TaxTMI 
TaxTMI 
2021 (10) TMI 1100
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....ue of notice u/s 153A were not satisfied, erred and misread the relevant facts and circumstance as well as legal provisions under 153A/153C of the I.T. Act, 1961. 2. On facts and circumstances of the case and in law, the Ld. CIT(A), erred in relying upon the dismissal of revenue's SLP in case of Meeta Gutgutia to conclude that the binding jurisdictional Allahabad high court in Raj Kumar Arora stands overruled without appreciating that it was already held by a 3- Judge bench of SC itself in its decision in case of Khoday Distilleries Ltd in civil appeal no 2432 of 2019 affirming the earlier 3- Judge bench decision in case of Kunhayammed & Ors Vs State of kerala & Anr 245 ITR 360 (SC) that in limine dismissal of SLP at threshold itself neither constitutes declaration of law nor a binding precedent. Hence, the reliance by CIT(A) on dismissal of SLP in Meeta Gutgutia to override the binding jurisdictional high court decision in Raj Kumar Arora was an apparent and patent mistake. 3. On facts and circumstances of the case and in law, the Ld. CIT(A) erred in importing & applying the ratio of Delhi High court decision in case of Kabul Chawla, as well as other decision....
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....t can be 'incriminating', failed to take a note of clause (ii) of 271AAB(c) which defines undisclosed income as "any income based on entry in books of accounts wholly or partly false and would not have been found to be so, had the search not been conducted implying thereby that unsupported entries appearing in books of accounts can also fall within the sweep of being incriminating under the other provisions of the Act and hence the meaning of term 'incriminating' was required to be inferred harmoniously w.r.t such statutory provisions. 8. On facts and circumstances of the case and in law, the Ld. CIT(A) while evaluating as to what can be 'incriminating', again failed to take a note that even the penalty is attracted u/s 270A(10) when there is misreporting based on recorded entries in books of accounts, once again implying that entries recorded in books of accounts may still represent undisclosed income having bearing on the assessment of income or being 'incriminating1, if they are partly recorded or camaflouged or shown to be from a source which is not the real source and hence the meaning of term 'incriminating' was required to be infe....
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.... appreciating that the plea that there was no incriminating material for the relevant AY for issue of notice u/s 153A was raised for the first time before CIT(A) only and therefore CIT(A) ought to have given opportunity to the AO also by calling for the remand report in view of the ratio of decision in case of CIT Vs British India corporation Ltd 337 ITR 64 (Alld.). 12. On facts and circumstances of the case and in law, the Ld. CIT(A) also erred in not appreciating that the mere fact that the bogus credit entries are found to be recorded in books of accounts cannot by itself take such entries out of the sweep of being incriminating or having a bearing on the asstt of income. Accordingly, when it was already admitted by Ex director and CAs of shell Cos that they provided accommodation entry, the burden u/s 68 could not be said to have been discharged by assessee and this fact itself not only had a bearing on asstt of correct income even if recorded in books of accounts but also was incriminating in itself as the lender entities admittedly lacked economic substance also, more so when the CIT(A) having himself confirmed the addition on account of bogus LTCG credit entries in ....
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....by jurisdictional High Court. Learned CIT, D.R. further submitted that learned CIT(A) has annulled the assessment without appreciating that the term incriminating has not been defined u/s 153A of the Act and therefore, its meaning is required to be inferred harmoniously with other provisions of the Act. It was argued that unsupported entries appearing in the books of account can also fall under the term 'incriminating documents' and hence, the meaning of term 'incriminating' was required to be inferred harmoniously with respect to the such statutory provisions. Learned CIT, D.R. argued that the assessee had earned bogus Long Term Capital Gain from penny stock through shell companies and the Director of shell companies had admitted to be engaged in providing accommodation entries. It was further argued that the assessee had taken the issue of notice u/s 153A before the learned CIT(A) for the first time and the learned CIT(A) should have given opportunity to the Assessing Officer by calling a remand report from him in view of ratio of decision in the case of Hon'ble Allahabad High Court CIT vs. British Corporation Ltd. [2011] 337 ITR 64 (All). It was submitted that learned CIT(A)....
