Loading judgment…
Facts
A search and seizure operation led to an assessment order u/s 153A/143(3) for AY 2014-15, where the AO made a significant addition for undisclosed income, primarily from alleged bogus sales and commission, based on third-party confessional statements and electronic data. The CIT(A) partly allowed the assessee's appeal, restricting the addition to an 8% profit margin on the disputed sales while deleting the major portion of the addition. Both the assessee and the department appealed against the CIT(A)'s order to the ITAT.
Held
The ITAT, relying on its own previous decision for AY 2013-14 in a similar case involving the same assessee and following the Supreme Court's ruling in *Abhisar Buildwell's case*, held that no addition could be sustained under Section 153A without incriminating material found from the assessee's premises. It found the invocation of Section 68 by the AO incorrect and consequently set aside the CIT(A)'s order applying an 8% profit margin, deleting the entire addition. The assessee's appeal was allowed, and the Revenue's appeal was dismissed.
Key Issues
Whether an addition made under Section 153A is valid in the absence of incriminating material found during the search from the assessee's premises, and whether the CIT(A) was justified in applying a notional profit margin under Section 68 on disputed sales.
Sections Cited
153A, 143(3), 271(1)(c), 142(1), 274, 271F, 124(2), 127, 250, 132, 132A, 147, 148, 68, 10(23FB)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH: ‘F’ NEW DELHI
Before: SHRI SHAMIM YAHYA & SHRI NARINDER KUMAR
ORDER
PER : Shri Narinder Kumar, Judicial Member :
This common order is to dispose of the above captioned two appeals. First mentioned appeal has been filed by the assessee. The second mentioned appeal has been filed by the department.
The assessee company is engaged in the business of Market Research, Public Opinion Polling Services, Trading of Carpet grade wool and Publication. The matters pertain to the Assessment Year 2014-15.
Both the appellants are feeling aggrieved by order dated 28.12.2022 passed by Learned Commissioner Income Tax (Appeals)-CIT(Appeal) 30, New Delhi. Vide impugned order, Ld. CIT(Appeals) has partly allowed the appeal filed by the assessee against assessment order dated 20.12.2019. That assessment order was passed the Assessing Officer, u/s 153A read with Section 143(3) of the Income Tax Act. , 1961 (hereinafter referred to as “the Act”). As per the assessment order dated 20.12.2019, passed by DCIT, Central Circle-32, New Delhi, the Assessing Officer, income of the assessee was computed at Rs.16,39,97,716/-, by making addition of Rs. 15,85,66,266/- , on the basis of income from undisclosed sources. This addition includes a sum of Rs.15,69,963/- by way of commission paid at the rate of 1%. While passing assessment order, Assessing Officer also ordered for issuance of show cause notice to the assessee for initiating penalty proceedings u/s 271(1)(c) of the Income Tax Act.
As per record, by filing Income tax return, theassessee declared its income as Rs.54,31,454/- for the assessment year 2014-15. 5. On 20.4.2017, a search and seizure operation was carried out at various premises of M/s. Bajaj Group and its associates including the assessee company, Directors and others. Said operation led to seizure of various documents and books of account etc. During investigation, statement of various persons are also stated to have been recorded in connection with said search and seizure operation. 6. On the basis of search operation, notice u/s 153A of the Act was manually issued to the assessee on 3.7.2018 requiring the assessee to file return of his income. However, the assessee raised objection to the validity of said notice and also on the points of jurisdiction of the Assessing Officer. At the same time, the assessee 2 submitted that the return already filed may be treated as the return filed in response to the notice u/s 153A of the Act. In addition thereto, the assessee also submitted that Investigation Wing, from Rajasthan, and the Officers had not provided to it copies of documents relating to search.
Thereafter, on 5.9.2019, fresh notice u/s 153A of the Act was issued to the assessee to file the return. Thereby, the assessee was also informed that the copies of all the seized documents had already been provided and further, that the assessee could seek any other specific document/material from the department, if so required by the assessee.
Vide letter dated 10.10.2019, objections filed by the assesseewere disposed of. Vide letter dated 15.10.2019, the assessee requested that the matter pertaining to jurisdiction of Assessing Officer be referred to Income Tax authorities in view of provisions u/s 124 (2) of the Act. Said request of the assessee was declined, citing the reason that jurisdiction of the matter was assumed by the Assessing Office by virtue of centralization order passed under 127 of the Act,by the PCIT(Central), Rajasthan on 17.7.2018, and that copy thereof had already been provided to the assessee.
