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Income Tax Appellate Tribunal, LUCKNOW BENCH “B”, LUCKNOW
Before: SHRI A. D. JAIN & SHRI T. S. KAPOOR
PER T.S. KAPOOR, A.M.: This is assessee’s appeal against the order of the ld. CIT(A), Kanpur-4, dated 07.09.2021 for the assessment year 2017-18, raising the following grounds:
“1. THAT THE ASSESSMENT FRAMED IS VOID-AB-INITIO AS BEING PASSED ON THE BASIS OF INVALID AND UNLAWFUL APPROVAL U/S 153D BY ADDITIONAL CIT, CENTRAL KANPUR AND ASSESSMENT DESERVES TO BE QUASHED BY YOUR HONOUR AND MAY BE DECLARED AS NULLITY OR ANY OTHER RELIEF WHICH YOUR HONOUR MAY DEEM AS APPROPRIATE TO BE GIVEN TO THE ASSESSEE IN THE GIVEN CIRCUMSTANCES OF THE CASE AS THE ORDER IS PASSED WITHOUT APPLICATION OF MIND.
2. THAT THE LD. CIT(A) AS WELL AS LD.AO HAS ERRED IN CONFIRMING ADDITION OF RS. 11,12,600/- WITHOUT REJECTING BOOKS OF ACCOUNT Page 2 of 11 EVEN THOUGH THE SAME HAS BEEN EXPLAINED DURING THE ASSESSMENT PROCEEDING AS WELL AS APPELLATE PROCEEDING.
3. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ALLEGED COMMISSION OF RS.9,00,000/- TO BE EARNED AND IS OUT OF RS. 11,12,600/- FOUND FROM THE POSSESSION OF APPELLANT WHEREAS THE APPELLANT HAS NEITHER RECEIVED ANY COMMISSION OF RS.9.00.000/- NOR THE AMOUNT OF RS. 11,12,6007- FOUND FROM THE POSSESSION OF APPELLANT IS UNEXPLAINED.
4. THAT THE LD.CIT(A) AS WELL AS LD.AO HAS ERRED IN MAKING ADDITION WITHOUT ANY CORROBORATIVE MATERIAL OR EVIDENCE IN SUPPORT OF THE ADDITION ESPECIALLY WHEN THE ASSESSMENT HAS BEEN COMPLETED SUBJECT TO AND CONSEQUENT TO SEARCH & SEIZURE OPERATION CONDUCTED IN THE ASSESSEE GROUP.
5. THAT THE LD.AO AS WELL AS LD. CIT(A) HAS ERRED IN MAKING ADDITION WITHOUT REJECTION OF BOOKS OF ACCOUNT MAKING THE ADDITION UNWARRANTED AND UNLAWFUL WITHOUT LAWFUL JURISDICTION.”
The Learned A.R., of the assessee, at the very outset, submitted that the issue involved in the present appeal is duly covered in favour of the assessee by the order of the ITAT, Lucknow Bench in IT(SS)A No. 650/Lkw/2019, order dated 20.09.2021, in the case of Shri Naresh Kumar Jain for the assessment year 2017-18. Explaining the facts of the case, the ld. AR submitted that assessment in this case has been completed by Assessing Officer who is below the rank of ACIT/DCIT and therefore necessary approval was required to be obtained as per the provisions of Section 153D of the Act. It was submitted that despite approval has been obtained but such approval is not approval in the eyes of law as the approval has been obtained without application of mind and in a mechanical way in a number of cases together 30.12.2018 and on the same day the assessment order has been passed and in this respect our attention was invited to a consolidated approval letter of Central Circle cases u/s. 153D by Additional Central, Kanpur wherein approval was granted in 72 cases together and our attention was invited to S.No.11 where the name of the assessee was mentioned. It was submitted that the ld. CIT, Central Circle has given approval mechanically just to fulfill the administrative requirement and has not applied his mind to each and every case. It was submitted that on the same date of approval dated 30.12.2018 the Page 3 of 11 approving authority was required to go through voluminous pages approximately running into more than 15000 pages including seized maerial, appraisal report and replies of the assessee. Therefore, it was submitted that the case of the assessee is prejudiced due to mechanical approval granted u/s. 153D of the Act. The ld. AR submitted that failure to conduct any independent enquiry has resulted into making an erroneous addition relating to an RTGS amount mentioned on a loose paper. It was submitted that had the approving authority applied his mind he would have found that RTGS amount mentioned in the loose paper did not relate to the assessee as it was not reflected in the bank account of the assessee. The ld. AR submitted that mandatory provisions of Section 153D are pari materia to provisions of Section 151 where sanction is required for issue of notice u/s. 148 and wherein sanction is required for issuing of notice u/s. 148 for each assessment year and after due application of mind. It was submitted that the Lucknow Bench of the Tribunal in the case of Shri Naresh Kumar Jain vs. DCIT, Kanpur in IT(SS)A No. 650/Lkw/2019 vide order dated 20.09.2021 under similar facts and circumstances, held that the assessment order has been passed without following the requirement of approval u/s. 153D of the Act. It was further submitted that in the case of assessee and in the case law relied upon by the appellant the approval has been given collectively on the same day i.e. 30.12.2018 and therefore, the case of the assessee is duly covered by the said decision.
