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Income Tax Appellate Tribunal, DELHI BENCH: ‘C’: NEW DELHI
Before: SH. H.S. SIDHU & SH. O.P. KANT
Appellant by Sh. Kapil Goel, Adv. Respondent by Sh. T. Vasanthan, Sr. DR Date of hearing 17.12.2015 Date of pronouncement 29.01.2016 ORDER PER O.P. KANT, A.M.: The present appeal by the assessee is directed against the order dated 20.04.2012 of learned Commissioner of Income Tax(Appeals)-XXXIII, New Delhi, passed for the assessment year 2007-08. The assessee raised the following grounds of appeal: Legal ground on validity of assumption of jurisdiction under section 153C of the Act.
1. That on the facts and in the circumstances of the case and in law, learned CIT-A erred in upholding the impugned assessment order passed by learned Assessing Officer in violation of mandatory jurisdictional conditions spelt u/s 153C of the Act in as much as a. There is no document “belonging to” present assessee as found in search operation except imagination of learned Assessing Officer; Infoworld b. There is no valid “satisfaction” recorded in writing for validity proceeding u/s 153C of the Act; c. There is no undisclosed income emanating from subject papers relied by learned Assessing Officer vis-à-vis present assessee, subject period etc. Legal ground on validity of additions made u/s 153C for want of any corresponding material/incriminating material unearthed during search operations.
2. That on the facts and in the circumstances of the case and in law, learned CIT-A erred in upholding the addition made by the learned Assessing Officer on account of unverifiable purchases where nothing was found during search relating to the same or to subject period/assessment year. (3,71,614/-) On Merits: Additions are bad in law
3. That on the facts and in the circumstances of the case and in law, learned Commissioner of Income Tax-A erred in upholding the addition made by the learned Assessing Officer on account of unverifiable purchases ignoring our detailed submissions on the issue (Rs. 3,71,614/-)
4. That on the facts and in the circumstances of the case and in law, learned Commissioner of Income Tax-A erred in upholding the addition made by the learned Assessing Officer on account of unverifiable purchases where learned Assessing Officer further assumed the same to be cover up for suppressed sales resulting in lower GP (Rs. 3,71,614). That the appellant craves leave to add, to amend or modify, rescind, supplement or alter any of the grounds stated herein above, either before or at the time of hearing of this appeal.
The facts in brief, as culled out from the orders of the lower authorities, are that the assessee being a partnership firm filed its return of income declaring income of Rs. 64,813/-. The date of filing of return of income is left blank in the assessment order. The assessee firm was engaged in trading of computer hardware and portfolio of branded companies like IBM, HP, Lenovo, Intel, Sony etc. A search and seizure action was carried out under Section 132 of the Infoworld Income-tax Act, 1961 (for short “the Act”) at the premises of M/s. Omni Infoword Pvt. Ltd. and its Directors on 23.08.2008 and certain documents were found and seized which were claimed by the Assessing Officer as belonging to the assessee. The documents contained certain cash transactions relation to assessment years 2003-04 and 2004-05. In view of the documents found and seized, the learned Assessing Officer issued notice under Section 153C r.w.s. 153A of the Act on 10.02.2010 directing the assessee to file return of income for the assessment year involved along with assessment year under consideration. In respect of the assessment year under consideration, the assessee filed a copy of the original return of income declaring income of Rs. 64,813/- and submitted that the said return of income may be treated as return of income filed in compliance to notice under Section 153A r.w.s. 153C of the Act. Thereafter, notices under Section 143(2) and 142(1) of the Act were issued and the assessment proceedings were commenced. In the course of the assessment proceedings, the assessee revised its computation of income declaring net taxable income of Rs. 1,95,560/-. However, in the revised computation of income the assessee firm reduced its business turnover to Rs. 26,12,064/- as against the turnover of Rs. 30,30,755/- shown in the original return of income. The assessee explained that in original return of income, the income was declared on estimate basis under Section 44AF of the Act, whereas in the revised computation the turnover of Rs. 26,12,064/- and net profit of Rs. 1,95,560/- was computed on the basis of books of account prepared. During the Infoworld assessment proceedings, the Assessing Officer noticed cash purchases of Rs. 3,71,640/- in the consolidated purchase amount. The Assessing Officer further observed that the assessee could not substantiate the said purchases with purchase bills, parties name and address, identification of the parties, etc. In view of the observations, the Assessing Officer concluded that the purchases to the extent of Rs. 3,71,614/- was bogus and thus made addition to the total income of the assessee. Aggrieved, the assessee challenged the assessments made by the Assessing Officer on legal grounds as well as on the merit of the addition, but the assessee could not succeed before the learned Commissioner of Income Tax (Appeals) either on the legal ground challenging the jurisdiction or on the merit of the additions. Aggrieved, the assessee is before us.
