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Income Tax Appellate Tribunal, DELHI BENCH ‘A’, NEW DELHI
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘A’, NEW DELHI Before Sh. N. K. Saini, AM and Sh. Sudhanshu Srivastava, JM Asstt. Year : 2002-03 : Asstt. Year : 2005-06 A. K. Services Pvt. Ltd., Vs Deputy Commissioner of Income Flat No. N, Sagar Apartment, 6, Tax, Central Circle-20, Tilak Marg, New Delhi-110001 New Delhi (APPELLANT) (RESPONDENT) PAN No. AABCA1591L ITA No. 5615/Del/2013 : Asstt. Year : 2002-03 Deputy Commissioner of Income Vs A. K. Services Pvt. Ltd., Tax, Central Circle-20, Flat No. N, Sagar Apartment, 6, New Delhi Tilak Marg, New Delhi-110001 (APPELLANT) (RESPONDENT) PAN No. AABCA1591L Assessee by : Sh. Ved Jain, Adv. & Sh. Ashish Goel, CA Revenue by : Sh. Ravi Jain, CIT DR Date of Hearing : 15.11.2016 Date of Pronouncement : 08.02.2017 ORDER Per N. K. Saini, AM:
The cross appeals by the assessee and the department for the assessment year 2002-03 and the appeal of the assessee for the assessment year 2005-06 are directed against the separate orders each dated 12.07.2013 of the ld. CIT(A)-XXXI, New Delhi.
2 4986 & 5615/Del/2013 A. K. Services Pvt. Ltd. 2. Since the issues involved are common and the appeals were heard together so these are being disposed of by this consolidated order for the sake of convenience and brevity.
First we will deal with the cross appeal for the assessment year 2002-03. In the assessee’s appeal in , following grounds have been raised: “1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad both in the eye of law and on facts.
2. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition of an amount of Rs. 1,09,029/- made by the AO invoking the provisions of Section 14A of the Act.
3. The appellant craves leave to add, amend or alter any/all of the grounds of appeal before or during the course of the hearing of the appeal.”
4. In the appeal of the department in the grounds raised read as under: “1. On the facts and in the circumstance of the case, the CIT(A) has erred in deleting the disallowance of Rs. 2,31,55,000/- made by the A.O. on account of unexplained expenditure on sub brokerage and the assessee could not substantiate the services rendered by sub brokers and funds mobilized by them for the assessee.
3 4986 & 5615/Del/2013 A. K. Services Pvt. Ltd.
On the facts and in the circumstance of the case, the CIT(A) has erred in deleting the disallowance of Rs. 2,31,55,000/- made by the A.O. and ignoring the facts that the third party enquiries conducted by the A.O. proved that no actual services were rendered and assessee has not discharged its onus, as no details were filed to substantiate the services rendered by sub brokers and funds mobilized by them for the assessee.
3. The order of the CIT(A) is erroneous and is not tenable on facts and in law.
The appellant craves leave to add, alter or amend any/all of the grounds of appeal
before or during the course of the hearing of the appeal.”
5. The assessee moved an application dated 10.11.2016 for admission of the additional grounds by stating therein as under: “1. The applicant has filed the above said appeal against the order passed by the learned CIT(A).
2. In the appeal filed before the learned CIT(A) the assessee has challenged the various additions made by the AO on the ground that this addition cannot be made in a proceeding under Section 153A in the absence of any incriminating material being found during the course of the search, as well as this addition is unsustainable on merits.
3. The learned CIT(A) has partly allowed the appeal of the assessee and has recorded its findings only on merits.
4 4986 & 5615/Del/2013 A. K. Services Pvt. Ltd. 4. In the appeal filed before the Hon'ble ITAT, the appellant has raised 3 grounds of appeal challenging the above additions, both on facts and law. Though these grounds cover up the issue that the additions made are untenable in the absence of any incriminating material being found during the course of the search, but as a matter of abundant caution the appellant is filing additional grounds of appeal raising specific grounds that the learned CIT(A) was not justified in rejecting the contention that no addition can be made in proceedings under Section 153A in the absence of any incriminating material being found during the course of the search.
6. Accordingly, it is prayed that the following grounds of appeal may be admitted as additional grounds of appeal:- Additional Grounds of Appeal 4(i) On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in rejecting the contention of the assessee that in a proceeding under Section 153A no addition can be made in the absence of any incriminating material being found during the course of the search. (ii) On the facts and circumstances of the case, the additions made by the AO and the additions confirmed by the learned CIT(A) are untenable in the absence of any incriminating material being found during the course of the search.”
6. During the course of hearing the ld. Counsel for the assessee reiterated the contents of the aforesaid application and requested to 5 ITA Nos. 4985, 4986 & 5615/Del/2013 A. K. Services Pvt. Ltd. admit the additional grounds. The reliance was placed on the judgment of the Hon’ble Supreme Court in the case of NTPC Vs CIT (1998) 229 ITR 383.