Learned D. R. even though relied on the orders of the authorities below but did not disagree that the issue involved in the present appeal is not covered in favour of the assessee by the order of Lucknow Bench of the Tribunal.
We have heard the rival parties and have gone through the material placed on record. We note that assessment in this case has been completed on 30.12.2018 and approval has also been obtained u/s. 153D on 30.12.2018 itself. Such approval has been obtained in 72 cases together, which is apparent from the consolidated sanction letter placed on record and the name of the assessee appears at S.No.11. While granting approval the approving authority has not applied his mind and has given Page 4 of 11 approval mechanically, which fact is apparent from the fact that had the approving authority applied his mind he would have noticed from the documents that the amount mentioned in the loose paper relating to RTGS was not there in the Bank account reflected in the books of account of the assessee and therefore did not relate to the assessee. It was submitted that non application of mind by approving authority has caused prejudice to the case of the assessee. We noted that the issue involved in the present appeal is duly covered in favour of the assessee by the order of ITAT, Lucknow Bench in the case of Shri Naresh Kumar Jain in IT(SS)A No. 650/Lkw/2019, for Assessment Year 2017-18 vide order of the Tribunal dated 20.09.2021. The relevant findings of Tribunal are reproduced below: 3. Arguing Ground no.3 first, the ld. Counsel for the assessee has contended that in the cases of search, before passing assessment orders framed under section 153A, 153C or 143(3) of the Income Tax Act, 1961, approval under section 153D of the Act is required to be granted by the JCIT/Addl. CIT. In this regard, the ld. Counsel for the assessee has invited our attention to CDBT Circular 3/2008, dated 12.3.2008 (APB:672 & 673). The ld. Counsel for the assessee has further submitted that the Joint Commissioner of Income Tax (the Approving Authority) is required to see and peruse all search material, including the incriminating material, seized document, appraisal report, enquiry made by the Investigation Wing and various enquiries made by the ld. A.O. during the Assessment Proceedings and also the replies submitted by the assessee; that the Joint Commissioner of Income Tax is required to apply his mind on as to whether all search material has been properly appreciated by the A.O. while framing the draft Assessment Order; that the approval cannot be a mere discretion or formality, but is mandatory, being a quasi-judicial function and it should be based on application of mind and proper reasoning; that the facts of this case are identical to the facts contained in the order of ITAT in IT(SS)A No. 639/LKW/2019, in ‘Shri Navin Jain vs. Dy. CIT’, and therein also the approval u/s 153D of the Act was given through the same approval letter under section 153D of the Act, F. No. Addl. CIT(CR)/KNP/Approval u/s 153D/2018-19/1521, which was considered by the ITAT, Lucknow Bench in ‘Shri Navin Jain vs. Dy. CIT’, in IT(SS)A Nos.639 to 641/LKW/2019, that the arguments as put forth by the assessee before the Tribunal in the above referred case are reiterated and the same may be considered for deciding this appeal; and that due to the mechanical approval by the JCIT, the assessee’s case stands prejudiced.
