2021 (9) TMI 886 - AT - Income Tax

Court dismisses AO's appeals, upholds assessee's objections, quashes assessment orders, deletes additions. Settlement Commission's decision final.

DCIT, Circle-I, LTU, New Delhi Versus Dalmia Bharat and Industries Ltd. And (Vice-Versa)

The court dismissed all six appeals of the AO and allowed all six cross-objections of the assessee. The assessment orders under Section 153C for AY ... Assessment u/s 153A - jurisdiction assumed by the Ld. A.O. u/s 153C - scope of the provisions of Section 153C of the act and whether such assessment years are barred by the limitation or not? - 6 years are to be reckoned from what date? - additions made on protective basis by the Ld. A.O - Assessee argued satisfaction recorded by the assessing officer in the case of searched person was not brought on record by the AO of the assessee and only a summary was provided to the assessee - HELD THAT:- It is apparent that Assessment year which can be assessed u/s 153C of the act in this case is only from AY 2008-09. Thus, the assessments made by the ld AO u/s 153C of the act for AY 2006-07 and 2007-08 are beyond time prescribed u/s 153C of the act and are quashed. Thus, First question is answered in favour of the assessee. Whether the assessment order passed for assessment year 2011-12 u/s 153C is without jurisdiction and void ab initio, as no satisfaction has been recorded by the assessing officer of the searched person? - It is the responsibility of the AO of the other person to verify that material and specified assets to determine for which year same are taxable. Based on this the AO of the other person will issue notices to the other person. Otherwise, the satisfaction recorded by the AO of searched person will determine the assessee ability of income any assessment year in the hands of the other person. If the proposition canvassed by the learned authorised representative is accepted then the AO of the other person, will simply become a postman for issuance of notice u/s 153Cof the act. That is not the mandate of the law. Therefore the argument of the learned authorised representative is rejected that when the AO of the searched person has specifically not included assessment year 2011 – 12, the authority of the assessing officer of the other person is curtailed in issuing notice for assessment year 2011 – 12 and hence the assessment order passed Under Section 153C of the act for assessment year 2011 – 12 is liable to be quashed. Hence, we reject this argument of the learned AR. In view of this, we are of the opinion that the assessment order passed for assessment year 2011 – 12 cannot be quashed at least on this count. Thus, second question is answered against the assessed. Whether the pen drive seized from the premises of one of the employees of the group concern can be said to be belonging to the assessee when four different applicants have owned it before the settlement commission and settlement commission has accepted the above proposition after considering the objections of revenue before it? - Pen drive does not belong to the assessee company wherein for different applicants have owned it before the settlement commission and the settlement commission has accepted the content of the pen drive data contained therein and the income comprised in those documents chargeable to tax in the hence of those four applicants accepting the amount of disclosure made by them. The satisfaction recorded by the assessing officer of the person searched does not fulfill the requirement of provisions of Section 153C of the act as it is a defective satisfaction for the reasons given above. Assessment order framed u/s 153C read with Section 143 (3) for assessment year 2006 – 07 to 2011 – 12 in case of the assessee are ad verbatim copies of the orders of the learned Deputy Commissioner of income tax, central circle – 2 in the case of Dalmia cement Bharat Limited and therefore there is no application of independent mind by the learned assessing officer on the facts and the materials available before him while taxing the income in the hands of the assessee on protective basis. Therefore the consequent assessment order passed u/s 153C of the act for assessment year 2006 – 07 to 2011 – 12 are also not sustainable in law. Addition on protective addition - Application to Income tax Settlement Commission[ITSC] - Whether the assessee can claim that order of the settlement commission was conclusive u/s 245I of the act and where income covered in the pen drive has been accepted by the settlement commission as belonging to the four different applicants and accepting the disclosure, can now the assessing officer make the similar addition out of the same pen drive in the hands of the assessee on protective basis? - When looked into the provisions of Section 245I, we are of the opinion that it gives the protection to the applicants before the settlement commission only that such matter cannot once again be taxed in the hands of only those four applicants in different proceedings for the same assessment year or in different assessment years. According to us, the provisions of Section 245I does not give protection to the whole world with respect to the ‘matter’ as decided by the settlement commission, it only protects those applicants who are before the settlement commission. Therefore, this proposition raised by the learned authorised representative stands rejected. Whether the assessment order passed in the case of the assessee on ‘protective basis’? - When the substantive