DCIT, NEW DELHI vs. M/S. L.D. CRYSTAL PVT. LTD., NEW DELHI

That followings additions made by the learned Assistant Commissioner of Income Tax are perse without jurisdiction since the same are not based on any material found as a result of search as has been held by Special Bench of Hon'ble Tribunal in the case of M/s All Cargo Global Logistics Ltd. vs. DCIT reported in 137 ITD 287 (SB) (Mum): a) Addition of Rs.1,98,84,400/- u/s 68 of the Act; b) Addition of Rs.35,70,740/- on account of unexplained unsecured loan u/s 68 of the Act.”

Firstly we will deal with the Cross Objection of the assessee. The grievance of the assessee relates to the upholding of the initiation of the proceedings u/s 153A of the Income Tax Act, 1961 (hereinafter referred to as the Act) in the absence of incriminating material.

The facts of the case in brief are that a search and seizure operation u/s 132 of the Act was initiated on 07.01.2010. Thereafter notice u/s 153A of the Act was issued to the assessee on 16.12.2010. In response to the said notice, the assessee submitted that the return declaring Nil income was filed on 15.11.2006. The AO during the course of assessment proceedings, noticed that the assessee had received a share capital of Rs.1,96,85,400/- from the following persons: Name of the person/entity PAN Amount Anuradha Aggarwal AHOPA9255C 2,75,000/- Lajja Devi ABDPA2161L 23,85,000/- 5 & 2016/Del/2014 CO No. 05 & 06/Del/2015 L. D. Crystal Pvt. Ltd. Laxman Dass Aggarwal ACTPA9345H 17,25,000/- Sanjay Bansal AMBPB6182B 57,25,000/- Sanjay Bansal HUF AAHHS1508L 18,00,000/- Abhinav Goel AHMPG7396N 70,000/- Alankar Agencies Pvt. Ltd. AAACA2040F 34,00,000/- Benco Finance & AABCB9349R 8,00,000/- Investment Pvt. Ltd. Bhagyaluxmi Fuits Pvt. Ltd. AACCB6957E 3,00,000/- K M Gandhi Exports Pvt. AAACK4538J 5,55,400/- Ltd. Khinoor Oil Mills Ltd. AABCK6763G 3,00,000/- Prime Capital Market Ltd. AABCP9313M 8,00,000/- Puri Milk & Food Ltd. AACCP3666L 1,50,000/- Purshottam Garg AAHPG8744N 1,50,000/- Rapid Impex Pvt. Ltd. AACCR5081P 1,50,000/- Rehka Sharma AZXPS4694Q 1,00,000/- Rohtas Kumar Aggarwal AAOPA3934F 1,00,000/- S K Bansal AGHPB8689H 2,00,000/- Warner Multimedia Ltd. AABCC0225H 7,00,000/- Total 1,96,85,400/- 8. The AO also noticed that the assessee had received unsecured loans of Rs.35,70,740/-. He was of the view that the assessee company routed back its own undisclosed income to the books of accounts and failed to furnish any information in respect of share capital and unsecured loans. Therefore, the share application money and share premium was unaccounted income of the assessee. He accordingly, made the addition of Rs.1,96,85,400/- (wrongly mentioned as Rs.198,84,400/- in the grounds of appeal

Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted that the assessee had furnished the confirmations, copies of ITR, copies of bank statement which contained details of transaction as well as PAN particulars. Therefore, the remark that the assessee did not submit any document was contrary to the facts. It was also submitted that no action u/s 132 of the Act was carried out in the assessee’s case hence the assessment framed u/s 153A of the Act was bad in law.

