TaxTMI 
TaxTMI 
2019 (5) TMI 539
X X X X Extracts X X X X
X X X X Extracts X X X X
....e up the assessee's appeal in ITA No. 24/Kol/2016 for AY 2007-08 wherein the assessee has raised the following relevant grounds of appeal: "1. That the Ld. CIT(A) erred in dismissing the plea of the Appellant Company that the Assessing Officer had no jurisdiction to disturb the original assessment completed on 30.12.2009 under section 143(3) read with section 153A of the Act in absence of any incriminating material found in course of search and when no proceedings were pending before him for the Assessment Year 2007-08 2. That the Ld. CIT(A) erred in directing the Assessing Officer to re-examine the issue of disallowance of Rs. 8,97,950 made under section 40(a)(ia) of the Act when no such disallowance was made in original assessment completed under section 143(3) read with section 153A of the Act and no incriminating document relating to such disallowance was found during search in case of the assessee company. 3. That the order passed by Ld. CIT(A) is against law and facts of the case and is perverse." 4. At the outset, we will deal with the legal issue that has been raised by the assessee that consequent to the search u/s. 132 of the Income-tax Act, 1961 (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aterials. Now before us, the assessee has agitated the legal issue. We note that the first assessment for the relevant AY 2007-08 was completed by the AO on 31.12.2009 u/s.143(3) consequent upon search u/s 132 which was conducted against the appellant on 03.05.2007.Copy of the said assessment order is found placed at Pages 59 to 61 of the paper book. We find that the income returned for the AY 2007-08 was accepted by the AO without making any addition or disallowances. Thereafter, the second search which culminated in the impugned assessment order before us happened on 18.02.2013 and thereafter assessment was framed u/s. 153A at Rs. 14,80,850/-. On appeal, the Ld. CIT(A) has confirmed disallowance of Rs. 8,97,950/- in respect of the short payment of TDS u/s. 40(a)(ia) of the Act, made by the AO. In order to adjudicate the legal issue before us, as stated above, we note that when the second search happened on 18.02.2013, undisputedly no assessment was pending before the AO and therefore this assessment year is an unabated assessment. Settled position of law is that no addition can be made for an unabated assessment unless incriminating materialis unearthed during search qua the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he 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 property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. 8. The Hon'ble Jurisdictional High Court in CIT vsVeerprabhu Marketing Ltd. reported in (2016) 73 taxmann.com 149 (Cal) also held as under: "We agree with the view expressed by the Delhi High Court that incriminating material is prerequisite before power could have been exercised u/s 153(C) r.w Section 153(A). In the case before us, the AO has made a disallowance of the expenditure, which was held disclosed, for one reason or the other, but such disallowances made by the AO were upheld by the LD.CIT(A) but the Ld. Tribunal deleted these disallowance. We find no infirmity in the aforesaid Act of the Ld. Tribunal. The appeal is, therefore, dismissed". 9. The Hon'ble Jurisdictional High Court in PCIT-2, Kolkata Vs. Salasar Stock Broking Limited (ITAT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fy initiation of proceedings under Section 153A of the Act. 2. The Court finds that the order of the CIT(Appeals) reveals that there is a factual finding that "no incriminating evidence related to share capital issued was found during the course of search as is manifest from the order of the AO." Consequently, it was held that the AO was not justified in invoking Section 68 of the Act for the purposes of making additions on account of share capital. 3. As far as the above facts are concerned, there is nothing shown to the court to persuade and hold that the above factual determination is perverse. Consequently, after considering all the facts and circumstances of the case, the Court is of the opinion that no substantial question of law arises in the impugned order of the ITAT which requires examination. 4. The appeal is, accordingly, dismissed." 11. It is noted that the Department had filed a Special Leave Petition in S.L.P (C) No-34554 of 2015 before the Hon'ble Apex Court against the above judgment of the Delhi High Court which has since been dismissed. The relevant extracts reported in 380 ITR (st) 64-Ed is as follows: The Hon'ble Apex cour....