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Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI H.S.SIDHU & SHRI PRASHANT MAHARISHI
Page 2 of 16 O R D E R PER BENCH 1. These are the appeals filed by the revenue and cross objections filed by the assessee against the order of the ld CIT (A)-I, New Delhi dated 31/03/2011 for the AYs 2001-02 to 2005-06. 2. The revenue has raised the following grounds of appeal for Assessment Year 2001-02:-
1. The order of the Ld. CIT(Appeals) is not correct in law and facts.
2. Whether in the facts and circumstances of the case, the Id. CIT (A) erred in deleting the addition of Rs.1,37,50,000/- made u/s 68 of the Income Tax Act by the AO in respect of share application money introduced during the year.
3. Whether in the facts and circumstances of the case, the Id. CIT (A) erred in deleting the addition of Rs.41,50,000/- made u/s 68 of the Income Tax Act by the AO in respect of unsecured loans.
3. The revenue has raised the following grounds of appeal for Assessment Year 2002-03:- “1. The order of the Ld. CIT( Appeals) is not correct in law and facts.
2. Whether in the facts and circumstances of the case, the Id. CIT (A) erred in deleting the addition of Rs.5,00,000/- made u/s 68 of the Income Tax Act by the AO in respect of share application money introduced during the year.
3. Whether in the facts and circumstances of the case, the Id. CIT (A) erred in deleting the disallowances of Rs. 1,96,93,116/- made u/s 80IB of the Income Tax Act by the AO.
4. Whether in the facts and circumstances of the case, the Id. CIT (A) erred in directing to re-compute the trading profit after considering and verifying claim of administrative expenses.”
4. The revenue has raised the following grounds of appeal for Assessment Year 2003-04:- “1. The order of the Ld. CIT (Appeals) is not correct in law and facts.
2. Whether in the facts and circumstances of the case, the Id. CIT (A) erred in deleting allowances of Rs.7,25,10,022/- made u/s 80IB of the Income Tax Act by the AO.
3. Whether in the facts and circumstances of the case, the Id. CIT (A) erred in deleting addition on account of bogus purchases of Rs.4,83,04,880/- made by the AO.”
5. The revenue has raised the following grounds of appeal for Assessment Year 2004-05:- “1. The order of the ld CIT(A) is not correct in law and facts.
2. Whether in the facts and circumstances of the case, the ld CIT(A) erred in deleting the disallowance of Rs.6,80,44,440/- made u/s 80IB of the Income Tax Act by the AO.”
6. The revenue has raised the following grounds of appeal for Assessment Year 2005-06:- “1. The order of the ld CIT(A) is not correct in law and facts.
2. Whether in the facts and circumstances of the case, the ld CIT(A) erred in deleting the additions of Rs. 2,60,00,000/- made u/s 68 of the Income Tax Act by the AO in respect of share application money introduced during the year.”
7. The assessee has raised the following grounds of Cross objection No. 261/Del/2011 for Assessment Year 2001-02:- “1. Whether the assessment framed under section 153A / 143(3) of the Income Tax Act, 1961 is legal, when consequent upon action taken by the department under section 132 of the Act on 21.03.2007 against the assessee was carried out and nothing incriminatory was found, and re-visiting the issues, which have been settled earlier, is permissible.
2. Because the order passed by the assessing officer was so vulnerable on both the facts as well as law that, the Ld. CIT (A) had no option but to correct the same in the interest of justice and equity.
3. The appeal by department is bad in law because the issues which have been decided by the Apex Court and which have become the law of land have been totally ignored by the department.”
8. The assessee has raised the following grounds of Cross objection No. 281/Del/2011 for Assessment Year 2002-03:- “1. Because the departmental appeal is bad in law as well as on facts and is liable to be dismissed.
2. Whether the assessment framed under section 153A / 143(3) of the Income Tax Act," 1981 is legal, when consequent upon action taken by the department under section 132 of the Act on Page 4 of 16 21.03.2007 against the assessee was carried out and nothing incriminatory was found, and re-visiting the issues, which have been settled earlier is permissible.
3. Because the Ld. Lower authorities have failed to appreciate that the assessee had fully discharged the initial onus regarding cash credits being Share application money amounting to Rs.5,00,000/- by placing irrefutable documentary evidence on record and in view of decision pronounced by the Apex Court as well as High Court, the Hon'ble High Court in the case of Dwarkadhish Investments Pvt Ltd 201Q-T!OL-617-HC-Del-IT.
4. Because the Ld. Lower authorities have ignored the facts and evidences supplied to them and made the disallowance of Rs. 1,96,93,116/- under section 80IB of the Act.