Page 5 of 11 4. The ld. Counsel for the assessee has also placed on record the summary of the factors demonstrating such prejudice, which are as under:- a. The JCIT failed to consider that the assessee, aged about 77 years, was retired from Ministry of Defence, and drawing Pension from Central Government and had no background of speculative business of trading in gold and bullion or any commodity, because during service as per Central Government Conduct Rules, a Government Servant cannot indulge in any type of speculative business activities. b. The JCIT failed to appreciate that the assessee had retracted the alleged statement purportedly recorded under section 132(4) of the Income Tax Act, 1961 by Shri Vijay Ranjan Sinha, vide letter dated 08.09.2016 filed before I.T.O. Ward-3(3), Kanpur (where the PAN of the assessee was lying), and also filed an affidavit during the course of assessment proceedings vide reply dated 24.10.2018 to the effect that the post declaration was made under coercion. In the absence of any adverse finding brought on record by the ld. A.O., this affidavit ought to have been accepted on its face value in accordance with law laid down by the Hon'ble Supreme Court in the case of Mehta Parikh & Company Vs. CIT, 30 ITR 181. c. The JCIT also failed to appreciate that in clause 6 of the Panchnama, it is clearly stated that the authorized official, Shri G.S. Saxena, DCIT, recorded the statement of Shri. Navin Jain and Shri. Naresh Kumar Jain on oath under section 132(4) of the Income Tax Act, 1961, however, the alleged purported statement recorded under section 132(4) of the Income Tax Act, 1961, on the basis of which the surrender of income and addition was made in the assessment order, is recorded by Shri Vijay Ranjan Sinha on the alleged statement recorded under section 132(4) of the Income Tax Act, 1961. The JCIT also failed to consider that in contravention to Rules 112(6) and 112(7) of the Income Tax Rules, 1962, and CBDT Search Manual, the signature of independent witnesses were not taken on the aforesaid statement, clearly establishing that the statement recorded has no evidentiary value and supports the retraction of the assessee. d. The JCIT failed to consider that the statement of Shri. Navin Jain purportedly recorded by Shri Vijay Ranjan Sinha, one of the Authorized Officer, has no evidentiary value, since the statement was forcibly recorded out of coercion and subsequently retracted by the assessee within a short span of time.
Page 6 of 11 e. The JCIT failed to consider that the AO has not made any enquiry from independent witnesses in relation to retraction and affidavit submitted by the assessee. f. The JCIT failed to observe that although the alleged diary is stated to have been seized on 23.08.2016 but while recording the purported statement of Shri. Navin Jam, questions relating to alleged diary were asked after two days, i.e., on 25.08.2016 without any plausible reasons. The proceedings as recorded in the statement u/s 132(4) of the Income Tax Act, 1961 clearly show that the statement was continued for 3 days without giving any rest in night on 23rd and 24th of August, 2016 from question No. 26 to 31. Thereafter, only 2 questions relating to cash and jewellery found and gold and silver jewellery were recorded and statement was closed as if the Officers were waiting for the formal declaration of income in the statement. g. The JCIT also failed to observe that while recording the purported statement of Shri. Naresh Kumar Jam, no question except Confirmation of surrender of Rs.21,00,00,000/- was asked by him, clearly establishing coercion on the part of the Revenue Officer. Moreover, basic facts were not enquired about by the Authorized Official, where purchase/sale figures were in hundreds of crores, like Broker or opposite party, record & documents, contract notes, bills, mode of payment, margin money for such huge volume of trading in bullion, physical custody of approximately 75 kgs of gold, which is not common in usual course of investigation and recording of statement by the Departmental Official. h. The JCIT failed to appreciate that neither any physical gold was found during the course of search nor any unexplained gold and silver jewellery was found during the course of search nor any addition was made in the assessment in this regard. i. The JCIT also failed to consider that the statements as recorded u/s 132(4) of the Income Tax Act, 1961 by Shri G. S. Saxena, Dy. C.I.T. mentioned in Clause 6 of Panchnama have not been brought on record by the ld. AO at any stage of the completion of proceedings by the ld. AO u/s 143(3) of the Income Tax Act, 1961. j. The JCIT failed to appreciate that the Ld. A.O. at para 2 on Page 19 of impugned assessment order himself has treated the above alleged trading as speculative business income, which is Page 7 of 11 chargeable under the head "Profits and Gains from Business and Profession", and thereafter invoked the provisions of