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing Ltd. (supra)as also the decisions of theHon'ble Delhi High Court in the cases of Kabul Chawla (supra)and Pr. CIT Vs. Kurele Paper Mills Pvt. Ltd. (supra) which has since been upheld by the Hon'ble Supreme Court; we are of the considered view that no addition or disallowance was permissible while framing the assessment u/s 153A since no incriminating material was found in relation to the disallowance made in the unabated assessment for AY 2007-08. The Ld. CIT, DR fairly conceded that in respect of the disallowance u/s 40(a)(ia) no incriminating material was found in the course of second search. In light of this factual and legal position we therefore allow the Ground No. 1 of the assessee's appeal. Consequently the disallowance of Rs. 8,97,950/- made u/s 40(a)(ia) is held to be legally unsustainable. Even otherwise we find that in the impugned order passed by the Ld. CIT(A); the AO was directed to re-verify the relevant facts from the TAN details and thereafter pass a speaking order. It was brought to our attention that in the order passed u/s 251, after examining the relevant facts, the AO did not retain the disallowance. Therefore even on merits we find the disallowance of Rs.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rder with respect to legal issue raised vide ground no.5 by the assessee that the additions made in this year are beyond the scope of assessment u/s.153A, as no incriminating material was found during the course of search for the impugned Assessment Year; and the assessment had attained finality and was not abated in terms of 2nd Proviso to Section 153A. As stated above, the original return of income was filed in July, 2006 and said return was duly accepted and processed u/s. 143(1) vide intimation dated 25.05.2007. Since no notice u/s. 143(2) was issued thereafter or any other proceedings have been commenced to disturb said return of income, accordingly, it had attained finality much prior to the date of search which was on 20.01.2012. Hence in terms of 2nd Proviso to Section 153A the assessment for the Assessment Year 2006-07 was not pending and accordingly, has to be reckoned as unabated assessment. Under the jurisdiction of Hon'ble Delhi High Court, the law is well settled that in case of unabated assessment, the additions which can be roped-in, in the assessments framed u/s.153A, would only be with regard to any incriminating material or evidence unearthed or found during ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment." This judgment of the Hon'ble Delhi High Court has been followed in several judgments not only by the Hon'ble Delhi High Court but also by other Hon'ble High Court like, Pr. CIT vs. Somaya Con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....earch, statement recorded u/s. 132(4) by themselves does not constitute incriminating material and assumption of jurisdiction by the Assessing Officer u/s.153A solely based on statement is unsustainable when there is no incriminating material found during the course of search. Again in the case of PCIT vs. DharampalPremchand Ltd., in ITA No.512 to 514/206, the Hon'ble Delhi High Court held that ratio laid down in the case of Kabul Chawla, MeetaGutgutia, still holds ground and the Revenue's contention that the matter should be referred to a larger bench was turned down. Apart from these judgments, there are catena of other judgments of other High Courts laying down similar ratio and proposition. The main underlying principle permeating in all the judicial precedents is that, in the case of the unabated assessment which had attained finality on the date of search, which are reckoned as unabated assessments, no addition over and above the originally assessed income can be made sans any incriminating material found or unearthed during the course of search. The principle reiterated time and again is that something should be found as a result of search which is incriminating....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on any statement recorded [infra] for each assessment year under consideration before us. Since we have found out that the statements recorded of the entry providers cannot be the basis of additions (which we will again deal later (infra) while examining the merits of the addition), we find that no incriminating materials/statements were available before the AO to make any additions for the abated assessment years 2008-09 to 2011-12. We therefore allow Ground No. 1 of assessee's appeal in AYs 2008-09 to 2011-12. However we shall deal with the merits of the additions in the subsequent paragraphs. 15. We now deal with the cross appeals for AY 2008-09 being ITA (SS) Nos. 25/Kol/2016 & 37/Kol/2016. Ground Nos. 2 to 9 of the assessee's appeal and Ground No. 2 of the Revenue's appeal is against the validity of the addition of share application money of Rs. 90,00,000/- (reduced to Rs. 70,00,000/- after verification by the AO) u/s 68 of the Act and consequent alleged commission paid in relation thereto amounting to Rs. 45,000/-. The Ld. AR submitted that in the assessment order the AO did not point out any specific incriminating material which was found or unearthed in the course of sea....