Loading judgment…
No AI summary yet for this case.
आदेश/Order
PER A.D.JAIN, VICE PRESIDENT
This is assessee's appeal against the order dated 30.11.2022 of the ld.CIT (A)-3, Gurgaon pertaining to 2016- 17 assessment year.
2. The assessee has taken the following grounds of appeal:-
ITA 738/CHD/2022 A.Y. 2016-17 2
1. That the order of Learned C.I.T. (A) is bad and against the facts and Law.
2. That the learned C.I.T.(A) assessment completed u/s 153 A of the Income Tax Act, 1961, which is against the provisions of the law as neither any search was conducted on the company nor any Panchnama was prepared in the name of the company. 3. That the learned C.I.T.(A) has wrongly upheld the assessment order u/s 153A of the Act. 4. That the learned C.I.T.(A) has wrongly upheld the facts & in the circumstances of the case, the findings recorded in the assessment orders to the effect that search & seizure operations were carried out under Section 132 of the Act in the case of the appellant-company, is perverse and wholly erroneous and therefore, the Order of assessment passed under section 153A of the Act is without jurisdiction. 5. That the learned C.I.T.(A) has wrongly upheld additions made in the assessment order which are not based on any corroborative and relevant incriminating material stated to have been unearthed during the course of search by the Assessing Officer, though no search has taken place and therefore, the Order of Assessment is wholly illegal and without jurisdiction in view of the judgment in the case of Commissioner of Income Tax (Central)-III v. Kabul Chawla [2016] 380 ITR 573(Delhi)/[2015] 281 CTR 45 (Delhi) 6. That the learned C.I.T.(A) has wrongly upheld the Assessment u/s 153A of the Act made in undue haste, mechanical manner and without application of mind as in evidence by the documentary evidence on letters exchanged between the Assessing Officer as well as ADIT(Inv.), Mohali. 7. That the learned C.I.T.(A) has wrongly upheld the Assessment Order passed against the principle of natural justice. 8. That the learned C.I.T.(A) has wrongly upheld addition of Rs. 20,50,000 u/s 68 of the Income Tax Act. 9. That the learned C.I.T.(A) wrongly upheld Addition u/s 68 of the amount, which was already declared as income in the Profit & Loss Account during the year. 10. That the learned C.I.T.(A) has wrongly disallowed loss of Rs.4,83,429 on account of depreciation of car without any discussion in the Appellate Order. 11. That the Appellant craves leave to add, alter, amend or withdraw any grounds of appeal before the final hearing.
ITA 738/CHD/2022 A.Y. 2016-17 3
The assessee has also raised the following additional grounds :
1. That the approval u/s 153D was granted by the JCIT without application of mind and without consideration of relevant records.
That no search was conducted on the appellant company and otherwise also the alleged search, if any, conducted was in violation of provisions of section 132(1) of the Income tax Act, 1961.
3.1 The additional Grounds 1 & 2 are legal grounds and therefore admitted, not requiring any fresh materials to be gone into.
3.2 At the outset, the Id. Counsel for the Assessee has stated at the bar that he does not wish to press the additional grounds. Rejected as not pressed.
Ground Nos. 1 & 11 are general in nature and need no adjudication.
As per Ground No.2, since neither any search was conducted on the Assessee company, nor any ‘Panchnama’ was prepared in its name, the provisions of section 153A of the Income Tax Act, 1961 (in short 'the Act') are not applicable and so, the assessment completed u/s 153A of the Act is against the provisions of law. This Ground corresponds to Ground No. (b) raised by the Assessee before
ITA 738/CHD/2022 A.Y. 2016-17 4 the ld. CIT(A). The Assessing Officer passed the assessment order dated 30.12.2019 u/s 153A(1)(b) read with section143(3) of the I.T.Act, making various additions. Before the ld. CIT(A), the Assessee raised this issue by way of Ground No. (b).
6. The ld. CIT(A), in para 10 of the impugned order, has observed, inter alia, that a letter dated 7.9.2022 had been sent to the A.O., requiring him to furnish details of the warrant executed / ‘Panchnama’ prepared,’ on the basis of which, proceedings u/s 153A of the Act were initiated; that in response, the A.O. had furnished the copy of the warrant which was duly executed in the name of the Assessee on 6.2.2018, in respect of the premises situated at SCO 80-81, 4th Floor, Sector 17-C, Chandigarh; that the said warrant was found containing the name of the Assessee; that accordingly, it was found that the warrant of authentication u/s 132(1) of the Act had been executed in the name of the Assessee; and that, therefore, the A.O. was justified in initiating assessment proceedings u/s 153A of the Act.
Before us, on behalf of the Assessee, it has been contended that neither any search was conducted on the Assessee company, nor any ‘Panchnama’ was prepared in its ITA 738/CHD/2022 A.Y. 2016-17 5 name; that the Assessee company filed an application under the RTI Act, bearing Registration No. CCITC/R/E/20/0001 dated 7.1.2020, seeking information with regard to copy of last warrant, a copy whereof has been placed at Assessee’s Paper Book (‘ABP’),pages 346-350. It has been contended that the said application of the Assessee was transferred (APB 351-352) to the DGIT, ITO office of PCIT (Investigation), Ludhiana and the DCIT, Central Circle-2, Chandigarh (APB 354-356) and finally to the DCIT, Central Circle-2, Mohali (APB 357); that none of the Income Tax Authorities provided the Assessee company with the copy of the said warrant; that the ACIT, Central Circle-2, Chandigarh vide order (APB 360- 361), dated 5.2.2.020, passed u/s 7(5) of the RTI Act, denied the Assessee company with a copy of the search warrant.
