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Income Tax Appellate Tribunal, DELHI BENCH: ‘D’: NEW DELHI
Before: SHRI CHANDRA MOHAN GARG, & SHRI L.P. SAHU,
PER CHANDRA MOHAN GARG, JUDICIAL MEMBER
The above captioned cross appeals by the assessee as well as the Revenue and cross objections by the assessee for A.Y 2007-08 are directed against the order of the CIT(A)- XXXIII, New Delhi, dated 26/07/2013 passed in first appeal No. 62/12-13/1088. The appeal of the assessee for A.Y 2008- 09 has been filed against the order of the ld. CIT(A)- XXXIII, New Delhi, dated 26/07/2013 passed in first appeal No. 61/12-13/1087.
Assessee’s Appeal & 5837/Del /2013, & CO. No. 169/Del/2014 Revenue’s Appeal ITA Nos. 6361 /Del /2013 [Assessment Years: 2007-08]
Briefly stated, the facts giving rise to these appeals and cross objection of the assessee are that a search and seizure operation was conducted by the Investigation Wing of the department on 22.3.2011 in the case of Amtek Group of cases including the assessee M/s Lotus Buildtech Ltd which was also covered u/s 132(1) of the Income tax Act, 1961 [for short, 'the Act'], which is a group company of Amtek Group. Subsequently, the case was centralized with Central Circle -14, New Delhi and notice u/s 153A of the Act was issued to the assessee on 4.10.2011 and in response to which the assessee fled return declaring income at NIL on 24.11.2011. Further, notice u/s 143(2)/142(1) alongwith questionnaire on 7.2.2012 were issued to the assessee fixing the case for hearing on 13.2.2012. After detailed investigation and enquiry, the AO framed assessment order u/s 153A r.w.s 143(3) of the Act at total income of Rs. 41,20,000/- as against the NIL income returned by the assessee by making a sole addition on account of disallowance of expenditure u/s 40A(3) of the Act. Aggrieved, the assessee carried the matter before the ld. CIT(A) who held that disallowance u/s 40A(3) of the Act is proper. However, he directed the AO wherever the land is shown as work in progress, to the extent of disallowance u/ 40A(3) of the Act, the value of work in progess would be reduced by this amount. While giving the said direction, the ld. CIT(A) relied on the decision of the Hon'ble Supreme Court in the case of Attar Singh Gurmukh Singh [1991] 191 ITR 667 [SC]. Now the aggrieved assessee has filed the appeal challenging the conclusion of the ld. CIT(A) wherein the first appellate authority held that the disallowance u/ 40A(3) of the Act is proper and the Revenue has also filed cross appeal challenging the direction of the ld. CIT(A) regarding direction to the AO that the amount of disallowance would go only to reduce the work in progress to the extent of amount of disallowance and value of work in progress would be reduced accordingly.
The assessee has also filed cross objection alleging that the ld. CIT(A) rightly held that no disallowance u/ 40A(3) of the Act can be made while computing the income of this year and thus the Revenue’s appeal is not sustainable. The assessee has also challenged the validity of assessment framed u/s 153A of the Act by alleging that the assessee filed original return of income for A.Y 2007-08 on 28.3.2008 and assessment order was passed u/s 143(3) of the Act on 11.12.2009 and hence assessment was not pending and same got completed on the date of search i.e. 22.3.2011. The ld. AR has mainly challenged the conclusion of the AO in paras 4 to 4.7 of the assessment order and the conclusion of the ld. CIT(A) in para 5.5 at pages 11 to 14 of the impugned order by alleging that in view of the recent decision of the Hon'ble Jurisdictional High Court of Delhi in the case of CIT Vs. Kabul Chawla dated 28.8.2015 passed in and other appeals, no addition can be made in the completed assessments wherein no incriminating material has been found pertaining to the impugned additions.
The ld. AR has also placed reliance on the decision of the Hon'ble High Court of Bombay dated 25.2.2016 passed in writ petition No. 1753/2016 in the case of HDFC Bank Ltd, Mumbai VS. Dy. CIT and submitted that it is not open to the Tribunal to disregard the binding decision of the Hon'ble High Court, therefore, the benefit of the ratio of the decision of Kabul Chawla [supra] may kindly be allowed in favour of the assessee.
Replying to the above, the ld. CIT-DR reiterated the written submissions I and II available at pages 13 to 25 of the Revenue’s paper book. The ld. DR vehemently contended that in the case of Kabul Chawla [supra] no question of law has been framed, hence it has no precedentiary value. Further, placing reliance on the decision of the Hon'ble Supreme Court in the case of Attar Singh [supra], contended that cash payments exceeding the prescribed limit attracts the payments made for acquiring stock in trade and other materials. The ld. CIT-DR also pointed out from the copies of the audited balance sheet as on 31.3.2008 of the assessee and contended that there was closing stock of Rs. 11.24 crores on 31.3.2007 which was increased to 27.66 crores for the year ended on 31.3.2008. Therefore, cash payments made by the assessee towards acquiring stock in trade and other materials in cash payments exceeding prescribed limits attracts the provisions of section 40A(3) of the Act r.w.r 6DD of the I.T. Rules, 1962 [hereinafter ‘the Rules’ for short].