7. In his rival submissions the ld. DR opposed the admission of the additional grounds.
8. 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 noticed that the additional grounds raised by the assessee are purely the legal grounds for which no investigation is required and facts are already available on the record. As regards to the admission of the additional grounds, the Hon’ble Supreme Court in the case of NTPC Vs CIT 229 ITR 383 (supra) has held as under: “Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. The Tribunal should not be prevented from considering questions of law arising in assessment proceedings, although not raised earlier. The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner (Appeals) is too narrow a view to take of the powers of the Tribunal.” It has been further held as under: “Undoubtedly, the Tribunal has the discretion to allow or not to allow a new ground to be raised.
6 4986 & 5615/Del/2013 A. K. Services Pvt. Ltd. But where the Tribunal is only required to consider the question of law arising from facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.”
We, therefore, by keeping in view the ratio laid down by the Hon’ble Supreme Court in the aforesaid referred to case admit the additional grounds raised by the assessee.
At the first instance, we will adjudicate the additional grounds agitated by the assessee.
Facts of the case in brief are that search and seizure operations were conducted u/s 132 of the Income Tax Act, 1961 (hereinafter referred to as the Act) and a survey was conducted u/s 133A of the Act in the case of A. K. Capital Services Ltd., its group companies, directors of such companies and their relatives on 26.04.2007. The assessee had earlier filed its return of income on 31.10.2002 showing income at Rs.59,62,020/-. In compliance to the notice u/s 153A of the Act issued by the AO on 26.05.2009, the assessee vide letter dated 25.06.2009 stated that the return of income as filed originally may be treated as return filed in compliance to the notice u/s 153A of the Act. The AO however, framed the assessment at an income of Rs.3,03,25,411/- by making the addition of Rs.12,08,391/- u/s 14A of
Being aggrieved the assessee carried the matter to the ld. CIT(A) who sustained disallowance of Rs.1,09,029/- out of the disallowance of Rs.12,08,391/- made by the AO u/s 14A of the Act and deleted the disallowance of Rs.2,31,55,000/- by observing in paras 4.4.2 and 4.4.3 of the impugned order as under: “4.4.2 It is noted that, CIT(A)-I has considered all the points raised by the present AO which are very much part of the assessment order itself. He has observed that the parties involved had confirmed the fact of rendering services and receipt of payments through banking channels in their replies given to the AO u/s 133(6) and the disallowance made by the AO was not based on any evidence but only on the basis of his subjective opinion which is in the form of suspicion. Even though this is a search assessment completed u/s 153A r.w.s 143(3), there are no incriminating documents seized during action u/s 132 relating to these sub-arrangers who have rendered services as already noted by CIT(A), The companies involved, though located in U.P. have offices in Delhi as per the invoices/ letter heads of these sub-arrangers which are part of the records. Further, the AO had not asked any specific detail which according to him could have satisfied that the other party rendered actual services. It is not the case of the AO that the sub- arrangers did not confirm having rendered the services. Whatever called for had been submitted by them, I consider that it was upto the AO to seek further specific requirement from the assessee to establish the genuineness of the services rendered. Instead the AO had 8 4986 & 5615/Del/2013 A. K. Services Pvt. Ltd. directly proposed disallowance of the expenses on the ground that there are no evidences of providing actual services. He had not spelt out what else, in clear terms, was required to be submitted by the assessee. The Para No. 6 of CIT(A) dated 1/06/2010 reads as under: I have considered the submissions made by the assessee as also the documentary evidences filed in support of its claim, it is seen from the perusal of the assessment order that the learned Assessing Officer has made the impugned addition mainly on the basis of his findings in the case of A.K. Capital Services Ltd. which is an associate concern. In that case also the assessee had earned arranger fee on bonds issued of various parties and had paid sub arranger fee to its sub arrangers for mobilization of funds. In fact two of the sub arrangers are common parties namely Shamli Steels and Chamunda Papers. It is further seen that even in this case there is no seized material on the basis of which any adverse inference could be drawn against the assessee regarding the impugned expenses incurred by it. The A.O. also has failed to bring on record any material to show that the expenses have not been genuinely incurred or that the payments made by the assessee have been received back by it in any form. It is further seen that the expenses incurred arc duly verifiable from the bills of the sub arrangers whose complete details are available on record and who have also furnished their income tax particulars as also have given the details of services rendered by them. These details are in conformity with the details filed by the assessee and there is no other material on record on the basis of which any adverse inference could be drawn against the assessee. In the case of AJC Capital Services Ltd. the A.O. had made verification from the 9 4986 & 5615/Del/2013 A. K. Services Pvt. Ltd. sub arrangers directly u/s 133(6) wherein they had confirmed the fact of rendering services. The A.O. however, had still disbelieved the assessee and made the disallowance which was deleted by the undersigned in appeal No. 614/09-10 vide order dated 23.04.2010 as well as in the case of that company for subsequent years namely assessment year 2003-04, 2004-05 etc. In the instant case it is seen that the action of learned Assessing Officer is wholly arbitrary and untenable in law as the disallowance is based not on the basis of any evidence but only on the basis of his subjective opinion which is in the form of suspicious. Such a disallowance cannot be sustained and directed to be deleted on the basis of my observation as above as also in view of my findings in the case of A.K. Capita Services Ltd. This ground of appeal is allowed. 4.4.3 It is noted that CIT(A)-I, had taken a view after appreciating the evidences before him on winch I cannot find fault. Being a search assessment the disallowances should have emanated from the documents seized during the search. However, there is no clarity on this aspect in the assessment order. ITAT has set aside the order mainly for giving opportunity of being heard to the AO who had expressed his desire to be heard by way of a specific request in ITNS-5I in this regard. The AO has accordingly been heard. No new fact has been pointed out or brought out on the issue, that was not considered in the 1st round. The AO has made written submissions based on the assessment order which was considered in details by CIT(A)-I. Therefore, I do not think that there is any case for interfering with the findings given by CIT(A)-I, which are based on logical reasoning and appreciation of the facts on record. The AO has not followed up his doubts / suspicions to their logical endings by following up with 10 4986 & 5615/Del/2013 A. K. Services Pvt. Ltd. his leads if any. Instead the addition has been made only on the doubts/suspicions which has been deleted in the 1st round of appeal proceedings. Thus the disallowance of Rs, 2,3l,55,000/- made on the basis of subjective opinion of the AO cannot be sustained in a search assessment u/s 153A r,w.s 143(3) of the Act. The addition is therefore deleted.”
