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Facts
The assessee filed appeals for AYs 2010-11 to 2012-13 against CIT(A)'s orders, which upheld various additions/disallowances following a search conducted on 09.05.2012. The additions included disallowance under section 14A, freight charges under section 37(1) for lack of bills/vouchers and bogus entities, and an ad-hoc addition on alleged bogus share purchases.
Held
The Tribunal observed that the additions were not based on any incriminating material found during the search, a stance undisputed by the Ld. DR. Relying on Supreme Court precedents (PCIT vs. Abhisar Buildwell Pvt. Ltd. and CIT vs. Jasjit Singh), the Tribunal concluded that no addition could be made under section 153A/153C without incriminating material. It also noted similar disallowances in prior years for the assessee had been deleted.
Key Issues
Whether additions made in assessments framed under sections 153A/153C are valid in the absence of incriminating material found during the search, and the correctness of disallowances for freight charges and ad-hoc additions on share purchases.
Sections Cited
153A, 153C, 14A, 8D, 37(1), 10(38), 140, 143(2), 142(1)
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Income Tax Appellate Tribunal, DELHI BENCH “C”, NEW DELHI
Before: SHRI SHAMIM YAHYA, & SHRI YOGESH KUMAR US
, 7422 & 7423/Del/2017 A.YRS. : 2010-11, 2011-12 & 2012-13 Goldies Trading Co. Ltd. VS. DCIT, CENTRAL CIRCLE-II Faridabad FARIDABAD C/o RRA TAXINDIA, HARYANA D-28, South Extension, Part-I, New Delhi – 110 049 (PAN: AACCG9622P) (APPELLANT) (RESPONDENT) Assessee by : Shri Somil Agarwal, Adv. Department by : Mr. Javed Akhtar, CIT(DR) Date of hearing : 27.05.2024 Date of pronouncement : 31.05.2024 ORDER
PER SHAMIM YAHYA, AM :
The Assessee has filed the aforesaid 03 Appeals against the respective impugned orders passed by the Ld. CIT(A), Karnal relating to assessment years 2010-11 to 2012-13. Since one of the issues involved in all the 03 Assessee appeals is common and identical, except the difference in figure of addition made, hence, all the 03 appeals of Assessee were heard together and are being disposed of by this common order for the sake of convenience, by only dealing with Assessee’s Appeal No. 7421/Del/2017 (AY 2010-11) and the decision thereof will apply mutatis mutandis to other Assessee’s & 7423/Del/2017 (AYrs. 2011-12 & 2012- 13).
The grounds raised in Assessee’s Appeal No. 7421/Del/2017 (AY 2010-11) are reproduced as under:-
1. That having regard to the fact and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in assuming jurisdiction and issuing of notice u/s 153A r.w.s. 153C of the Act, more so when the notice was issued in the name of non-existing entity.
2. That in any case and in any view of the matter, the assessment framed under section 153A(1) (b) of the Act, is bad in law and against the facts and circumstances of the case. 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in upholding the action of the Ld. A.0. in making a disallowance of Rs. 1,45,000/- under the provisions of section 14A read with Rule 8D of the Income Tax Act, 1961 4. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the disallowance of Rs. 1,45,000/- is bad in law and against the facts and circumstances of the case. 5. That having regard to the facts and circumstances of the case, Ld. CIT(A)has erred in law and on facts in confirming the action of the Ld. A.0. in making disallowance of freight charges of Rs. 54,82,646/- u/s 37(1) of the Income Tax Act, 1961, that too in the proceedings u/s 153C of the Act, and more-so by alleging failure of the assessee to produce bills and vouchers. 6. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making disallowance of Rs. 54,82,646/- is bad in law and against the facts and circumstances of the case. 7. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in upholding 2 the action of the Ld. A.0. in making an adhoc addition of Rs. 48,00,000/- by applying adhoc GP rate of 8% on purchase of shares of Rs. 6 Crores and that too in the proceedings u/s 153C of the Act.
8. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs. 48,00,000/- is bad in law and against the facts and circumstances of the case.
9. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. AO in passing the impugned order without giving adequate opportunity of being heard. 10.That the appellant craves the leave to add, alter or amend the grounds of appeal
at any stage and all the grounds are without prejudice to each other.
3. The grounds raised in Assessee’s Appeal No. 7422/Del/2017 (AY 2011- 12) are reproduced as under:-
1. That having regard to the fact and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in assuming jurisdiction and issuing of notice u/s 153A r.w.s. 153C of the Act, more so when the notice was issued in the name of non-existing entity.
2. That in any case and in any view of the matter, the assessment framed under section 153A(1)(b) of the Act, is bad in law and against the facts and circumstances of the case.
