ACIT, NEW DELHI vs. MKR CONSTRUCTION (P) LTD., NEW DELHI

ORDER PER AMIT SHUKLA, JUDICIAL MEMBER:

The aforesaid appeal and cross objection has been filed by the revenue as well as by the assessee against impugned order dated 24.7.2013, passed by the Ld. CIT (Appeals)-1, New Delhi for the quantum of assessment passed u/s 143(3) read with section153A for the A.Y. 2004-05.

“1 .That the Commissioner of Income Tax (Appeals) eared in law in deleted addition of unexplained cash credit of Rs.3,28,07,000/- received as share application money, share premium an share capital .

2. That the commissioner of Income Tax (Appeals) erred in law and on facts of the case in deleting addition of Rs. 1,64,035/- being 0.5% of the amount, paid as commission of lieu of accommodation entry. 3(a) The order of the CIT (A) is erroneous and not tenable in law and on facts, b) The appellant craves leaves to add, alter or amend any/a// of the grounds of appeal before or during the course of the hearing of the appeal.”

4. Since the cross objections raised by the assessee goes to the very legality/root of the addition made in the assessment order passed u/s 153A, therefore, at the outset we are proceeding to adjudicate the cross objections of the assessee. The brief facts qua the legal issues raised in the cross objection are that, the assessee company had filed its return of income for the A.Y. 2004-05 u/s 139(1) on 1.11.2004, declaring ‘nil’ income. Such return of income was duly accompanied by statement of taxable income as well as audit report and other financial statements. It has been informed by the Ld. Counsel for the assessee that no notice u/s 143(2) was issued within the statutory time limit, hence the return of income stood finally assessed and had attained finality. Later on, a search and seizure action u/s 132(1) was carried out in Mahesh Mehta Group cases on 30.6.2009, in which the assessee company was also covered. At the time of search the assessment for the A.Y. 2004-05 had attained finality and was not pending and hence in terms of second proviso to section 153A it remained unabated. The ld. counsel pointed out that the impugned additions which have been made in the impugned assessment order relates to unexplained cash credits on account of share application money which has been added by the AO u/s 68, being sums aggregating to Rs. 3,28,07,000/- and expenditure on commission @0.5% on ad hoc basis, on the ground that assessee must have paid commission for accommodation entries. Both these additions are not based on any material or information gathered during the course of search, but from the records already disclosed in the balance sheets. Even in the impugned assessment order there is no whisper about any incriminating material found during the course of search in relation to the share application money or any evidence that it’s some bogus transactions or it has been received through accommodation entries. He pointed out that even in the order of the Learned CIT (Appeals) there is a categorical finding that no evidence was found in the course of search to indicate that share application money was non genuine. In support, he drew our attention to finding of the Ld. CIT (Appeals) given in para 4.2 at page 19 of the appellate order. Thus he submitted that, whence there is no incriminating material relating to impugned addition made by the Assessing Officer found during the course of search, then such an addition cannot be made in the assessment framed u/s 153A.

5. As required by the Bench the ld. counsel was asked to provide the copy of ‘Panchnama’ as well as copy of statement recorded u/s 132(4), to verify whether any incriminating documents were found or seized relating to share application money qua the assessment year 2004-05. In response the ld. counsel had submitted the photo copies of ‘Panchnama’ as well as inventory of material seized or found as well as statement recorded u/s 132(4) of Shri Mahesh Mehta. From the Panchnama he pointed out nothing relating to share application money was found during search. He also drew our attention to various questions and answers in the statement recorded during search and submitted that neither there is any reference of share application money nor anything is mentioned about the assessee company linking with any document seized for the A.Y. 2004-05. In the statement, the disclosure of sum of Rs. 60.80 crore was made in the case of various assessees but nothing has been found or surrendered relating to any assessee nor there do any mention about share application money. Thus, he submitted that the assessee’s contention that nothing incriminating has been found in the search relating to the impugned addition for the present assessment year is substantiated from record, therefore no addition can be made within the scope of assessment u/s 153A. In support of this proposition, he strongly relied upon the decision of Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawala (2016) 380 ITR 570; and latest Hon'ble Delhi High Court decision of in the case of Pr. CIT vs. Meeta Gutgutia, Prop. M/S. FERNS N’ PETALS, in and 310/2010, vide judgment and order dated 25.5.2017. He submitted Page 4 of 15 that in the latest judgment, the Hon'ble High Court have considered not only the decision of Hon'ble Delhi High Court in the various cases on this point but also judgments of the various other High Courts.