The ld. CIT-DR, in WS-I mainly placed reliance on the decision of the Hon'ble Jurisdictional High Court of Delhi in the case of Anil Kumar Bhatia 24 Taxmann.com 98 dated 7.8.2012 to prove that the jurisdiction of the AO u/s 153A of the Act and procedure thereon in the light of the amendment of the Act dated 1.6.2003 and introduction of new section 153A and Circular 7/2003 of CBDT in para 17 of the order. The ld. CIT-DR also contended that the AO is empowered to reopen proceedings u/s 143(1)(a) of the Act or 143(3)of the Act to reassess total income taking note of undisclosed income, if any. The ld. CIT-DR also placed reliance on the decision of the Hon'ble High Court of Delhi in the case of Anil Kumar Bhatia [supra] has been followed in the case of Filatex India Ltd ITA No. 269/2014. The Hon’ble Allahabad Hon'ble High Court in the case of Raj Kumar Arora, vide order dated 11.7.2014 and contended that the ratio of the decision of Hon'ble Jurisdictional High Court of Delhi in the case of Anil Kumar Bhatia [supra] has been followed in several decisions including this decision of Hon'ble High Court of Allahabad. The ld. CIT-DR drew our attention towards Hon'ble Delhi High Court in the case of Apoorva Extrusion Pvt Ltd in ITA No. 3308/Del/2010 for A.Y 2002-03 and contended that as per section 153A of the Act, the initiation of assessment or reassessment for all six A.Ys in the case of searched person is not dependent on the findings of any incriminating material. But once notice u/s 153A of the Act has been issued, then the AO is duty bound to assess or reassess income of the person searched for all the six A.Ys as per the provisions of the Act.
In WS-II, the ld. CIT-DR mainly contended that the ratio of the decision of Hon'ble Jurisdictional High Court of Delhi in the case of Kabul Chawla [supra] is not applicable as a precedent because in this case no question of law has been framed by the Hon'ble High Court. The ld. CIT-DR also contended that the judgment of Hon'ble Jurisdictional High Court of Delhi in the case of Anil Bhatia [supra] and Filatex India Ltd [supra] has not been over ruled as this can only be done by referring to a larger Bench.
Therefore, benefit of ratio of this decision in the case of Kabul Chawla [supra] cannot be extended to the assessee in the present case. The ld. CIT-DR also placed submissions and contentions of the Revenue appeal and first of all submitted that Ground Nos. 3 and 4 of the Revenue are general in nature and does not want to press Ground No. 2. Therefore, the same are dismissed as not pressed.
Apropos Ground No. 1 of the Revenue, the ld. DR drew our attention towards para Nos. 4.2 to 4.7 of the assessment order and page 13 of the impugned order and pointed out that the findings of the AO has been upheld by the ld. CIT(A) by holding that disallowance u/s 40A(3) is proper. The ld. CIT-DR vehemently contended that the ld. CIT(A) misunderstood the ratio of Hon'ble Supreme Court in the case of Attar Singh [supra] and directing the AO that whenever the land is shown as work in progress to the extent o disallowance u/s 40A(3) of the Act, the value of work in progress will be reduced by this amount. The ld. CIT-DR again drew our attention towards Revenue’s paper book dated 11.5.2015 pages 1 and 2 and submitted that in the present case, the assessee made payments towards investments, therefore, there would be no occasion to reduce the same from work in progress. Therefore, the directions of the ld. CIT(A) are not sustainable.
The ld. AR also placed rejoinder to the submissions of the ld. DR and contended that as per the decision of the Hon'ble High Court of Madhya Pradesh in the case of National Textile Corporation Vs. CIT reported 286 ITR 497 [MP] Tribunal cannot comment on the decision of Hon'ble High Court and ignore such decision rendered by Hon'ble Jurisdictional High Court. The ld. AR further placing reliance on the decision of the Hon'ble High Court of Gujarat in the case of Anupam Tele Services Vs. ITO reported at 366 ITR 122 [Guj] contended that even on merits, in the case of payments in cash exceeding specified limits, section 40A(3) of the Act must be read with Rule 6DD of the Rules and payments in cash at the request of the payees in genuine transactions could not be disallowed where a reasonable explanation for such payments in cash has been placed by the assessee.
The ld. Counsel has also placed reliance on the decision of the ITAT ‘G’ Bench in the case of Saraswat Housing and Developers Vs. ACIT reported at 142 ITE 198 [Del] and submitted that where the assessee had made purchase of land for agricultural purposes in cash, then, no disallowance can be made u/s 40A(3) of the Act as payments in question are covered under second proviso to section 40A(3) r.w.r 6DD(h) of the Rules.