It has been contended that the assessment u/s 153A of the Act was completed against the provisions of the law, as neither any search u/s 132 was conducted on the Assessee company, nor any ‘Panchnama’ was prepared in its name; that though the Assessee specifically requested the Assessing Officer to provide it with a copy of the search warrant in the name of the Assessee company, no such search warrant was provided to the Assessee company; that ITA 738/CHD/2022 A.Y. 2016-17 6 neither the name of the company was mentioned in the ‘Panchnama’; nor a copy of the search warrant was provided to the Assessee company, despite repeated requests. It has been contended that the search was conducted at the residential premises of the Assessee company, namely Shri Tarloki Nath Singla and Shri Jagdish Rail Gupta in their individual capacity; that simultaneously, search was also conducted in the business premises at M/s Kansal Singla and Associates, Chandigarh, at SCO 80-81, 4th Floor, Sector 17-C, Chandigarh, which is also the registered address of the Assessee company; that during the search of M/s Kansal Singla and Associates, regular books of account along withbank details of the company were found; that one of the directors of the company, Shri T.N.Singla, who is also a partner in M/s Kansal Singla and Associates, was present at the time of search, but his signatures were not taken on the ‘Panchnama’ prepared in the name of M/s Kansal Singla and Associates; that on the request of the Assessee company, the ld. CIT(A), vide letter dated 7.9.2022, directed the A.O. to furnish a copy of the search warrant / ‘Panchnama’ prepared, on the basis of which, the assessment u/s 153A had been completed in the case of the Assessee company;
ITA 738/CHD/2022 A.Y. 2016-17 7 that the ld CIT(A), in the impugned order, has similarly mentioned that the “Assessing Officer furnished the copy of the warrant which was duly executed in the name of the appellant on 16.2.2018 in respect of the premises situated at SCO 80-81, 4th Floor, Sector 17-C, Chandigarh. The said warrant was found containing the name of the appellant”; that the ld. CIT(A), by simply observing so, agreed with the action of the Assessing Officer and held that the Assessing Officer was justified in initiating assessment proceedings u/s 153A of the Act; that the ld. CIT(A) did not provide the Assessee with the copy of the warrant, nor reproduced the same in the order; that since none of the Income Tax Authorities provided the Assessee with the copy of the search warrant, the Assessee company was suspicious that its name was not mentioned in the search warrant.
In the above situation, the Bench had called for the original search warrant from the Department, which was produced. The name of the Assessee company was foundmentioned in the search warrant. It is seen that a copy of the ‘Panchnama’ has been placed at APB 519-522. At APB 519, at item A, it is mentioned: ‘Warrant in the case: M/s Kansal Singla and associates’; at item (B), it has been stated
ITA 738/CHD/2022 A.Y. 2016-17 8 that: ‘Warrant to search (Details and Ownership of place of search): M/s Kansal Singla and Associates SCO 80-81, 4th Floor, Sector 21C, Chandigarh. So, the name of the Assessee Company, is not mentioned in this ‘Panchnama’. Also, this ‘Panchnama’ does not bear the signature of Shri T.N.
Singla,Director of the Assessee Company, who is stated to have been present at the place of search at the time of the search.
On this issue, the submissions on behalf of the Department, as contained in the oral arguments addressed by the ld. CIT (DR) and the written submissions dated 5.6.2023 are that providing of the copy of the warrant is not a right of the searched persons; that u/s 96 of the CrPC read with section 76 of the Evidence Act, a certified copy of a search warrant could be obtained on payment of legal fee.
Reliance has been placed on the decision of the Hon'ble Delhi High Court in the case of ‘MDLR’, 361 ITR 405 (Delhi), wherein, it has been held in para 24, that it will be salutary and proper that a copy of the search warrant be furnished to the occupant or the person searched; and that this would curtail any allegation of interpolation, addition of names, etc. On the issue as to whether it is necessary to ITA 738/CHD/2022 A.Y. 2016-17 9 have the names of the person searched in the ‘Panchnama’, the ld. DR has sought to place reliance on ‘MDLR’ (supra), wherein, the Hon'ble Delhi High Court has held that since the 22 parties whose names were not mentioned, did not object to the order u/s 153A in the petition u/s 264 pursuant to the assessment order, such objection was not justified in the writ petition filed; that the assessment order under section 153A cannot and should not be permitted to become a matter of writ petition as the First Appellate Forum; and that the First Appellate Statutory Authority could deal statutorily with the questions and issues raised in the writ petition the jurisdiction of the First Appellate Authority having not been invoked with the appeals preferred by the writ petitioners.
Concerning the issue of absence of signatures of the main person on the search warrant, the ld. CIT (DR) has contended that there is no re-equipment of service of warrant on the main person, who is usually occupied at other premises, that the search warrant is required to be served on the witnesses.
As observed, the name of the Assessee company has been mentioned in the search warrant, which was produced
ITA 738/CHD/2022 A.Y. 2016-17 10 in the original by the Department before us. Therefore, this puts this entire controversy at rest and the Assessee’s objection in this regard is found to be unjustified and it is, accordingly, rejected, while rejecting Ground No.2.
Now coming to Grounds 3 & 4, the matter pertaining to these grounds stand effectively decided by us in the preceding paragraphs, where we have found that the Search Warrant did contain the name of the assessee company, therefore, the grievance of the assessee by way of Ground Nos. 3 & 4 does not contain any merit and, accordingly, Ground Nos. 3 & 4 are rejected.
