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Income Tax Appellate Tribunal, “B” BENCH : KOLKATA
Before: Hon’ble Shri S.S.Godara, JM & Hon’ble Shri M.Balaganesh, AM]
Per M.Balaganesh, AM
This appeal by the Revenue arises out of the order of the Learned Commissioner of Income Tax(Appeals)-21, Kolkata [in short the ld CIT(A)] in Appeal No.177/CC- 4(1)/CIT(A)-21/KOL/15-16 dated 23.03.2017 against the order passed by DCIT, CC- 4(1), Kolkata [ in short the ld AO] under section 143(3) / 153D / 153A of the Income Tax Act, 1961 (in short “the Act”) dated 30.03.2015 for the Assessment Year 2009-10.
The only issue to be decided in this appeal is as to whether the ld CITA was justified in deleting the addition of Rs 1,63,00,000/- towards share capital / share application
2 ITA No.1193/Kol/2017 M/s Maan Capital Services Pvt. Ltd. A.Yr. 2009-10 money and share premium in the search assessment framed u/s 153A of the Act in the absence of any incriminating material found during the course of search to that effect.
The brief facts of this issue is that there was a search and seizure operation conducted u/s 132 of the Act on 13.12.2012 in the residential and business premises of various persons belonging to Maanheruka Group including the assessee. In some cases belonging to the group, survey operation u/s 133A of the Act was also conducted on the same date and / or subsequent dates. The assessee company is one of the group companies of ‘Maanheruka Group’ of cases. Consequent to the search, notice u/s 153A of the Act was issued on 7.10.2013 and served on the assessee on 8.10.2013. For the year under consideration, the assessee filed a letter dated 19.11.2013 stating that the original return filed u/s 139(1) of the Act on 30.9.2009 declaring taxable income of Rs 15,32,490/- may be treated as a return in response to notice issued u/s 153A of the Act. The assessee stated that the time limit for issuance of notice u/s 143(3) of the Act for the Asst Year 2009-10 in respect of the original return filed on 30.9.2009 had expired on 30.9.2010 and hence as on the date of search, that year (i.e Asst Year 2009-10) would fall under the category of unabated assessment and hence the income assessed originally thereon, which is same as the returned income, could not be disturbed unless there is any incriminating material found in the course of search relatable to such assessment year. It was argued that admittedly no incriminating materials were found for Asst year 2009-10 in the course of search with regard to share capital / share application money and share premium and accordingly pleaded not to disturb the originally assessed income. The ld AO observed that assessee had received share capital / share application money with share premium from Dicord Commodeal Pvt Ltd , Silfix Trading Pvt Ltd and Darkin Distirbutors Pvt Ltd totaling to Rs 1,63,00,000/- during the year under appeal. The ld AO observed in the assessment order that the assessee during the course of scrutiny proceedings, filed detailed list of shareholders , along with ledger copies and copy of Form No.2. Notice u/s 133(6) of the Act were issued to the investor companies 2
3 ITA No.1193/Kol/2017 M/s Maan Capital Services Pvt. Ltd. A.Yr. 2009-10 and replies received from them were examined in detail. The assessee in response to show cause notice issued by the ld AO stated that share application money received from the aforesaid three parites were duly verified by the ld AO and they had also confirmed directly before the ld AO.
The ld AO however did not heed to the contentions of the assessee and proceeded to frame the assessments u/s 153A of the Act by making an addition towards share application money u/s 68 of the Act in the sum of Rs 1,63,00,000/- on the plea that the assessments to be framed u/s 153A of the Act clears all the decks and would enable the ld AO to assess or reassess the total income as per the provisions of the Act irrespective of incriminating materials found in the search. The ld AO completed the assessment u/s 153A / 143(3) of the Act on 30.3.2015 determining the total income at Rs 1,92,11,460/- after making an addition of Rs. 1,63,00,000/- u/s 68 of the Act on account of share capital / share application money / share premium and disallowance u/s 14A of the Act to the tune of Rs 9,89,324/-. The addition made towards share capital / share application money / share premium was based on statement recorded from two directors u/s 132(4) of the Act which was later retracted by them. It was alleged that share application money was raised by the group by paying cash and had eventually converted the undisclosed income into legal money.
