ACIT, NEW DELHI vs. M/S. K.G. FINVESTS PVT. LTD., NEW DELHI

Revenue - arise out of the order passed by the CIT(A) on 14.10.2013 in relation to the A.Y. 2004-05.

Notice u/s 142 was issued and eventually, the assessment was completed on total income of Rs.33,43,390/- as against the returned income of Rs.13,390/-, thereby making an addition of Rs.33,30,000/- on account of unproved share application money received from various persons. The assessee challenged initiation of proceedings u/s 153A before the ld. CIT(A), primarily, contending that no warrant of search was executed on the assessee company. The ld. CIT(A) dismissed such contention. Thereafter, he dealt with the addition made u/s 68 of the Act on merits. Out of total addition of Rs.33,30,000/- made by the Assessing Officer, the ld. CIT(A) deleted the addition to the tune of Rs.30,80,000/- and sustained the remaining addition of Rs.2,50,000/-. Both the sides are in appeal on their respective stand points. The assessee, in its appeal, has, inter alia, challenged the initiation of proceedings u/s 153A of the Act.

“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 ………”

Finvest & Trade Pvt. Ltd.’ with PAN AAACK4032H. The assessee objected to such notice and shot a letter dated 14.09.2010 to the Assessing Officer contending that no search was initiated u/s 132 on it and, hence, the notice issued u/s 153A be withdrawn. The Assessing Officer replied vide his letter dated 17.9.2010, a copy of which has been placed on page 51 of the paper book. This letter of the Assessing Officer was again addressed to the Principal Officer of ‘M/s K.G.

Finvest & Trade Pvt. Ltd.’ with PAN AAACK4032H. Through this letter, the Assessing Officer conveyed that the assumption of jurisdiction u/s 153A of the Act was valid. To justify his point, the AO annexed a copy of Form No. 45, being the Warrant of authorisation u/s 132 of the Act issued by the Director of Income-tax, which is available on page 52-53 of the paper book. It can be seen that such warrant of authorization was issued in the name of `M/s Northern Strips 7 Ltd., M/s Super Plastic Coats Pvt. Ltd. & others as per annexure.’ The said annexure contains names of six parties including ‘K.G. Finvest and Trade Ltd.’ The address given on the Warrant of authorization is 1-2, Central Market, West Avenue Road, Punjabi Bagh, New Delhi. The assessee returned its reply dated 24.9.2010 to the Assessing Officer, whose copy is available on page 54 of the paper book, contending that the warrant contains the name of ‘K.G. Finvest & Trade Ltd.’, as against the its name of ‘K.G. Finvest Pvt. Ltd.’ It was also asserted that none of its directors had any directorship in the two companies mentioned in Form No.45 or any of the other five companies enumerated in the annexure.

The Assessing Officer replied vide his letter dated 30.09.2010 that the Permanent account number referred to in the report of ADIT (Inv.), New Delhi pertained to the assessee company and, hence: ‘the intended search is on M/s K.G. Finvest Pvt. Ltd.’ The assessee was directed to file return of income u/s 153A. Pursuant to such letter, the assessee filed a return and 8 the assessment was finalized. The above correspondence between the assessee and the AO took place before the completion of assessment on 28.12.2010. From the above correspondence, it becomes palpable that the warrant of authorization included the name of `K.G. Finvest and Trade Ltd.’, whereas the assessee’s name is `K.G. Finvest Pvt. Ltd.’; the address given on the warrant of authorization is 1-2, Central Market, West Avenue Road, Punjabi Bagh, New Delhi, as against the assessee’s address of 10, 3rd floor, Satya Niketan, New Delhi; and the assessee categorically submitted before the Assessing Officer that none of its directors had any directorship in the companies named in the warrant of authorization and its annexure, which was not controverted by the Assessing Officer in his later letter. These facts have also not been disputed by the ld. DR. When the lapses, as highlighted by the assessee, became known to the AO, he coined a new concept of `intended search’ on the assessee, which is unknown to the law. There is either a search or no 9 search on a person. Not being searched, a person cannot suffer the consequences of an `intended search’, which is not initiated.

We have gone through the copy of Warrant of authorization in this case, from which it is apparent that neither the assessee is named therein nor its address is given in it. Even, there is no mention of any permanent account number of the assessee in that.