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....a bearing on the total income of the assessee and which has not been recorded in the books of account. As regards the arguments of learned CIT, D.R. regarding onus u/s 68 of the Act, Learned counsel for the assessee submitted that learned CIT(A) has allowed relief to the assessee only on a legal issue that the addition in the case of completed assessment can only be made on the basis of some incriminating material found during search and therefore, it was prayed that the order of learned CIT(A) be upheld. 5. We have heard the rival parties and have gone through the material placed on record. We find that a search took place on the Fortuna Group of cases on 21/04/2016 and six assessment years, preceding assessment year in which search took place, were reopened for various assessees and the present assessee is one of the group cases. The original return of income for assessment year 2014-15 were filed on 31/03/2015 & 26/03/2015 respectively, the evidence of which has been filed in the form of filing of acknowledgement of returns. The time limit for issue of notice u/s 143(2) on 30/09/2015 for these assessee, which is much before the date of search i.e. on 21/04/2016. It is also an....
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....preme Court and further Hon'ble Delhi High Court's decision in the case of Meeta Gutgutia has also been upheld by Hon'ble Supreme Court and moreover, these decisions have been rendered after the decision of Raj Kumar Arora by Hon'ble Allahabad High Court. Therefore, learned CIT(A) has rightly not followed the decision of Hon'ble Allahabad High Court in the case of Raj Kumar Arora. The learned CIT(A) has clearly held that there is a difference between a statement recorded under section 133A and that recorded u/s 132(4) of the Act. The statements which have been relied by Assessing Officer have been recorded u/s 133A of the Act and not u/s 132(4) of the Act. The statement recorded u/s 133A has been held to be not conclusive piece of evidence by itself by various Hon'ble High Courts as has been noted by learned CIT(A). In the present cases, the only material in the possession of the Department is the statements of Shri Santosh Choudhary and Shri Virender Kumar which have been recorded post search on the assessee and during the survey u/s 133A of the Act. The learned CIT(A) has passed an elaborate order discussing all the aspects relating to grounds of appeals and s....
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....ingly dismissed. 3. Pending application stands disposed of. 11.4 The operating part of the judgement of the Hon'ble Delhi High Court which has been affirmed by the Hon'ble Apex Court is reproduced below:- 55. On the legal aspect of invocation of Section 153A in relation to AYs 2000-01 to 2003-04, the central plank of the Revenue's submission is the decision of this Court in Dayawanti Gupta (supra). Before beginning to examine the said decision, it is necessary to revisit the legal landscape in light of the elaborate arguments advanced by the Revenue. 56. Section 153A of the Act is titled "Assessment in case of search or requisition". It is connected to Section 132 which deals with 'search and seizure'. Both these provisions, therefore, have to be read together. Section 153A is indeed an extremely potent power which enables the Revenue to reopen at least six years of assessments earlier to the year of search. It is not to be exercised lightly. It is only if during the course of search under Section 132 incriminating material justifying the re-opening of the assessments for six previous years is found that the invocation of Section ....
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....rial whatsoever was unearthed during the search. 32. Recently by its order dated 6th July 2015 in ITA No. 369 of 2015 (Pr. Commissioner of Income Tax v. Kurele Paper Mills P. Ltd.), this Court declined to frame a question of law in a case where, in the absence of any incriminating material being found during the search under Section 132 of the Act, the Revenue sought to justify initiation of proceedings under Section 153A of the Act and make an addition under Section 68 of the Act on bogus share capital gain. The order of the CIT(A), affirmed by the ITAT, deleting the addition, was not interfered with." 59. In Kabul Chawla (supra), the Court referred to the decision of the Rajasthan High Court in Jai Steel (India), Jodhpur v. ACIT (2013) 36 Taxman 523 (Raj). The said part of the decision in Kabul Chawla (supra) in paras 33 and 34 reads as under: "33. The decision of the Rajasthan High Court in Jai Steel (India), Jodhpur v. ACIT (supra) involved a case where certain books of accounts and other documents that had not been produced in the course of original assessment were found in the course of search. It was held where undisclosed income or undisclosed pro....
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....aterial found during the course of search or requisition of documents." 60. In Kabul Chawla (supra), the Court also took note of the decision of the Bombay High Court in Commissioner of Income Tax v. Continental Warehousing Corporation (Nhava Sheva) Ltd. [2015] 58 taxmann.com 78 (Bom) which accepted the plea that if no incriminating material was found during the course of search in respect of an issue, then no additions in respect of any issue can be made to the assessment under Section 153A and 153C of the Act. The legal position was thereafter summarized in Kabul Chawla (supra) as under: "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 ....