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... informed that the alleged entry operators, whose statements formed basis for the allegation, had already furnished their retractions before the Investigating Officer and copies of such retractions were furnished before the AO. In the light of these material events it was contended by the Ld. AR that it was obligatory on the AO's part before drawing any adverse inference against the assessee to personally examine the alleged entry operators to determine the true & correct state of affairs. Thus, it was brought to our notice that the additions made were based only on the statements obtained by the Investigation Wing in the proceedings conducted against the alleged entry operators, which were later retracted and so the additions made by AO was without reference to any incriminating material or evidence which was found from the assessee's possession during the course of search conducted on 18.02.2013. 16. When confronted with these facts the Ld. CIT DR argued that the additions were justifiably made by the AO because the statements of the entry operators were recorded in the proceedings conducted by the authorized officer of the Investigation Wing. In the statements recorded on oat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unity to the Assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the Assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the Appellant themselves to explain as to why their exfactory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the Appellant wanted to cross-examine those dealers and what extraction the Appellant wanted from them. 6. As mentioned above, the Appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of lev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce them in response to the show- cause notice. V) The findings that the investing companies which subscribed to the shares were borne on the file of the ROC and that the monies have come through a/c payee cheques is at best, neutral. Mere payment by cheques is not sacrosanct as would not, make a non-genuine transaction as genuine. VI) Bonafide and genuineness of the transactions is the main issue and in this regard, the assessee company has failed miserably. VII) Scrutiny has revealed the camouflage adopted by the assessee and exposed the true nature of the transactions. VIII) Onus is on the assessee to prove the identity of share applicants, their creditworthiness and genuineness of the transactions appearing in its books of sale which is not proved in this case. In fact, genuineness of the transactions has not been established in spite of repeated opportunities. IX) There is enough material on record to doubt the veracity of the transactions." Hence, according to AO, it can be held that in this case, the provisions sec. 68 of the Act are applicable. 20. From a perusal of the aforesaid summary it is noted that the addition in ques....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... materials/statements to the assessee and the assessee should be provided an opportunity to rebut/cross examine the provider/maker of the adverse material. The assessee cannot be kept in the dark and the adverse statements or materials cannot be kept away from his eyes, and if the AO was intending to use it against the assessee to draw adverse inference/finding, then the assessee should be provided the adverse material/statements in order to rebut/cross examine the provider/maker of the adverse material, which is a natural right of the assessee and we find that it has not been done in this case, resulting in violation of natural justice. We are therefore of the considered view that the general statements recorded from the alleged entry operators by themselves with the legal infirmities pointed out, supra, did not constitute incriminating material for the purposes of Section 153A of the Act. In this regard our findings stand fortified by the decision of the Hon'ble Delhi High Court in the case of Pr. CIT vs. Kurule Paper Mills P. Ltd. (supra) [since upheld by the Hon'ble Supreme Court] wherein it was held as follows: "1. The Revenue has filed the appeal against an order dat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the CIT (Appeals) independently coming to the conclusion that the Assessing Officer was not justified in making the addition. It was noted that Shri Gupta retracted his statements within a short time by filing an affidavit. Subsequently, his further statement was recorded in which he also reiterated the stand taken in affidavit. The Tribunal also referred to the decision in case of the Dy. CIT v. Link Engineers (P.) Ltd. [IT Appeal No. 968 & 2248 (Delhi) of 2011] in whose case also a similar issue of genuineness of payment to Shri S.K. Gupta had come up for consideration. The Tribunal noted that in such a case also the Tribunal had held in favour of the assessee. 3. Having heard learned counsel for the parties and having perused documents on record, we notice that the entire issue is based on the appreciation of materials on record. CIT (Appeals) and the Tribunal concurrently held that there was sufficient evidence justifying the payment to Shri S.K.Gupta, a Consultant and that the Assessing Officer other than relying upon the retracted statements of Shri Gupta recorded in search, had no independent material to make the additions. No question of law arises." 