5. Whether on the facts and circumstances of the case, the Ld. AO who was given the complete working of income from trading operations segregating the income from manufacturing operations that was totally ignored by him and arbitrarily all the administrative expenses belonging to trading operations were ignored and no disallowance of trading cost was given to the assessee. Therefore, the direction of Ld. CIT (A) to do so, how becomes erroneous.
6. Whether on the facts and circumstances of the case, the Hon'ble CIT(A) is correct in upholding the addition of Rs. 34,794/- on account of interest on bank deposits which were made for the purpose of getting cash credit facilities and made as a deposit with sales tax department as income from other sources instead of income from business and profession.”
9. The assessee has raised the following grounds of Cross objection No. 262/Del/2011 for Assessment Year 2003-04:- “1. Whether the assessment framed under section 153A / 143(3) of the. Income Tax Act, 1961 is legal, when consequent upon action taken by the department under section 132 of the Act on 21.03.2007 against the assessee was carried out and nothing incriminatory was found, and re-visiting the issues, which have been settled earlier, is permissible.
2. Because the order passed by the assessing officer was so vulnerable on both the facts as well as law that the Ld. CIT (A) had no option but to correct the same in the interest of justice and equity.
3. The appeal by department is bad in law because the issue for- claiming exemption u/s 80IB which has already been settled earlier and which has got finality after the order of Hon'ble ITAT in appeal no. IT 1429 (Del) of 2006. The revisiting of the issue is Page 5 of 16 not allowed in fiscal laws in the garb of reassessment u/s 153A of the act. 4. The appeal by the department is bad because the issue of purchases was already decided by the department consequent upon an action taken u/s 133A against the assessee and the assessment framed thereafter and decided by Hon'ble CIT (A).” 10. The assessee has raised the following grounds of Cross objection No. 263/Del/2011 for Assessment Year 2004-05:- “1. Whether the assessment framed under section 153A / 143(3) of the Income Tax Act, 1961 is legal, when consequent upon action taken by the department under section 132 of the Act on 21.03.2007 against the assessee was carried out and nothing incriminatory was found, and re-visiting the issues, which have been settled earlier, is permissible.
2. Because the order passed by the assessing officer was so vulnerable on both the facts as well as law that the Ld. CIT (A) had no option but to correct the same in the interest of justice and equity.
3. The appeal by department is bad in law because the issue for claiming exemption u/s 80IB which has already been settled earlier and which has got finality after the order of Hon'ble ITAT in appeal no. IT 1429 (Del) of 2006. The revisiting of the issue is not allowed in fiscal laws in the garb of reassessment u/s 153A of the act,
4. Because the Ld. Lower authorities have ignored the facts and irrefutable evidences supplied to them and treated the interest income of Rs. 6,38,558/- as income from other sources and not at part of the income derived from business and profession whereas the 5. Hon'ble ITAT itself had adjudicated that interest income is income from the business and allowable u/s 80IB in the assessment year 2002-03 in the case of assessee itself.”
11. The assessee has raised the following grounds of Cross objection No. 264/Del/2011 for Assessment Year 2005-06:-
1. Whether the assessment framed under section 153A / 143(3) of the Income Tax Act. 1961 is legal, when consequent upon action taken by the department under section 132 of the Act on 21.03.2007 against the assessee was carried out and nothing incriminatory was found, and re-visiting the issues, which have been settled earlier, is permissible.
Page 6 of 16 2. Because the order passed by the assessing officer was so vulnerable on both the facts as well as law that, the Ld. CIT (A) had no option but to correct the same in the interest of justice and equity.
Because the Ld. AO has failed to appreciate that the assessee has explained the purpose of incurring business promotional expenses amounting to Rs. 52,587/- which was otherwise allowable u/s 37 of the income tax act.
Vide application dated 30.04.2014 the assessee has raised an additional ground of cross objection for all the years as under:- “5. Ground No. 5 That assessment made u/s 153C is barred by limitation as they were required to be completed by 31.12.2008 as per section 153B of the Income tax Act while the same was made in December 2009.”
The assessee has submitted that though C O is already filed and this is an additional ground which is legal in nature and goes to the root of the appeal and therefore may be admitted. He further stated that during the course of inspection it was found that assessment was required to be completed by 31.12.2008 but is passed on 30.12.2009 and therefore time barred. This information has come to the notice of the assessee on inspection and therefore this ground could not be raised when original cross objection was filed. Ld DR objected to the application of the additional ground made by the assessee stating that at this stage the ground challenging the order of the assessment cannot be made.
