VIJAY KUMAR KATARIA,NEW DELHI vs. DCIT, NEW DELHI

“1. That on the facts and circumstances of the case, CIT(A) was not justified in making an exparte order without proper service of notice and proper opportunity for hearing of appeal. (ii) That exparte order is on illegal and arbitrary basis and appeal has been disposed off on mechanical basis without proper adjudication of various grounds on merits. 2(i). That assessment being u/s. 153A in the context of search u/s. 132(1), the same has to be on the basis of any material or evidence found as a result of search in respect of any undisclosed income. (ii). That various additions in the assessment u/s. 153(A) are without jurisdiction as same are not on the basis of any evidence or incriminating material found during the course of search and in total disregard to the fact that all the particulars of income are supported from regular records. 3(i) That lower authorities have erred in estimating business income at 10% as against declared income of 5.7% even though the return income is supported from the books of accounts and audited records and no mistake or irregularity has been found in the same. (ii) That in the absence of any evidence or incriminating material found as a result of search in respect of trading result supported from audited books of accounts, it is not open to consider any addition in an illegal and arbitrary manner.

(iii) That the estimation of income at 10% is on presumption and surmises and there is no valid basis for estimation of same particularly when there is no case of application of provisions of sec. 145 of the Income Tax Act, 1961.

4. That CIT(A) has erred in confirming addition of Rs. 10 lacs in respect of investment in immovable property at Faridabad.

5. That the addition of Rs. 35 lacs in respect of alleged investment in purchase of shares of M/s. Kaveri Infrastructure Pvt. Ltd. is factually incorrect and based on presumption and surmises and without proper appreciation of facts.

6. That the CIT(A) has also erred in confirming addition of Rs. 4 lacs in respect of investment in immovable property at Pune even though the investment is supported from bank account and other details and there is no case of any undisclosed income or investment.

7. That the orders of the lower authorities are not justified on facts and same are bad in law.”

6. Ground No.1 is not pressed.

7. Ground No.2 is to be held in favour of the assessee in view of the decision of the Hon’ble Delhi High Court in the case of CIT, Central-III vs. Kabul Chawla in vide judgment dated 20th April, 2015, wherein at para 37 and 38 it has been held as follows:-

“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 5 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.”

“In the present case, the assessment has been completed under summary scheme u/s 143(1) and time limit for issue of notice u/s 143(2) had expired on the date of search. Therefore, there was no assessment pending in this case and, as such, there was no question of abatement.”

11. Ground No.3 is against the estimation of business income @ 10%. This issue is admittedly covered by the decision of the Á’ Bench of the ITAT in 3106 and 3107/Del/2011 for AYs 2002-03, 2003-04 & 2006-07 in the case of ACIT vs. Ms Asha Kataria vide its order dated 20.5.2013, wherein at para 10 and 11 it is held as follows:-

“10. We have carefully considered the submissions and perused the records. We find that the Assessing Officer in this case has estimated the trading results of the assessee @10% of gross profits as against 8.03% reflected by the assessee. The Assessee in this case is executing small contracts. The contracts are of same nature and regular books are maintained. No specific defect has been pointed out in the books maintained. It is further noted that on similar facts, Assessing Officer has not made any addition in the assessment order passed u/s. 153A for A.Y. 2001-02; 2004-05; 2005-06 & 2006-07. As such there is a clear contradiction in the approach of the Assessing Officer. Furthermore, reference to net profit in the case of Vijay Kumar Kataria and assessee in the past is factually incorrect, as per details cited above.

ITA No.5474/Del/2010 (AY : 2004-05)

“1. That on the facts and circumstances of the case, CIT(A) was not justified in making an exparte order without proper service of notice and proper opportunity for hearing of appeal. (ii) That exparte order is on illegal and arbitrary basis and appeal has been disposed off on mechanical basis without proper adjudication of various grounds on merits. 2(i). That assessment being u/s. 153A in the context of search u/s. 132(1), the same has to be on the basis of any material or evidence found as a result of search in respect of any undisclosed income. (ii). That various additions in the assessment u/s. 153(A) are without jurisdiction as same are not on the basis of any evidence or incriminating material found during the course of search and in total disregard to the fact that all the particulars of income are supported from regular records.

3. That CIT(A) has erred in confirming addition of Rs. 63,82,000/- u/s 69 of the Income Tax Act, 1961 in respect of purchase of immovable property at Geetanjali Enclave, New Delhi even though the investment is supported from bank account and other details and there is no case of any undisclosed income or investment. That the addition has been made merely on the basis of the report of District Valuation Officer and without appreciating the documents available on records.