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....s carried out on 7th October, 2009 and an assessment came to be framed under Section 143(3) read with Section 153A(1)(b) in determining the total income of the Assessee of Rs. 14.5 crores against declared income of Rs. 3.44 crores. The ITAT deleted the additions on the ground that it was not based on any incriminating material found during the course of the search in respect of AYs under consideration i.e., AY 2006-07. The Gujarat High Court referred to the decision in Kabul Chawla (supra), of the Rajasthan High Court in Jai Steel (India), Jodhpur v. ACIT (supra) and one earlier decision of the Gujarat High Court itself. It explained in para 15 and 16 as under: "15. On a plain reading of section 153A of the Act, it is evident that the trigger point for exercise of powers thereunder is a search under section 132 or a requisition under section 132A of the Act. Once a search or requisition is made, a mandate is cast upon the Assessing Officer to issue notice under section 153A of the Act to the person, requiring him to furnish the return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the p....
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....age or if it is plain and clear, then the heading used in the section strengthens that meaning. From the heading of section 153. the intention of the Legislature is clear, viz., to provide for assessment in case of search and requisition. When the very purpose of the provision is to make assessment In case of search or requisition, it goes without saying that the assessment has to have relation to the search or requisition, in other words, the assessment should connected With something round during the search or requisition viz., incriminating material which reveals undisclosed income. Thus, while in view of the mandate of sub-section (1) of section 153A of the Act, in every case where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish returns of income for the six years preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made, any addition' or disallowance can be made only on the basis of material collected during the search or requisition, in case no incriminating material is found, as held by the Rajasthan High Court in the case of Jai Steel (India) v. Asst. C....
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....Principal Commissioner of Income Tax- 1 v. Devangi alias Rupa (supra), another Bench of the Gujarat High Court reiterated the above legal position following its earlier decision in Principal Commissioner of Income Tax v. Saumya Construction P. Ltd. (supra) and of this Court in Kabul Chawla (supra). As far as Karnataka High Court is concerned, it has in CIT v. IBC Knowledge Park P. Ltd. (supra) followed the decision of this Court in Kabul Chawla (supra) and held that there had to be incriminating material qua each of the AYs in which additions were sought to be made pursuant to search and seizure operation. The Calcutta High Court in CIT- 2 v. Salasar Stock Broking Ltd. (supra), too, followed the decision of this Court in Kabul Chawla (supra). In CIT v. Gurinder Singh Bawa (supra), the Bombay High Court held that: "6...once an assessment has attained finality for a particular year, i.e., it is not pending then the same cannot be subject to tax in proceedings under section 153A of the Act. This of course would not apply if incriminating materials are gathered in the course of search or during proceedings under section 153A of the Act which are contrary to and/or not disclose....
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....turing trading of Gutkha, Supari made in cash outside Books of accounts and these are actually unaccounted transactions made by our two firms namely M/s Asom Trading and M/s. Balaji Perfumes." 67. By contrast, there is no such statement in the present case which can be said to constitute an admission by the Assessee of a failure to record any transaction in the accounts of the Assessee for the AYs in question. On the contrary, the Assessee herein stated that, he is regularly maintaining the books of accounts. The disclosure made in the sum of Rs. 1.10 crores was only for the year of search and not for the earlier years. As already noticed, the books of accounts maintained by the Assessee in the present case have been accepted by the AO. In response to question No. 16 posed to Mr. Pawan Gadia, he stated that there was no possibility of manipulation of the accounts. In Dayawanti Gupta (supra), by contrast, there was a chart prepared confirming that there had been a year-wise non-recording of transactions. In Dayawanti Gupta (supra), on the basis of material recovered during search, the additions which were made for all the years whereas additions in the present case were mad....
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....hat the ITAT was justified in holding that the invocation of Section 153A by the Revenue for the AYs 2000-01 to 2003- 04 was without any legal basis as there was no incriminating material qua each of those AYs. Conclusion 72. To conclude: (i) Question (i) is answered in the negative i.e., in favour of the Assessee and against the Revenue. It is held that in the facts and circumstances, the Revenue was not justified in invoking Section 153A of the Act against the Assessee in relation to AYs 2000-01 to AYs 2003-04. (ii) Question (ii) is answered in the affirmative i.e., in favour of the Assessee and against the Revenue. It is held that with reference to AY 2004-05, the ITAT was correct in confirming the orders of the CIT(A) to the extent it deleted the additions made by the AO to the taxable income of the Assessee of franchise commission in the sum of Rs. 88 lakhs and rent payment for the sum of Rs. 13.79 lakhs. 73. The appeals are accordingly dismissed but in the circumstances, no orders as to costs. 11.5 The Hon'ble High Court in the above judgment has relied on the landmark judgment given by the Hon'bie Delhi High Court....
