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Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI
Before: SH. SUDHANSHU SRIVASTAVA & SH. O.P. KANT
2 & 3554 /Del/2012 & C.O. Nos. 309 & 310/Del/2012 ORDER PER O.P. KANT, A.M.: These two appeals by the Revenue and two cross objections of the assessee have emanated from two separate orders dated 30.04.2011 of learned Commissioner of Income- tax (Appeals)-XXXI, New Delhi for assessment year 2005-06 and assessment year 2006-07 respectively. In both the appeals of the Revenue identical grounds have been raised except change of amount involved. Similarly, in the cross objections raised, also identical grounds have been raised except change of amount. In view of identical grounds in appeal and cross objections, both the appeals and cross objections have been heard together and disposed of by this consolidated order for the sake of convenience and brevity. Ground of appeal and cross objections in appeal number 3555/Del/2012 and cross objection No. 309/Del/2012 are reproduced as under: Grounds of appeal in i. The order of the Commissioner of Income Tax (Appeals) is not correct in law and on facts. ii. On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) has erred in deleting the addition of Rs. 4751295/- made by the Assessing Officer on account of unaccounted purchases from M/s. Supariwala & Co. on the basis of statement given by its proprietor Sh. Mahabir Prasad Gupta recorded on 12.04.2006 u/s 132(4)/131 of Income-tax Act, 1961 (hereinafter referred to as "the Act"), 1961 during the course of search. iii. The appellant craves leave to add, amend any/all the grounds of appeal before or during the course of hearing of the appeal.
3 & 3554 /Del/2012 & C.O. Nos. 309 & 310/Del/2012 Cross objections raised in C.O. No. 309/Del/2012 1. That notice issued u/s 153C of the Act and, assessment framed u/s 153A/143(3) of the Act without satisfying the statutory preconditions contained in the Act were without jurisdiction and therefore, deserves to be quashed as such. 1.1 That while upholding the assumption of jurisdiction the learned Commissioner of Income Tax (Appeals) has failed to appreciate that since no money, bullion jewellery or other valuable article or thing or books of accounts or documents belonging to the appellant were seized as a result of search on Rajdarbar Group, notice issued u/s 153C of the Act was illegal, invalid and unsustainable. 1.2 That approach adopted by the learned Commissioner of Income Tax (Appeals) to uphold the assumption of jurisdiction without supplying either the satisfaction note or the copies of incriminating material seized from the searched person is highly arbitrary, contrary to law and thus unsustainable. 1.3 That finding of the learned Commissioner of Income Tax (Appeals) that “since under section 153A both the assessment proceedings are merged together, the nature of the additions to be made cannot be restricted to assess only undisclosed income detected as a result of search” overlooks the foundational submission that notice issued u/s 153C of the Act without satisfying the statutory preconditions is erroneous and thus not tenable. 1.4 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate the judgment of Gujarat High Court in the case of Vijaybhai N. Chandrani vs. ACIT reported in 333 ITR 436 wherein it has been held that, loose papers found as a result of search containing appellant’s name cannot be a basis to assume that, such papers belong to the appellant and inabsence thereof, condition precedent for issuance of notice is not fulfilled and as such action taken u/s 153C of the Act stands vitiated. 1.5 That initiation of proceedings u/s 153C of the Act and, framing of assessment u/s 153A/143(3) of the Act is otherwise too bad in law and, without jurisdiction since 4 & 3554 /Del/2012 & C.O. Nos. 309 & 310/Del/2012 a) there had been no search conducted on the assessee u/s 132(1) of the Act; b) there had been no valid satisfaction not recorded prior to issue of notice u/s 153C of the Act, as none has been confronted to the appellant; and c) there had been no money, bullion, jewellery or other valuable or thing or books of accounts or documents was seized and, belonging to assessee from the searched person (other than such books of accounts and, documents which were duly disclosed) and in any case, none of it represents incriminating fresh material.