4. That the orders of the lower authorities are not justified on facts and same are bad in law.”

“50. We have carefully considered the submissions and perused the records. We find that the value of the property in this case as reflected in the registered sale deed was Rs. 55,00,000/-. Reference u/s. 142A was made to the DVO by the Assessing Officer. DVO determined the value of the property at Rs. 70,36,700/- as against Rs. 55,00,000/- shown by the assessee. Hence, there was difference of Rs. 15,36,000/-. This was added to the income of the assessee. However, Ld. Commissioner of Income Tax (A) deleted the addition as there was no evidence of adverse material regarding payment of under hand consideration. Similarly, no other incriminating material was found during the course of search. In our considered opinion, Ld. Commissioner of Income Tax (A) is correct in this regard. Addition in this case has been made pursuant to search on the basis of Valuation Report of the DVO. It has been settled that in case of search in the absence of any incriminating material found during search, no addition can be made on the basis of Report of the DVO. In this regard, the case laws referred by the assessee are germane and support the case of the assessee. We may further refer to the following case laws:- a) C.I.T. vs. Abhinav Kumar Mittal [2013] 351 ITR 20 (DHC) Held, dismissing the appeal, that there was no material found in the search and seizure operations, which would justify the Assessing Officer’s action in referring the matter of the District Valuation Officer for his opinion on valuation of the properties. Therefore, 12 the valuation arrived at by the District Valuation Officer would be of no consequence. In any event, the Tribunal had also, on facts, held that the District Valuation Officer’s valuation was based on incomparable sales, which is not permissible in law. b) C.I.T. vs. Mahesh Kumar (2011) 196 Taxman 415 (DHC) Where no evidence could be gathered that assessee had invested more than value declared in registered sale deed of plots purchase and, comparable instances taken by the Valuation Officer were situated for way, addition made under section 69 on account of unexplained investment with respect of purchase of said plots was not justified.

51. From the above, it is evident that in the absence of any evidence that the assessee has invested more than value declared in the registered sale deed of property purchased, the addition in this regard on the basis of Valuation Report by the DVO is not sustainable.”

ITA No.5475/Del/2010 (AY : 2005-06)

“1. That on the facts and circumstances of the case, CIT(A) was not justified in making an exparte order without proper service of notice and proper opportunity for hearing of appeal. 13 (ii) That exparte order is on illegal and arbitrary basis and appeal has been disposed off on mechanical basis without proper adjudication of various grounds on merits. 2(i). That assessment being u/s. 153A in the context of search u/s. 132(1), the same has to be on the basis of any material or evidence found as a result of search in respect of any undisclosed income. (ii). That various additions in the assessment u/s. 153(A) are without jurisdiction as same are not on the basis of any evidence or incriminating material found during the course of search and in total disregard to the fact that all the particulars of income are supported from regular records. 3(i) The CIT(A) erred in estimating business income at 10% as against declared income of 5% even though the return income is supported from the books of accounts and audited records and no mistake or irregularity has been found in the same. (ii) That in the absence of any evidence or incriminating material found as a result of search in respect of trading result supported from audited books of accounts, it is not open to consider any addition in an illegal and arbitrary manner. (iii) That the estimation of income at 10% is on presumption and surmises and there is no valid basis for estimation of same particularly when there is no case of application of provisions of sec. 145 of the Income Tax Act, 1961.

4. That there is no legal or factual basis in addition of Rs.45,50,000 in respect of alleged investment in purchase of shares of M/s Kaveri Infrastructure Pvt. Ltd.

5. That there is no legal or factual basis in addition of Rs.25,49,900/- in respect of share investment.

The findings of the AO at page 3 are factually incorrect. When Waterflow Infrastructure Pvt. Ltd., formerly known as Kaveri Infrastructure Pvt. Ltd., has certified that it has made the payments on behalf of Mr. Vijay Kumar Kataria, the question of the assessee not explaining the sources of funds, does not arise. Anyhow, in view of the proposition laid down in the case of Kabul Chawla, both these additions disputed in Ground Nos.4 and 5 are to be deleted. Ground Nos.4 and 5 are, therefore, allowed.

read as under:-

1. That on the facts and circumstances of the case, CIT(A) was not justified in making an exparte order without proper service of notice and proper opportunity for hearing of appeal. (ii) That exparte order is on illegal and arbitrary basis and appeal has been disposed off on mechanical basis without proper adjudication of various grounds on merits. 2(i). That assessment being u/s. 153A in the context of search u/s. 132(1), the same has to be on the basis of any material or evidence found as a result of search in respect of any undisclosed income. 17 (ii). That various additions in the assessment u/s. 153(A) are without jurisdiction as same are not on the basis of any evidence or incriminating material found during the course of search and in total disregard to the fact that all the particulars of income are supported from regular records. 3(i) The CIT(A) erred in estimating business income at 10% as against declared income of 5% even though the return income is supported from the books of accounts and audited records and no mistake or irregularity has been found in the same. (ii) That in the absence of any evidence or incriminating material found as a result of search in respect of trading result supported from audited books of accounts, it is not open to consider any addition in an illegal and arbitrary manner. (iii) That the estimation of income at 10% is on presumption and surmises and there is no valid basis for estimation of same particularly when there is no case of application of provisions of sec. 145 of the Income Tax Act, 1961.

4. That CIT(A) has erred in confirming addition of Rs.25,20,588/-in respect of unsecured loan received from M/s Kaveri Infrastructure Pvt. Ltd. That the amount was received through payee cheque and observation of assessing officer is factually incorrect and based on presumption and surmises and without proper appreciation of facts.