6. On the other hand the ld. CIT DR, strongly objected to the filing of the Cross Objection by the assessee and submitted that same is not maintainable, because the assessee had not raised this ground before the Learned CIT (Appeals) and once this issue has not been challenged before the Ld. CIT (Appeals) nor any specific ground has been raised that the impugned addition is beyond the scope of assessment u/s 153A, the assessee cannot challenge this issue by way of cross objection. Thus, he strongly objected to the grounds raised

in the cross objection. On merits, he submitted that once the Assessing Officer is required under the law to assess or reassess for the assessment years covered u/s 153A, then Assessing Officer has all the powers to examine all the issues, including the issues arising out of from the original return of income or assessment. The Assessing Officer has unfettered power u/s 153A to assess or reassess the income of the assessee and in support he strongly relied upon the decision of the Hon'ble Delhi High Court in the case of CIT vs. Anil Kumar Bhatia reported in 352 ITR 493 and drew our attention and observation of Hon'ble High Court given in paras 20 and 21. He submitted that this decision of Hon'ble Delhi High Court should prevail over the subsequent decisions. He further relied upon the decision and judgment of Hon'ble Kerala High Court in the case of E.N. Gopakumar vs. CIT (C) 390 ITR 131 wherein judgment of Anil Kumar Bhatia (supra) has been followed.

“13. In the impugned order, the ITAT relied on the decision of this Court in Regency Creations Ltd. (supra) and allowed the Revenues appeals. The ITAT restored the order of the AO disallowing the claim made by the Assessee under Section IOB of the Act. While taking up the cross- objections, although the delay in filing was condoned, the ITAT declined to permit the Assessee to maintain the cross objections by following the decision of the Coordinate Bench of the ITAT in ITO v. Neetee Clothing (P)Ltd. [2010] 129 TTJ 342 (ITAT [Del]), on the ground Page 6 of 15 that since the Assessee had not urged the plea of being entitled to the benefit under Section 10 A of the Act before the CIT (A), it could not be permitted to urge such plea for the first time before the ITAT.

"Now, adverting to the rights of the respondent in an appeal, we start with the basic idea that, if a party appeals, he is the party who comes before the Appellate Tribunal to redress a grievance alleged by him. If the other side has a grievance, he has a right to file a cross-appeal (and under the Civil Procedure Code and the I.T. Act of 1961, a memorandum of objections). But, if no such thing is done, he is deemed to be satisfied with the decision. He is, therefore, entitled to support the judgment of the first officer on any ground but he is not entitled to raise a ground which will work adversely to the appellant. In fact such a ground may be a totally new ground, if it is purely one of law, and does not necessitate the recording of any evidence, even though the nature of the objection may be such that it is not only a defence to the appeal itself but goes further and may affect the validity of the entire proceedings. But the entertainment of such a ground would be subject to the restriction that even if it is accepted, it should be given effect to only for the purpose of sustaining the order in appeal and dismissing the appeal and cannot be made use of, to disturb or to set aside, the order in favour of the appellant (See Bamasi v. CIT). This liberty to the respondent is reserved by Rule 27 of the Tribunal Rules.