The ld CITA deleted the addition by observing as under:- “I have considered the findings of the AO in the assessment order, different case laws brought on record and appeal orders passed by my predecessors on this legal issue. I find from the assessment order that during that search and seizure operations conducted u/s 132 of the I.T.Act, 1961, incriminating documents / papers were not seized. At least, additions made by the AO in the assessment order passed u/s 153A / 143(3) are not based on any incriminating documents / papers seized during that search operation. It would also not be out of context to mention here that in this case, on the date of search, no assessment for this year was pending. Therefore, keeping in view the ratio decided by the Jurisdictional Bench of Kolkata Tribunal in cases referred above and the ratio decided by the Hon’ble Calcutta High Court in the case of Veer Prabhu Marketing Ltd (supra) in the light of CBDT’s decision of not filing SLP in this case in 3
4 ITA No.1193/Kol/2017 M/s Maan Capital Services Pvt. Ltd. A.Yr. 2009-10 the Supreme Court and keeping in view the Apex Court’s decision to dismiss SLP on similar issue in the case of Pr. CIT vs. Kurele Paper Mills Pvt. Ltd. : SLP (C) No. 34554 of 2015 dated 07.12.2015, I am of this view that in order to maintain judicial continuity on this issue and respectfully following the ratio decided by the Hon’ble Calcutta High Court in the case of Veer Prabhu Marketing Ltd. (supra), assessee’s appeal on additional ground is allowed and as such I am not inclined to adjudicate appeal on ground no. 1 on merit. 8. Since the appeal has been allowed on legal grounds as above, appeals on grounds no.2 are also covered in it. Further therefore, I am not inclined to adjudicate appeal on other grounds on merit.”
Aggrieved, the revenue is in appeal before us.
The ld AR stated that the assessment for the Asst Year 2009-10 was originally completed u/s 143(1) of the Act as the case was not selected for scrutiny by issuance of notice u/s 143(2) of the Act on or before 30.9.2010. He reiterated the submissions made before the lower authorities with regard to framing of additions in section 153A assessments without any incriminating material found thereon. Reliance was placed on the following decisions in support of his contentions:-
(a) CIT vs Veerprabhu Marketing Ltd reported in (2016) 73 taxmann.com 149 (Cal HC) (b) Decision of this tribunal in the case of ACIT vs Kanchan Oil Industries Ltd in ITA No. 725/Kol/2011 dated 9.12.2015 (c ) CIT vs Kabul Chawla reported in (2016) 380 ITR 573 ( Delhi HC) (d)CIT vs Continental Warehousing Corporation (Nhava Sheva) Ltd and All Cargo Global Logistics Ltd reported in (2015) 374 ITR 645 ( Bom)
In response to this, the ld DR argued that the expression ‘incriminating material’ is not found in the provisions of the Act and it is only the Hon’ble Courts which had imported those words while rendering the decisions. He stated that the Hon’ble Courts are divided on this issue and placed reliance on the decision of the Hon’ble Karnataka High Court in the case of Canara Housing Development Co vs DCIT reported in (2014) 4
5 ITA No.1193/Kol/2017 M/s Maan Capital Services Pvt. Ltd. A.Yr. 2009-10 49 taxmann.com 98 (Kar HC) wherein it was held that search assessments could be framed even without the existence of incriminating materials found in the course of search. He argued that the basic foundation for conducting the search is governed by the provisions of section 132 of the Act which has to be read harmoniously with section 153A of the Act. There are three conditions based on which a search action could be initiated u/s 132 of the Act on an assessee. They are :-
Section 132(1) - If the concerned authority has in consequence of information in his possession, has reason to believe that - (a) where a person fails to produce the books of accounts and other documents in response to notice u/s 142(1) or summons issued u/s 131(1) of the Act ; or (b) where a person fails to comply with the requirements of summons issued u/s 131(1) of the Act ; or (c ) where a person is in possession of any money, bullion, jewellery or other valuable article or thing and such assets represents either wholly or partly income or property which has not been , or would not be, disclosed for the purposes of the Act (hereinafter referred to as the undisclosed income or property) ; then the officer , so authorized could conduct a search and proceed as per the requirements laid down in the said section. He argued that the aforesaid three primary conditions for invoking search proceedings cannot be given a go by while framing section 153A assessments and the instant case falls under section 132(1)(c ) of the Act.