According to Ground No.5, the additions made are not based on any incriminating material found during the search. In this regard, the Id. CIT(A) has held that the Assessing Officer was having jurisdiction to assess the income of the Assessee on the basis of the material available at the time of the assessment and he was not to restrict the additions subject to the incriminating material found during the search. For holding so, the Id. CIT(A) has placed reliance on the decision of the Hon'ble Kerala High Court in the case of "CIT vs. KPUmmer", (citation not given); the decision of ITA 738/CHD/2022 A.Y. 2016-17 11 the Hon'ble Allahabad High Court in the case of 'Rajkumar Arora', 367 ITR 517 (Allahabad); the decision of the Hon'ble Kerala High Court in the case of 'EN Gopakumar vs. CIT', (2016) 75 taxman.com 215 and the decision of the Hon'ble Allahabad High Court in the case of 'CIT vs.Kesarvani Zarda Bhandar', ITA No.270/2014. The Id. Counsel for the Assessee, on this issue, has contended that the A.O. issued notice u/s 153A of the Act on 09.03.2019, against which, the company filed return and challenged the initiation of proceedings u/s 153A vide letter dated 03.05.2019 (APB-1); and that the additions made by the Assessing Officer are not emanating from the search proceedings, as no incriminating material or evidence was found during the course of the alleged search related to the Assessee company for the year under consideration. Reliance in this regard is placed on the order of the Hon'ble Apex Court wherein, the SLP filed by the Department in the cases of 'Meeta Gutgutia, 96 taxmann.com 468/257 Taxman 441 (SC) and 'Kabul Chawla' were dismissed by the Hon'ble Apex Court. The relevant portion is re-produced below
"Recently, Hon'ble ITAT Delhi in ‘Alankar Saphire Developers v. Dy. CIT’, [2020] 116 taxmann.com
ITA 738/CHD/2022 A.Y. 2016-17 12
389/184 ITD 847 (Delhi -Trib.) decided the issue that if no incriminating material is found in the search, no addition can be made u/s 153A. During the course of hearing in this case the assessee relied on the decision of Hon'ble Delhi High Court in ‘CIT v. Kabul Chawla', [2015] 61 taxmann.com 412/234 Taxman 300/[2016] 380 ITR 573 (Delhi) and ‘Pr. CIT v. Meeta Gutgutia’, [2017] 82 taxmann.com 287/248 Taxman 384/395 ITR 526(Delhi). On the basis of arguments of the parties the Tribunal noted that SLP filed by the Department in the case of ‘Kabul Chawla' (Supra) was dismissed by the Hon'ble Apex Court for low tax effect and SLP filed before the Supreme Court in the case of ‘Meeta Gutgutia’, (supra) was dismissed by the Hon'ble Supreme Court in ‘Pr. CIT v.Meeta Gutgutia’,[2018] 96 taxmann.com 468/257 Taxman 441 (SC) by observing that ‘We do not find any merit in this petition’ . The Department submitted that SLP on the similar issue has been admitted by the Hon'ble Apex Court in ‘M/s Apar industries’ (Citation not provided). The Tribunal however held that once the SLP is not admitted, the decisions given by the High Court in the case of ‘Kabul Chawla’ and ‘Meeta Gutgutia’ became final and binding."
14.1 The Id. Counsel for the Assessee has contended that therefore, the addition made by the Assessing Officer cannot be sustained in the present case in the order passed under ITA 738/CHD/2022 A.Y. 2016-17 13 section 153A of the Act, in the absence of any incriminating material found during the course of search action, where there was no pending assessment which could be said to have abated on the date of search.
14.2 Reliance has been placed on the judgment of the Hon'ble Apex Court in the case of 'PCIT vs M/s Abhisar Buildwell P. Ltd.', CA No. 6580, dated 24.04.2023, wherein, the Hon'ble court held that "in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961.”
14.3 Reliance has further been placed on the judgement of the Hon'ble High Court of Bombay, in 'Pr. CIT Vs. Sandeep Agarwal (HUF)', dated 09/10/2023, wherein, it was held that - "We dismiss the appeal, holding that the only issue which arises for determination will have to be answered against the ITA 738/CHD/2022 A.Y. 2016-17 14 Revenue and favouring the Assessee given the decisions of the Hon'ble Supreme Court in 'Abhisar Buildwell (P.) Ltd.', (supra) and 'U.K. Paints (Overseas)', (supra). The clarification issued in both these judgments is, however, issued in these matters as well in the context of reassessment proceedings under Sections 147 and 148 of the IT Act. However, as noted above, all contentions of all parties are kept open in this context.
14.4 It has been contended that the Assessing Officer has wrongly made addition u/s 153A(l)(b) r.w.s. 143(3) of the Act on the direction of the third party without having any incriminating material on record, as no incriminating material/document was unearthed by the Department during the search proceeding. Hence, assessment u/s 153A(l)(b) r.w.s. 143(3) of the Income Tax Act, 1961 has been wrongly made, against the provisions of the law.
14.5 The ld. DR has not been able to rebut the above position.
14.6 The ground-wise submissions and material of both the parties qua all the additions made have been considered in extensor while dealing with Ground Nos. 6 to 11, infra. At ITA 738/CHD/2022 A.Y. 2016-17 15 the same time, in view of the above-referred legal position, as settled by ‘Abhisar Buildwell’ (supra), Ground No. 5 is accepted.
As per Ground No.6 & 7, since neither any search was conducted on the Assessee company, nor any ‘Panchnama’ was prepared in its name, the provisions of section 153A of the Income Tax Act, 1961 (in short 'the Act') are not applicable and so, the assessment completed u/s 153A of the Act is against the provisions of law. This Ground corresponds to Ground No. (b) raised by the Assessee before the ld. CIT(A). The Assessing Officer passed the assessment order dated 30.12.2019 u/s 153A(1)(b) read with section143(3) of the I.T.Act, making various additions. Before the ld. CIT(A), the Assessee raised this issue by way of Ground No. (b).
15.1 The ld. CIT(A), in para 10 of the impugned order, has observed, inter alia, that a letter dated 7.9.2022 had been sent to the A.O., requiring him to furnish details of the warrant executed / ‘Panchnama’ prepared,’ on the basis of which, proceedings u/s 153A of the Act were initiated; that in response, the A.O. had furnished the copy of the warrant
ITA 738/CHD/2022 A.Y. 2016-17 16 which was duly executed in the name of the Assessee on 6.2.2018, in respect of the premises situated at SCO 80-81, 4th Floor, Sector 17-C, Chandigarh; that the said warrant was found containing the name of the Assessee; that accordingly, it was found that the warrant of authentication u/s 132(1) of the Act had been executed in the name of the Assessee; and that, therefore, the A.O. was justified in initiating assessment proceedings u/s 153A of the Act.