Apropos ground no. 1, the question of validity of assessment of jurisdiction under Section 153C of the Act was raised as there was no document belonging to the assessee. However, this ground of appeal
was not pressed by the learned Authorised Representative, therefore, it is dismissed as not pressed.
4. The ground no. 2 is regarding validity of addition made under Section 153C for want of any corresponding material/incriminating material in respect of the assessment year. The learned Authorized Representative submitted that the documents referred in satisfaction note pertains to the period corresponding to assessment years 2003-04 and 2004-05 and no documents or any other evidence was found or seized in respect to the assessment years and, therefore, the addition made was without any corresponding/incriminating material and Infoworld thus, the addition was contrary to the law laid down by the Jurisdictional High Court in the case of Commissioner of Income Tax Vs. RRJ Securities Ltd., 175/2015 to 177/2015. In respect of merit of the additions, the learned Authorized Representative submitted that the gross profit rate declared in the return is more than the gross profit rate accepted by the Tribunal in preceding years and, therefore, the disallowance of cash purchases was not warranted. He further submitted that the net profit rate declared by the assessee was more than the net profit of 5% in terms of Section 44AF of the Act.
5. On the other hand, the learned Sr. Departmental Representative relied on the findings of the lower authorities and also submitted that as per the provisions of the Act, once the Assessing Officer acquires jurisdiction under Section 153C of the Act, it is open for him to assessee all the incomes whether based on incriminating materials or not for all assessment years involved.
6. We have heard the rival submissions and perused the material available on record. In the case of RRJ Securities (supra), the Hon’ble Jurisdictional High Court has held as under:
“36. The decision in SSP Aviation (supra) cannot be understood to mean that the AO has the jurisdiction to make a reassement in every case, where seized assets or documents are handed over to the AO. The question whether the documents/assets seized could possibly reflect any undisclosed income has to be considered by the AO after examining the seized assets/documents handed over to him. It is only in cases where the seized documents/assets could possibly reflect any undisclosed income of the Assessee for the relevant assessment years, that further enquiry would be warranted in respect of those years. Whilst, it is not necessary for the AO to be satisfied that the assets/documents seized during search of another person reflect undisclosed income of an Assessee before Infoworld commencing an enquiry under Section 153C of the Act, it would be impermissible for him to commence such enquiry if it is apparent that the documents/assets in question have no bearing on the income of the Assessee for the relevant assessment years.
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 underSection 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 153Cof the Act.
In view of the above, the third question framed, whether the proceedings under Section 153Cof the Act could be initiated against the Assessee, is answered in favour of the Assessee and against the Revenue.
In view of the above, it is not necessary for us to examine the other questions. The appeals are, accordingly, dismissed. In the circumstances, the parties are left to bear their own costs.
As the Hon’ble High Court has clearly held that in the absence of any incriminating material, the concluded assessments could not be interfered under Section 153A of the Act and further held that the documents seized has no reference to the income of the assessee for relevant assessment year and, thus, the Assessing Officer has no jurisdiction to make the re-assessment under Section 153A of the Act. In view of the binding precedent, respectfully following the above findings, we hold that the no addition can be sustained and thus this ground of appeal is allowed.
Infoworld 8. As regard to ground nos. 3 and 4 on the merit of the additions, we agree with the contention raised by the ld. AR that the income declared was more than the net profit rate under Section 44AF of the Act as well as the net profit rate declared in respect of preceding years which have been accepted by the Tribunal. We hold that addition can’t be sustained on merit of the case also. Thus, this ground of appeal is also allowed.
In the result, the appeal filed by the assessee is allowed. The decision is pronounced in the open court on 29th January, 2016.