22. Comi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was not made and no incriminating document or evidence was found in the course of search on 18.02.2013 to justify the disallowance u/s 40(a)(ia) of the Act. The Ld. CIT, DR could not controvert these factual aspects of the matter. After considering the rival submissions, we note that the issue involved stands in favour of the assessee in view of the factual findings given by the AO in his order u/s 251 of the Act. We also find merit in the primary contention of the assessee that such disallowance was legally untenable as the AO was unable to correlate the same with any incriminating document or evidence found in the course of search. We therefore hold that the impugned addition was both legally as well as factually unsustainable. 24. The third addition which is disputed in the appeals filed both by assessee and Revenue relates to addition of Rs. 63,81,702/- made by the AO on account of undisclosed interest on deposits. At the onset it was brought to our attention that in the impugned order the Ld. CIT(A) did not adjudicate the said issue at his end but restored the issue back to the AO for verification of the ITS details with the books of accounts and passing the order afresh. A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the Ld. CIT(A) was also passed on identical lines on which the addition was confirmed in the appellate order for AY 2008-09. As there is no change in material facts in the AY 2009-10, following our conclusions drawn in A.Y. 2008-09, we hold that since the AO did not establish any live nexus or link between these additions with any incriminating material found or unearthed in the course of search; the impugned additions of Rs. 1,50,00,000/- & Rs. 75,000/- held to be legally unsustainable. Ground No. 1 of the assessee's appeal therefore stands allowed. 26. In Ground Nos. 9 to 12 of the assessee's appeal and Ground Nos. 1 & 2 of the Revenue's appeal; the issues involved relate to (a) disallowance of Rs. 26,52,48,663/- u/s 40(a)(ia), (b) addition of Rs. 43,04,00,000/- on account of evasion of railway freight and (c) addition of Rs. 18,17,25,000/- on account of difference in stock exported from Paradip Port. At the onset it was brought to our attention that in the impugned order the Ld. CIT(A) did not adjudicate the said issues at his end but restored these issues back to the AO for verification and passing the order afresh. At the time of hearing of the appeal, the Ld. AR brought....
X X X X Extracts X X X X
X X X X Extracts X X X X
....w of the factual findings given by the AO in his order u/s 251 of the Act. We also find merit in the primary contention of the assessee that these additions were legally untenable as the AO was unable to correlate them with any incriminating document or evidence found in the course of search. For the reasons set out in the foregoing, Ground Nos. 2 to 4 of the assessee's appeal stands allowed and Ground No. 2 of the appeal of the Revenue stands dismissed. 28. Ground No. 1 of the Revenue's appeal is against the relief allowed by the Ld. CIT(A) in deleting the disallowance of loss of Rs. 6,26,000/- on sale of fixed assets. We note from the impugned order of the Ld. CIT(A) that in arriving at the returned income the assessee had suomoto added back the loss on sale of fixed assets which was added back again by the AO while passing the order u/s 153A. Taking note of the double disallowance, the Ld. CIT(A) directed the AO to delete the same. At the time of hearing the Ld. CIT, DR could not controvert this factual finding of the Ld. CIT(A) and in that view of the matter we find no reason to interfere with the order of the Ld. CIT(A). This ground therefore stands dismissed. 29. Now we....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Now coming to the cross appeals for AY 2012-13 in ITA (SS) Nos. 29/Kol/2016&41/Kol/2016; we note that the main grievance in Ground Nos. 1 to 7 of the assessee's appeal isthe addition of Rs. 64,45,11,500/- made by the AO u/s 68 of the Act. Briefly stated facts of the case are that during the FY 2011-12, the appellant had disclosed receipt of share application monies of Rs. 223,88,21,500/- from four bodies corporate which inter alia included sum of Rs. 64,45,11,500/- received from M/s. Mundat Securities & Services Pvt. Ltd. In the course of assessment proceedings the AO had required the assessee to establish identity, creditworthiness of the share applicants and genuineness of these transactions. In the impugned order the AO noted that the share application monies to the extent of Rs. 159,43,10,000/- were received from three companies which were group entities of the assessee. Accordingly the AO accepted the genuineness of the transactions with these 3 group entities. It is only in respect of the sum of Rs. 64,45,11,500/- received from M/s. Mundat Securities & Services Pvt. Ltd that the AO disbelieved the genuineness