Therefore, by submitting this legal propositions the ld. Counsel of the assessee vehemently contended that the AO made addition on the same material which was placed alongwith original return of income without any incriminating material. Therefore, not only legal ground but on the merits the impugned addition is not sustainable. The ld. Counsel pressing the sole ground of cross objection of the assessee also pointed out that even as per the Revenue’s paper book page 8, the assessee has shown closing stock of Rs. 27 crores and particulars of income as shown by the assessee for F.Y. 2006-07 were NIL and income shown for F.Y.
2007-08 as accrued to the assessee only on two sources viz. Profit on sale of investments and interest income amounting to Rs. 70,72,427/- and there was no sale of agricultural land purchased by the assessee and kept as stock in trade. The ld. Counsel also pointed out that since there was no sale during the year, the assessee has not claimed any expenditure regarding purchase of agricultural land including the impugned cash payments.
Therefore, even on merits, addition cannot be held as sustainable. The ld. Counsel further drew our attention towards assessee’s paper book pages 44-55 and submitted that in the WS dated 24.6.2013 filed before the ld. CIT(A), the assessee has explained every fact regarding impugned disallowance.
Therefore, not only on legal ground even on merits the additions made by the AO u/s 40A(3) of the Act cannot be held as sustainable and the ld. CIT(A) was right in directing the AO not to tax the same.
On careful consideration of the above submissions, at the very outset, we observe that the ld. CIT-DR has pressed into service the WS-I [pages 13 to 21 dated 21.3.2016] to allege that payments of Hon'ble High Court of Delhi in the case of Anil Bhatia[supra] and Filatex India Ltd [supra] have not been over ruled by the Hon'ble High Court decision in the case of CIT Vs. Kabul Chawla [supra] and ratio of this decision only applies to the cases where the assessments are completed u/s 143(3) of the Act. The ld. CIT-DR has stressed on this legal contention that the jurisdiction of the AO to make assessment u/s 153A of the Act is valid after search even if no material relating to that is found and seized.
The ld. CIT-DR has vehemently contended that since no question of law has been framed by the Hon'ble High Court in the decision of Kabul Chawla [supra], therefore, the same has no precedentiary value. The above contentions, we note that at para 20 of the said decision, the Hon'ble High Court of Delhi has gone into detail before taking any conclusion and has considered the ratio of its own decision in Anil Bhatia [supra] wherein their Lordships at para 24 of the order refrained to express any opinion on this question as to whether section 153A can be invoked where no incriminating material was found during search conducted u/s 132 of the Act. For the sake of completeness, relevant paras 20 and 21 of the order in the case of Kabul Chawla [supra is being respectfully reproduced:
“20. As regards the material unearthed during the search the Court in CIT v. Anil Kumar Bhatia (supra) observed that "if it is not in dispute that the document was found in the course of the search of the Assessee, then Section 153A is triggered. Once the Section is triggered, it appears mandatory for the Assessing Officer to issue notices under Section 153A calling upon the Assessee to file returns for the six assessment years prior to the year in which the search took place." The Court clarified in para 24 as under:
"24. We are not concerned with a case where no incriminating material was found during the search conducted under Section 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."
21. Therefore it is clear that the decision in CIT v. Anil Kumar Bhatia (supra) does not deal with a situation where, as in the present case, no incriminating material was found during the search conducted under Section 132 of the Act.”
Further, on vigilant reading of summary of legal position mentioned by their Lordships, speaking for Hon'ble Jurisdictional High Court in para 37 of the decision, we respectfully note that in sub-para (iv) to (vii), 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 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 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.”
First of all, we may point out that the contention of the ld. DR that the earlier judgments of Hon'ble Supreme Court and Hon’ble High Court have not been properly considered in the case of CIT Vs. Kabul Chawla [supra] is not sustainable and in fact, it is incorrect because from the vigilant reading of the judgment of Hon’ble High Court of Delhi in the case of Kabul Chawla [supra] it is amply clear that the Hon’ble High Court has considered ratio of the decisions of Hon'ble Supreme Court and Hon’ble High Court in the case of CIT Vs. Ankitech pvt. Ltd [2011] 11 Taxmann Com. 100 [Del], Anil Kumar Bhatia [supra], Madugula Venu Vs. DIT [2013] 29 Taxmann 200 [Del], Chetan Das Lachman Das Filatex India Ltd [supra], Ranbaxy Laboratories Ltd. Vs. CIT [2011] 12 Taxmann.com 74 [Del], Jai Steel (India) Vs. ACIT [2013] 36 Taxmann.com 523 [Raj and judgment of Hon’ble Bombay High Court dated 29.10.2010 in ITA No. 36/2009 CIT Vs. Murli Agro Products Ltd. [Bom] and judgment of Hon’ble Karnataka High Court in the case of M/s Canara Housing Development Company Vs. DCIT dated 25.7.2014 in ITA No.38/2014 have been considered by their Lordships and thereafter, summary of legal position has been drawn in para 37, as reproduced hereinabove. Therefore, we decline to accept contention of the ld. CIT-DR that in the decision of Kabul Chawla [supra] relevant judgement on the issue have not been considered and therefore, ratio of this decision is not applicable to the present case.
