requisitioned should

belong to such other person has not been satisfied. If the

requirement is not satisfied, recourse cannot be had to the

provisions of Section 153C of the I.T. Act. In the present case,

the department did not produce any evidence to prove that

assessee-company received any accommodation entry or any

material was found during the course of search to prove that

cash credit already received by assessee-company was bogus or

that it was taken through some other person on giving cash to

them. Therefore, no material was found during the course of

search to prove that any money (cash credit) belonging to the

assessee-company. The conditions of Section 153C of the I.T.

Act, are therefore, not satisfied. In view of the above discussion,

we are of the view that initiation of proceeding under section

153C of the I.T. Act against the assessee-company is bad in law

and is liable to be quashed. We, accordingly, set aside the orders

of the authorities below and quash the initiation of proceedings

50 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

under section 153C of the I.T. Act. Resultantly, both the

additions made in the assessment order on which separate

grounds of appeal have been raised by t he assessee-company

are deleted. Additional ground of appeal is allowed. Since, we

have quashed the proceedings under section 153C of the I.T.

Act, therefore, there is no need to decide the remaining grounds

of appeal on merits. However, we may briefly note that assessee-

company filed confirmations from the creditor, copy of its bank

account, income tax return, PAN, balance sheet of the lender

company, the loan/advance have been given through banking

channel and creditor has sufficient funds with them, the

amount of the credit have also been re-paid in subsequent year

through banking channel, therefore, the assessee-company

proved that creditor exists and proved its identity. The assessee-

company also proved creditworthiness of the creditor and

genuineness of the transaction in the matter. No efforts have

been made for production of the lender in this case. Therefore,

the issue on merit is also covered in favour of the assessee-

company by judgment of the Hon’ble Delhi High Court in the

51 ITA.No.2159/Del./2014 M/s. Nova Iron & Steel Ltd., New Delhi.

case of CIT vs. Winstral Petro Chemical Pvt. Ltd., 330 ITR 603.

The decisions relied upon by the Ld. D.R. are therefore, clearly

distinguishable on facts. In view of the above discussion, we set

aside the orders of the authorities below and quash the

proceedings under section 153C of the I.T. Act and delete both

the additions on merits on which grounds of appeal have been

raised by the assessee-company. All grounds allowed.

allowed.

Order pronounced in the open Court.

Sd/- Sd/- (L.P. SAHU) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER Delhi, Dated 31st October, 2017 VBP/- Copy to 1. The appellant 2. The respondent 3. CIT(A) concerned 4. CIT concerned 5. D.R. ITAT ‘E’ Bench, Delhi 6. Guard File. //By Order//

Asst. Registrar : ITAT Delhi Benches :Delhi.