3. That having regard to the facts and circumstances of the case, Ld. CIT(A)has erred in law and on facts in confirming the action of the Ld. A.0. in making disallowance of freight charges of Rs. 57,75,888/- u/s 37(1) of the Income Tax Act, 1961, that too in the proceedings u/s 153C of the Act, and more-so by alleging failure of the assessee to produce bills and vouchers.
4. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making disallowance of Rs. 57,75,888/- is bad in law and against the facts and circumstances of the case.
That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. AO in passing the impugned order without giving adequate opportunity of being heard. 6.That the appellant craves the leave to add, alter or amend the grounds of appeal at any stage and all the grounds are without prejudice to each other.
4. The grounds raised
in Assessee’s Appeal No. 7423/Del/2017 (AY 2012- 13) are reproduced as under:-
1. That having regard to the fact and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in assuming jurisdiction and issuing of notice u/s 153A r.w.s. 153C of the Act, more so when the notice was issued in the name of non-existing entity.
2. That in any case and in any view of the matter, the assessment framed under section 153A(1)(b) of the Act, is bad in law and against the facts and circumstances of the case.
3. That having regard to the facts and circumstances of the case, Ld. CIT(A)has erred in law and on facts in confirming the action of the Ld. A.0. in making disallowance of freight charges of Rs. 54,19,173/- u/s 37(1) of the Income Tax Act, 1961, that too in the proceedings u/s 153C of the Act, and more-so by alleging failure of the assessee to produce bills and vouchers.
4. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making disallowance of Rs. 54,19,173/- is bad in law and against the facts and circumstances of the case.
5. That having regard to the facts and circumstances of the case, Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. AO in passing the impugned order without giving adequate opportunity of being heard. 6.That the appellant craves the leave to add, alter or amend the grounds of appeal at any stage and all the grounds are without prejudice to each other.
5. Briefly stated facts are that during the previous year relevant to AY 2010-11, the assessee was drawing income from business and profession. AO issued notice dated 18.9.2014 u/s. 153A (1)(a) and served upon the assessee, requiring to file its return of income in respect of assessment year 2010-11, an assessment year falling within the six assessment years immediately preceding the assessment year relevant to the previous year in which search was conducted. In the instant case the search was conducted on 09.05.2012 and in response thereof the assessee filed its return of income, duly verified and signed as per the provisions of section 140 of the Act, returning a total loss of Rs. (-)1,51,32,524/- on 17.10.2014. Thereafter, notices under section 143(2) and 142(1) of the Act alongwith a questionnaire were issued to the assessee on 03.11.2014, which were duly served upon the assessee. In response thereof, the Assessee’s AR attended the assessment proceedings from time to time and filed the requisite details/ written submissions. After examining the records, AO observed with regard to disallowance of Rs. 1,45,000/- u/s. 14A r.w. Rule 8-D is concerned, the AO has observed that the assessdee was engaged in the business of dealing in real estate, consultancy and contractual business. As per AO assessee has shown share transactions as investments only for the purpose of claiming the benefit of exemption u/s. 10(38) of the Act, hence, the provisions of section 14A are applicable in the instant case, therefore, he made the addition of Rs. 1,45,000/- and Ld. CIT(A) has upheld the same.
5.1 With regard to disallowance of Rs. 54,82,646/- relating to freight charges of Rs. 54,82,646/- is concerned, the AO on the basis of the documents seized and post search enquiries, observed that various companies had been floated by the assessee group to manipulate purchases and sales within the group companies without actual work being carried out by these companies. As per AO, these companies were only paper entities with no actual work being carried out. These companies are created by the SRS Group just to book sales/purchase and to inflate expenses. The assessee was selling on rate to rate basis within the group companies without making any profit and actually showing losses. The assessee did not produce any documents including bills and vouchers relating to claim of freight charges of Rs. 54,82,646/-. The claim of the assessee regarding these expenses is not justified as there is no evidence of actual expenses on this account, hence, he made the addition of Rs. 54,82,646/- in the hands of the assessee and in appeal Ld. CIT(A) sustained the addition.
5.2 With regard to addition of Rs. 48,000/- being 8% of purchase of shares of Rs. 6,00,00,000/- on an adhoc basis allegedly on the ground that the assessee has made bogus purchase from 12 companies to reduce its tax liability. Ld. 6 CIT(A) noted that AO has clearly stated that 12 companies operated by Sh. Santosh Shah from whom purchase were made by the assessee were paper entities and providing entries only. There is no further need to provide the additional evidence when the facts are clear. No attempt has been made by the assessee to show that the physical transaction took place. Copies of ledgers are not indisputable evidence given the history of the entity from whom purchases were made. Hence, Ld. CIT(A) confirmed the addition in dispute.
Against the above decision, Assessee is in appeal before us.
At the time of hearing, Ld. CIT(DR) relied upon orders passed by the lower authorities.