Regarding legal contentions of ld. DR placed in written submissions–II dated 21.3.2016, available at pages 21 to 25 of Revenue’s paper book, we are of the view that similar legal contentions and objections against the applicability of the judgment and propositions laid down by Hon'ble Supreme Court and various Hon’ble High Court was also posed to the Tribunal in the case of Lairy Distributors Pvt. Ltd and other appeals by the then ld. CIT-DR and in the order dated 27.1.2016 the legal contentions of the Revenue were considered in detail and dismissed being devoid of merits. The relevant operative part of the order of the Tribunal in the case of Lairy Distributors [supra], contention of the ld. CIT-DR which were quite similar to the written submissions-II of the Revenue filed in the present case and the similar legal contentions raised by the then ld. CIT-DR were reproduced in the order of the Tribunal dated 27.1.2016 [supra] which read as follows:
“32. The ld. CIT-DR also submitted written objections regarding decisions relied by the ld. AR qua applicability of dicta on propositions or ratio of these judgments and orders of Hon'ble Supreme Court, Hon'ble High Court and Hon'ble Jurisdictional High Court of Delhi, which are being reproduced below for the sake of completeness:
“I. Before adverting to the judgments/decisions relied by the AR, Hon’ble is prayed to kindly note that -- a decision is available as a precedent only if it decides question of law: as held in (i) Mehboob Dawood Sheikh v. State of Maharashtra{ (2004) 2 SCC 362 para 12} (ii) Surinder Kumar v. State of Punjab v. {194 ITR 434 SC)}.
--(i) Only ratio decidendi is binding; --(ii) Observations (obiter dicta) have no binding force: as held in (i) Rekha Mukerjee v. Ashish K. Das (2005) 3 SCC 427;
440-47 (para 29); (ii) Orient Paper and Inds. Ltd. v. State if Irussa AIR 1991 SC 672}. (iii) UOI Vs. Bhanwanti Devi (1996) 6 SCC 44 para 9; (iv) Divisional Controller, KSRTC v. Mahadeva Shetty (2003) 7 SCC 197, 206 (para 23);
--decision applicable to facts of the case is not to be treated as a precedent: as held in (i) National Ins. Co. Ltd. v. Swarna Singh (2004) 3 SCC 297. --observation or simply what was done in a given case, without laying down the law cannot be read as a precedent, as held in Common Cause v. Uol (2004) 5 SCC 222, 223 (para 6)}.
--Judgment to be applied should not be per incuriam: as held in Mukesh K. Tripathi v. Sr. DM LIC (2004) 8 SCC 387 396 (para 23). --Judgment to be applied should not be ‘sub silentio’. as held in State of UP Synthetics & Chemicals (1991) 4 SCC 139 (i) SC; Amrit Das v. State of Bihar (2000) 5 SCC 488 para 20. (ii)
II The decisions being relied upon by the AR as being discussed below are the ones which were obtained by suppressing the vital fact that before the AO there was no challenge to his jurisdiction on the grounds in these case (i) that there was no incriminating material or (ii) that years in which assessment were framed were outside the purview of 6 years contemplated u/s 153C or (iii) that there was no document found which belonged to them so as to invoke 153C.
Since the jurisdiction of the AO hovering around the above aspects was not challenged within the time prescribed u/s 124 it was not permissible to raise these issues later before the CIIT(A)/ITAT/HC. (ii) Tribunal decisions cannot be used as precedent because they run contrary to Tribunal’s own decision in Apoorva Extrusions P. Ltd. (on whether assesstt was hey and 6 years mentioned u/s 153C etc.) and also contrary to what was held by the jurisdictional High Court in (i)SSP Aviations Ltd; (ii) Chetan Das Lachhman Das; (iii) Madugula Venu; (iv) Filatex India Ltd; (v) Anila Bhatia. (ii) SSP Aviation Ltd. (346 ITR 177 Delhi High Court).
Para 17 of the order relied by the AR “
..Assessing officer having jurisdiction over the other person to follow the procedure prescribed hy section 153A in an attempt to ensure that the income reflected hy the document has been accounted for hy such other person. If he is so satisfied after obtaining the returns from such other person for the 6 assessment years, the proceedings will have to be closed.” are clearly obiter and this would become clear from (i) para 15 where High Court clearly held that “...there is no requirement in Section 153C(i) that the Assessing Officer should also be satisfied that such valuable articles or books of accounts or documents belonging to the other person must be shown to conclusively reflect or disclose any undisclosed income, and (ii) para 7 “..The main contention of the petitioner is that the Assessing Officer has illegally assumed jurisdiction u/s 153C read with Section 153A of the Act, that there was no undisclosed income to the assessed in the petitioner’s hands and therefore a writ of certiorari should he issued to quash the proceedings as null and void”. (iii) If the High Court wanted to hold so (as contended by the AR), the proceedings/assessment for the years for which there was no seized material as referred in Satisfaction Note at all would have been quashed. (iv) There was no controversy before the High Court as to which 6 years are to be considered while making assessment u/s 153C of the Act and hence judgment cannot be relied or referred to while deciding the present appeal. Important fact to be taken note of jurisdiction of is that the AO to go ahead with the assessment was questioned because of the absence of incriminating material. Further in the Satisfaction note drawn by the AO
(i) Documents referred were only pertaining to AY 07-08 & 08- 09 (ii) Satisfaction Note did not show any denial qua documents on the part of the party subjected to 132. (iii) Satisfaction Note does not show any satisfaction recorded in the case of party subjected to 132.