As per records, notice u/s 142(1) of the Act accompanied by a questionnaire was served upon the assessee. However, on 5.11.2019, the assessee requested for adjournment. The Assessing Officer adjourned the matter to 11.11.2019. However, the assessee did not comply with the notice u/s 142(1) of the Act. Finally, the Assessing Officer adjourned the matter to 25.11.2019, but even then the assessee did not comply with the direction. This led to issuance of show cause notice to the assessee on 25.11.2019, u/s 274 read with section 271F of the Act. Thereupon, vide letter dated 20.12.2019, AR of the assessee submitted certain details before the Assessing Officer. Ultimately the Assessing Officer proceeded to finalize the assessment on merits.
It may be mentioned here that vide notice u/s 142(1) of the Act and the detailed questionnaire dated 23.10.2019, the Assessing Officer had asked the assessee to explain as to why an amount of Rs.15,69.96,303/- , as described in para 6.33 of the said notice, should not be added to the income of the assessee, as an income from undisclosed source, in addition to commission amounting to Rs. 15,69,963/- said to have been paid at the rate of 1%,as regards the assessment year 2014-15.
As mentioned in the assessment order, in reply to the above said query, the assessee filed only certain documents including VAT Registration No., CST Registration No. and GST Registration No. The Assessing Officer considered the reply submitted by the assessee and took into consideration the facts unearthed during search operation, and found that it was not tenable. In this regard, he observed that every entry operator can manage such type of papers. The Assessing Officer also took into consideration the facts unearthed during search operation, the confession made on oath by the dummy property partners and directors of the dummy concerns and Shri Nirmal Kumar Sarda, CA the entry provider. The Assessing Officer also observed that Shri Nirmal Kumar Sarda, CA used and managed all the said dummy concerns for providing accommodation and concerns of Bajaj Group. The Assessing Officer also took into consideration the voluntary disclosure made by Shri Nirmal Kumar Sarda that he had provided the entries to the concern of Bajaj Group for commission at the rate of 1% and further that in this regard, he had received cash from Shri Vikram Bajaj. The Assessing Officer also took into consideration the details discovered during search operation, from the laptop of said CA Shri Nirmal Kumar Sarda.
Consequently, the Assessing Officer passed assessment order dated 20.12.2019 making the above said addition to the tune of Rs.15,85,66,266/- and assessed the total income of the assessee at Rs.16,39,97,716/- ASSESSMENT ORDER IS CHALLENGED BEFORE THE CIT(APPEAL) 13. As mentioned above, feeling aggrieved by the above said order, the assessee filed appeal before Ld. CIT(Appeal). In response to the notice issued u/s 250 of the Act by the Ld. CIT(Appeal), the assessee- appellant filed written submissions. Ld. CIT(Appeal) took into consideration the grievances of the assessee- appellant as well as copies of certain documents and certain decisions submitted by the appellant. The appeal filed by the assessee was partly allowed while restricting the addition to Rs.73,17,436/- and the balance addition of Rs.15,12,48,830/- was directed to be deleted. In restricting the addition, Ld. CIT(Appeal) deemed it just to calculate the profit margin on the sale, made to the parties, worth Rs.9,14,67,947, at the rate of interest of 8%. For the purpose of calculating the above said rate, the Ld. CIT(Appeal) observed: “.. that the AO did not bring on record any evidence reflecting any cash being exchanged for the doubtful sales transactions. However, at the same time, the non-existence of the business activity on the registered premises of these concerns also cannot be ignored. In such circumstances, it can be said that the appellant could not prove the identity of persons whom sales have been shown to be made but at the same time AO did not question the purchases and stock shown by the appellant. The purchases being made by the appellant in the year under consideration as the opening stock and movement thereof has not been doubted by the AO in the assessment order. Meaning thereby the fact that wool trading activity was being done by the appellant cannot be rejected. The fact that Bajaj group was engaged in Wool Trading activity further finds support from fact that only receipts pertaining to the alleged bogus/shell concerns operated by Shri Nirmal Kumar Sarda have been doubted, however the sales made to the other parties were not tinkered with. However, at the same time the sales reported in the name of doubtful parties namely M/s. Bhoomika Enterprises and M/s. Shree Chamunda Enterprises and any possible revenue leakage in respect of such sales cannot be ignored. In such circumstances, the sales reported by the appellant in the name of these parties can be regarded as sales where the real identity of the buyer is in question, however, the movement of stock/sale of goods is not in question. Accordingly, it would be prudent to assess additional profit margin arising out of such sales which the appellant would have earned in the entire process instead of making addition of entire sales receipts. Now the only question left here is how much profit element should be taxed in the hands of the assessee so as to protect the possible revenue leakage. In this regard it is noticed that wool trading is a small scale industry and the legal precedents/comparable instances acknowledging the margins thereof are not readily available in the public domain. Accordingly, for the purpose of evaluating the rate of taxation it would be prudent to seek guidance from the provisions of the Act pertaining to presumptive taxation of income wherein rate of 8% on the turnover has been specified.”