The provisions of section 153A of the Act use the expression ‘assess or reassess total income’ and hence the search assessment could be framed u/s 153A of the Act irrespective of any incriminating materials.
We have heard the rival submissions. We find it would be necessary to address the preliminary issue of whether the addition could be framed u/s 153A of the Act in 5
6 ITA No.1193/Kol/2017 M/s Maan Capital Services Pvt. Ltd. A.Yr. 2009-10 respect of a concluded proceeding without the existence of any incriminating materials found in the course of search. The scheme of the Act provides for abatement of pending proceedings as on the date of search. It is not in dispute that the assessment for the Asst Year 2009-10 was originally completed u/s 143(1) of the Act and the time limit for issuance of notice u/s 143(2) of the Act had expired and hence it falls under concluded proceeding , as on the date of search. We hold that the legislature does not differentiate whether the assessments originally were framed u/s 143(1) or 143(3) or 147 of the Act. Hence unless there is any incriminating material found during the course of search relatable to such concluded year, the statute does not confer any power on the ld AO to disturb the findings given thereon and income determined thereon, as finality had already been reached thereon, and such proceeding was not pending on the date of search to get itself abated. The provisions of section 153A of the Act are reproduced hereunder for the sake of convenience :- "[Assessment in case of search or requisition 153A. [(1)] Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall— (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years:"
7 ITA No.1193/Kol/2017 M/s Maan Capital Services Pvt. Ltd. A.Yr. 2009-10 9.1. We find that the Co-ordinate Bench of Delhi Tribunal in the case of Dy. CIT v. Aggarwal Entertainment (P.) Ltd reported in [2016] 72 taxmann.com 340 (Delhi - Trib.) had addressed this aspect. The relevant headnotes is reproduced below:—
"Section 153A, read with section 143, of the Income-tax Act, 1961-Search and seizure - Assessment in case of (in case of section 143(1) assessment)-Assessment year 2004-05- Whether assessment in respect of which return has been processed under section 143(1), cannot be regarded as pending for purpose of section 153A as Assessing Officer is not required to do anything further about such a return and, thus, said assessment cannot be reopened in exercise of power of section 153A- Held yes (Paras 10 and 12) (In favour of assessee)."
9.2. We find that the Co-ordinate Bench of this tribunal in the case of ACIT vs Kanchan Oil Industries Ltd in ITA No. 725/Kol/2011 dated 9.12.2015 reported in 2016-TIOL- 167-ITAT-KOL had explained the aforesaid provisions as below:- "6.4 In our opinion, the scheme of assessment proceedings should be understood in the following manner pursuant to the search conducted u/s. 132 of the Act :- (a) Notice u/s. 153A of the Act would be issued on the person on whom the warrant of authorization u/s. 132 of the Act was issued for the six assessment years preceding the year of search and assessments thereon would be completed u/s. 153A of the Act for those six assessment years. (b) In respect of the year of search, notice u/s. 143(2) of the Act would be issued and assessment thereon would be completed u/s. 143(3) of the Act. (c) In respect of concluded assessments prior to the year of search, no addition could be made in the relevant assessment year unless any incriminating material is found during the course of search with respect to the relevant assessment year. (d) Pursuant to the search u/s. 132 of the Act, the pending proceedings would get abated. In respect of abated assessments, the total income needs to be determined afresh in accordance with the provisions of section 153A and other provisions of the Act.