Name given at serial no. 17 of this list is `M/s K.G. Finvest & Trade Ltd.’, which is not the assessee. It is simple that if a warrant of authorization is issued in the name of A, the AO cannot make assessment u/s 153A in the hands of A1, A2, A3 etc., who are not named in the warrant of authorisation. It is true that PAN of the assessee is appearing in the above Chapter-7 documents, which is not the warrant of authoristion, but the corresponding address column in such document has also been left blank. Law contemplates initiation of search on a person u/s 132 of the Act and not on the permanent account number. Even if a wrong permanent account number is taken into consideration, but, a correct person is subjected to search, 12 assessment has to be framed in terms of section 153A of the Act. Conversely, if a search is not initiated on a person u/s 132, but, his PAN is wrongly mentioned in the documents, obviously, there can be no question of notice u/s 153A to be followed by assessment under this section. The crux of the matter is that unless a searched is initiated u/s 132 or requisition is made u/s 132A on a person, no jurisdiction can be assumed for making assessment by issuing notice u/s 153A of the Act. Page 2 of the Departmental paper book, which is Chapter-4 containing a list of 15 persons in whose names warrants of authorisation were issued u/s 132 of the Act, does not carry the name of the assessee.

In the given circumstances, we have no difficulty in drawing an inference that there is no material indicating the actual conduct of search on the assessee. Not only the assessment order, but also the impugned order, do not refer to any material or evidence to prove the factum of actual taking place of search on the assessee. It transpires from the above 14 discussion that neither any search was `initiated’ nor `conducted’ on the assessee.

80 taxmann.com 23(SC).

In that case, one Late Shri Girishbhai K. Mehta passed away on 11.10.1998. A search warrant was issued by the Director of Investigation in the name of the deceased on 27.09.2001.

Search at the residential premises of the deceased was carried out. On seeing the authorization, it was pointed out to the search party by his son, Sh. Gunjan Girishbhai, that the person in whose name the search warrant was issued had passed away long back and therefore, no search could be effected. Despite that, the search and seizure proceedings continued though the search party took note of the said fact inasmuch as a list of investments and seized papers prepared subsequently carried the heading "Late Shri Girishbhai K. Mehta". Thereafter a warrant of panchnama came to be drawn in the name of deceased person and cash of Rs.25,000/ was seized and also various other documents. Assessment was completed in the name of deceased at Nil income under section 158BC by an order dated 11.09.2003. Thereafter a notice dated 04.11.2003 was issued in the name of Gunjan Girishbhai under Section 158BD of the Act directing him to file block assessment return 16 of income. At that stage, Gunjan Girishbhai preferred the petition under Article 226 of the Constitution of India, praying i) to quash the warrant of authorization issued under section 132; ii) to quash the assessment order dated 11.09.2003 framed under section 158BC of the Act and iii) to quash the notices dated 04.11.2003 issued under section 158BD of the Act. The Hon’ble High Court noticed that in so far as the challenge to the warrant of authorization issued under section 132 of the Act and consequently to quash the assessment order dated 11.09.2003 framed under section 158BC of the Act was concerned, the same was mainly on the ground that the said warrant of authorization issued under section 132 of the Act was in the name of a dead person i.e. Late Shri Girishbhai K.

Mehta. The Hon’ble Court noticed that as a part of search in the Nirma Group, the residential premises of deceased person was covered under section 132 of the Act as the said deceased person was a director in an investment company of the group.

It was noticed that though the authorization was in the name of 17 the deceased, but the search warrant was issued for the correct address of the deceased. It was also noted that at the time of search of the aforesaid premises, Gunjan Girishbhai signed the panchnama, claiming to be the heir of deceased person. Not only that even thereafter when the proceedings under section 158BC of the Act came to be initiated, no protest was raised by the petitioner and on the contrary, the return of the income for the block period was filed on 03.10.2002 and the same was also signed by him and thereafter the assessment order determining the income at "NIL" was passed on 11.09.2003.

Since the search warrant was issued for a premises as a part of search in Nirma Group, the Hon’ble High Court held that it could not be said that such search warrant was null and void.

The Hon’ble High Court then espoused the challenge to the notice u/s 158BD on the ground that as the warrant of authorization issued under section 132 of the Act was per se illegal as it was against a dead person, the search could no longer be valid and therefore, chapter XIVB of the Act would 18 become inapplicable and as such no notice u/s 158BD would stand. Rejecting such a contention, the Hon’ble High Court noted that notice u/s 158BD was served on Gunjan Girishbhai, and even if it was presumed that the authorization for search under section 132 of the Act was bad and illegal as the same was against the dead person, the proceedings u/s 158BD could not be declared as invalid on the ground of invalidity of search warrant because there was no requirement u/s 158BD that there must be a legal and/or valid search under section 132 of the Act. As such, Gunjan Girishbhai was held to be not entitled to any relief with respect to the challenge to the notice under section 158BD of the Act. The Hon’ble Apex Court has since dismissed the SLP in Gunjan Girishbhai Mehta (supra). Their Lordships have noted in para 4 of the judgment that the point urged before it was that if the original search warrant was invalid the consequential action under section 158BD would also be invalid. Rejecting such a contention, the Hon’ble Summit Court held that : `The issue of invalidity of the search 19 warrant was not raised at any point of time prior to the notice under section 158BD. In fact, the petitioner had participated in the proceedings of assessment initiated under Section 158BC of the Act. The information discovered in the course of the search, if capable of generating the satisfaction for issuing a notice under Section 158BD, cannot altogether become irrelevant for further action under Section 158BD of the Act.’