All other grounds of appeal raised on behalf of the assessee/appellant were dismissed by the Ld.CIT(Appeals). 6
Still feeling aggrieved, the assessee is before this Appellate Tribunal. Department is also before this Appellate Tribunal.
The only ground pressed on behalf of the appellant before us is that similar addition was made by the Assessing Officer, in the case of assessee as regards the preceding Assessment Year 2013-14, on similar allegations; that on appeal by the assessee against that assessment order, the Ld.CIT(Appeal) passed order making same observations and recording same findings; that the assessee had to challenge that order passed by Ld. CIT(Appeal) before this Appellate Tribunal; that vide order dated 6.11.2023 appeal filed before the Appellant Tribunal was decided while deleting the entire addition, on the ground that there was no reference to recovery of any indiscriminating material from the premises of the assessee; and further that the Assessing Officer had doubted sales by the assessee only as regards two enterprises namely, M/s Bhoomika Enterprises and M/s. Shree Chamunda Enterprises. Ld. AR for the appellant has contended that the issue involved in present appeal is squarely covered by the judgment passed by the Coordinate Bench of this Appellate Tribunal on 6.11.2023, and as such, the impugned order passed by CIT(Appeal) which had led to filing of the appeal deserves to be set aside, while deleting the entire addition upheld by CIT(Appeal). In support of this submission, in the course of arguments, learned AR for the appellant has presented a paper book including copy of decision by the Co-ordinate Bench of this Appellate Tribunal, delivered on 6.11.2023 in and filed by the assessee, and ITA No. 420/Del/22 and ITA No.421/Del/22, filed by the department, pertaining to assessment years 2012-13 and 2013-14 in the case of the assessee itself.
In ground No.22 of the grounds of appeal presented here, it has been alleged without prejudice to the other grounds raised therein, that learned CIT(A) has erred in ignoring the alternative contention of the assessee that profit embedded in the transactions cannot be more than 1.28% of the total sales transaction with said parties.
In this regard, it needs to be mentioned here that no such ground was raised by the appellant before Learned CIT(A) to the effect that profit embedded in these transactions cannot be more than 1.28% of the total sales with said parties. On behalf of the revenue/department, Ld. DR has candidly admitted that the assessment order passed as regards the assessee in relation to the preceding year 2013-14 was based on same allegations leading to similar addition and further that CIT(Appeal) had partly allowed the appeal filed by the assessee, by making same observations and recording similar findings, thereby restricting the addition, but when the matter came up before the Co-ordinate Bench of this Appellate Tribunal, The appeal filed by the assessee was led thereby deleted the entire addition upheld by the CIT(Appeal) on the ground that nothing incriminating was found from the premises of the assessee and that the issue which has reasons in these appeal is covered by the said order dated 6.11.2023.
While disposing of the appeal pertaining to financial year 2013-14 as regards the assessee, which arose out of the very search and seizure operation carried out on 20.4.2017, Co-ordinate Bench of the Appellate Tribunal was of the opinion that while framing assessment qua the seized material only the following observations were considered as incriminating material found at the time of search: “ During the course of search action, certain documents, including electronic documents were found and seized which further corroborated the fact that the individuals of the Bajaj group had given unaccounted cash to Shri Nirmal Sarda, CA and his younger brother Shri Anil Sarda in order to obtain accommodation entries of equal amount from shell concerns controlled by Shri Nirmal Sarda CA from the mobile phone of Shri Vikram Bajaj, an SMS confirming the receipt of cash by Shri Anil Sarda CA was found”.
