TaxTMI 
TaxTMI 
2022 (1) TMI 122
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....ts original return of income on 08.09.2010 declaring an income of Rs. 1,96,490/-. A search action u/s. 132 of the Act was conducted in the case of M.M. Aggarwal group of cases on 28th March, 2015 during which the case of the assessee was also covered. During the course of search carried out at different premises located in India in M.M. Aggarwal group of cases, documents and data storage devices, etc., belonging to the assessee were found and seized. In response to the notice u/s. 153A, the assessee filed its return of income on 15th June, 2016 declaring the total income of the assessee at Rs. 1,96,490/-. 4. During the course of assessment proceedings, the AO observed that the assessee company has received share capital and share premium of Rs. 1,65,00,000/- from the following five companies:- Sr. No. Assessment Year Name of Company Share capital Share premium Total 1 2010-2011 Competent Infoways (P) Ltd. 6,75,000 60,75,000 67,50,000 Passion IT Solutions (P) Ltd 1,00,000 9,00,000 10,00,000 Prince IT Solutions Pvt Ltd 1,25,000 11,25,000 12,50,000 Sterling Foils Ltd 2,50,000 22,50,000 25,00,000 \ Sidh....
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.... i.e., the source of funds received by the said investor companies to establish the identity and credit worthiness and genuineness of such investment with the assessee company. The assessee also filed copies of the bank books and ledger accounts of the group companies which made the funds available to the investor companies which in turn contributed such funds to subscribe to the share capital of the assessee company during the relevant period under consideration. 7.1. However, the AO was not satisfied by the arguments advanced by the assessee. He noted from the perusal of the details filed that the assessee received certain funds in the form of accommodation entries in a layered structure. The undisclosed funds were received in the form of share capital from the shell companies of the group which in turn remitted the same to operating companies. On verification of the source of such funds in the investor companies, it is apparent that the assessee has failed to substantiate the source of funds received by its investors. The assessee also did not produce the director or other office bearers of the investor companies. 8. The AO was of the opinion that it is illogical as to why....
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....tor companies and their identity were filed before the AO. It was further submitted that all the investors have responded to the notice issued u/s. 133(6) of the Act to the AO. Therefore, even on merit also no addition is called for. 11. However, the ld. CIT(A) was not fully satisfied with the arguments advanced by the assessee. So far as the validity of assessment u/s. 153A in absence of any incriminating material is concerned, the ld. CIT(A) dismissed the same by observing as under:- "5. Findings 5.1 I have considered the submission of Ld. A.R., assessment order and cases law cited in this regard. The AO invoked the process u/s. 153A after the search on appellant group on 28.03.2015 and on receipt of appraisal report from Dl(Investigation) with the allegation that the appellant company had received unexplained credit in its books u/s. 68 of the IT Act. All the grounds of appeal are dealt with together being of similar nature. 5.2 The basic facts are as follows: The basis of addition as taken by AO was statement recorded of Shri Sanjeev Agrawal during the course of search wherein he surrendered an amount of Rs. 88.52 crore out of which a sum of Rs. 30....
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..... no addition towards share capital have been made. As such the appellant contended that same Assessing Officer while passing the order at the same time in respect of the same issue has formed two different views. b) The share certificates found in respect of companies mentioned at serial no 3 to 5 is related to investment made by group concerns of JPM group and does not pertain to outsiders. 5.3 These merit examination of the case under 153A of the IT Act 1961. The availability of such documents raises valid doubts on the genuineness of the transactions involved herein. The issue of existence of incriminating material has to be considered in totality. The assessee cannot hide behind seizure or non seizure of documents. The same has to be construed with the trade practices and the expected action on part of independent entity in normal circumstances. Any such entity will surely expect due returns or capital appreciation in due course. The investor is surprisingly bereft of interest in the matter. The AO and this appellate forum too have to construe the incriminating material in a harmonious fashion. Hon'ble Delhi High Court has also reiterated in many rulings ....