We have carefully considered the rival contentions and also perused the application made by the assessee stating the reason that while originally this ground could not be raised. The ground is legal in nature and therefore can be raised at any time during the course of pendency of appeal. In view of this we admit the additional ground for adjudication.
For the sake of brevity we advert to the facts for AY 2001-02. Brief facts of the case as noted from records for AY 2001-02 which are said to be similar for all the assessment years are that assessee is a company on which action u/s 132 of the Income Tax Act was carried out on 21.03.2007. It belongs to one of group companies of Surya Vinayak Group which is headed by two brother Mr. Sanjay Jain and Mr. Rajiv Jain residing at I-42, Ashok Vihar, Phase-I, New Delhi. The revenue alleges that this group had taken a large number of accommodation entries in various group companies through entry operators. Notice u/s 153C of the Act was issued on 24.11.2008 and in response to which assessee submitted that original return filed on 26.03.2003 may be treated as return filed in response to the notice. In the original return assessee declared income of Rs. 1234270/-. The ld AO noted that assessee has received share application money to the tune of Rs. 13750000/- and unsecured loan of Rs. 41.50 lakhs which was unexplained and therefore same were added u/s 68 of the Act vide order dated 30.12.2009.
Now first we take up the additional ground of the appeal of the assessee which was raised stating that orders passed by the ld Assessing Officer are barred by the limitation and additions have been made in absence of any incriminating material found during the course of search, the assessee took us to the relevant orders and submitted that additions have been made without any reference to any incriminating material and further as the search got concluded on 23.03.2007 the assessments should have been passed by 31.12.2008 which were passed on 30.12.2009. He therefore referred to the decision of the coordinate bench in case of Page 8 of 16 JH Finvest Pvt. Ltd. for the similar assessment years in same search dated 30.05.2014 wherein at para No. 9.1 onwards the facts of the search were discussed and subsequently, in para No. 10 of that order the coordinate bench held that the date of conclusion of the search is 23.03.2007 being the date of authorization executed as per provisions of section 153B of the Act then AO was required to frame the assessment within 21 months from the date, from the end of financial year in which the last of the authorisation was executed and therefore the impugned order passed on 30.12.2009 is barred by limitation of time. He further submitted that on appeal by revenue before Hon’ble Delhi High Court vide orders dated 30.11.2015 this order of the ITAT has been upheld. In the similar cases of Surya Vinayak Industries the issue has been decided and which has also not been challenged by the revenue before the Hon’ble High Court. Therefore, now the issue is squarely covered in favour of the assessee on the issue of limitation. On the issue of addition he submitted that in absence of any incriminating material found in the course of search no addition can be made in view of the decision of Hon’ble Delhi High Court in CIT Vs. Kabul Chawla 234 Taxmann 300. Therefore, the cross objection of the assessee should succeed on this point also.
The ld CIT DR vehemently stated that identical issue decided in case of Surya Vinayak Industries, JH Business Pvt. Ltd etc. the revenue has been advised to prefer an appeal before the Hon’ble High Court. However, she stated that same has not been filed till to date. Therefore, her submission was that the revenue has not accepted the order of the ITAT in case of Surya Vinayak Industries Ltd. She further stated that in case of M/s. JH Finvest Ltd. wherein the Hon’ble High Court has confirmed the decision of coordinate
Page 9 of 16 bench on issue of limitation and on addition has been referred for filing of SLP before Hon’ble Supreme Court as crucial fact was not mentioned the last Punchnama was drawn on 15.05.2007.
In the rejoinder ld AR submitted that this fact has been considered by Hon’ble High Court in para NO. 6 of the order of the Hon’ble High Court. Therefore, now this cannot be agitated. He further stated that merely because the revenue is in process of filing of appeal before the higher authorities cannot be the reason for none following the decision of Hon’ble High Court.