6.4.1 The concluded assessments for the purpose of section 153A of the Act shall be - (i) assessment years where assessments are already completed u/s. 143(1) and 7
8 ITA No.1193/Kol/2017 M/s Maan Capital Services Pvt. Ltd. A.Yr. 2009-10 time limit for issuance of notice u/s. 143(2) of the Act has expired or; (ii) assessment years where assessments are already completed u/s. 143(3) of the Act ; unless they are reopened u/s. 147 of the Act for some other purpose in both the scenarios stated above.
6.4.2 The scheme of assessment proceedings contemplated u/s. 153A of the Act are totally different and distinct from the proceedings contemplated u/s. 147 of the Act and these procedures of assessment operate in different fields and have different purposes to be fulfilled altogether. 6.4.3 The expression 'assess or reassess' stated in section 153A(1)(b) has to be understood as below:- 'assess' means assessments to be framed in respect of abated assessment years irrespective of the fact whether there are any incriminating materials found during the course of search with respect to relevant assessment years ; 'reassess' means assessments to be framed in respect of concluded assessment years where incriminating materials were found during the course of search in respect of the relevant assessment year."
7.3. We also find that recently the Hon’ble Delhi High Court in the case of CIT vs Kabul Chawla reported in (2016) 380 ITR 573 (Del) held as under:- '37. On a conspectus of section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: (i) Once a search takes place under section 132 of the Act, notice under section 153A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. (ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the ld AOs as a fresh exercise. (iii) The ld AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The ld AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there 8
9 ITA No.1193/Kol/2017 M/s Maan Capital Services Pvt. Ltd. A.Yr. 2009-10 will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". (iv) Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the ld AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." (v) In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to complete assessment proceedings. (vi) Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the ld AO. (vii) Completed assessments can be interfered with by the ld AO while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment."
The present appeals concern AYs 2002-03, 2005-06 and 2006-07, on the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed.
9.4. We find that the decision relied upon by the ld DR in the case of CIT vs Anil Kumar Bhatia reported in (2013) 352 ITR 493 (Del) does not in any manner advance the case of the revenue as admittedly the Hon’ble Delhi High Court in para 24 of its order had held as under:-
10 ITA No.1193/Kol/2017 M/s Maan Capital Services Pvt. Ltd. A.Yr. 2009-10 “24. We are not concerned with a case where no incriminating material was found during the search conducted under section 132 of the Act. We, therefore, express no opinion as to whether Section 153A can be invoked even in such a situation. That question is therefore left open.”
9.5. The ld DR also relied on the recent decision of the Hon’ble Kerala High Court in the case of E.N.Gopakumar vs CIT reported in (2016) 75 taxmann.com 215 (Kerala) in support of his contentions. We find that the decision of Hon’ble Delhi High Court in the case of CIT vs Kabul Chawla reported in (2016) 380 ITR 573 (Del) had duly considered the decisions of CIT vs Anil Kumar Bhatia reported in (2013) 352 ITR 493 (Del) ; CIT vs Chetan Das Lachman Das reported in (2012) 211 Taxman 61 (Del HC) ; Madugula Venu vs DIT reported in (2013) 215 Taxman 298 (Del HC) ; Canara Housing Development Co. vs DCIT reported in (2014) 49 taxmann.com 98 (Kar HC) ; Filatex India Ltd vs CIT reported in (2014) 229 Taxman 555 (Del HC) ; Jai Steel (India) vs ACIT reported in (2013) 219 Taxman 223 (Del HC) ; CIT vs Murli Agro Products Ltd reported in (2014) 49 taxmann.com 172 (Bom HC) ; CIT vs Continental Warehousing Corporation (Nhava Sheva) Ltd reported in (2015) 374 ITR 645 (Bom HC) and All Cargo Global Logistics Ltd vs DCIT reported in (2012) 137 ITD 287 (Mum ITAT) (SB). We also find that against the decision of the Hon’ble Delhi High Court in 380 ITR 573 (Del) , the revenue preferred Special Leave Petition before the Hon’ble Supreme Court and the same was dismissed by the apex court which is reported in 380 ITR (St.) 4 (SC). Hence it could be safely concluded that the decision of Hon’ble Delhi HC in the case of Kabul Chawla supra would have to be considered on the impugned issue and in any case, the Hon’ble Supreme Court in the case of CIT vs Vegetable Products Ltd reported in 88 ITR 192 (SC) had held that if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted.