That addition made of Rs. 47,51,295/- by the learned Deputy Commissioner of Income Tax is perse without jurisdiction since the same is not based on any material found as a result of search on Rajdarbar Group of cases as has been held by Special Bench of Hon’ble Tribunal in the case of M/s All Cargo Global Logistics Ltd. vs. DCIT in ITA No(s) 5018 to 5022 and 5059/M/2010 for Assessment Years 2004-05 to 2009-10. It is therefore prayed that, it be held that, assumption of jurisdiction and, addition made of Rs. 47,51,295/- were illegal, invalid and unsustainable.” C.O. No. 309/Del/2012 2. Facts in brief of the case are that a search and seizure operation under section 132 of the Income-tax Act, 1961 (in short ‘the Act’) was carried out on 31/07/2008 at the premises of “Rajdarbar Group” of cases. According to the Assessing Officer, certain documents belonging to the assessee were seized in the course of search operation, and accordingly notice under section 153C of the Act was issued on 21/07/2010. In response, the assessee filed return of income on 12/08/2010 and notice under section 143(2) of the Act was issued and served within stipulated period and the assessment was 5 & 3554 /Del/2012 & C.O. Nos. 309 & 310/Del/2012 completed under section 153C/143(3) of the Act on 28/12/2010. In the assessment order, the Assessing Officer has observed that the proprietary concern of assessee i.e. M/s. P.R. Enterprises was one of the “Gutkha/Pan masala” manufacturing concern of the “Rajdarbar Group”. Thereafter, the Assessing Officer observed that in another search and seizure action dated 22/03/2006 under section 132 of the Act in the case of M/s. Supariwala and Company, 555-57, Katra Ishwar Bhawan, Khari, Baoil, New Delhi, Sh. Mahabir Prasad Gupta, proprietor of M/s Supariwala and Company, in his statement recorded under section 132(4)/131 of Act on 12/04/2006, admitted of having made cash sales amounting to Rs.11,27,10,598/- to “Rajdarbar Group” during the year 2005-06. In post-search proceedings in “Rajdarbar Group” of cases again Sh. Mahabir Prasad Gupta was summoned under section 131 of the Act and his statement was recorded on 17/10/2008, wherein he reiterated his earlier admission of cash sales of “Supari” to “Rajdarbar Group”. According to the Assessing Officer, Sh. Mahabir Prasad Gupta admitted unaccounted cash sales on the basis of incriminating documents seized during the course of search at the premises of M/s. Supariwala and Company. The Assessing Officer determined unaccounted cash purchases during the financial year 2004-05 corresponding to the assessment year under consideration, on the basis of statement of Sh. Mahabir Prasad Gupta and documents seized during search at M/s. Supariwala and Company which amounted to Rs. 2,09,20,200/-. The Assessing Officer also rejected books of 6 & 3554 /Del/2012 & C.O. Nos. 309 & 310/Del/2012 accounts of the assessee. The Assessing Officer computed undisclosed income of Rs.86,08,610/- corresponding to these unaccounted purchases of Rs.2,09,20,200/-. The Assessing Officer also estimated undisclosed investment of Rs.18,44,240/-. Thereafter, the Assessing Officer held that the assessee was manufacturing alongwith another person Sh. Manoj Hora, who was having 18 pouch packing machines, whereas the assessee was having only 15 pouch packing machines and, therefore, the total undisclosed income estimated of Rs.1,04,52,850/- (Rs.86,08,610 + 18,44,240) was divided in the ratio of pouch packing machines, and income in the case of the assessee was estimated at Rs.47,51,295/- for assessment year involved and accordingly the total income of the assessee was assessed at Rs.51,64,725/-. 2.1 Aggrieved, the assessee appealed to the learned Commissioner of Income-tax (Appeals), challenging the assessment order on legal grounds as well as on merit of the additions. The assessee challenged that the assessment order was bad in law as the assessment had not been framed on the material seized pursuant to the search action under section 132 of the Act at the premises of “Rajdarbar Group”. The learned Commissioner of Income-tax (Appeals) was of the view that under section 153A both the original and reassessment proceedings are merged together, so the nature of additions to be made cannot be restricted to only undisclosed income detected as a result of such and accordingly, he upheld the validity of the re-assessment proceedings under section 153C 7 & 3554 /Del/2012 & C.O. Nos. 309 & 310/Del/2012 of the Act. However, on merit he deleted the addition, holding that addition on the basis of statement of third party without any corroborative evidence was not tenable. 2.2 Aggrieved with the deletion of addition made by the Assessing Officer, the Revenue is in appeal before the Tribunal raising the grounds as reproduced above. The assessee is in cross objection against the validity of the reassessment proceedings under section 153C/153A of the Act, upheld by the learned Commissioner of Income-tax (Appeals).
We find that grounds taken in cross objection, challenges the legality of assuming jurisdiction by the Assessing Officer, which goes to the root of the matter and, therefore, cross objection are first taken for adjudication.