(iii) Kurele Paper Mils P. Ltd. (Delhi High Courtorder dated 06-07-2015) (iv) Jasjit Singh (Delhi High Court in (v) GRG Steel P. Ltd. (Delhi High Court order dated 04-08-2013) (vi) Vrindavan Farms P. Ltd. (Delhi High Court order 12-08-2015) These are not applicable as in these cases neither question of law was formulated nor answered and for this reliance is placed on (i) K.L. Manhas { W.P.(c) No. 4079/2013} in para 9 holding that mere prima facie observation of the Court, not dealing with the issue on merits, does not constitute a binding precedent. (ii) Mehboob Dawood Sheikh v. State of Maharashtra (2004) 2 SCC 362 para 12 (iii) Satwant Singh v. State of Punjab v. {194 ITR 434 SC)} -where it was held that a decision is available as precedent only if it decides a question of law.
(vii) MGF Automobiles Ltd. Delhi High Court (order dt. 13-08-2015) in & 14/2014. This was the case where the order of the AO was absolutely silent on the important fact as to on what material or evidence the addition/disallowance was based and this prompted the High Court to dismiss Revenue’s appeal. Clearly, the judgment is more on facts than on law. This judgment besides being inconsistent with its own earlier decisions in SSP Aviations, Filtax Ltd; Chetan Das Lacchman Das and Anil Bhatia etc. is the one case where no case law, no legal provisions are found referred or discussed & hence cannot be taken as a binding precedent as held in CIT v. B.R. Constructions { 202 ITR AP FB}.
(viii) Kabul Chawla. Delhi High Court (Order dated 28-08-2013): Judgment cannot be relied as a binding precedent because;
(i) In this judgment (which deals with jurisdictional issues of incriminating material etc. whereby AO’s authority is being challenged) is in ignorance of applicable provisions of 124 which act as a bar to rake up jurisdictional issues later. Since this decision is rendered without reference to the statutory bars, it cannot be used as a binding precedent as held in State v. Ratan Lai Arora (2004) 4 SCC 590.
(ii) Unlike the present appeals, this judgment is not in the context of section 153C. (iii) Judgment neither shows formulation of questions nor shows as to what all questions of law were raised by the Revenue.
(iv) It does not considers its own judgment in SSP Aviation Ltd which was directly on section 153C.
(v) It holds something not even indicated in the law & hence goes against the plain words of law. (vi) It relied heavily on certain portions from its judgments in Chetan Das Lachhman Das & Anil Bhatia’s case which were mere observations i.e. obiter and not the statements of law as stated in its earlier judgments in SSP Aviations Ltd; Madugula Venu & Filatex Ltd.
(vii) Material aspect that proceedings for AY 6-07 were not complete because time for issuing notice u/s 143(2) was still available with the AO, got ignored.
(viii) Important aspect got ignored that Kabul Chawla while accepting the addition made of 50 lacs on account of gifts which too was not referable to incriminating material found during the search on the other addition made u/s 2(z2)(e) was being challenged on plea that it was not referable to search finding.
(vi) Unlike Kabul Chawla’s case where there was no search material, in the present appeals (as seen from AO’s order) there was material in the shape of statements recorded u/s 132(4) during the search and also the other material collected during the currency of the search itself.
(ix) Kusum Gupta Delhi HC: Cannot be relied upon because
(a) Here in this case no Substantial Question of Law was formulated as required u/s 260A. (b) It just follows its judgment in Kabul Chawla( which is shown to be not applicable in this note).
(x) Pepsico India Holdings P Ltd f 370 ITR 29'i Delhi High Court). As already submitted in para 2.2(page 5 of Written Note) the above decision was given in a Writ and was fundamentally on facts where the High Court found no documents to be belonging to the petitioner.
Judgment being on facts, concession and also for the reason that this neither shows as to what all questions of law were raised nor formulates substantial questions of its own, is not available to be used as a binding precedent.
DSL Properties Delhi Trib; (i)
RL Allied Industries {167 TTT 201; (ii) Chain Roop Baid 134 ITD 237 Deb (iii)
Not available as precedents because; (a) These are the decisions (e.g. DSL) obtained by suppressing the fact that the Grounds ( on challenging the validity of Satisfaction Note or the issue of Limitation ( year falling beyond 6 years ) were of the nature of additional ground as they were never raised before AO/CIT(A) and hence required specific leave of ITAT which was not obtained.
(b) These decisions (DSL) runs contrary to Delhi High Court order in SSP Aviations Ltd. where too similar Satisfaction Note was involved.
(c) The DSL decision is seen obtained by suppressing the fact that these jurisdictional objections were not raised within time mentioned u/s 124.