section 69A of the I.T. Act, 1961 while making the addition of Rs.21 crores, thereby blowing hot and cold in the same breadth, which is not permissible. Moreover, set of loss was also allowed by the ld. Assessing Officer against the profit from the alleged speculative business by making the impugned addition u/s 69A of the Income Tax Act, 1961 k. The JCIT failed to appreciate that the ld. AO made the addition of Rs.81,00,000/- by treating the same as unexplained money, but the assessee was not found to be the owner of "Money" . It is humbly submitted that the "Money" and "Bullion" are two different class of assets. l. The JCIT failed to consider the fact that margin money/security is always calculated on the value of the transactions in relation to the speculative business/commodity trading business, which was indeterminate at the time of making notings in the diary BK- I, alleged to have been found during the course of search and not on the figure of Profit earned from such trading business Thus, the addition of Rs.81,00,000/- made by the ld. AO on account of alleged investment by way of providing margin money @ 20% of the alleged speculative profit is based on surmises and conjectures. m. The JCIT received draft assessment order from the A0 and granted approval u/s 153D and the assessment order was also passed on the same date, i.e., on 30.12.2018 in 67 cases. This fact is evident from the copy of approval letter dated 30.12.2018 and copy of assessment order. n. The JCIT also failed to appreciate the fact that the ld. A0 failed to conduct any independent enquiry or any further investigation and also did not brought on record any adverse material/evidence in relation to documents/evidences submitted by the assessee with respect to the addition of Rs.2,00,00,000/- on account of unsecured loan, are not correct. o. The JCIT also failed to consider the fact of the case that the assessee was not provided with an opportunity for cross- examination and confrontation of the adverse material found in the course of search conducted in the case of Rich Group of cases for explanation or rebuttal at any stage from the date of search, i.e., 23.08.2016 till the completion of the assessment on Page 8 of 11 30.12.2018 with respect to the addition of Rs.2,00,00,000/- on account of unsecured loan. p. The JCIT also failed to consider that the search in the case of Rich Group of Companies was conducted on 28.04.2015 thus, the additions on account of Unsecured Loan made in IT(SS)A No. 650 for the Assessment Year 2017-18, amounting to Rs.2,00,00,000/-, on the basis of entries in BK-2 found during the search of Rich Group showing entries for the period 12/01/2015 to 25/04/2015, i.e., subsequent to this period is without any basis and unsustainable in law and on facts and deserves to be deleted. q. The JCIT also failed to appreciate that in Writ Petition No. 458 & 459 of 2015, filed by M/s Rich Udyog Network Ltd. and Cityon Nano Technology Pvt. Ltd., there was no mention of the name of the company M/s Cityon Solar Ltd. from whom the unsecured loan was received by the assessee in AY 2017-18. Only the question of conversion of survey into search was considered by the Hon'ble High Court. r. The JCIT failed to appreciate that no evidence of payment of cash from the assessee to Rich Group of cases was brought on record by the ld. Assessing officer with respect to the addition of Rs.5,00,000/- being commission @ 2.5% made by the ld. A.O. under section 69C of the income Tax Act, 1961 and the addition was made solely on the basis of surmises and conjectures without bringing on record any cogent material. s. The JCIT also failed to consider that for each unabated and abated assessments, the authorities below and the Approving Authority (JCIT) shall have to verify the incriminating material found during the course of search or the seized material if pertain to the same assessment year and its basis. t. Before granting approval in a matter of few hours of 30.12.2018, the JCIT had to peruse around more than 17800 pages including seized material, appraisal report and replies of the assessee filed during the assessment proceedings on the same day and many more seized material/replies of other assessees’ related to other searches and other groups, which is not possible and against the human probabilities. u. The draft assessment order in respect of each of the assessment year and of each of the assessee is required to be verified and Page 9 of 11 approved by the JCIT as per the provisions of Section 153D of the Income Tax Act, 1961. v. The JCIT passed combined order u/s 153D with respect to different assessee's/group/searches for different assessment years in 67 cases instead of separate order(s) as envisaged under the provisions of Section 153D of the Income Tax Act, 1961. w. The order u/s 153D of the Income Tax Act, 1961 dated 30.12.2018 did not specify that he had perused the assessment records/seized material and replies of the assessee.