The learned counsel of the assessee in support of ground No.2 of the cross objections submitted that no addition has been made in the case of the assessee on any material seized during the course of search action under section 132 of the Act on “Rajdarbar Group” and the assessment in the year under consideration was not abated, therefore, following the judgments of the Hon’ble High Court of Delhi in the case of Commissioner of Income Tax (Central)-III, New Delhi Vs. Kabul Chawla reported in (2015) 61 taxmann.com 412 (Delhi) and Commissioner of Income Tax-7 Vs. RRJ Securities Ltd reported in (2015) 62 taxmann.com 391 (Delhi), no addition could have been made to the income already assessed in the case of the assessee.
8 & 3554 /Del/2012 & C.O. Nos. 309 & 310/Del/2012 5. The learned Commissioner of Income Tax (Departmental Representative), on the other hand, relied on the finding of the learned Commissioner of Income Tax (Appeals) on the issue in dispute.
We have heard the rival submissions and perused the material on record. In the case of Kabul Chawla (supra), Hon’ble Delhi High Court has held that if on the date of search, the assessment already stood completed, and no incriminating material was unearthed during the search, no addition could have been made to the income already assessed. The relevant finding of the Hon’ble High Court is reproduced 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".
9 & 3554 /Del/2012 & C.O. Nos. 309 & 310/Del/2012 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. Conclusion 38. The present appeals concern AYs, 2002-03, 2005-06 and 2006-07.On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed.”
10 & 3554 /Del/2012 & C.O. Nos. 309 & 310/Del/2012 6. Similarly, in the case of RRJ Securities (supra), in the reassessment completed u/s 153C/153A of the Act, purchases were held as unexplained by the Assessing Officer under section 69C of the Act on the basis of the statement of the third party. The question of law which was decided by the Hon’ble High Court in the case of the RRJ securities (supra) was as under: “whether the AO had jurisdiction to assess and reassess the income of the assessee under section 153C in respect of assessment year 2003-04 to 2008-09.”
The Hon’ble High Court after considering the judgment in the case of Kabul Chawla (supra) and judgment in the case of SSP Aviation Ltd. Vs. Deputy Commissioner of Income tax [2012] 346 ITR 177, held as under:
“37. As expressly indicated under Section 153C of the Act the assessment or reassessment of income of a person other than a searched person would proceed in accordance with the provisions of Section 153A of the Act. The concluded assessments cannot be interfered with under Section 153A of the Act unless the incriminating material belonging to the Assessee has been seized.
As indicated above, in the present case, the documents seized had no relevance or bearing on the income of the Assessee for the relevant assessment years and could not possibly reflect any undisclosed income. This being the undisputed position, no investigation was necessary. Thus, the provisions of section 153C, which are to enable an investigation in respect of the seized asset, could not be resorted to; the AO had no jurisdiction to make the reassessment under Section 153C of the Act.
In view of the above, the third question framed, whether the proceedings under Section 153C of the Act 11 & 3554 /Del/2012 & C.O. Nos. 309 & 310/Del/2012 could be initiated against the Assessee, is answered in favour of the Assessee and against the Revenue.”
In the light of the ratio laid down in above decisions, we find that no addition could be made u/s 153C/153A, if following two conditions are satisfied: i. No incriminating material belonging to the assessee found/seized in the search, on the basis of which proceedings u/s 153C are initiated. ii. The assessment in the year under consideration stood completed as on the date of search.
When we advert to the facts of the case in hand, we find from the order of the lower authorities that in this case reassessment proceeding under section 153C of the Act have been initiated on the ground that certain documents belonging to the assessee were found and seized during the search action under section 132 of the Act at the premises of “Rajdarbar Group” on 31st July, 2008. But from the orders of the Assessing Officer, we find that additions have been made on the basis of statement of Sh. Mahabir Prasad Gupta, proprietor of M/s Supariwala & Co. in post search proceedings on 17th October, 2008, in which, he reiterated his earlier statement under section 132(4)/131 of the Act recorded on 12th April, 2006 during the search action under section 132 of the Act dated 22nd March, 2006 conducted at the premises of M/s. Supariwala & Company. The addition in the case of assessee has also been made based on estimation of gross profit. The learned Commissioner of Income-tax (Appeals), in the impugned order, has reproduced the additions made in a tabular format as under:
S.No Particulars Working A.Y. 2005-06 1 Unaccounted purchase of Supari as per recorded statement of Mahabir Prasad Gupta and based on diary seized in his own case. Rs.2,09,20,000 2 For making the addition (Unaccounted Purchase for A.y. 05-06, base of AY 05-06 ‘Profit AY 06- A.Y. 06- 07 is taken 07/Unaccounted Purchase AY 06-07)