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....sting or brought on the record of the AO. 11.6 It is evident from the above judicial pronouncements that any Search assessment u/s 153 A can be made only on the basis of materials found during Search and Seizure operation. Various High Courts have concurred with the above findings given in case of Kabul Chawla as clearly mentioned in the above order of Hon'ble Delhi High Court in case of Meeta Gutgutia. 11.7 Hon'ble Delhi High Court in case of Meeta Gutgutia has further held that statement recorded u/s 133A of the Income Tax Act is not an incriminating material for the purpose of making search assessment u/s 153 A. The relevant extract of the above judgment is reproduced below:- Distinction between statements under Sections 132 (4) and 133 A 40. The main plank of Mr. Manchanda‟s submission was that the disclosure made by Mr. Pawan Gadia in his statement under Section 133A was sufficient to be construed as incriminating material qua all the aforementioned AYs, the assessment for which could be re-opened by invoking Section 153A of the Act. It is significant that while in the written submission dated 26th April, 2017, Mr. Manchanda te....
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....nd 18th December, 2014 have also emphasized that there should be no recording of statement during "search/seizure/other proceeding" under the Act under "undue pressure or coercion". 42. Therefore, in the present case, it would be wrong on the part of the Revenue to characterize the statement of Mr. Pawan Gadia as by itself an incriminating material that could be used for making additions in all the AYs in question apart from the year of search. 11.8 With dismissal of Revenue's SLP against the above judgment of the Hon'ble Delhi High Court on merit the above legal position has attained finality. In the case of DCIT Vs M/s Chandigarh Developers Pvt. Ltd. (ITAT Chandigarh)ITA No. 994/Chd/2017 wherein the addition of Rs. 50 lakhs was made u/s 68 on account of bogus Share Application Money received from M/s RSM Metals Ltd. and M/s Octomac Softwares Pvt. Ltd. in the Search assessment order u/s 133 A of the I.T. Act, 1961 on the basis of the Statement of Shri Bhavnesh Gupta recorded on 04.10.2012 during Survey u/s 133A wherein he admitted that he is a director in M/s RSM Metals Ltd. and M/s Octomac Softwares Pvt. Ltd. and these companies are suitcase companies wi....
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....sion in Chetan Das Lachman Das (supra). However, in neither case was the Court considering a situation where there was absolutely no material unearthed during the search, much less any incriminating material. 16. In Anil Kumar Bhatia (supra), pursuant to the search conducted in the Assessee's residence and business premises on 13th December 2005 under Section 132 of the Act, the AO issued notices under Section 153A calling upon the Assessee to file returns for the six assessment years prior to the year in which the search took place. Notices were also sent under Section 142(1) and 143(2) of the Act to the Assessee on 20th November, 2007 along with detailed questionnaire. In response thereto the Assessee on 29th November, 2007 submitted explanation. Thereafter the AO made additions to the income including a sum of Rs. 1.50 lakh given by the Assessee as loan to one Mrs. Mohini Sharma on 10th February, 2003. The information regarding giving of the loan was available from a document seized from the premises during search and found undisclosed in the return filed for AY 2003-2004. Concluding that the loan was given out of unaccounted income, the AO added it to the income fo....
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....n the assessment under Sections 147 and 148, have been removed by the non obstante clause with which sub section (1) of Section 153A opens." 19. The Court then explained that the concept of time limit for completion of assessment or reassessment under Section 153 had been done away with in a case covered by Section 153A and "with all the stops having been pulled out, the Assessing Officer under Section 153A has been entrusted with the duty of bringing to tax the total income of an Assessee whose case is covered by Section 153A, by even making reassessments without any fetters, if need be." The Court then dealt with the second proviso to Section 153A, which states that pending assessment or reassessment proceedings in relation to any AY falling out of the period of six AYs previous to the search shall abate. In such cases all pending assessments, the Court explained that once those proceedings abate, the decks were cleared, for the AO to pass assessment orders for each of those six years determining the total income of the Assessee. Such 'total income' would include "both the income declared in the returns, if any, furnished by the Assessee as well as the undisclose....