15.2 Before us, on behalf of the Assessee, it has been contended that neither any search was conducted on the Assessee company, nor any ‘Panchnama’ was prepared in its name; that the Assessee company filed an application under the RTI Act, bearing Registration No. CCITC/R/E/20/0001 dated 7.1.2020, seeking information with regard to copy of last warrant, a copy whereof has been placed at Assessee’s Paper Book (‘ABP’),pages 346-350. It has been contended that the said application of the Assessee was transferred (APB 351-352) to the DGIT, ITO office of PCIT (Investigation), Ludhiana and the DCIT, Central Circle-2, Chandigarh (APB 354-356) and finally to the DCIT, Central Circle-2, Mohali (APB 357); that none of the Income Tax Authorities provided the Assessee company with the copy of the said warrant; that ITA 738/CHD/2022 A.Y. 2016-17 17 the ACIT, Central Circle-2, Chandigarh vide order (APB 360- 361), dated 5.2.2.020, passed u/s 7(5) of the RTI Act, denied the Assessee company with a copy of the search warrant.
It has been contended that the assessment u/s 153A of the Act was completed against the provisions of the law, as neither any search u/s 132 was conducted on the Assessee company, nor any ‘Panchnama’ was prepared in its name; that though the Assessee specifically requested the Assessing Officer to provide it with a copy of the search warrant in the name of the Assessee company, no such search warrant was provided to the Assessee company; that neither the name of the company was mentioned in the ‘Panchnama’; nor a copy of the search warrant was provided to the Assessee company, despite repeated requests. It has been contended that the search was conducted at the residential premises of the Assessee company, namely Shri Tarloki Nath Singla and Shri Jagdish Rail Gupta in their individual capacity; that simultaneously, search was also conducted in the business premises at M/s Kansal Singla and Associates, Chandigarh, at SCO 80-81, 4th Floor, Sector 17-C, Chandigarh, which is also the registered address of the Assessee company; that during the search of M/s Kansal
ITA 738/CHD/2022 A.Y. 2016-17 18 Singla and Associates, regular books of account along withbank details of the company were found; that one of the directors of the company, Shri T.N.Singla, who is also a partner in M/s Kansal Singla and Associates, was present at the time of search, but his signatures were not taken on the ‘Panchnama’ prepared in the name of M/s Kansal Singla and Associates; that on the request of the Assessee company, the ld. CIT(A), vide letter dated 7.9.2022, directed the A.O. to furnish a copy of the search warrant / ‘Panchnama’ prepared,on the basis of which, the assessment u/s 153A had been completed in the case of the Assessee company; that the ld CIT(A), in the impugned order, has similarly mentioned that the “Assessing Officer furnished the copy of the warrant which was duly executed in the name of the appellant on 16.2.2018 in respect of the premises situated at SCO 80-81, 4th Floor, Sector 17-C, Chandigarh. The said warrant was found containing the name of the appellant”; that the ld. CIT(A), by simply observing so, agreed with the action of the Assessing Officer and held that the Assessing Officer was justified in initiating assessment proceedings u/s 153A of the Act; that the ld. CIT(A) did not provide the Assessee with the copy of the warrant, nor reproduced the ITA 738/CHD/2022 A.Y. 2016-17 19 same in the order; that since none of the Income Tax Authorities provided the Assessee with the copy of the search warrant, the Assessee company was suspicious that its name was not mentioned in the search warrant.
In the above situation, the Bench had called for the original search warrant from the Department, which was produced. The name of the Assessee company was foundmentioned in the search warrant. It is seen that a copy of the ‘Panchnama’ has been placed at APB 519-522. At APB 519, at item A, it is mentioned: ‘Warrant in the case: M/s Kansal Singla and associates’; at item (B), it has been stated that: ‘Warrant to search (Details and Ownership of place of search): M/s Kansal Singla and Associates SCO 80-81, 4th Floor, Sector 21C, Chandigarh. So, the name of the Assessee Company, is not mentioned in this ‘Panchnama’. Also, this ‘Panchnama’ does not bear the signature of Shri T.N.
Singla,Director of the Assessee Company, who is stated to have been present at the place of search at the time of the search.
On this issue, the submissions on behalf of the Department, as contained in the oral arguments addressed by the ld. CIT (DR) and the written submissions dated
ITA 738/CHD/2022 A.Y. 2016-17 20 5.6.2023 are that providing of the copy of the warrant is not a right of the searched persons; that u/s 96 of the CrPC read with section 76 of the Evidence Act, a certified copy of a search warrant could be obtained on payment of legal fee.
Reliance has been placed on the decision of the Hon'ble Delhi High Court in the case of ‘MDLR’, 361 ITR 405 (Delhi), wherein, it has been held in para 24, that it will be salutary and proper that a copy of the search warrant be furnished to the occupant or the person searched; and that this would curtail any allegation of interpolation, addition of names, etc. On the issue as to whether it is necessary to have the names of the person searched in the ‘Panchnama’, the ld. DR has sought to place reliance on ‘MDLR’ (supra), wherein, the Hon'ble Delhi High Court has held that since the 22 parties whose names were not mentioned, did not object to the order u/s 153A in the petition u/s 264 pursuant to the assessment order, such objection was not justified in the writ petition filed; that the assessment order under section 153A cannot and should not be permitted to become a matter of writ petition as the First Appellate Forum; and that the First Appellate Statutory Authority could deal statutorily with the questions and issues raised in ITA 738/CHD/2022 A.Y. 2016-17 21 the writ petition the jurisdiction of the First Appellate Authority having not been invoked with the appeals preferred by the writ petitioners.
Concerning the issue of absence of signatures of the main person on the search warrant, the ld. CIT (DR) has contended that there is no re-equipment of service of warrant on the main person, who is usually occupied at other premises, that the search warrant is required to be served on the witnesses.
As observed, the name of the Assessee company has been mentioned in the search warrant, which was produced in the original by the Department before us. Therefore, this puts this entire controversy at rest and the Assessee’s objection in this regard is found to be unjustified and it is, accordingly, rejected, while rejecting Ground Nos.6 & 7.
Ground Nos. 8 & 9 - Addition of Rs. 20,50,000 u/s 68 of the Income Tax Act and the said amount was already declared as income in the Profit & Loss Account during the year.