The ld. CIT(A) after considering the submissions of the assessee observed that the AO was asked to make available the documents to show that the proceedings u/s 153A of the Act had been correctly initiated. In response the AO furnished the copy of panchnama evidencing the search had taken place in the case of the assessee and same was made available to the assessee. Accordingly, the legal issue was decided against the assessee. As regards to the other issues raised on merit, the ld. CIT(A) observed that the assessment 7 & 2016/Del/2014 CO No. 05 & 06/Del/2015 L. D. Crystal Pvt. Ltd. folder as well as the AO’s observations at page nos. 2 & 3 revealed that the assessee had submitted all the necessary documents to prove the identity of the person (PAN and address), creditworthiness of the entity (copies of bank statements and ITRs) and the genuineness of the transaction (confirmations from the concerned parties). He, therefore, held that the AO contradicted himself at para 4 of page no. 3 of the assessment order. The ld. CIT(A) deleted the addition of Rs.1,96,85,400/- by observing in paras 4.2.6 to 4.2.18 which read as under: “4.2.6 In the correspondence with the assessee there is no mention of the AO having directed the appellant to produce the parties for verification of genuineness of the transactions. I have perused the assessment folder. The order sheet notings are blank and hence there is no evidence to show that the AO required the appellant to produce the parties for verification. Further, the questionnaire issued u/s 142(1) also did not require the appellant to produce the parties for verification. The relevant query in the questionnaire is reproduced below for reference. b) Share capital of Rs. 10460000/- and share application money of Rs.9225400/- has been introduced in, the books of accounts of the company in the first year of operation of the company. In this regard submit complete details about the names and addresses of the persons contributing to the share capital of the company with complete details of source of funds introduced as share capital. Furnish 8 & 2016/Del/2014 CO No. 05 & 06/Del/2015 L. D. Crystal Pvt. Ltd. complete address of Sh. Sanjay Bansal and Sh. Lachman Das who have signed the return of income filed for the assessment year 2006-07 with their PAN and assessment particulars. 4.2.7 Other than the questionnaire referred above, there is no other communication with the appellant seeking any details or asking him to produce any parties for verification. Therefore I do not find any merit in the remark of the AO that "no such documents were submitted nor any of the representatives of the entities mentioned as above had been produced.” 4.2.8 It is also noted that the AO mentions that enquiries were conducted by his office in respect of companies named in the above table whose offices were located in Delhi. Inspector of his office seems to have reported that at the given addresses no person could be contacted who could confirm about the existence of companies. Examination of the assessment folder did not reveal any such report of the Inspector. The assessment order also does not mention the presence of any such report in a written form. The AR has also submitted that no report of the Inspector was ever made available to them. It is also noted here that the AO mentions only about non- availability of persons who could be contacted to confirm the existence of the companies. He does not say that the companies did not exist at those places. In the absence of any report in the assessment folder and also due to failure of AO in confronting such report, if any, to the appellant, it would not be possible to take any adverse view on the issue based on mere remark of the AO without any supporting evidences.

As regards to the addition of Rs.35,70,740/- made by the AO on protective basis. The ld. CIT(A) deleted the addition by observing in paras 4.3.1 to 4.3.3 of the impugned order as under: “4.3.1 In this ground the appellant is agitating against addition of Rs. 35,70,740/- u/s 68 of the Act on protective basis being unsecured loan received from Sri Sanjay Bansal. In the assessment order the AO mentions "source of loans in the hands of Shri Sanjay Bansal requires examination" and proceeds to treat it as unexplained cash credit in the hands of the appellant on protective basis. I do not find any merit in such addition. The appellant has submitted confirmations, bank account statement and the return of income of Shri Sanjay Bansal in support of the unsecured loan received from him. He is also the Director of the appellant company. Facts being so, 14 & 2016/Del/2014 CO No. 05 & 06/Del/2015 L. D. Crystal Pvt. Ltd. if the AO wanted examination of source of loans in the hands of Mr Bansal, he was well within his powers to do so. However it can't be ground to make an addition that too on a protective basis in the hands of the appellant. From the AO's remarks it looks like he wanted to examine the source of source which he is not called for in the assessment proceedings of the appellant. 4.3.2 In the assessment order, there is no mention of any order sheet noting or any letter issued by the AO requiring any other details other than those which were called for in the questionnaire dated 18/07/2011. The relevant query in the questionnaire dated 18/07/2011 is reproduced below. (d) Schedule to 3 to the balance sheet-details about the unsecured loans raised by the company. Please furnish detailed copies of accounts of all the persons with confirmation from them along with their complete address and PAN. 4.3.3 There is no dispute that the appellant had lead all the necessary evidences as required by the AO. Therefore, I do not agree with the AO's action on the issue. The addition of Rs.35,70,740/- made on a protective basis u/s 68 is hereby deleted.”