5. That CIT(A) has erred in confirming addition of Rs.5 lacs in respect of investment in PNB Principal Junior Cap Fund.

6. That the CIT(A) has erred in confirming addition of Rs.3 Crore (US $ 659000) in respect of alleged investment in immovable property at USA.

7. That CIT(A) has also erred in confirming addition of Rs.1,13,800/- (US $ 1000+US$ 1500) in respect of opening of bank account and reimbursement of expenses. 6. That the orders of the lower authorities are not justified on facts and same are bad in law.”

35. Ground No.1 is dismissed as not pressed.

36. Ground No.2 is to be held in favour of the assessee in view of the decision of the Hon’ble Delhi High Court in the case of CIT, Central-III vs. Kabul Chawla in vide judgment dated 20th April, 2015, the relevant part of which i.e., paras 37 and 38 have been reproduced above while dealing with Ground No.2 for AY 2002-03. Ground No.2 is, therefore, allowed.

37. Ground No.3 is against the estimation of business income @ 10%. This issue is admittedly covered by the decision of the Á’ Bench of the ITAT in 3106 and 3107/Del/2011 for AYs 2002-03, 2003-04 & 2006-07 in the case of ACIT vs. Ms Asha Kataria vide its order dated 20.5.2013, the relevant portion of which viz., paras 10 and 11 have been reproduced above while dealing with Ground No.3 for AY 2002-03. Consistent with the view taken therein, this ground is allowed.

38. Ground No.4 is against an addition made in respect of alleged investment in purchase of shares of M/s Kaveri Infrastructure Pvt. Ltd. This addition has to be deleted for the reason that it is not based on any material found or seized during the course of search. In addition, the assessee demonstrates that the addition is factually incorrect. For these reasons, we delete the addition made

39. Ground No.5 is against an addition made in respect of alleged investment in PNB Principal Junior Cap Fund. This addition has to be deleted for the reason that it is not based on any material found or seized during the course of search. In addition, the assessee demonstrates that the addition is factually incorrect. For these reasons, we delete the addition made

40. Ground Nos.6 and 7. The assessee pleads that these have to be restored to the file of the AO on the ground of natural justice, as sufficient opportunity has not been given to the assessee. He submits 20 that the AO sought explanation from the assessee on 18.12.2009 and within a period of nine days passed the assessment order on 27.12.2009. The ld. DR strongly opposed the contention and submitted that sufficient opportunity has been given to the assessee. She further submitted that the assessee had opportunity before the first appellate authority which he had not availed. In reply, the ld. counsel for the assessee pointed out that the ld.CIT(A)-I, New Delhi has passed ex parte order.

41. After hearing the rival contentions, we are of the considered opinion that these issues should be set aside to the file of the AO for fresh adjudication in accordance with the law on grounds of natural justice. The AO has in his office letter dated 18.12.2009, given a show cause notice to the assessee. The assessee denied making an investment in purchase of property in USA. The assessee stated that the relative of the assessee Shri Nazir Singh Dhaliwal had made the payment and the balance was made by the Bank of USA and that the property was sold thereafter and repayment was made to Shri Nazir Singh Dhaliwal and bank. The factual submissions of the assessee needs verification. Time should have been given to the assessee to furnish documents in this regard. The AO can also make direct inquiries from bank of USA and from Shri Nazir Singh Dhaliwal. The ld.CIT(A) has passed an ex parte order. Under these circumstances, Ground Nos.6 and 7 are restored to the file of AO for fresh adjudication in accordance with the law.

42. Ground No.8 is general in nature.

“1. That on the facts and circumstances of the case, CIT(A) was not justified in making an exparte order without proper service of notice and proper opportunity for hearing of appeal. (ii) That exparte order is on illegal and arbitrary basis and appeal has been disposed off on mechanical basis without proper adjudication of various grounds on merits. 2(i). That assessment being u/s. 153A in the context of search u/s. 132(1), the same has to be on the basis of any material or evidence found as a result of search in respect of any undisclosed income. (ii). That various additions in the assessment u/s. 153(A) are without jurisdiction as same are not on the basis of any evidence or incriminating material found during the course of search and in total disregard to the fact that all the particulars of income are supported from regular records. 3(i) The CIT(A) erred in estimating business income at 10% as against declared income of 5% even though the return income is supported from the books of accounts and audited records and no mistake or irregularity has been found in the same. (ii) That in the absence of any evidence or incriminating material found as a result of search in respect of trading result supported from audited books of accounts, it is not open to consider any addition in an illegal and arbitrary manner. (iii) That the estimation of income at 10% is on presumption and surmises and there is no valid basis for estimation of same particularly when there is no case of application of provisions of sec. 145 of the Income Tax Act, 1961.

4. That there is no legal or factual basis in addition of Rs.25,00,000 in respect of alleged investment in purchase of shares of M/s Kaveri Infrastructure Pvt. Ltd.

5. That CIT(A) has erred in confirming addition of Rs.5 lacs in respect of investment in Max New York even though the investment is supported from bank account and other details and there is no case of any undisclosed income or investment.

6. That the CIT(A) has erred in confirming addition of Rs.9,00,100/- in the investment of shares even though the investment is supported from bank account and other details and there is no case of any undisclosed income or investment.