DALWALA SECURITIES LTD,MUMBAI vs. DCIT CEN CIR 33, MUMBAI

In the memorandum of appeals, assessee originally had raised grounds challenging the additions made by the Assessing Officer on merits. However, subsequently, the assessee had filed additional grounds challenging the validity of proceedings initiated under section 153A of the Act. As the issue raised in the additional ground is purely a legal and jurisdictional issue going to the root of the matter and can be decided on the basis of facts and materials available on record, we propose to deal with the additional ground raised at the outset.

Brief facts which are common on all these appeals are the assessee a company is engaged in the business of trading and investment in shares and securities. A search and seizure operation under section 132 of the Act was conducted on 10th November 20016 in the business and residential premises of the companies / directors and related persons dealing with Balaji Group. In the course of search and seizure operation, the Department found that the Flagship company of the Balaji Group is Balaji Yarn Ltd., which is engaged in the business of trading in non–ferrous metals and chemicals. It was found that the group had set–up steel manufacturing plants in the name and style of Karnataka Strips Pvt. Ltd. and United Galva Pvt. Ltd.

Accordingly, he completed the assessments by adding the alleged bogus share application money as income of the assessee. Being aggrieved of such assessment orders, the assessee preferred appeals before the learned Commissioner (Appeals).

The learned Commissioner (Appeals) also confirmed the additions.

Learned Authorised Representative submitted before us, as far as assessment years 2001–02 and 2002–03 are concerned, on the date of search no assessment was pending before the Assessing Officer as in the case of assessment year 2001–02, the original assessment has already been completed under section 143(3) of the Act on 17th March 2004 and for assessment year 2002–03, return of income has been processed under section 143(1). He submitted, in the course of search

We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. Undisputedly, in the impugned assessment years as on the date of search under section 132 of the Act, there was no assessment pending before the Assessing Officer. As far as assessment year 2001– 02 is concerned, assessment under section 143(3) has already been completed. Even in respect of assessment year 2002–03, the return of income filed by the assessee has been processed under section 143(1) of the Act and the Assessing Officer has not issued any notice under section 143(2). Thus, in the aforesaid factual scenario it has to be examined whether the proceedings under section 153A, have been validly initiated on the basis of incriminating material unearthed as a result of search revealing undisclosed income. On a careful perusal of the impugned assessment order, we have not come across any observations by the Assessing Officer relating to detection of 9 M/s. Dalwala Securities Ltd. M/s. Mukul Holding And Trading Co. P. Ltd. undisclosed income as a result of incriminating material found during the search. In fact, to put it correctly, the Assessing Officer in the entire assessment order has not referred to a single piece of incriminating material found and seized during the search and seizure operation which could have been remotely connected to the so called undisclosed income assessed by the Assessing Officer, save and except the statement recorded from a director of a newly set–up company. In fact, on a perusal of the said statement also, we do not find in any way it is having any reference to the assessee. In fact, to a specific query from the bench to the learned Departmental Representative, to point out the specific incriminating material on the basis of which the addition has been made, the learned Departmental Representative fairly submitted, in the assessment order there is no reference to any such incriminating material. Thus, prima–facie it is established that there is no incriminating material unearthed as a result of search which could reveal undisclosed income of the assessee. It is evident, in the proceedings initiated under section 153A, the Assessing Officer was only re–examining the genuineness of the share application money. In our view, this is not the intent and purpose of section 153A. The ITAT, Mumbai Special Bench, in case of All Cargo Global Logistics Ltd. v/s DCIT, [2012] 18 ITR 106 (Trib.), while examining the power of the Assessing Officer under section 153A of the Act has held, in case of 10 M/s. Dalwala Securities Ltd. M/s. Mukul Holding And Trading Co. P. Ltd. assessments pending on the date of searh the Assessing Officer retains the power to make original assessment and assessment under section 153A. In other words, he can assess both income which could have been assessed in the original assessment as well as income unearthed as a result of search and seizure operation and any other material brought on record. However, in case of a non–abated assessment, the assessment under section 153A, has to be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search. Aforesaid view of the Special Bench was approved by the Hon'ble Jurisdictional High Court in CIT v/s Continental Warehousing Corp. Ltd. (supra). In the present case, admitted factual position is, there is no incriminating material found at the time of search and seizure operation which could demonstrate that the money received towards share application and allotment of shares is not genuine. In the aforesaid circumstances, the initiation of proceedings under section 153A, in our view, is not permissible since these issues are subject matter of original assessment proceedings, completed before the date of search. This view of ours is supported by the decision of the Hon'ble Jurisdictional High Court as well as decision of different benches of the Tribunal referred to above. In view of the above, we hold that assessment