We have next to consider the powers of the Tribunal while disposing of the appeal. Rule 12, earlier referred to, also lays Page 7 of 15 down that the Tribunal, in deciding an appeal, is not confined to the grounds set forth in the memorandum of appeal or those which the appellant may urge with its leave. It can decide the appeal on any ground provided only that the affected party has an opportunity of being heard on that ground. But it has been laid down in a number of cases that this rule does not enable the Tribunal to raise a ground, or permit the party who has not appealed to raise a ground, which will work adversely to the appellant and result in an enhancement."

"5. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the tribunal for the first time, so long as the relevant facts are on record, in respect of that item. We do not see any reason to restrict the power of the Tribunal under Section 254 only to decide the grounds which arise from the order of / the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department has a right to file an appeal/cross- objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier."

, we find from the perusal of material placed on record in the form of panchnama and statement recorded u/s 132(4), there is no reference of any material found or seized relating to share application money received by the assessee nor there is any whisper in the statement recorded on 1.7.2009 of Shri Mahesh Mehta on share application money. In the entire statement whatever material and documents which has been referred, mostly pertains to assessment years 2008-09, 2009- 10 and 2010-11 and nothing pertains to 2004-05. Apart from that, there is no reference at all about share application money received by the assessee in this year. From the perusal of the assessment order also, we find that nowhere the Assessing Officer has mentioned any incriminating document or material found during the course of search so as to remotely suggest that the share application money received by the assessee during the course of A.Y. 2004-05 is either bogus or it was received through any hawala transaction or is by way of accommodation entries. In fact as pointed out by the ld. counsel the Ld. CIT (Appeals) too has given a very categorical finding that no evidence was found in the search to indicate that share application money was non-genuine. Thus, it can be safely inferred that the additions aggregating to Rs. 3,29,71,040/- is not based on any incriminating material or documents found during the course of search indicating that the share application money is received by the assessee are bogus or have been received by way of hawala transaction or through accommodation entries. The assessment which is unabated at the time of search and had attained finality, then while making the reassessment u/s 153A it is incumbent upon the Assessing Officer to make the addition only on the basis of incriminating documents found during the course of search and not on the material which is already a part of the assessment records or already stands assessed. Now under the jurisdiction of Hon'ble Delhi High Court it is quite a settled proposition that if the assessment which have not been abated at the time of search then no addition can be made in absence of any incriminating material and in such situation the completed assessment should be reiterated. The principle laid down by the Hon'ble Delhi High Court in the case of Kabul Chawala has been summarized as under:- Page 10 of 15

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 153 A (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 AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The 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 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 153 A 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 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 Page 11 of 15 of search) and the word 'reassess' to completed 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 AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A 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.”

“62. Subsequently, in Principal Commissioner of Income Tax- 1 v. Devangi alias Rupa {supra), another Bench of the Gujarat High Court reiterated the above legal position following its earlier decision in Principal Commissioner of Income Tax v. Saumya Construction P. Ltd. {supra) and of this Court in Kabul Chawla Page 12 of 15 (supra). As far as Karnataka High Court is concerned, it has in CIT v. IBC Knowledge Park P. Ltd. {supra) followed the decision of this Court in Kabul Chawla (supra) and held that there had to be incriminating material qua each of the AYs in which additions were sought to be made pursuant to search and seizure operation. The Calcutta High Court in CIT-2 v. Salasar Stock Broking Ltd. {supra), too, followed the decision of this Court in Kabul Chawla (supra). In CIT v. Gurinder Singh Bawa {supra), the Bombay High Court held that:

6...once an assessment has attained finality for a particular year, i.e., it is not pending then the same cannot be subject to tax in proceedings under section 153A of the Act. This of course would not apply if incriminating materials are gathered in the course of search or during proceedings under section 153A of the Act which are contrary to and/or not disclosed during the regular assessment proceedings.

We are not concerned with a case where no incriminating material was found during the search conducted u/s 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.

Hence, the reliance placed by the Learned CIT DR on this judgment is wholly misplaced.

Order pronounced in the open court on 10.07.2017.