Gross Profit as estimated (2,09,20,000*4,63,80,1 3 by AO 31/11,27,10,598) Rs.86,08,610 4 Peak Figure in the Diary of Mahabir prasad Gupta of M/s Supariwala & Co. Rs. 18,44,240 5 Total (Sr.no. 3 + Sr. no. 4) Rs.1,04,52,850
Profit appropriated in case of Manoj Hora based on 18 Manufacturing Machines of Gutka Profit appropriated in 7. case of Devender Kr. Arawal based on 15 (1,04,52,850*18/33) Rs.57,01,554 Manufacturing Machine of Gutka
9. On perusal of the above table and the assessment order, it is evident that no addition made are based on any incriminating found during the course of search at the “Rajdarbar Group”, which is the sole basis of initiating proceedings under section 153C of the Act in the case of the assessee. The learned Commissioner of Income-tax (Appeals) has also observed on page 18 of the impugned order below the table that the additions were based on the evidence of third-party entry any statements. The relevant finding of the learned Commissioner of Income-tax (Appeals) are reproduced as under: “The chart on basis of which addition has been made on account of serial no. 1 to 7 above is based on evidence of third party entry and statement at serial no.1. From serial No 2 to serial no.7, the AO has created an edifice of addition based on his own imagination that the appellant must have converted unaccounted purchases of Supari into Gutka. He had applied certain GP rate to arrive at the figure of the profit which is further apportioned between the .two entities. It is very important to mention that no reference of seized material or any other evidences have been made to corroborate the findings of unaccounted production or sale. The whole addition hinges on serial no.1 i.e evidence gathered from third party document or statement. Now the issue is can third party statement or entry in absence of any corroborative evidence despite using ultimate weapon of search, can result in justified addition. The legal provision relating to presumption u/s 132(4A) is applicable to the person from whose possession or control the incriminating material is found & seized. Based on the incriminating material found from third party search but not belonging to the appellant this presumption will not be applicable unless corroborated by other evidence. Presumption available under section 132(4A) can be drawn 14 & 3554 /Del/2012 & C.O. Nos. 309 & 310/Del/2012 against the person in whose case search is authorized and from whose possession or control books of account, diary or documents are found in the course of search. Presumption regarding correctness of contents of books of account etc. cannot be raised against the third party.”
Since no addition has been made on the basis of material seized belonging to assessee, on the basis of which, proceedings under section 153C of the Act have been initiated in the case of the assessee, in our opinion, the first condition of no incriminating material found in the case of the assessee, during the course of search, is satisfied.
Regarding the second condition, the assessee submitted that assessment for the year under consideration was not abated as the return of income under section 139(1) of the Act was filed on 30/10/2005 and limitation for issue of notice under section 143(2) was also over and no notice under section 143(2) of the Act was received before the date of search, thus the proceedings in the assessment year under consideration stood completed. The learned Commissioner of Income Tax (Departmental Representative) also could not controvert this position of completion of assessment.
As both the conditions laid down in the decision of Kabul Chawla (supra) have been satisfied in the case of the assessee in the year under consideration, respectfully following the findings of Hon’ble High Court in the case of Kabul Chawla(supra), we hold that no addition could have been made in the case of the assessee in the instant assessment year. The ground No. 2 of the cross objection is accordingly allowed.
15 & 3554 /Del/2012 & C.O. Nos. 309 & 310/Del/2012 13. Since we have already held that no addition could have been made in the case of the assessee, the other grounds of the cross objection are rendered academic only and, therefore, we are not required to adjudicate upon those issues.
Further, since we have already allowed the cross objection of the assessee and held that no addition could have been made in the case of the assessee, the appeal of the Revenue challenging the merit of the addition is also rendered infructuous and, therefore, the appeal of the Revenue is dismissed.
In the result, the cross objection of the assessee is allowed and the appeal of the Revenue is dismissed. ITA No. 3554/Del/2012 & C.O. No. 310/Del/2012 16. The facts and circumstances of the appeal of the Revenue in ITA No. 3554/Del/2012 and cross objection of the assessee in C.O. No. 310/Del/2012 are identical to the facts and circumstances of the appeal of the Revenue in C.O. No. 309/Del/2012 respectively, therefore, following our findings in ITA No. 3555/Del/2012 and C.O. No. 309/Del/2012, we dismiss the appeal of the Revenue in ITA No. 3554/Del/2012 and allow the cross objection of the assessee in C.O. No. 310/Del/2012. The decision is pronounced in the open court on 30th Sept., 2016. Sd/- Sd/- (SUDHANSHU SRIVASTAVA) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 30th September, 2016. Laptop/-