The Co-ordinate Bench was of the considered opinion that there was no reference to any incriminating material found from the premises of the assessee and further that though reference to electronic conversation might be incriminating, but, the same had no reference whatsoever with the assessee and also that the entire assessment was passed on the confessional statements by Shri Nirmal Sarda and Shri Anil Sarda. In this regard, reliance was placed on decision in Abhisar Buildwell’s case, reported as 454 ITR 212, wherein Hon’ble Apex Court observed as under: (i) “that in a case of search under section 132 or requisition under section 132A, the Assessing Officer assumes jurisdiction for assessment under section 153A ; (ii)all pending assessments or reassessments shall stand abated. (iii) in case any incriminating material is found or unearthed, even in case of unabated or completed assessments, the Assessing Officer would assume the jurisdiction to assess or reassess the “total income” taking into consideration the incriminating material unearthed during the search and the other material available with the Assessing Officer including the income declared in the returns; and iv) in case no incriminating material is unearthed during the search, the Assessing Officer cannot assess or reassess taking into consideration the other material in respect of completed assessments or unabated assessments, meaning thereby, in respect of completed or unabated assessments, no addition can be made by the Assessing Officer in the absence of any incriminating material having been found during the course of search under section 132 or requisition under section 132A of the Act. However, completed or unabated assessments can be reopened by the Assessing Officer in exercise of powers under section 147 or 148 of the Act, subject to fulfilment of the conditions as envisaged or mentioned under section 147 or 148 of the Act and those powers are saved.”
Consequently, the assessment order relating to the financial year 2013-14 qua the assessment order was set aside by the Co-ordinate Bench, as the same was found to be devoid of any incriminating material.
In view of the same facts , documents and statements and while applying the law laid down in the case of Abhisar Buildwell, and having regard to the decision by the Co-ordinate Bench of the Appellate Tribunal, regarding the preceding year, the impugned order Ld. CIT(Appeal) also deserves to be set aside, when there is no incriminating material said to have been recovered or found at the time of search and seizure, involving the assessee. Assessment on the basis of sales made by the assessee to the two parties 21. Admittedly, out of the total sale, the Assessing Officer was concerned about the sales made to only two parties named therein i.e. M/s Bhoomika Enterprises and M/s Shree Chamunda Enterprises in the year under consideration. Section 68 of the Act reads as under: “68. Cash credits.- Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year: Provided that where the sum so credited consists of shareapplication money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person in whose name such credit is recorded in the books of such assessee also offers an explanation about the nature and source of such sum so credited; and (b)such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital , share premium or any such amount by whatever name called , any explanation offered by such assessee company shall be deemed to be not satisfactory, unless- (a) the person being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: 10 Provided also that nothing contained in the first proviso or second proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB)of section 10.)” Herein, while making assessment, no doubt was expressed regarding movement of goods concerning said sales. Even there is no dispute concerning corresponding purchases said to have been made by the assessee. Stock details were accepted by the Assessing Officer.
In view of all this, it is beyond comprehension as to how the Assessing Officer invoked the provisions of section 68 of the Act. Calculation of a different Profit Margin 23. As noticed above, vide impugned order Ld. CIT(Appeal) calculated the profit margin on the sales made to M/s. Bhoomika Enterprises and M/s. Shree Chamunda Enterprises at the rate of 8%.
In view of the above discussion, when provisions of section 68 of the Act could not be invoked the calculation of the profit margin at the rate of 8%, by Ld. CIT(Appeal) deserves to be set aside. Even otherwise, in the case of the assessee itself, referred to above, as regards findings about profit margin relating to sales made to the three parties mentioned therein, Co-ordinate Bench of the Appellate Tribunal expressed surprise over applying rate of profit margin different from the profit margin applied to the rest of the sales, and consequently held the impugned order to be erroneous.
Similarly, here, the impugned order passed by Learned CIT(A) applying rate of profit margin different from the profit margin applied to the rest of the sales, deserves to be set aside.