Now the department is in appeal against the deletion of additions made by the AO and the assessee has filed the Cross Objection. The ld. Counsel for the assessee submitted that the original assessment in this case was framed for the assessment year 2006-07 u/s 143(3) of the Act on 28.11.2008 and thereafter a search took place on 07.01.2010. In the said search no incriminating material was found, the AO made the impugned addition although the assessment was framed earlier u/s 143(3) of the Act after making the 15 ITA Nos. 2015 & 2016/Del/2014 CO No. 05 & 06/Del/2015 L. D. Crystal Pvt. Ltd. proper inquiries (copy of the said assessment order was furnished which is placed on record). The ld. Counsel for the assessee referred to para 3 of the said assessment order dated 28.08.2008 wherein the AO mentioned that: “after having discussion with assessee’s AR and necessary verification of details filed the total income declared by the assessee company at Rs. Nil is accepted.”

It was submitted that the AO while framing the assessment u/s 143(3) of the Act made the necessary verifications relating to the share capital which was disclosed in the books of accounts. It was further submitted that during the course of search proceedings no incriminating material suggesting undisclosed income was found, therefore, the addition made while framing the assessment u/s 153A of the Act was not valid. As regards to the assessment year 2008-09, the ld. Counsel for the assessee submitted that the return of income was filed on 30.09.2008 which was processed u/s 143(1) of the Act and the time limit for issuing the notice u/s 143(2) of the Act was upto 30.09.2009. Thereafter, it was to be presumed that the returned income was accepted by the department. It was pointed out that the search took place on 07.01.2010, therefore, no assessment either for the assessment year 2006-07 or 2007-08 was pending on the date of search and as such in the absence of any incriminating material the 16 & 2016/Del/2014 CO No. 05 & 06/Del/2015 L. D. Crystal Pvt. Ltd. additions made were not justified. The reliance was placed on the judgment of the Hon’ble Delhi High Court in the case of CIT Vs Kabul Chawla reported at (2016) 380 ITR 573

In his rival submissions the ld. DR strongly supported the orders of the authorities below and further submitted that the assessee could not prove the creditworthiness of the share applicant and the depositors. Therefore, the AO rightly made the addition and the ld. CIT(A) was not justified in deleting the same. It was further submitted that the assessment for the assessment year 2008-09 was not completed u/s 143(3) of the Act, so the assessment was not abated. Therefore, the AO rightly framed the assessment u/s 153A of the Act.

We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact no incriminating material was found during the course of search and the time limit to frame the assessment u/s 143(3) of the Act lapsed much before the search which took place on 07.01.2010 while the time period to issue the notice u/s 143(2) of the Act was only upto 30.09.2009. In the instance case, it is an admitted fact that the AO while framing the assessment u/s 153A of the Act made the addition without any incriminating material found during the course of search.

On a similar issue the Hon’ble Jurisdictional High Court in the case of CIT Vs Kabul Chawla (supra) held as under: "''The legal position that emerges on a perusal of section 153A and section 132 of the Income-tax Act, 1961, 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 in respect of whom search was conducted requiring him to file returns for six assessment years immediately preceding the previous year relevant to the assessment year in which the search takes place, (ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such assessment years will have to be computed by the Assessing Officers as afresh exercise. (Hi) The Assessing Officer will exercise normal assessment powers in respect of the six years previous to the relevant assessment year in which the search takes place. The Assessing Officer has the power to assess and reassess the "total income" of the 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 assessment years 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 Assessing Officer 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 the seized material (v) In the absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be 18 & 2016/Del/2014 CO No. 05 & 06/Del/2015 L. D. Crystal Pvt. Ltd. made. The word "assess" in section 153A is relatable to abated proceedings (i.e., those pending on the date of search) and the word "reassess " to completed assessment proceedings, (vi) In so far 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 assessment year on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer, (vii) Completed assessments can be interfered with by the Assessing Officer 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.”

It has further been held that “On the date of the search the assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed."

So respectfully following the ratio laid down by the Hon’ble Jurisdictional High Court, we are of the confirmed view that the additions made by the AO while framing the assessment u/s 153A of the Act in the absence of incriminating material found during the course of search was not valid. In that view of the matter, we do not see any merit in the appeal of the department and the Cross objections filed by the assessee succeed.

In the result, the appeals of the department are dismissed and the Cross Objections of the assessee are allowed. (Order Pronounced in the Court on 23/03/2017)