(d) This is contrary to later decision of the Tribunal in Apoorva Extrusion Ltd. Without prejudice to the above this decision is found to be resulting in absurdity whereby by the search action certain years/transactions would get covered which by the time of 153C had not even taken place.Especially in case of RL Allied Industries it would be noticed that adjudication done by the ITAT is not even borne out of the grounds (that order is time barred) raised before the ITAT.
(xiv) Jasjit Singh Delhi Trib.flTA 1436/Del/2012}: Not available as a precedent because
(a) It is obtained by suppressing the fact that AO’s jurisdiction was not challenged within 124 time; (b) Controversy there was different about whether order to be passed u/s 143(3) or u/s 153C. (c) Adjudications of 6 years travels beyond the controversy ( even in addl. Ground) raised before ITAT
(xv) Brightways Housing & Land Developers Ltd. (ITA 5117-18/Del/2013 (xvi) Devi Dayal Petro Chemicals P. Ltd.
ITA No. 4335-36/Del/2013
Not available as precedent because these are (a) Obtained by suppressing the fact that AO’s jurisdiction was not challenged within 124 time;
(b) Run contrary to Delhi High Court order in SSP Aviation Ltd. where too Satisfaction Note drawn just referred documents concerning two AYs & still the High Court did not allow the Writ petitions.
(xvii) Sunita Bai { 68 SOT 98 URO- Cannot be relied because it is (a) Contrary to its finding in para 13 “section does not require the document must he incriminating document’’.
(b) Relied on certain observations given in Delhi High judgments in Chetandas Lacchman Das & Anil Bhatia which were accepted to be obiter but strangely stilled relied on them in adjudication without appreciating that these observations did not carry precedential value. (c) Adjudication that ‘addition is not the result of incriminating document.’ travel beyond the grounds raised
. (d) Objection not raised within section 124 time. (xviii ) Lakshmi Singh { 68. SOT 26}: Not applicable for the reasons given in case of Sunita Bai above, (xix ) Natural Products Tech {153 ITD s8{ : Not applicable because;
(a) Before ITAT only two relevant grounds were that (i) order is not based on incriminating material and (ii) order is without jurisdiction; and relief given in view of ratio decidendi in Pepsi Holdings without appreciating that there was no ratio there because this decision was just on peculiar facts.
(b) Here in the present appeals additions/order is based upon incriminating material being Statements recorded u/s 132(4) of the Entry Operator and also of Ashok Minda.
(c) DSL Properties decision of Delhi ITAT relied was not available as a precedent. (d) Runs contrary to SSP Aviations (Delhi High Court) where too similar Satisfaction was involved. (e) Objection to jurisdiction was not raised within 124 prescribed time.
(xx) Qualitron Commodities Ltd {167 TTT 3S3 Del}: Cannot be relied upon for the reasons that;
(i) COs of the assessee were entertained because of suppression of the crucial fact that CO was not arising out of the order of the CIT(A) whereby pure legal question challenging the validity of assessment was being challenged. {Refer Ahmedabad ITAT decision in Sandeep M Patel 22 Taxman.com 288}.
(ii) CO filed was late and without giving any reason for delay it was entertained.
(iii) Runs contrary to Delhi High Court order in SSP Aviation Ltd.
(iv) Material fact that AO’s jurisdiction was not challenged earlier within 124 time was suppressed.
(v) Decision relies on Delhi High Court order (Pepsico
Holdings) which was not available as precedent.
(xxi) Tanvir Collections P. Ltd. 168 TTT US Deb Not applicable because; (a) It runs contrary to Delhi High Court order in SSP Aviations Ltd; (b) It relied on certain portion of SSP Aviation Ltd. which was just obiter not to be used as a precedent. (c) It relied on its decision in Inlay Marketing & Akash Arogya which were obtained on suppression of material fact that objection was not raised within 124 time and that evidences being adduced were of the nature of additional evidence.
(d) Objection challenging the jurisdiction of the AO was raised within 124 time. Satyam Food Specialities P. Ltd {68 SOT (xii) Del}:
Not relevant and applicable at all because there relief is given on merits and not on the legal ground of validity of 153C assessment.”