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....cles of Association of the investors companies clearly depicting their corporate identity number. vii) Copies of share certificate issued by the assessee company. viii) A chart showing details of director of the investor companies. ix) A chart showing details of shareholders of the investor companies. xi) Copies of the acknowledgement of the income tax return filed for AY 2010-11 by the investor companies along with their audited financials for the year ended 31st March 2010. 5.6. The notice u/s. 133(6) of the act was complied with and the requisite information and documents were furnished to the AO required information and documents were available according to text of order itself. The assessee has furnished the detail of financials of the investing entities. After considering the identities and financials and credit worthiness of the 'investor companies and genuineness of transaction and source and availability of fund by investor, I am of the considered view that the A.O has merely accepted the appraisal report of the Investigation Wing without meeting the touchstone tests of section 68 like- credit worthiness, identities and genu....
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....ing again discussed herein. 32. In Smt. Dayawanti Gupta v" CIT (supra) the Assessees were dealing in the business of pan masala, gutkha, etc. Firstly, the Assessees therein were, by their own admission not maintaining regular books of accounts. Secondly, they also admitted that the papers recovered during the search contained "details of various transactions include purchase/sales/manufacturing trading of Gutkha, Supari made in cash outside books of accounts" and they were "actually unaccounted transactions made 'by two of the firms of the Assessee. Thirdly, the court found as a matter of fact that the Assessee were "habitually concealing income ' and that they were "indulging in clandestine operations" and that such persons "can hardly be expected to maintain meticulous books or record for long. "As pointed out by this court in Principal Commissioner of Income Tax Central-2 New Delhi v. Meeta Gutgutia (supra) the decision in Smt. Dayavanti Gupta v. CIT(supra), therefore turned on its own facts and did not dilute the law explained in Commissioner of Income Tax (Central-III) v. Kabul chawla(supra). 33. At this stage, it requires to be noticed that the decis....
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....(supra) would be squarely applicable. Therefore, we hold that the statement of Shri Tarun Goyal cannot be used against the assessee because: (i) His statement was recorded behind the back of the assessee and the assessee was not allowed any opportunity to cross-examine him. (ii) There is no corroborative evidence in support of the statement of Shri Tarun Goyal. On the other hand, the material found during the course of search and other evidences placed on record by the assessee are contrary to the allegation made by Shri Tarun Goyal in his statement. ---- Conclusion --- 44. Accordingly the question framed by the Court in ITA Nos. 11, 12 and 21 of 2017 by the order dated 21st March, 2017 is answered in the negative i.e. in favour of the Assessee and against the Revenue by holding that the additions made under Section 68 of the Act on account of the statements made by the Assessee's Directors in the course of search under Section 132 of the Act were rightly deleted by the ITAT." 5.9. Respectfully following the above judgment, which is on identical factual matrix, it can be reasonably inferred that material found during the search in re....
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....s filed the Cross Objection by raising the following grounds:- "1. That the learned Commissioner of Income Tax (Appeals)-26, New Delhi has erred both in law and on facts in upholding the initiation of proceedings u/s. 153A of the Act and, framing of assessment u/s. 153A/143(3) of the Act since no incriminating material was found as a result of search conducted on the appellant and therefore, both the notice issued and, assessment framed were without jurisdiction and, deserved to be quashed as such. 1.1 That addition made of Rs. 1,65,00,000/- is without jurisdiction since it is not based on any material found as a result of search on the appellant, as have been also held by the judgments of Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla reported in 380 ITR 573 and Pr. CIT vs. Meeta Gutgutia reported in 395 ITR 526. 2. That since approval obtained u/s. 153D of the Act was a mechanical and, invalid approval having been granted without due application of mind to the facts of the assessee company, order of assessment made u/s. 153A/143(3) is invalid and not in accordance with law. It is therefore, prayed that it be held that notice i....