In the result, appeals for A.Y. 2001–02 and 2002–03 are allowed. ./2009 – A.Y. 2006–07

In this appeal also, assessee has raised an additional ground challenging the validity of proceedings under section 153A. However, at the time of hearing, learned Authorised Representative did not press the ground. Hence, the additional ground raised is dismissed.

Ground no.1 of the main ground relates to addition of an amount of ` 14.25 lakh under section 68 of the Act.

Brief facts are, during the assessment proceedings, the Assessing Officer noticed that in the impugned assessment year, share application money received by the assessee amounted to ` 14,25,500. On the basis of the reasoning on which he held the share application money received by the assessee in the assessment year 2001–02 and 2002–03, as non–genuine, in the impugned assessment year also he

Learned Authorised Representative submitted, the share application money of ` 14,25,000 was received from Preksha Exports Pvt. Ltd. and the concerned party has disclosed the amount not only in its books of account but has also reflected in its return of income. He submitted, a confirmation from the concerned party was also submitted before the Assessing Officer. He submitted, the same Assessing Officer had also completed the assessment in case of share applicant under section 143(3) r/w section 153A of the Act. He, therefore, submitted, there is no reason to consider the share application money as non–genuine and treat it as unexplained cash credit at the hands of the assessee. Learned Departmental Representative relied upon the reasoning of the Assessing Officer and the learned Commissioner (Appeals).

We have considered the submissions of the parties and perused the material available on record. As could be seen, the amount of ` 13 M/s. Dalwala Securities Ltd. M/s. Mukul Holding And Trading Co. P. Ltd. 14.25 lakh was treated as unexplained cash credit at the hands of the assessee represents share application money received from Preksha Exports Pvt. Ltd. We have noted, Preksha Exports Pvt. Ltd. is an income tax assessee and not only it has reflected the investment in share application money, in its books of account but also in the financial statements submitted along with return of income. The concerned party has also confirmed the investment in the share application money. In fact, the same Assessing Officer has completed assessment in case of Preksha Exports Pvt. Ltd. without making any corresponding addition in case of the said party. That being the case, in our considered opinion, the addition made at the hands of the assessee cannot be sustained. Accordingly, we delete the same. Ground no.1 is allowed.

In ground no.2, assessee has raised the issue of disallowance of set–off of business loss of ` 15,808.

As could be seen, the aforesaid issue though was raised before the learned Commissioner (Appeals), but he has not adjudicated the same. We, therefore, restore the issue back to the file of the learned Commissioner (Appeals) for adjudication after providing due opportunity of being heard to the assessee.

These appeals filed by the assessee are against imposition of penalty under section 271(1)(c) for the assessment year 2001–02, 2002–03 and 2006–07

While deciding assessee’s appeal in the quantum proceedings, we have deleted the addition on the basis of which penalty under section 271(1)(c) have been imposed. That being the case, imposition of penalty will not survive. Accordingly, we delete the penalty in the impugned assessment year.

In the result, appeals for A.Y. 2001–02, 2002–03 and 2006–07 are allowed. ./2010 – A.Y. 2002–03

In the present appeal, the issue raised in the additional ground relating to validity of assessment order passed under section 153A, is identical to similar issue raised in ITA no.5932/Mum./2009 and ITA no.5933/Mum./2009. Facts being identical, following the decision taken in Para–8 of our order, we annul the assessment order passed under section 153A of the Act.

In the result, appeal is allowed.

To sum up, ITA no.5932/Mum./2009 and ITA no.5933/Mum./ 2009 are allowed; ITA no.5934/Mum./2009 is partly allowed; ITA no.7773/Mum./2012, ITA no.7774/Mum./2012 and Mum./2012 are allowed and ITA no.2372/Mum./2010 is allowed. Order pronounced in the open Court on 21.12.2016