On the contrary, Ld. Counsel for the assessee submitted that the original return of income was filed on 25.09.2010 and notice u/s. 153C is dated 18.09.2014 and in view of the Hon’ble Supreme Court in the case of CIT vs. Jasjit Singh (2023) 155 taxmann.com 155 (SC), 18.09.2014 should be taken as the date of search in the present case and therefore, the assessment year 2010-11 did not abate on the aforesaid date of search as time limit to issue notice expired on 30.09.2011. As regards ground no. 3 & 4 are concerned, he submitted that a plain reading of the assessment order would show that the disallowance u/s. 14A has been made in the absence of any incriminating 7 material found during the course of search which is not permissible and reliance is placed on the decision of the Hon’ble Supreme Court of India in the case of DCIT vs. UK Paints (Overseas) Ltd., CA No. 6634/2021, dated 25.4.2023 and PCIT vs. Abhisar Buildwell P. Ltd., CA No. 6580/2021 dated 24.4.2023 and therefore, the said disallowance is beyond the jurisdiction of the impugned proceedings and deserves to be deleted and may be please be so held.
8.1 As regards ground no. 5 & 6 are concerned, Ld. AR has submitted that that a plain reading of the assessment order would show that the disallowance of Rs. 54,82,446/- on account of freight charges has also been made without any incriminating material found during the course of search which is not permissible and reliance is placed on the decision of the Hon’ble Supreme Court of India in the case of DCIT vs. UK Paints (Overseas) Ltd., CA No. 6634/2021, dated 25.4.2023 and PCIT vs. Abhisar Buildwell P. Ltd., CA No. 6580/2021 dated 24.4.2023 and therefore, the said disallowance is beyond the jurisdiction of the impugned proceedings and deserves to be deleted and may be please be so held. It was further submitted that identical disallowance of freight charges was made in assessee’s own case in AY 2008-09 and AY 2009- 10 and the Tribunal had deleted the said disallowance.
8.2 As regards ground no. 7 & 8 are concerned, Ld. AR submitted that a plain reading of the assessment order would show that the adhoc addition of 8 Rs. 48,00,000/- by applying the rate of 8% of purchases has also been made in the absence of any incriminating material found during the course of search which is not permissible and reliance is placed on the decision of the Hon’ble Supreme Court of India in the case of DCIT vs. UK Paints (Overseas) Ltd., CA No. 6634/2021, dated 25.4.2023 and PCIT vs. Abhisar Buildwell P. Ltd., CA No. 6580/2021 dated 24.4.2023 and therefore, the said disallowance is beyond the jurisdiction of the impugned proceedings and deserves to be deleted and may be please be so held.
We have heard the rival contentions and perused the case laws cited by the Ld. AR for the assessee and also perused the impugned orders. On perusal of the assessment order, it is noted that the instant assessment is pursuant to notice u/s. 153C read with 153A of the Act. We note that the additions in dispute are not based upon any incriminating material found during the course of search. Ld. DR could not dispute this proposition. We note that as per the decision of the Hon’ble Supreme Court of India in the case of PCIT vs. Abhisar Buildwell Pvt. Ltd., CA No. 67580/2021 dated 24.4.2023, (2023) SCC Online SC 481, no addition can be made the assessment framed u/s. 153A dehors incriminating material found during the search. We find considerable cogency in the contention of the Ld. AR that the original return of income was filed on 25.09.2010 and notice u/s. 153C is dated 18.09.2014 and in view of the Hon’ble Supreme Court in the case of CIT vs. Jasjit Singh (2023) 155 taxmann.com 155 (SC), 18.09.2014 should be taken as the date of search in the present case and therefore, the assessment year 2010-11 did not abate on the aforesaid date of search as time limit to issue notice expired on 30.09.2011.
It is further noted that identical disallowance on account of freight charges was made in assessee’s own case in AY 2007-08 and AY 2009-10 and the Tribunal has deleted the same.
Keeping in view the aforesaid discussion and following the precedent of Hon’ble Apex Court in the case of PCIT vs. Abhisar Buildwell Pvt. Ltd. (Supra), we set-aside the order of the Ld. CIT(A) and decide the issues in favour of the assessee and accordingly, allow the appeal of the assessee for AY 2010-11.
Following the consistent view as taken in AY 2010-11, as aforesaid, the issues raised in Assessee’s other & 7423/Del/2017 (Ayrs. 2011-12 & 2012-13) are also decided in favour of the assessee by setting aside the orders of the Ld. CIT(A) in both the years too and accordingly allowed the appeals of the assessee.
Since we have decided the aforesaid appeals on merit in favour of the assessee and also impugned orders of the Ld. CIT(A) have been set-aside, therefore, the other Grounds raised by the Assessee have become academic and do not require any adjudication.
In the result, all the 03 Assessee Appeals are allowed in the aforesaid 14. manner. Order pronounced on 31/05/2024.