of the transaction principally because in his opinion payer of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nuineness of the transaction involving payment of share application monies to the appellant then it was not open for the same AO to allege and conclude that the receiver of the share application monies was the actual owner of the monies invested by M/s Mundat Securities & Services Pvt. Ltd. The Ld. AR further submitted that since it was evident from the records that M/s. Mundat Securities & Services Pvt. Ltd belonged to promoter group and when the AO had accepted the genuineness of the assessee's transactions with remaining three group entities then there was no reason for the AO to adopt a contrary view and make the addition u/s 68 of the Act on different footing. He therefore urged that the impugned addition should be deleted. The Ld. CIT, DR on the other hand submitted that at no stage the assessee had raised the plea that M/s. Mundat Securities & Services Pvt. Ltd belonged to same Group and was part of promoter group. He therefore submitted that either the AO's order be confirmed or in the alternative the matter be restored to the file of AO for verification of facts. 33. After considering the facts on record and the documents placed before us, we find that admittedly the as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ompany or jamakharchi company engaged in providing accommodation entries. On the contrary we find that its genuine existence was accepted by the AO in the regular assessment orders passed for AYs 2007-08 to 2013-14. Having considered the conspectus of all facts we do not find merit in the orders of the lower authorities justifying the impugned addition. From the assessment order we find that the share subscription amounts received from three group entities during the same year was accepted by the AO on the premise that these corporate assessees were promoters of the assessee and these entities being identifiable. The AO not only accepted identity of the applicants but also creditworthiness and genuineness of the transactions. From the material on record we note that the share applicant, M/s. Mundat Securities & Services Pvt. Ltd was subjected to proceedings u/s 153C of the Act for the AY 2007-08 to 2013-14 on the ground the documents or books of accounts belonging to the company were found & seized in the course of search in the case of 'Rashmi Group'. We also note that the case records of M/s. Mundat Securities & Services Pvt. Ltd were transferred to the charge of DCIT, CC 2(2), K....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in favour of the assessee in view of the factual findings given by the AO in his order u/s 251 of the Act. For the reasons set out in the foregoing, Ground No. 9 of the assessee's appeal stands allowed and Ground No. 2 of the appeal of the Revenue stands dismissed. 36. Ground No. 1 of the Revenue's appeal is against the relief allowed by the Ld. CIT(A) in deleting the disallowance of loss of Rs. 95,000/- on sale of fixed assets. We note from the impugned order of the Ld. CIT(A) that in arriving at the returned income the assessee had suo moto added back the loss on sale of fixed assets which was added back again by the AO while passing the order u/s 153A. Taking note of the double disallowance, the Ld. CIT(A) directed the AO to delete the same. At the time of hearing the Ld. CIT, DR could not controvert this factual finding of the Ld. CIT(A) and in that view of the matter we find no reason to interfere with the order of the Ld. CIT(A). This ground therefore stands dismissed. 37. Now we take up the cross appeals for AY 2013-14 in ITA (SS) Nos. 30/Kol/2016 & 42/Kol/2016. Ground No.1 of the Revenue's appeal is against the directions of the Ld. CIT(A) setting aside the addition ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... claim of the appellant as to whether there was any addition made in the hands of M/s. Pragya Tie-Up Pvt. Ltd and if it was found to be correct then the AO was directed to delete the addition. Being aggrieved by this order of the Ld. CIT(A), the Revenue is now in appeal before us. 38. We have heard the rival submissions of the parties. At the outset the Ld. CIT, DR claimed that in terms of provisions of Section 251 of the Act the Ld. CIT(A) did not have power to set aside the assessment and direct the AO to re-decide the matter afresh. The Ld. CIT, DR therefore argued that the order of the Ld. CIT(A) was contrary to statutory provisions of Section 251 and therefore liable to be vacated. The Ld. CIT, DR further supported the order of the AO and urged to reverse the findings of the Ld. CIT(A) and restore the AO's order. Per contra, the Ld. AR supported the order of the Ld. CIT(A). 39. After giving thoughtful consideration to the facts of the case, we agree with the preliminary objection of the Ld. CIT, DR but at the same time we are of the opinion that there is no fetter on the powers of the Tribunal to direct re-examination of relevant facts by the AO. The Legislature has not ....