AO Observation - Page 10-11 of AO Order
ITA 738/CHD/2022 A.Y. 2016-17 22 21.1 AO made addition of all the credit entries in bank of Rs. 1,04,41,412/-without considering each credit separately on merit and on the plea that purpose and utilization of funds not explained by assessee. The AO made addition on third party dictate when AO was fully satisfied with the genuinity and creditworthiness of the lender. The AO in the assessment order has wrongly made addition of Rs.1,04,41,412/- including Rs.4,50,000/- received from GenX Abode and cash deposit amounting to Rs. 16,00,000/- on the plea that the assessee could not explain the purpose and utilization of funds without mentioning any deficiency on the part of assessee to prove the sources or genuinity of funds and also did not mention that the assessee even submitted documents to prove the genuinity and creditworthiness of the lenders during the assessment proceedings in his assessment order.
CIT Observation - Page 100 (point 3) of CIT Order 21.2 CIT(A) confirmed addition of Rs. 4,50,000/- received from GenX Abode Private Limited by mentioning that - "the assessee was not able to establish genuineness and creditworthiness as it has failed to submit any document to support this transaction."
ITA 738/CHD/2022 A.Y. 2016-17 23 21.3 The CIT(A) has himself reproduced the submission of the appellant company dated 21.03.2020 on page 58, 90, 99 and 119 of CIT order, wherein the appellant company clearly mentions the loans and advances received from Gen Abode Private Limited to be squared up loans as the same were received on 28.08.2015 and repaid on 09.09.2015, i.e., within the same year. The appellant company submitted copy of account of M/s Gen X Abode in the books of the company to substantiate the claim which was neither considered as documentary evidence by the CIT(A) not mentioned in its observation while confirming the addition.
21.4 The assessee company submitted the completed reply before the CIT(A) in 2020, and it took the CIT(A) more than 2 years to realize that the assessee failed to submit some of the documentary evidences to substantiate its claim of transaction with M/s Gen X Abode.
21.5 The CIT(A) never raised any query nor issued any show-cause notice in this regard and suddenly by taking a plea of non submission of documents, confirmed the addition made by the AO without even asking the assessee company to submit any other documentary evidence.
ITA 738/CHD/2022 A.Y. 2016-17 24 Documents submitted before ITAT vide reply dated 21.12.2019 (Paper book page 43-51 and 310-311).
1. Copy of account of M/s TJR Properties Private Limited in the books of M/s Motia construction limited from 01.04.2001 to 10.01.2018 (Paperbook Page 43) 2. Copy of account of M/s Motia construction limited in the books of M/s TJR Properties Private Limited for A.Y.2015-16 (Paperbook Page 44) 3. Copy of account of M/s Motia constructions in the books of M/s TJR Properties Private Limited for A.Y.2016-17. (Paperbook Page 47) 4. Copy of Voucher dated 08.05.2015 of cheque paid to M/s TJR Properties Private Limited (Paperbook Page 48) 5. Copy of Voucher dated 21.09.2015 (Paperbook Page 49) 6. Copy of account of M/s TJR Properties Private Limited in the books of M/s Gen-x Abode Private Limited from 01.04.2001 to 16.05.2022. (Paperbook Page 50) 7. Copy of account of M/s Gen-x Abode private Limited in the books of M/s TJR Properties Private Limited for A.Y.2016-17 (Paperbook Page 51) 8. Copy of ITR-V of M/s GenX Abode Private Limited for AY 2016-17 (Paperbook Page 310) 9. Copy of Bank Account Statement of M/s GenX Abode Private Limited (Paperbook Page 311) 10.Copy of account of Income in the books of M/s TJR Properties Private Limited for A.Y.2015-16 (Paperbook Page 45) 11.Copy of account of Income in the books of M/s TJR Properties Private Limited for A.Y.2016-17 (Paperbook Page 46).
The aforesaid documents submitted by the assessee were neither challenged nor disputed by the department in the appeal. Hence, any receipt already shown as income in the Profit and Loss Account cannot be added u/s 68 of the Act, without any specific reasons or evidence.
ITA 738/CHD/2022 A.Y. 2016-17 25 22.1 The assessee company received Rs. 4,50,000/- from M/s Gen X Abode on 28.08.2015 and the same was re-paid to the lender on 09.09.215. (Copy of account of M/s Gen X Abode Private Limited in the books of the company was provided to the Id. AO as well as to the CIT(A)). The assessee company received Rs. 4,50,000/- from Gen X Abode Private Limited wrongly though it's sister concern of Motia Construction Limited. The money was returned back immediately on 09.09.2015 and thereafter Rs.4,50,000/- was received from Motia on 21-9-2015 Gen X Abode an Motia Construction Ltd are same group companies. Commission was to be paid by Motia Construction Ltd (sister concern) but wrongly issued from Gen X Abode. (ITR of Gen X for AY 216- 17 paperbook Page 310, 311)
22.2 Since the CIT(A) confirmed the addition without giving the assessee any opportunity to submit documents, therefore the assessee company has now submitted all the documents along with copy of voucher, copy of accounts of assessee company in the books of lender ad copy of ITR-V as additional evidence to substantiate its claim of the credits being genuine. The submission of said documents are neither challenged nor disputed during the hearing by the ITA 738/CHD/2022 A.Y. 2016-17 26 department. The AR has informed that the said loans were repaid during the year itself through banking channels.
Further, if the AO or CIT(A) were not satisfied with the genuineness of the transaction with the lender company, they could have initiated action under Sections 133(6) or 131 of the Act for further investigation. However, it is noteworthy that neither the AO nor the CIT(A) extended any such notice to the lender for additional inquiries. Instead, an addition of Rs. 4,50,000/- was made based on the directive of a third party.
22.3 The documents are submitted by the company in paperbook to prove the identity and sources of the said firm, and the addition of Rs. 4,50,000/-confirmed by CIT(A) is to be deleted.