additions are deleted, the protective additions also cannot survive. It can survive in one of the situation where there is a finding in the case of the person in whose hands ‘substantive addition’ is made that the income belongs to the person in whose hands ‘protective additions’ are made. We could not find such finding by any authority in the case of assessee in whose hands ‘substantive additions’ are deleted - when the ‘substantive additions’ is deleted in the hands of another assessee without holding that income does not belong to that assessee but to this assessee, ‘protective additions’ cannot be sustained in the hands of this assessee - when on the identical facts and circumstances, identical additions even on ‘protective basis’ are deleted in the hands of the other assessees by ld CIT (A) and such orders are remained unchallenged , we do not find any reason that such protective additions should be sustained in the hands of the assessee. Whether the disclosure made before ITSC covers the amount of data involved in the pen drive? - ITSC has covered, the complete data of 125 pages found from the pen drive, deduced the income of ₹ 95 crores, and held that such a disclosure is full and true. In absence of any infirmities pointed out by revenue about any leakage of income from the seized data, we find that revenue is not in a position to controvert findings of ITSC on adequacy of income offered for taxation. Thus, Issue decided in favour of the assessee. Issues Involved:1. Validity of assessment orders under Section 153C for AY 2006-07 and 2007-08.2. Jurisdiction of assessment order under Section 153C for AY 2011-12.3. Ownership of pen drive and its contents.4. Validity of satisfaction recorded by AO of the searched person.5. Independent application of mind by AO.6. Conclusiveness of Settlement Commission’s order under Section 245I.7. Sustainability of protective assessment when substantive addition is deleted.8. Effect of deletion of substantive addition on protective addition.9. Adequacy of disclosure before Settlement Commission.Detailed Analysis:1. Validity of Assessment Orders under Section 153C for AY 2006-07 and 2007-08:The search took place on 20th January 2012, and the satisfaction note was recorded on 25th March 2014. According to Section 153C, the six assessment years should be counted from the date of receiving the seized documents, which in this case would be AY 2008-09 to 2013-14. Thus, assessments for AY 2006-07 and 2007-08 are beyond the scope of Section 153C and are quashed.2. Jurisdiction of Assessment Order under Section 153C for AY 2011-12:The satisfaction note recorded by the AO of the searched person on 25th March 2014 excluded AY 2011-12. However, the AO of the other person (assessee) is responsible for determining the relevant assessment years. Thus, the assessment order for AY 2011-12 is valid.3. Ownership of Pen Drive and Its Contents:The pen drive was seized from an employee of Dalmia Bharat Enterprises Ltd. Four individuals owned the contents before the Settlement Commission, which accepted their disclosure. The Settlement Commission’s order, being a higher authority, prevails, and the pen drive does not belong to the assessee company.4. Validity of Satisfaction Recorded by AO of the Searched Person:The satisfaction recorded by the AO of the searched person did not display reasons or material for concluding that the pen drive belonged to the assessee. The satisfaction was defective as it did not justify why the pen drive did not belong to the searched person but to the assessee.5. Independent Application of Mind by AO:The AO of the assessee merely copied the assessment order of Dalmia Cement Bharat Ltd. without independent reasoning. This indicates non-application of mind and reliance on another officer’s findings, making the assessment order unsustainable.6. Conclusiveness of Settlement Commission’s Order under Section 245I:The Settlement Commission’s order is conclusive and final as to the matters stated therein. However, it protects only the applicants before the Settlement Commission and not the whole world. Thus, the order does not provide blanket protection to the assessee.7. Sustainability of Protective Assessment When Substantive Addition Is Deleted:When substantive additions in the hands of Dalmia Cement Bharat Ltd. were deleted by the CIT(A), the protective addition in the hands of the assessee cannot survive. The protective assessment should be kept in abeyance until the main case is finalized.8. Effect of Deletion of Substantive Addition on Protective Addition:The deletion of substantive additions in the hands of another entity means the protective addition in the hands of the assessee cannot be sustained. Protective addition alone cannot stand without substantive addition.9. Adequacy of Disclosure Before Settlement Commission:The Settlement Commission covered the complete data of 125 pages found in the pen drive and accepted the disclosure of Rs. 90 crores as full and true. The revenue could not show any leakage of income from the seized data. Thus, the disclosure before the Settlement Commission is adequate.Conclusion:All six appeals of the AO are dismissed, and all six cross-objections of the assessee are allowed. The assessment orders under Section 153C for AY 2006-07 and 2007-08 are quashed, and the protective additions in the hands of the assessee are deleted. The Settlement Commission’s order is conclusive for the applicants before it, and no further additions can be made based on the same pen drive data.