Furthermore, adjudicating the above legal contentions posed by the ld. CIT-DR were adjudicated and dismissed in the order of the Tribunal in the case of Lairy Distributors [supra] dated 27.1.2016 [which was authored by one of us - C.M. Garg, JM] by observing as under:
“34. We have anxiously and thoughtfully considered the written submissions placed on record by the ld. CIT-DR Shri Ramesh Chander. It has left us bewildered and perplexed that whether the given arguments running contrary to the well settled position of law u/s 153C of the Act can be taken by a person judicially instructed on law and facts. To be fair to the ld. CIT-DR, we record our displeasure that on an issue which is squarely covered by a catena and plethora of judgments in assessee’s favour a feeble and valiant attempt has been made to upset the entire jurisprudence settled by the Hon'ble Supreme Court, various Hon'ble High Court including the Hon'ble Jurisdictional High Court of Delhi. There is a commonality in the arguments of the ld. CIT-DR that all these decisions have been rendered on alleged and suggested suppression of crucial and vital facts contrary to assessee has withheld that jurisdiction is not alleged before the AO. On this ground, the ld. CIT-DR has painfully argued that all the precedents on given issue are distinguishable on this ground. We are of the consistent view that at multiple occasions it has been consistently and repeatedly held that the issue relating to jurisdiction of the AO can be raised at any stage even in collateral proceedings because the same strikes at the root of the matter. We are reminded of the classical and land mark decision of the Hon'ble Supreme Court [Four Judges Bench] in the case of Raja Textiles Ltd VS. ITO 87 ITR 539 wherein it was held that :
“It was contended by Mr. Manchanda, the learned Counsel for the revenue, that the appellant had a right of appeal to the Appellate Assistant Commissioner under Section 30(1A). He argued that if only he had deposited the amount computed by the Income-tax Officer, then he would have had a right of appeal to the Appellate Assistant Commissioner. Assuming that Section 30(1A) applied to facts of the case, then before having recourse to that provision a person seeking to file an appeal under that provision must comply with two requirements, namely, that he must have first deducted the tax due from the non- resident assessee and must have paid the same to the Government. This provision cannot apply to the case of a person who contends that the firm to whom he made the payment is not a non-resident firm. If he is right in his contention, then he could not have deducted the tax due from the firm to whom he made the payment.
5. For the reasons mentioned above, we allow this appeal, set aside the order of the Appellate Bench of the Allahabad High Court and remand the case back to that Court for deciding the appeal afresh. It is open to the assessee to urge all the points that he has taken in the case. ”
These observations of the Hon'ble Supreme Court have been echoed in various subsequent decisions of various courts and few of these are respectfully mentioned below:
a) Hon'ble Gujarat High Court in the case of P.V. Doshi Vs. CIT 113 ITR 22 [Guj] b) Hon'ble Jurisdictional High Court in K.K.Lumba 241 ITR 152 [Delhi] c) DHC – S.S. Ahluwalia [2014] 82 CCH [158] [Del]
To sum up, we have no hesitation to jettison the arguments of the ld. CIT-DR. We are pained to quote from the famous observations of Mr. Justice Crampton in R Vs. O’Connell [1844] ILR 261 @ 312:
“Another doctrine broached by ' another eminent counsel I cannot pass by without a comment. That learned counsel described the advocate as the mere mouthpiece of his client, he told us that the speech of the counsel was to be taken as that of the client; and thence seemed to conclude that the client only was answerable for its language and sentiments. Such,
I do conceive, is not the office of an advocate. His office is a higher one. To consider him in that light is to degrade him. I would say of him as I would say of a member of the House of Commons - he is a representative, but not a delegate. He gives to his client the benefit of his learning, his talents and his judgment; but all through he never forgets what he owes to himself and to others. He will not knowingly misstate the law- he will not wilfully misstate the facts, though it be to gain the cause for his client. He will ever bear in mind that if he be the advocate of an individual, and retained and remunerated (often inadequately) for his valuable services, yet he has a prior and perpetual retainer on behalf of truth and justice; and there is no Crown or other licence which in any case, or for any party or purpose, can discharge him from that primary and paramount retainer. ”
(Emphasis supplied) 37. At this stage, it is necessary and relevant to respectfully remind the preposition laid down by the Hon'ble Supreme Court in the case of ACCE VS. Dunlop India Ltd [1985] 154 ITR 172 [SC] that the judgments/orders of the Hon'ble Supreme Court/Hon'ble High Court have binding effect on the Tribunal and the orders of the Tribunal have persuasive value or effect on the other Benches of the Tribunal. Speaking for the Hon'ble Supreme Court of India, their Lordships held that the judicial system only works if someone is allowed to have the last word and the last word, once spoken, is loyally accepted. The Hon'ble Supreme Court in this judgment has itself quoted from the decision of House of Lords as follows:
“We desire to add and as was said in Cassell & Co. Ltd. vs. Broome (1972) AC 1027 (HL), we hope it will never be necessary for us to say so again that "in the hierarchical system of Courts" which exists in our country, "it is necessary for each lower tier" "to accept loyally the decision of the higher tiers". "It is inevitable in hierarchical system of Courts that there are decisions of the Supreme appellate Tribunal which do not attract the unanimous approval of all members of the judiciary... But the judicial system only works if someone is allowed to have the last word, and that last word, once spoken, is loyally accepted. "...The better wisdom of the Court below must yield to the higher wisdom of the Court above. That is the strength of the hierarchical judicial system." (Emphasis by underlining supplied by us)
Furthermore, in the case of CIT Vs. Godavari Devi Saraf [1978] 113 ITR 589 [Bombay] the Hon'ble Bombay High Court held that an authority like the Tribunal has to respect the law laiddown by the Hon'ble High Court, though of a different state, so long as there is no contrary decision on that issue by the other High Court. Hence we decline to accept the contentions of the ld. CIT-DR about non-applicability of the ratio of the decisions /judgments cited as relied by the ld. Counsel of the assessee and we proceed to consider other legal objections of the assessee.