Addition of Rs. 20,50,000 u/s 68 of the Income Tax Act and the said amount was already declared as income in the Profit & Loss Account during the year includes addition of Rs. 16,00,000/- on account of cash deposits made by the assessee company.
AO Observation - Page 10-11 of AO Order
AO made addition of all the credit entries in bank of Rs. 1,04,41,412/-without considering each credit separately
ITA 738/CHD/2022 A.Y. 2016-17 27 on merit and on the plea that purpose and utilization of funds not explained by assessee.
24.1 The AO made addition on third party dictate when AO was fully satisfies with the genuinity and creditworthiness of the lender. The AO in the assessment order has wrongly made addition of Rs. 1,04,41,412/- including Rs. 4,50,000/- received from Gen X Abode and cash deposit amounting to Rs. 16,00,000/- on the plea that the assessee could not explain the purpose and utilization of funds without mentioning any deficiency on the part of assessee to prove the sources or genuinity of funds and also did not mention that the assessee even submitted documents to prove the genuinity and creditworthiness of the lenders during the assessment proceedings in his assessment order.
CIT Observation - Page 101 (point 5) of CIT Order
The CIT(A) confirmed addition of Rs. 16,00,000/- on account of cash deposit made by the assessee company by mentioning that - "The cash deposits were explained as made on account of income generated during the year under consideration which was duly reflected in P&L account.
However, no evidence/details giving the particulars of person from whom such cash was received, nature of transaction
ITA 738/CHD/2022 A.Y. 2016-17 28 with them have been furnished. Therefore, cash source deposits and of Rs.l6,00,000/-remain unexplained."
25.1 The assessee company submitted copy of income account along with copy of cash account, bank account statement, profit and loss account and copy of expense account in the books of the company for AY 2016-17 before the CIT(A) which were not considered by the CIT(A) before confirming the addition.
25.2 While confirming the addition on page 101 of CIT(A)
Order, the CIT(A) has wrongly mentioned that the assessee company has deposited Rs. 4,50,000/-each 08.05.2015, 21.09.2015 and 25.03.2015. The amount credited on 08.05.2015 and 21.09.2015 is the amount transferred from bank account of the company (Bank of Maharashtra 5369) on which Rs. 50,000/- is TDS Receivable. The CIT has wrongly taken a plea that the assessee company has deposited cash amounting to Rs.4,50,000/- on 25.03.2015 as date mentioned by the CIT(A) falls in the purview of AY 2015-16 and not AY 2016-17. Hence, the CIT(A) was wrong in confirming the addition on wrong facts.
ITA 738/CHD/2022 A.Y. 2016-17 29
Further, from the copy of Income Account (paperbook page 46) it is clearly evident that the assessee made total cash deposit of Rs. 5,50,000/- on the following dates :-
09.04.2015 Rs. 2,00,000/- 08.10.2015 Rs. 1,00,000/- 19.10.2015 Rs.1,00,000/- 16.12.2015 Rs. 1,00,000/- 29.12.2015 Rs.50,000/- The above cash deposits tally with the deposits in the copy of cash account (paperbook page 12).
26.1 As per the Income Account on paperbook page 46, the assessee company has Total Receipt of Rs. 15,50,000/-, after deduction expenses of Rs. 1,00,000/- and an amount f Rs. 5,00,000/- as cheque issued but not presented for payment, the company has declared income of Rs. 9,50,000/-in it's P/L Account on Page 7 of Paperbook.
Documents submitted before ITAT vide reply dated 21.12.2019 (Paper book page 43-51 and 310-311)- 1. Profit & Loss A/c of M/s TJR Properties Private Limited as on 31.03.2016 (Paperbook Page 7) 2. Cash account of M/s TJR Properties Private Limited as on 31.03.2016. (Paperbook Page 12) 3. Bank Account statements of M/s TJR Properties Private Limited for A.Y. 2016-17 (Paperbook Page 15-19) 4. Copy of account of Income in the books of M/s TJR Properties Private Limited for A.Y.2015-16 (Paperbook Page 45) 5. Copy of account of Income in the JDOoks of M/s TJR Properties Private Limited for A.Y.2016-17 (Paperbook Page 46)
ITA 738/CHD/2022 A.Y. 2016-17 30
Copy of travelling expense account in the books of M/s TJR Properties Private Limited for AY 2016-17 (Paperbook Page 312)
26.2 The AO in para 12.1 of the order contends that the company could not prove the purpose and utilization of funds towards business activities to substantiate the creditworthiness of Rs. 1,04,41,410/- as the company is a shell company and existed only on paper.
26.3 The assessee contends that the company submitted the cashflow statements, explanation of each debit and credit entry in the bank account of the Appellant Company along with the Balance Sheet, Affidavit, confirmations, bank statements, ITRs, Balance sheets] copy of accounts etc. but instead of considering each credit entry separately, the AO with a vitiated mind and on the dictate of third party, made additions of all the credit entries in the bank account of the Appellant Company without considering the nature, source, credibility and genuinity of each credit transaction received in the bank account of the Appellant Company during the year.
The AO after being fully satisfied with the genuinity of company and sources of credit entries in bank account, sent a detailed note on the comparison of appellant Company with ITA 738/CHD/2022 A.Y. 2016-17 31 shell companies and explanation of the credit entries as mentioned in points above, (deviation note) to the Deputy Director of Investigation (ADIT), Mohali on 26.12.2019 vide letter (deviation note) note no. 1733. Dated 24.12.2019 at the fag end of assessment proceedings being satisfied by the fact that the sources of the transactions as per evidences / documents submitted and regular books of accounts of the appellant company stood explained by leading cogent and reliable evidence. However, the ADIT(lnvestigation), Mohali was not authorized but she acted without any jurisdiction and without application of mind and rejected the deviation note in less than 12 hours. It is pertinent to mention that the ADIT (Investigation), Mohali rejected the deviation note sent with detailed replies and evidences in less than 12 hours and observed that the appellant company is a shell company. Thus, the ADIT(lnvestigation), Mohali exceeded her jurisdiction knowingly and issued dictates based on Appraisal Report. The ADIT, Investigation, Mohali vide letter no. 1763 dated 27.12.2019 addressed to the Learned Assessing Officer rejected the proposal/deviation note for not proposing the additions despite the fact that ample evidence both reliable and cogent had been produced by the appellant
ITA 738/CHD/2022 A.Y. 2016-17 32 company calling for no addition at all and still proceeded to dictate the Assessing Officer to make additions by assigning flimsy reasons as if the ADIT was an assessing authority; and still further the ADIT by giving reference to the CBDT instructions bearing No. FTS/194840/12 dated 20.11.2012 proved beyond a shadow of doubt that she had exceeded her powers by rejecting the said deviation note.
