PR. COMMISSIONER OF INCOME TAX (CENTRAL) - 3 vs. M/S DHARAMPAL PREMCHAND LTD.

It is not in dispute that, for the AYs in question, the assessments by were completed by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act, 1961 (‘Act’).

On 2nd January 2012 a search under Section 132 of the Act was carried out in the Dharampal Satyapal Group, which is engaged in the business of manufacturing and trading of chewing tobacco, and premium paan masala. In response to the notice dated 9th January 2012 issued to it under Section 153A of the Act, the Assessee filed its return of income on 16th January, 2012 declaring an income of Rs. 5,70,32,680/-. This was the income which was declared when the return was filed in the first place.

The Assessee was claiming deduction under Section 80-IB and 80-IC of the Act in respect of its units located at Himachal Pradesh and Agartala. As for the Noida unit of the Assessee, which was not eligible for deduction under Section 80-IB and 80-IC of the Act, it is stated that it was transferring silver flakes to the various eligible units.

During the course of the assessment proceedings under Section 143(3) of the Act, the Assessee submitted the certificate of the Auditor in Form 10CCB claiming deduction in respect of the profits of the eligible units. The case of the Revenue is that, in the Form 10CCB submitted by the Assessee, no disclosure was made regarding the transfer of material from the Noida unit to the eligible units.

In the assessment order dated 28th March 2013passed under Section 153A of the Act, the AO discussed in some detail the report of the auditor in Form 10CCB. After noting the failure by the Assessee to disclose in the said form the transaction involving transfer of silver flakes from the Noida unit to the other units, the AO rejected the said report submitted in Form 10CCB. It is important to note that, as far as the assessment order of the AO is concerned, it failed to discuss whether the documents seized in the course of search constituted incriminating material qua the AYs in question or whether it reflected a modus operandi adopted by the Assessee which could lead to an inference qua each of the AYs in question even though the material seized did not pertain to those AYs.

Before the Commissioner of Income Tax (Appeals) [‘CIT (A)’], the question of assumption of jurisdiction under Section 153A of the Act was squarely raised. In para 3.3 of the order dated 21st June 2013, the CIT (A) noted that “a perusal of the reply filed before the Assessing Officer shows that there are large number of documents were seized, which has nexus of for quantifying deduction u/s 80IB/80IC.” The CIT

In the further appeal filed by the Assessee before the ITAT, the central question that arose was again whether the assumption of jurisdiction under Section 153A of the Act qua the Assessee for the AYs in question was justified. A submission was made before the ITAT by the Department Representative [DR] that “these documents are seized during the course of search and are incriminating material, which was not before the AO at the time of making original assessment.” According to the DR, “though the dates of the documents are pertaining to FY 20 10-11 but this shows the modus operandi of the assessee by the transfer of the goods and therefore the assessment under Section 153A made by the AO is purely on the basis of seized material found during the course of search.”

The ITAT took it upon itself to analyse the seized material in great detail. This entire analysis is to be found in para 23 of the impugned order. At the end of the analysis the ITAT came to the following conclusions in para 24: “24. Based on this we have come to conclusion that:

Mr. Zoheb Hossain, learned Senior Standing Counsel for the Revenue, placed considerable reliance on the decision of the Division Bench of this Court in Smt. Dayawanti Gupta v. CIT [2017] 390 ITR 496 (Del) where it was held that material seized which is relevant to one particular AY is sufficient to infer a certain modus operandi adopted by the Assessee for all the AYs in question, although there may not be specific incriminating material qua each of the AYs. He submitted that the subsequent decision of this Court in Principal Commissioner of Income Tax v. Meeta Gutgutia Prop. M/s Ferns ‘n’ Petals [2017] 395 ITR 526 (Del), which takes a contrary view, is inconsistent with said decision and, therefore, the entire issue should be

In reply, Mr. Salil Agarwal, learned counsel appearing for the Assessee, pointed out that the decision in Smt. Dayawanti Gupta v. CIT (supra), in fact, did not contradict the decision of this Court in Commissioner of Income Tax v. Kabul Chawla [2015] 380 ITR 573 (Del). He pointed out that although an appeal by the Revenue against the said decision in Kabul Chawla is pending before the Supreme Court, there is no stay of the said judgment and, therefore, as far as this Court is concerned, the decision in Commissioner of Income Tax v. Kabul Chawla (supra) is still good law. That decision explicitly holds that there has to be incriminating material to justify the assumption to jurisdiction under Section 153A of the Act qua each of the AYs for which assessment is sought to be reopened. Mr Aggarwal submitted that, in the present case, even de hors this question, the ITAT has analysed the material seized and in fact found it to be not incriminating even for FY 2010-11. That being the position, the further question as to whether such material could constitute incriminating material with respect to other AYs simply did not arise.

Indeed, the Court finds that de hors the question whether the material seized, which admittedly pertains to FY 2010-11, can

If, even for FY 2010-11, what was seized did not constitute incriminating material, then the essential jurisdictional fact for justifying the assumption of jurisdiction under Section 153A of the Act did not exist. Learned counsel for the Assessee is therefore right in submitting that, in view of the above factual findings of the ITAT, the further question as to whether the said material was sufficient to reopen the assessments for the other AYs, with which these appeals are concerned, does not really arise.

Nevertheless, the Court is of the view that the decision of this Court in Commissioner of Income Tax v. Kabul Chawla (supra), which has been reiterated in Principal Commissioner of Income Tax v. Meeta Gutgutia Prop. M/s Ferns "N" Petals (supra), is still good law as far as this Court is concerned. As explained in Principal Commissioner of Income Tax v. Meeta Gutgutia Prop. M/s Ferns ‘n’ Petals (supra), the

For the above reasons, the question framed is answered in the negative i.e. against the Revenue and in favour of the Assessee.

The appeals are accordingly dismissed.