5. The ld. Counsel for the assessee further submitted that all the above facts clearly show that the assessee's cases are prejudiced due to the mechanical approval under section 153D of the Income Tax Act, 1961 granted by the Joint Commissioner of Income Tax (Central Range) Kanpur, that such approval is unsustainable in law being mechanical and therefore, the impugned assessment orders passed in consequence thereof, are liable to be quashed. In this regard, he placed reliance on the decision of the ITAT, Lucknow Bench in the case of ‘Shri Navin Jain vs. Dy. CIT’ (supra) in IT(SS)A Nos.639 to 641/LKW/2019, etc., wherein the provisions of Section 153D of the Income Tax Act, 1961 have been explained in detail and the Tribunal has allowed the appeal of the assessee, holding as under in paras 9.9 to 11 of its order:- “9.9 In this case, the Addl. Commissioner has showed his inability to analyze the issues of draft order clearly stating that no much time was left as the draft order was placed before him on 31.12.2010 and approval was granted on the same day. In the case before us the Addl. CIT has though not expressly expressed his inability to analyze the issues of draft order but it is abundantly clear that he had not analyzed the issues in the draft order as in the present cases the approval has been given in 67 cases on the same date which is humanly impossible If an ACIT cannot express his opinion on a single case in one day how another ACIT can express his opinion in 67 cases in a single day. 9.10 The Hon'ble Bombay High Court has dismissed the appeal of the Department filed against the above order of the Mumbai Tribunal in the case of Shreelekha Damani vide judgment dated 27/11/2018. The findings of Hon'ble Bombay High Court are reproduced below:
Page 10 of 11 Similarly we find that Hon'ble. Supreme Court in the 10. case of 'Sahara India vs. CIT & Others' [2008] 216 CTR 303 (S.C.): [2008] 7 DTR (SC) 27: [2008] 300 JTR 403 (SC) while discussing the requirement of prior approval of Chief Commissioner or Commissioner in terms of provision of section 142(2A) of the Act, opined that the requirement of previous approval of the Chief Commissioner or Commissioner in terms of said provision being an inbuilt protection against arbitrary or unjust exercise of power by the Assessing Officer, casts a very heavy duty on the said high-ranking authority to see it that the approval envisaged in the section is not turned into an empty ritual. The Hon'ble Apex Court held that the approval must be granted only on the basis of material available on record and the approval must reflect the application of mind to the facts of the case 11. In view of these facts and circumstances and in view of judicial precedents relied on by Learned AR Ground No. 5 in appeals is allowed and the assessments orders are annulled…. " We find that at page 19 of the aforesaid Tribunal order dated 11. 3.8.2021 in the case of ‘Shri Navin Jain vs. Dy. CIT’ in IT(SS)A Nos.639 to 641/LKW/2019, wherein the approval dated 30.12.2018 of the ACIT, Central, Kanpur has been reproduced, the name of the assessee, i.e., ‘Naresh Kumar Jain’ appears at serial number 24. Therefore, as contended by the ld. Counsel for the assessee, the 12. facts of this case are exactly similar to the facts involved in ‘Shri Navin Jain vs. Dy. CIT’, in IT(SS)A Nos.639 to 641/LKW/2019, wherein also the approval u/s 153D of the Act was given through the same letter F. No. Addl. CIT(CR)/KNP/Approval u/s 153D/2018-19 by the ACIT, Central, Kanpur and the Ground in this regard raised by the assessee was allowed, and the assessment orders were annulled by the Tribunal. While allowing the Ground raised by the assessee, the Tribunal had also considered various cases laws, including that of the Hon'ble Supreme Court.
13. In view of the above, respectfully following the order of the Tribunal in ‘Shri Navin Jain vs. Dy. CIT’ (supra), the grievance of the assessee by way of Ground no.3, is found to be justified and is accepted as such. Nothing further survives for adjudication, nor was any other 14. point argued. In the result, the appeal of the assessee stands allowed.” 15.
Respectfully following the aforesaid order of the Tribunal in IT(SS)A No. 650/Lkw/2019, order dated 20.09.2021, in the case of Shri Naresh Kumar Jain for the assessment year 2017-18, we allow Ground No.1 of the appeal and annual the assessment order having been passed without approval. Nothing further survives for adjudication nor was any other point argued.
In the result, the appeal of the assessee is partly allowed.
(Order pronounced in the open Court on 04/07/2022)