27.1 The AO acted on the dictate of a third party and on borrowed satisfaction to declare the appellant company as a shell company and made addition of all credit entries in the bank of the appellant company as undisclosed income u/s 68 of the Income Tax Act, 1961 without even issuing any show cause notice to the appellant company for treating it as a shell company. Also, the Learned Assessing Officer neither issued a show cause notice nor mentioned a single word about shell company in any of the questionnaires sent by him on 19.08.2019 (page 20-21 of paperbook), 0740.2019 (page 24-27 of paperbook) and 11.12.2019 (page 33-35 of paperbook).
27.2 The Assessing Officer (AO) erroneously made an addition, disregarding the comprehensive evidence provided by the (assessee to substantiate its claim regarding the ITA 738/CHD/2022 A.Y. 2016-17 33 lenders. It is crucial to note that the company extended funds in submitted details as identity, sources, bank A/c, etc of each creditor, and there is no entity, individual or otherwise, that can be deemed as a sham entity.
Furthermore, all the lenders executed the transfers from their active and operational bank accounts. Notably, within the same fiscal year, the assessee company repaid all lenders except Sh. Baldev Singh and advance received from Dharma Wires Private Limited was repaid in the subsequent year.
Further, the CIT(A) in his order has mentioned that-
"It was further explained that the AO has used statement of Sh. Jagdish Rai Gupta selectively in parts by drawing wrong inference that M/S TJR was a shell company. It was submitted that M/s TJR Properties was having land which was purchased during F.Y. 2007. 18 for Rs. 1,73,00,000/- and sold during A.Y. 2012-13 for Rs.5,00,05,000/-by executing registered sale deed on 30.11.2011 and after paying stamp duty. Further, M/s TJR paid earnest money of Rs. 1,50,00,000/- during F.Y. 2016-17 for purchase of a plot to build flat /apartment and paid TDS of Rs.1,50,000/- @1%. Thus, M/s TJR was having income generating apparatus and was undertaking business activities and was not a shell company.
9.3 Facts and material available on record have been considered in detail. Sh. TN Singla and Sh. Jagdish Rai Gupta are the directors/shareholders of the appellant company. Sh. Sahil Singla is the son, Smt. Kiran Singla is the wife and Smt. Sakshi Singla is Daughter In Law ofSh. TN Singla .After taking into consideration the above facts, it is observed that the AO has held in his order the appellant company to be a shell company as merely existing on papers and not carrying out any business activities. After perusing the findings of the AO recorded in the assessment order and the material available on record, it is noted that M/s TJR Properties was having land which was purchased during FY. 2007-18 for Rs.1,73,00,000/- and sold during A.Y. 2012-13 for Rs.5,00,05,000/-by executing registered sale deed on 30.11.2011 and ITA 738/CHD/2022 A.Y. 2016-17 34 paying stamp duty. The same AO has assessed Long Term Capital Gain in the hands of M/s TJR from the said transaction. It is not the case of the AO that the said land was a Benami asset held in the name of M/s TJR. Further, M/s TJR paid earnest money of Rs. 1,50,00,000/- during FY. 2016-17 for purchase of a plot to build flat/apartment and paid TDS of Rs.1,50,000/- @1%. Thus, on facts,' it is observed that M/s TJR was having income generating apparatus in past and future years and was undertaking business activities. There is ho definition of shell company given under the provisions of Income Tax Act, 1961 or Companies Act, 1956/2013. Every case needs to be examined on merits as per the peculiar facts and circumstances to\ draw such inference and consequences out of the same as per the^ provisions of Income Tax Act. In order to decide the merit of addition made by the AO on account of unexplained bank credits u/s 68 of the Act, it is required to examine the source and nature of credits received by the appellant terms of conditions laid down in the provisions of section 68 of the Act. Thus, it required to examine the identity and creditworthiness of the persons from who's amounts have been received and genuineness of the transactions on merit considering each credit separately. The AO has not discussed each and cred separately on merits in the assessment order before drawing the inference that the credits were unexplained. During the assessment proceedings, it was observed by AO after going through the reply of the appellant dated 19.12.2019 in respect of particular of such persons from whom such credits were received that the appellant had cred amounting to Rs 1,04,41,410/- in its bank account and the appellant could not explain purpose of such credits. Thus, the addition of Rs. 1,04,41,410/- was made by the AO on the ground that the appellant has failed to explain the purpose and utilisation of such credits The appellant submitted during the appellate proceedings that it had received credits of Rs. 1,04,41,410/- in its bank account maintained with Bank of Maharashtra and furnished documentary evidence in support of identity and creditworthiness of such persons a genuineness of transaction which have been also furnished during the assessment proceedings. The AO was again directed during appellate proceedings vide letter no.295 dated 12.08.2021 to examine such credits on merit in respect of identity and creditworthiness of such persons and genuineness of transaction. In the remand report dated 15.07.2022(supra), the AO did not bring on record any adverse findings in respect of identity and creditworthiness of such persons and genuineness of transactions except by stating that appellant is a shell company and doesn't have any profit generating apparatus. It was further stated that one of the group companies, i. e., M/s Evershine Recreation Pvt Ltd was a shell company from whom the appellant has received credits. However, the AO did not make any further enquiry in respect of credits in the bank account during the remand proceedings and relied upon the facts as discussed in the assessment order.