We have carefully considered the rival contentions. The issue in the appeal agreed by both the parties is that the issue is now covered by the decision of Hon’ble Delhi High Court in to 39 and 47 &48 of 2015 dated 30.11.2015, wherein Hon’ble High Court on the same search and on the basis of same punchnama and authorisation has held as under:- “3. The background to the present appeals is that on the basis of authorizations dated 20th March 2007 under Section 132 (1) of the Act, a search was commenced on 21 st March 2007 in the office premises of the above Assessees as well as the other Assessees, including Rim Zim Valley Products Pvt. Ltd, Aakriti International, apart from the residences of Mr.Sanjay Jain and Mr. Rajeev Jain, Directors of J.H. Finvest Pvt. Ltd. The search apparently continued on 22nd and 23rd March 2007 as well. It appears that during the said search, the jewellery items of Mrs. Neena Jain, wife of Mr.Sanjay Jain were seized on 21st March 2007 and some part of the jewellery was released to her after preparing a valuation report dated 21st March 2007. The learned counsel for the Assessees has placed before the Court a compilation of documents containing, inter alia, the panchnamas drawn up in the course of the search. He states that these documents were part of the record of the case before the ITAT. 4. A perusal of the said documents shows that as far as the panchnama prepared on 23rd March 2007 was concerned, it was in respect of the authorizations issued for search of the above Assessees. It notes in para 8 that “The search commenced on Page 10 of 16 23/3/07 at 2.15 pm. The proceedings were closed on 23/3/07 at 5.55 pm as finally concluded”. It must be noted that para 8 is a pre-printed clause with blanks for the date and time. There is an option to choose one of the expressions: “as finally concluded/as temporarily concluded”. In this particular para 8 the words “as temporarily concluded" have been omitted and there is a tick mark on the words “as finally concluded”.
On the same day, a restraint order was passed under Section 132(3) of the Act, in respect of the jewellery items of Mrs. Neena Jain and Mrs. Shail Kumar Jain kept in some wooden cupboards in their residential premises. There were also restraint orders, communicated to the Managers of some of the banks, in respect of lockers and bank accounts of the said persons. Restraint orders were also issued in respect of certain small safes in which there were materials/documents and for which keys were not available. The search purportedly continued thereafter on 15th May 2007 when another panchnama was drawn up. In para (A) of the said panchnama it is mentioned that the warrants of authorization were issued in the case of the above Assessees apart from Mr. Sanjay Jain and Mr. Rajeev Jain, Rim Zim Valley Products Ltd. In para 2, it was stated that the search “was in continuance of the proceedings on 22/3/07.......”. Para 8 then states that “The search commenced on 15/5/07 at ....../pm . The proceedings were closed on 15/5/07 at 6.45 pm as finally concluded”. It is not in dispute that the assessment orders pursuant to the said searches were passed on 24/31st December 2009.
The first question that arises for consideration was whether in terms of Section 153B, the assessments were completed within the time stipulated therein. The case of the Assessees, which has been accepted by the ITAT in the impugned order, was that the assessment ought to have been completed by 31st December 2008, but was completed on 31st December 2009, i.e., beyond the period of twenty one months from the end of the financial year in which the last authorisation for the search under Section 132(3) was issued. This is in terms of Clause (i) of the second proviso to Section 153B (1) of the Act. It is pointed out that the names of the Assessees were included in the panchnama drawn up on 15th May 2007 although no fresh search authorisations qua any of them were issued. The case of the Revenue has been that the search did not conclude on 23rd March 2007 but on 15th May 2007. This was on account of the restraint orders claimed to have been validly passed on 23rd March 2007 in peculiar circumstances where either the person searched was not present Page 11 of 16 or the witnesses were not present or the keys of some of the cupboards were not available.
The ITAT has in the impugned order, after discussing the earlier decisions of the ITAT and the High Courts, noted that mere passing of a restraint order would not extend the time limit available for completion of the assessment pursuant to the search. It has been noted that Section 132(3) of the Act for passing a restraint order can be only resorted to if there is any practical difficulty in seizing the item which is liable to be seized. If all actions of the search were completed and nothing was left to be done by the search party, then the action of the authorized officer under Section 132(3) would be illegal and consequently any panchnama prepared on the extended date of search, after lifting the restraint, would be of no consequence, for the purposes of computation of limitation under Section 153B of the Act. In particular, the ITAT referred to the decision of this Court in V.L.S. Finance Ltd. Vs. CIT 289 ITR 286 (Del).
The ITAT correctly concluded that where there are various authorisations issued and various panchnama prepared, it would be the last panchnama prepared in respect of the last authorisation which would be relevant for computing the limitation period.
In the present case, as noted by the ITAT, there is only one authorisation which was issued on 20 th March 2007. Although, the ITAT in para 10.5 of the impugned order noted that “in the authorization letter dated 20/3/2007, names and address of the assesses in question have not been mentioned but in Panchnama dated 15/5/2007 drawn in pursuance to the executive of the said authorization letter dated 20/03/2007 names of all these assessees have been mentioned”, the original authorisation letters issued on 20th March 2007 are not before the Court. The Court, therefore, proceeds on the basis that such authorisation had indeed been issued in the names of each of the Assessees. The panchnama drawn up on 23rd March 2007 shows that the search that commenced on that date i.e., 23rd March 2007 stood finally concluded on that date itself. It appears that no further authorisation had been issued for the search of the Assessees who are the Respondents in these appeals. Consequently, the Revenue cannot take advantage of the restraint orders passed in respect of other persons in order to seek extension of the time period for completion of the assessment proceedings in terms of Section 153B qua the Respondent Assessees herein.