13. Now the department is in appeal against the deletion of addition while the assessee has agitated the sustenance of the addition by the ld. CIT(A). During the course of hearing the ld. Counsel for the assessee submitted that no incriminating material was found during the course of search and the assessee has already disclosed all the details in its original return of income assessed u/s 143(3) of the Act which was not abated. Therefore, the addition made by the AO u/s 153A r.w.s. 143(3) of the Act, in the absence of any incriminating material being found during the course of search was not maintainable. The reliance was placed on the following case laws: � Parsvnath Developers Ltd. Vs DCIT In ITA No. 5188/Del/2013 order dated 31.10.2014 � Sanjay Aggarwal Vs DCIT in ITA No. 3184/Del/2013 order dated 16.06.2014 � Kusum Gupta Vs DCIT in ITA No. 4873/Del/2009 order dated 28.03.2013 � ACIT Vs Asha Kataria in ITA No. 3105/Del/2011 order dated 20.05.2013 � ACIT Vs Prithvi Sound Products Co. Pvt. Ltd. in ITA No. 3422-6/Del/2011 order dated 17.04.2014 � DCIT Vs Vrindavan Farms Pvt. Ltd. in ITA Nos. 3359 to 3361/Del/2013 order dated 06.06.2014 11 ITA Nos. 4985, 4986 & 5615/Del/2013 A. K. Services Pvt. Ltd. � V K Fiscal Services P. Ltd. Vs DCIT in ITA Nos. 5460 to 5465/Del/2012 order dated 27.11.2013 � Dream Builcon Pvt. Ltd. Vs DCIT in ITA No. 5392/Del/2012 order dated 22.11.2013 � DCIT Vs DCM Shriram Ind. Ltd. in ITA Nos. 1648 to 1653/Del/2013 order dated 11.10.2013 � ACIT Vs PACL India Ltd. in ITA No. 2637/Del/2010 order dated 20.06.2013 � MGF Automobiles Ltd. Vs ACIT in ITA No. 4212/Del/2011 order dated 28.06.2013 � SSP Aviation Ltd. Vs DCIT 346 ITR 177 (Del) � Jakson Engineering Ltd. Vs ACIT in ITA Nos. 349 & 350/Del/2013 order dated 11.04.2014 � CIT(Central)-III Vs Kabul Chawla in ITA Nos. 707, 709 & 713/2014 order dated 28.08.2015 to the Hon’ble Delhi H.C.
14. In his rival submissions the ld. DR supported the order passed by the AO and further submitted that the additions were made since the assessee failed to furnish the reply to the satisfaction of the AO. Therefore, the ld. CIT(A) was not justified in allowing the relief to the assessee.
We have considered the submissions of both the parties and carefully gone through the material available on the record. On a similar issue the Hon’ble Jurisdictional High Court in the case of CIT (Central-III) Vs Kabul Chawla in 709 & 713/2014 order dated 28.08.2015 (supra) held as under:
12 4986 & 5615/Del/2013 A. K. Services Pvt. Ltd. “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 13 4986 & 5615/Del/2013 A. K. Services Pvt. Ltd. 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 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.”
In the present case, since the addition was made by the AO u/s 153A of the Act in the absence of incriminating material found during the course of search. Therefore, in view of the ratio laid down by the Hon’ble Jurisdictional High Court in the aforesaid case of CIT 14 ITA Nos. 4985, 4986 & 5615/Del/2013 A. K. Services Pvt. Ltd. Vs Kabul Chawla (supra) the assessment framed u/s 153A of the Act was not valid. Accordingly, additional grounds raised by the assessee are allowed in its favour and we do not see merit in the appeal of the department.
In for the assessment year 2005-06, the issues involved are similar as were involved in 2002-03. Therefore, our findings given in the former part of this order shall apply mutatis mutandis.
In the result, the appeals of the assessee are allowed and that of the department is dismissed. (Order Pronounced in the Court on 08/02/2017)