Mere failure to mention the name of the petitioner in ‘Panchnama’ was held to be not affecting the validity of the search. Au contraire, the facts of the instant case are absolutely distinguishable. We are concerned with a situation in which neither any warrant of authorization was issued in the name of the assessee nor any search had actually taken place, much less the finding of any incriminating material. As such, we hold that this judgment does not help the Revenue. 24

However, we are again not convinced with the point put forth on behalf of the Revenue. It is seen that notice u/s 153A of the Act was issued by the Assessing Officer on 25.08.2010.

The assessee objected to the same vide its letter dated 14.09.2010, contending that the provisions of section 153A were not attracted as no search was initiated on it u/s 132. It is vivid from the above dates that the assessee raised objection to the jurisdiction of the Assessing Officer within the stipulated period of 30 days from the date of notice u/s 153A. When pointed out, the ld. DR took the argument to a new level by contending that section 124 talks of raising objection within 30 days from the date of notice u/s 143(2) and 142(1) and not the notice u/s 153A. Since the relevant notice in this case was issued on 11.10.2010, he argued that in the absence of the assessee objecting to the same within 30 days from this date, the plea of lack of jurisdiction could not be taken up.

In Kapil Jain (supra), search was conducted at the premises of the father of the assessee. Notice u/s 158BC was issued on the assessee. Subsequently, the case was transferred to another Circle. Jurisdiction of the Assessing Officer to issue notice u/s 158BD read with section 158BC was challenged. The same was accepted by the Tribunal. In further appeal, relying on 27 section 124(3) of the Act, the Hon'ble High Court held that the plea of transfer was not raised by the assessee `within one month from which he was served notice u/s 158BD’ of the Act.

As such, the Tribunal order was set aside.

There is no dispute that the assessee did raise objection within one month from the date of notice u/s 153A. As such, we are not inclined to accept the contention advanced by the ld. DR in this regard.

We have referred to the correspondence between the assessee and the Assessing Officer, which amply shows that the assessee did raise objection before the Assessing Officer in this regard. Thereafter, the ld. CIT(A) relied on the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Anil Kumar Bhatia (2013) 352 ITR 493 (Del) for rejecting the assessee’s contention. This judgment, in our considered opinion, has no application to the facts of the instant case inasmuch as the proposition laid down in that case is that the Assessing Officer has power u/s 153A to make assessment for all the six years and compute total income including undisclosed income notwithstanding that the assessee filed return before the date of the search. Admittedly, in that case, 29 the search was conducted on the assessee, but, no document or incriminating material except one unsigned undertaking for the loan was found. Contrary to that, the case of the assessee before us is that no search was conducted at all on it. Thus, this judgment is not applicable. Thereafter, the ld. CIT(A) relied on the case of Ashok Chadha vs. ITO (2011) 337 ITR 399 (Del). That judgment is, again, of no consequence because of the proposition laid down therein to the effect that no notice was required to be issued u/s 143(2) of the Act which is obviously not an issue before us. The last reliance of the ld. CIT(A) is on the judgment of the Hon'ble Supreme Court in the case of Pooran Mal (supra) in which it has been laid down that even though search and seizure was in contravention of the provisions of section 132, but, the material seized can be used against the person from whose custody it was seized. This judgment, again, does not support the case of the Revenue any further for the reason that no incriminating material worth the name could have been seized 30 from the assessee as the search itself was not conducted. Ergo, it is abundantly clear that the view canvassed by the ld. CIT(A) in validating the issue of notice u/s 153A followed by the assessment under this section, cannot be countenanced.

The ld. D.R., although supported the order of the Assessing Officer, but could not controvert the fact that tax effect involved in this appeal is less than Rs.10,00,000/-. Going by the prescription of the aforenoted Circular, we are of the view that the Revenue should have either not filed the instant appeal before the Tribunal or withdrawn the same as the tax effect in this appeal is admittedly less than the prescribed limit for not filing the appeals. From para 10 of the above Circular it is overt that the Instruction is applicable to the pending appeals also with retrospective effect and there is a clear-cut direction to the Department to withdraw or not press such appeals filed before the ITAT wherein tax effect is less than Rs.10,00,000/-.

Ex conseqeunti, we dismiss the instant appeal on this score as well.

Order Pronounced in the open Court on 28.04.2017.