Even assuming that the restraint orders were validly passed, once the search stood concluded on 23rd March 2007 in respect of these Assessees, in the absence of a fresh authorisation for another search, the time period for conclusion of the assessment in terms of clause (i) of the second proviso to Section 153 B (1) of the Act does not get extended only because their names were included in the panchnama drawn up on 15th May 2007. It is possible that their names were included in the said panchnama drawn up on 15th May 2007 in order to avoid the consequence of expiry of the period of limitation which, as far as these Assessees are concerned, commenced on 23rd March 2007, when the search "finally concluded".
Consequently, the impugned order of the ITAT, holding that the assessments in question were barred by limitation, and therefore liable to be quashed, does not call for any interference. 12. The second ground on which the ITAT has invalidated the assessments is that there was no incriminating material found in the course of the search against any of the Respondents/Assessees in these appeals. In this context, reference only need be made to a recent decision of this Court in CIT v. Kabul Chawla (2015) 234 Taxman 300, which holds that in the absence of any incriminating material found in the course of search the framing of assessment under Section 153A or 153 C of the Act, as the case may be, would not be valid. 13. It may be mentioned here that in the case of J.H.Finvest Pvt. Ltd., the Revenue has not even urged a question regarding the absence of any incriminating material having been found against the said Assessee invalidating the assessment. 14. No substantial question of law arises from the impugned order of the ITAT in these cases. The appeals are accordingly dismissed.
Therefore, respectfully following the decision of Hon’ble jurisdictional High Court wherein it has been held that the search finally concluded on 23.03.2007 the assessment should have been made before 31.12.2008 but completed on 30.12.2009 is barred by Page 13 of 16 limitation of time and therefore, liable to be quashed. In view of this we quash the assessment order for the impugned year.
Now we come to first ground of cross of objection of the assessee where It is contested before us that there is no incriminating material found during the course of search based on which addition disallowance have been made and therefore, in view of the decision of the Hon’ble Delhi High Court in case of CIT Vs. Kabul Chawla 380 ITR 573 (Del) the additions do not survive. For AY 2001-02 the assessment proceedings are not abated and therefore same are concluded assessments and in case of concluded assessment the addition can be made only on the basis of incriminating material found during the course of search.
Ld DR relied on the orders of the lower authorities. 23. We have carefully perused the assessment order and also the nature of addition of Rs 1.79 crore made therein. We did not find any reference to the material found during the course of search which has led to these additions. Ld DR did not controvert the facts that assessment is concluded one and also could not place before us any incriminating material pertaining to those additions. The Honourable Delhi high court in CIT V Kabul Chawla 380 ITR 573 has held as under :- “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 153A(1) will have to be mandatorily issued to the person searched 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.
Page 14 of 16 (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 a fresh exercise. (iii) 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 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 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 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 the completed assessment proceedings. (vi) In so far as the 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.”
In this assessment year we do not find reference to any material found during the course of search based on which addition is made
Page 15 of 16 on account of share capital as well as on account of unsecured loan of Rs. 1.79 crores. Therefore, respectfully following the decision of the Hon’ble Delhi High Court we hold that assessment made u/s 153C of the Income Tax Act dated 30.12.2009 is unsustainable.
In the result additional ground filed by the assessee in his cross objection as well as ground No. 1 of the cross objection is allowed.
In the result ground NO. 2 to 4 of the ground of cross objection of the assessee are not adjudicated and hence dismissed. Therefore cross objection of the assessee is partly allowed.
As we have already quashed the assessment order and addition in view of the decisions of the Hon’ble Delhi High Court in case of CIT Vs. JH Finvest Pvt. Ltd. and CIT Vs. Kabul Chawla (supra) the appeal of the revenue also do not survive and hence, dismissed.
In the result appeal of the revenue for AY 2001-02 in is dismissed and CO of the assessee is partly allowed.
Similarly, the revenue has filed appeal for the AY 2002-03 to 2005- 06 in to 3157/Del/2011 and assessee has filed CO No. 261 to 264/Del/2011 and 281/Del/2011 having same facts. Therefore, in accordance with our decision in ITA No. 3153/Del/2011 and CO No. 261/Del/2011 for AY 2001-02 wherein we have held that order passed u/s 153C are barred by the limitation and the addition has been made without any incriminating material found during the course of search assessment orders and addition therein are not sustainable.