AI Drafter 
TaxTMI 
TaxTMI 
2021 (12) TMI 551
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....orming the above Company at Hongkong, which is a tax heaven, with the purpose of diversion of its profit to its 100% subsidiary at Hongkong. 2. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 1,21,84,826/- without appreciating the detailed evidences and reasoning discussed in the assessment order for holding that the effective management and control of M/s Alchem International (HK) Ltd., which is a 100% subsidiary of the assessee Company, was in India. 3. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in holding that signing of documents by the official of the assessee company on behalf of M/s Alchem international (HK) Ltd. for the purpose of export does not lead to the conclusion that control and management of M/s Alchem International (HK) Ltd is situated in India without appreciating the fact that no independent entity would allow signing on important papers (required for exports) by an official of another company unless both the companies are managed together. 4. That on the facts and in the circumstances of the cas....
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....d from the residence of Sh. R.P. Yadav, which establishes that he used to keep documents of assessee at his residence, and from the bare perusal of the seized documents it is evident that these pertained to the undisclosed cash purchases made by the assessee company through Sh. R.P. Yadav. 9. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 3,03,704/- made on account of prior period expenses, without appreciating the fact that the assessee has added back prior period expenses of only Rs. 1,36,418/- out of Rs. 4,40,122/- by netting of the prior period expenses with prior period income of Rs. 3,03,704/- without any basis. 10. That the order of the CIT(A) is perverse, erroneous and is not tenable on facts and in law. 11. That the grounds of appeal are without prejudice to each other. 12. That the appellant craves leave to add, amend, alter or forgo any ground(s) of appeal either before or at the time of hearing of the appeal. Cross Objection : "1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts....
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.... was in India. Ld. CIT(DR) relied upon the assessment order and also raised the contentions contained in the departmental grounds of appeal. On the other hand, Ld. AR on behalf of the assessee relied upon the submissions made before CIT(A) and reproduced in the assessment order and supported with the documents contained in the paper book and also relied upon the findings recorded in the order of the learned first appellate authority. 4. We have considered the entire material before us. Findings recorded by Ld. CIT (A) relating to these grounds of appeal are as under: "14.13 -As discussed earlier, first of all it was not established that the control and management of AIHK is done wholly from India. AIHK is a separate legal entity, duly registered in Hongkong with an address at Hongkong. It is carrying out its activity of procurement of business and the goods are purchased through appellant and sent through appellant as per the business practice. Through exports to AIHK, there is a substantial growth in the business of the appellant. Bills are raised by the appellant to AIHK, though consignment sent to third party. Payments are received from AIHK to the appellant....
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....e are enough evidences which show that the Hongkong entity was doing the business and was subject to Hongkong laws. Transfer Pricing Officer has found the transactions between the assessee company and Hongkong entity at arms-length which also establish that the transactions between the assessee company and Hongkong entity were genuine business transactions. There is no evidence brought on record to prove that the control and management of Hongkong entity was being done wholly from India. In any case, even if control and management of Hongkong entity had been found situated wholly in India, though this is not the proved case of Revenue, yet the profit of Hongkong entity could not be clubbed with the profits of the assessee company. There is no evidence brought on record by the revenue to prove that the transactions undertaken by Hongkong entity were sham transactions and were transactions of the assessee company. Hongkong entity was registered in Hongkong on 20.9.2002 and was working since then, independently. Revenue itself has accepted that the assessee company has made exports to Hongkong entity. Transactions between the assessee company and its Hongkong Subsidiary have taken pla....
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....fore us, we do not find any merit in the appeal of the Revenue in this regard. The findings recorded by first appellate authority are as under: "13.8 The appellant vehemently argued that the documents are not related to it, but to Mr. RP Yadav and it is to be explained by him. Since Mr. Yadav has not categorically stated that this documents belongs to the unaccounted/cash purchases of the appellant and also deposed before AO and provided affidavit in this regard. Therefore, appellant stated that since the documents are not found and seized from the premises of company and Sh. Yadav has not stated that since the document gives a detail of unaccounted purchase of Gloriosia seed, procured on behalf of the appellant therefore no additions can be made in its hand. It is true that Mr. Yadav who is working on behalf of company and actively involved for the purchase of Gloriosia seeds for company from Southern India and also stated to be monitoring and controlling the procurement from small producers, however any such payment made to them out of the books has been denied. It is stated that the purchases of the company was made through its agent namely M/s Jas Impex and payment is ....