The appellant has discharged its onus as required u/s 68 of the Act All the above mentioned documents were also furnished before the AO
ITA 738/CHD/2022 A.Y. 2016-17 35 during the assessment proceedings. Although the AO has admitted to have received the said documents during the assessment proceedings yet the same were not taken into account by the AO while making addition. The AO has recorded in his order that the appellant could not explain the purpose and utilisation of such credits. However, the AO failed to take cognisance of the fact that addition u/s 68 of the Act is to be made if the appellant doesn't offer any explanation regarding the source and nature of credits received in the bank account or if the explanation offered is not found satisfactory by the AO. Whereas in this case the appellant has duly furnished its explanation in respect of bank credits received during the year under consideration alongwith necessary documentary evidence. If the AO was not satisfied with the explanation of the AO in respect of source and nature of credits received, he should have recorded such dissatisfaction in the assessment order. However, no adverse finding has been recorded in the assessment order in respect of the documentary evidence furnished by the appellant in support of bank credits. The submissions and documents furnished by the appellant during the appellate proceedings were also forwarded to the AO for remand report. In the remand report also, the AO has not even discussed the documentary evidence furnished by the appellant in support bank credits let alone pointing out any defect in the same. In view of the above discussion and after making independent perusal of documents furnished by the appellant, it is noted that the assessment order is non speaking, mechanical in nature and has been passed without discussing merits of the documents. There is no direct or indirect evidence pointed out by the AO before making such additions. Therefore, after considering the merits of the case, analysis of credits as per the above table and strength of documentary evidence, it is observed that there is no justification in such addition made in the hands of the appellant u/s 68 of the Act Therefore, the addition of Rs.83,91,412/- is hereby deleted."
27.3 The assessee contends that the AO did not make any adverse findings in the remand report and the entire investigation / proceedings of the AO revolves around stating the appellant company as shell company on the dictate of third party. The AO made addition of all the credit entries in the bank account of the company amounting to Rs. 1,04,41,412/-/- ignoring all the proofs and documentary evidences submitted by the assessee during the assessment
ITA 738/CHD/2022 A.Y. 2016-17 36 proceeding. However, same documents were submitted before the CIT(A) during the appellate proceedings and the CIT(A) granted relief of Rs. 83,91,412/- to the assessee after verification of all the documents and confirmed addition of Rs. 20,50,000/- without asking assessee for any other evidence or document by CIT(A) during appellate proceeding continued for three years as no show cause notice was issued or query was raised by the CIT(A).
In view of the above, the assessee's grievance by way of Ground No.8 & 9 is found to be justified and it is accepted as such. The addition of Rs.20,50,000/- is, accordingly, deleted.
Ground No. 10 - Addition of disallowed loss of Rs.4,83,429 on account of depreciation of car AO Observation - Page 10-11 of AO Order
The AO disallowed depreciation amounting to Rs. 4,83,429/- claimed by the assessee in its return without discussing the same in order.
30.1 Ground No. 10 states that the CIT(A) has wrongly upheld the disallowance of Rs.4,83,429/- against loss claimed in the return of income. The AO disallowed the ITA 738/CHD/2022 A.Y. 2016-17 37 depreciation on vehicle to the extent of Rs.4,83,429/-without making any discussion in the assessment order. The CIT(A) too did not make any discussion in the impugned order while upholding the disallowance.
30.2 The company submitted the following documents has been placed before us, as also furnished before both income tax authorities-
Copy of Computation sheet of M/s TJR Properties Private Limited for A.Y. 2016-17 (Paperbook Page 4-5) 2. Copy of fixed asset schedule (Paperbook Page 9) 3. Copy of RC of car (Paperbook Page 13-14) 30.3 The contention of the assessee has all through remained that the car was registered in the name of the assessee company and was used for business purposes only.
The copy of the Registration Certificate has been filed in support.
30.4 The documents placed on file by the assessee have not been disputed or challenged by the Department. The Id.
CIT(A), though, in para 11 of the impugned order, has observed that the assessee did not furnish any documentary evidence in support of the loss claimed.
ITA 738/CHD/2022 A.Y. 2016-17 38 30.5 It is seen that as per the Computation of Income (paperbook page 4), loss was of Rs. 2,40,680/-, whereas as
per the Profit &'Loss Account (paperbook page 7), the loss was of Rs. 4,83,429/-.
30.6 The contention of the Id. Counsel for the assessee has been that the AO wrongly observed that bills and vouchers and books of account were not produced by the assessee and that the AO wrongly disallowed the loss at Rs. 4,83,429/- asper the Profit & Loss Account, without considering the loss claimed in the return of income, at Rs. 2,40,680/-. It has further been contended that the Id.CIT(A) went wrong in observing that no documentary evidence was filed, whereas the aforementioned papers were filed, as also ITR-V of the assessee company, for assessment year 2016-17 (paperbook page 3) and Balance Sheet of the assessee company as on 31.03.2016 (paperbook page 6-11) were also filed. This has not been disputed before us.
30.7 In the search conducted, at the business premises of M/s Kansal Singla & Associates, regular books of account alongwith bank statements of the assessee company were found, which fact stands duly mentioned at page 357 of the Appraisal Report (paperbook page 116). Copies of all these
ITA 738/CHD/2022 A.Y. 2016-17 39 books of account were taken on CD by the Department, as
per Panchnama (paperbook page 275-278).
30.8 The books of account were examined by the AO before sending the Deviation Note dated 24.12.2019 to Investigation Wing. This is evident from the contents of the AO's letter dated 24.12.2019 (paperbook page 296-298). The Dictate by the ADIT (Investigation), on which, however, the AO acted is available at paperbook page 299-301.
30.9 Further, the books of account were also submitted by the assessee before the AO during the remand proceedings, on 16.02.2022, as available at papebook page 52.
From the above, it is evident that the grievance of the appellant company by way of Ground Nos. 10 is justified. It is accepted as such and the disallowance of loss of Rs. 4,83,489/- is, accordingly, deleted.
In the result, the Appeal is partly allowed.
Order pronounced on 22.02.2024.