In view of above foregoing discussions, we decline to accept legal contentions and submissions of the ld. CIT-DR about the non applicability of the ratio of decisions/orders/judgments of Hon'ble Supreme Court and Hon’ble High Court in favour of the assessee as cited by the ld. AR.
Next question for our adjudication is that whether the assessment orders passed u/s 143(3) r.w.s 153A of the Act are valid and sustainable in view of ratio laid down by Hon’ble High Court in the case of Kabul Chawla [supra]. In the present case admittedly and undisputedly the AO has made sole addition for both the years u/s 40A(3) of the Act on the allegation that the assessee made payments towards purchase of agricultural land in contravention of said provisions for business purposes for both the A.Ys. Undisputedly, these additions are not based on any incriminating material found during the course of search, or post search material or information available with the AO which can be related to the evidence found during the course of search.
Therefore, we safely observe that the additions have been made on the basis of same documents and material which were placed during the original assessment proceedings and these additions are not based on any incriminating material found and seized during the course of search or any other post search material or evidence found or unearthed by the AO during the post search investigation and enquiry.
In view of summary of legal position laid down by their Lordships in the case of Kabul Chawla [supra], speaking for Hon’ble High Court of Delhi, it is amply clear that once search takes place u/s 132 of the Act, notice u/s 153A of the Act will have to be mandatorily issued to the person searched requiring him to file returns for six A.Ys immediately preceding the previous year relevant to the A.Y in which the search takes place; assessment and reassessment pending on the date of search shall abate and total income for such A.Ys will have to be computed by the AO as a fresh exercise; the AO will exercise normal assessment powers in respect of six previous years relevant to the A.Y in which the search takes place and the AO has the power to assess or reassess the total income of the aforementioned six years in separate A.Ys for each of the six years and there will be only one assessment order in respect of each of the six A.Ys “in which both the disclosed and the undisclosed income would be brought to tax”.
Their Lordships also held that although section 153A of the Act does not say that addition should be strictly made on the basis of evidence found in the course of search, or other post search material or information available with the AO which can be related to the evidence found during the course of search, it does not mean that the assessment can be arbitrarily made without any relevance or nexus with the seized material.
Their Lordships, in Para 37(iv) & (v) in the last sentence expressly held that obviously an assessment has to be made u/s 153A of the Act only on the basis of seized material and in the absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made.
While summarising the above legal position, their Lordships were cautious enough to hold that the word ‘assess’ in section 153A of the Act is related to abated proceedings i.e. those pending on the date of search and the word ‘reassess’ to completed assessment proceedings.
Their Lordships, in para 37 (vi), further held that in so far as pending assessments are concerned, the jurisdiction to make original assessment and the assessment u/s 153A of the Act merges into one and only one assessment shall be made separately for each A.Y on the basis of findings of search and any other material existing or brought on record of the AO. In para 37(vii), their Lordships held that completed assessment can be inferred by the AO while making assessment u/s 153 of the Act only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered during the course of search which were not produced or not already disclosed or made known to the Revenue in the course of original assessment.
In view of above binding ratio of the decision of Hon"ble Jurisdictional High Court of Delhi, when we logically analyse the facts and circumstances of the present case in light of rival contentions of both the sides, then undisputedly and admittedly, assessment for both the A.Ys. 2007-08 and 2008-09 has been completed on the date of search, i.e before 22.3.2011 and in this situation, as per ratio and summarised legal position laid down by Hon’ble High Court, in the case of Kabul Chawla [supra] para 37(vii) completed assessment can be interfered by the AO while making assessment u/s 153A r.w.s 143(3) of the Act 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 by the assessee or made known in the course of original assessment to the AO. Since no incriminating material pertaining to additions made by the AO u/s 40A(3) of the Act was unearthed during the course of search or requisition of documents or any subsequent post search enquiry or investigation and on the date of search assessment for both the A.Ys already stood completed, then no additions could have been made to the income already assessed in the original assessment proceedings.
On the basis of foregoing discussion, we are inclined to hold that the assessment orders framed by the AO u/s m153A r.w.s 143(3) of the Act for both the A.Ys and additions made therein u/s 40A(3) of the Act are bad in law and thus the same are not sustainable and hence we dismiss the same being passed contrary to the provisions of the Act as well as the ratio laid down by Hon’ble High Court in the case of Kabul Chawla [supra]. Consequently, appeals of the assessee for both the A.Ys are allowed and assessment orders are set aside.
Accordingly, cross objections of the assessee for both the years are allowed. Since we have allowed appeals of the assessee and consequently assessment orders for both the years u/s 143(3) r.w.s 153A of the Act have been set aside being bad in law and not valid by allowing legal objection of the assessee, therefore, appeal of the Revenue for A.Y 2007- 08 and cross objection of the assessee for A.Y 2007-08 becomes infructuous and academic and we dismiss both as having become infructuous.
To sum up, in the result, the appeals of the assessee stand allowed and appeal of the Revenue and cross objection of the assessee stand dismissed.
The order is pronounced in the open court on 17.06.2016.