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....of raw material were utilized by the appellant in the absence of any excess production/stock found. 13.11 It is stated that all the payments have been made through cheques and no proof of cash given by appellant to Mr. Yadav has been found. Thus the documents seized from the premises of Mr. RP Yadav has no bearing with the purchases/cash payments of the appellant and should not be used against it as nothing corroborative or incriminating document has been found nor any independent evidence has been brought on record. Further, there is no mandate given by the appellant to Sh. RP Yadav to distribute cash to such farmers and nothing has been stated by Mr. Yadav in this regard. Sh. RP Yadav though working as consultant of the company and rendering services to other parties including; the assessee company has a limited role to play and no cash has been found to be given by him. 13.12 It is also pointed out by the appellant that in the case of RP Yadav, where the addition has been made as commission income, the CIT(A) confirmed the addition stating that since the seized documents are received from the premises of RP Yadav, therefore it is to be treated as belonging to h....
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....te that the notings in the documents seized pertains to the purchase made by appellant in cash. Therefore, the additions were made on the conjecture and surmises that the seized documents represents the cash payments for purchase made by appellant out of books without any basis. No adverse inference can be made on the basis of seized documents as per the ratio laid down in various cases, some of them are mentioned above. 13.15 -To sum up, it is seen from the submissions by the appellant and looking to the facts and circumstances of this case and law that the addition has been made on the basis of standalone document found and seized from Mr. RP Yadav, who is consultant/employee of the company and the sum and substance of the document is not proved by any corroborative evidence as books of the accounts of the appellant has been found proper, where purchases are recorded. The AO has not rejected the books of the appellant. During assessment though all the amounts mentioned in such document has been considered but while making addition, only the amount excess from the purchases recorded in the books of appellant has been taken for addition. This indicates that AO has treated ....
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....earing on these documents and thus merely on some papers the name of the assessee is appearing does not mean that these documents or contents of these documents relate to the assessee. Statement of Vice President of the assessee company reproduced in the assessment order also mentions that 90% of the total purchases of the assessee company are through Jas Impex. No enquiry has been made from M/s Jas Impex and nothing has been shown to that effect to us. Statement of the son of Mr. R P Yadav has also been reproduced by the AO in the assessment order and there is nothing that he was made available for assessee's cross examination. To rely on the statement of the son of Mr. Yadav more than on the statement of Mr. Yadav him self is quite strange. In our considered opinion, the addition made on the basis of the notings on the loose documents of Mr. R P Yadav in the hands of the assessee company cannot be sustained and was rightly deleted by the learned first appellate authority. There is no reason for us to differ with the findings recorded by CIT(A) and hence we dismiss these grounds of the Revenue. 9. Ground no. 9 of the revenue's appeal is regarding the relief of Rs. 3,03,704/- al....
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....ed 20.8.2019 and placed a copy of that on record and submitted that the facts being identical, the addition could not be made without observing the jurisdictional conditions of section 153C as the documents were seized in some other search namely search of Shri R P Yadav and not of the assessee. On the other hand, Ld. CIT (DR) opposed this argument and argued that there is no substance in the legal argument. 19. We have heard the counter arguments and have taken ourselves to the panchnama held on record and also gone through the decision cited. It is noticed that though search on the assessee and search on Shri R P Yadav took place simultaneously but name of either of them is not mentioned in the respective panchnamas. Thus, documents found and seized from the premises of Shri Yadav could not be used while making assessment of the assessee company without observing and following the due process of law as contained in section 153C. Since these documents cannot be seized in the course of search of the assessee but were seized form third person namely Shri R P Yadav, these documents could be considered in the assessment of the assessee company only in terms of section 153C. We are ....
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....ulty. The assessment under section 153C could have been made after completion of the assessment under section 153A of the Act. The Act has provided separate provisions for making assessment in case of material found in the course of the search from the premises of the assessee as well as the material found in the course of search at the premises of the third party. The Assessing Officer is required to follow the procedure laid down in the Act for making the assessment and he cannot devise his own procedure for shortcut methods. In our considered opinion, when the case of the assessee is covered under the provision of section 153 of the Act and if reliance is placed on the incriminating material found during the course of search of third-party, then provision of section 153C of the Act would be applicable and have to be adhered to. Thus, in the instant case, the Assessing Officer was required to first complete the proceedings under section 153A in hand, which were initiated by way of notice dated 30/06/2014 and thereafter, he was at liberty to take action under section 153C of the Act for bringing the material found from the premise of Sh. Ashok Chaudhri to tax in the hands of the a....
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....tice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person [for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and] for the relevant assessment year or years referred to in subsection (1) of section 153A]:]. " 15. Thus, when during the course of search of an assessee any books, document or money, bullion, jewellery etc. is found which relates to a person other than the person searched, then the Assessing Officer of the person searched shall hand over such books of account, documents, or valuables to the Assessing Officer of such other person and thereafter, the Assessing Officer of such other person can proceed against such other person. However, in the case under appeal before us, admittedly, Section 153C is not invoked in the case of the assessee and the assessment is framed under Section 153A. We, respectfully following the above decisio....