11 ITA No.1193/Kol/2017 M/s Maan Capital Services Pvt. Ltd. A.Yr. 2009-10 9.6. We also find that the Hon’ble Jurisdictional High Court recently in the case of Principal CIT vs M/s Salasar Stock Broking Ltd in G.A.No. 1929 of 2016 ITAT No. 264 of 2016 dated 24.8.2016 had endorsed the aforesaid view of Hon’ble Delhi High Court in Kabul Chawla’s case and also placed reliance on its own decision in the case of CIT vs Veerprabhu Marketing Ltd reported in (2016) 73 taxmann.com 149 (Cal HC).
9.7. We find that the provisions of section 132 of the Act relied upon by the ld DR would be relevant only for the purpose of conducting the search action and initiating proceedings u/s 153A of the Act. Once the proceedings u/s 153A of the Act are initiated, which are special proceedings, the legislature in its wisdom bifurcates differential treatments for abated assessments and unabated assessments. At the cost of repetition, we state that in respect of abated assessments (i.e pending proceedings on the date of search) , fresh assessments are to be framed by the ld AO u/s 153A of the Act which would have a bearing on the determination of total income by considering all the aspects, wherein the existence of incriminating materials does not have any relevance. However, in respect of unabated assessments, the legislature had conferred powers on the ld AO to just follow the assessments already concluded unless there is an incriminating material found in the search to disturb the said concluded assessment. In our considered opinion, this would be the correct understanding of the provisions of section 153A of the Act , as otherwise, the necessity of bifurcation of abated and unabated assessments in section 153A of the Act would become redundant and would lose its relevance. Hence the arguments advanced by the ld DR in this regard deserves to be dismissed.
9.8. In view of the aforesaid findings and respectfully following the judicial precedents relied upon hereinabove, we hold that the assessment framed u/s 143(1) of the Act for the Asst Year 2009-10, which was unabated / concluded assessment, on the date of search, deserves to be undisturbed in the absence of any incriminating material found in 11
12 ITA No.1193/Kol/2017 M/s Maan Capital Services Pvt. Ltd. A.Yr. 2009-10 the course of search and accordingly the addition made on account of share application money u/s 68 of the Act is hereby directed to be deleted. Since the issue is addressed on preliminary ground of absence of incriminating materials, we refrain to give our findings on the merits of the addition u/s 68 of the Act for the Asst Year 2009-10. Hence we hold that the ld CITA had rightly deleted the addition which does not call for any interference. Accordingly the grounds raised by the revenue are dismissed.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the Court on 07.12.2018
Sd/- Sd/- [S.S. Godara] [ M.Balaganesh ] Judicial Member Accountant Member
Dated : 07.12.2018 SB, Sr. PS Copy of the order forwarded to: 1. DCIT,CC-4(1), Kolkata, Aayakar Bhawan Poorva, 110, Shantipally, 4th Floor, Kolkata-700107. 2. M/s Maan Capital Services Pvt. Ltd., 58/1, Sarat Bose Road, Kolkata-700025. 3..C.I.T.(A)- 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.