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....he instant case addition of Rs. 11,85,00,000/- was made on the basis of statements recorded u/s. 132(4) and post-search enquiry and no incriminating material was found/seized during the course of search, therefore, following the decisions cited (supra), we hold that no addition could have been made u/s. 153A since the assessment was not abated in the instant case. In view of the above, we hold that the ld. CIT(A) was not justified in upholding the action of the Assessing Officer in assuming jurisdiction u/s. 153A of the I.T. Act. Accordingly, the addition made by the Assessing Officer and upheld by the ld. CIT(A) in the 153A assessment proceedings being void ab-initio are deleted. 46. Since the assessee succeeds on this legal ground, arguments made by the ld. counsel for the assessee on merit are not adjudicated being academic in nature." 17. The ld. Counsel for the assessee while stressing that no incriminating material was found during the course of search, submitted that a 'panchnama' was drawn on 30th March, 2015 in respect of the premises, namely, 1010, Vijaya Building, Barakhamba Road, New Delhi. He submitted that there is no discussion in the assessment o....
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....laid down u/s. 68 of the IT Act by proving the identity and credit worthiness of the shareholders and genuineness of the transaction. He submitted that the AO had asked the details such as relevant extracts of the bank statements of the investors showing payments towards share application money, copies of allotment letters, copies of share application form duly filled in by the investors, details of directors of the investor companies, etc. as per para 5.5 of the CIT(A)'s order from the investor companies u/s. 133(6) of the IT Act which were duly complied with by furnishing the requisite information. The assessee has furnished the financials of the investing entities. Merely stating that the income declared by the investors is less than the investment made by them cannot be the criteria for making the addition u/s. 68 of the Act, especially when the investor companies have sufficient funds available with them. He submitted that since the ld. CIT(A) has passed a very detailed order deleting the addition made by the AO u/s. 68, therefore, the same should be upheld. 19. The ld. DR, on the other hand, heavily relied on the order of the AO. He submitted that the statement recorde....
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....de behind seizure or non-seizure of documents. The same has to be construed with the trade practices and the respective action on the part of the independent entity in normal circumstances. Further, certain share certificates were found in the case of JA Builders Ltd. and JPM Automobiles Ltd. Therefore, it cannot be said that no incriminating material was found during the course of search. 21. The ld. Counsel for the assessee, in his rejoinder, submitted that the share certificates in respect of JA Builders and JPM Automobiles Ltd. referred in the order of the CIT(A) are not relevant qua the addition made and, therefore, in absence of any specific incriminating material qua the addition no addition is tenable u/s. 153A of the Act. He submitted that the Tribunal has already decided the issue considering all the arguments advanced by the ld. DR. Therefore, in absence of any incriminating material found during the course of search, no addition can be made. 22. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. ....
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..... 143(1) of the Act. The period for issue of notice u/s. 143(2) expired on 30th September, 2011, i.e., the notice u/s. 143(2) could not have been served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished. Therefore, in absence of issue of any notice u/s. 143(2) and since no other proceedings are pending, therefore, it had attained finality much prior to the date of search on 28th March, 2015. Under these circumstances, the findings of the ld. CIT(A) that the assessment proceedings were pending at the time of search and was abated is factually incorrect. We find, the ld. CIT(A) at para 5.2 (page 28) of his order has observed as under:- "......Though the appellant has stated to have recorded all the transactions under appeal in its books of accounts and offered all the necessary and relevant proof thereof as such. Since the assessment proceedings were pending at the time of search and was abated, the legal ground objected as such by the appellant was not valid as such the same is bound to be rejected. These being primary and basic the legal ground going to the root of the assessment, it is necessary to examine t....
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....und during the course of search, reasons for which have already been reproduced in the preceding paragraphs. 45. It is the submission of the ld. counsel for the assessee that the original return was filed on 30th September, 2009 declaring income at Rs. 10,21,50,894/- which was assessed u/s. 143(3) at total income of Rs. 10,27,91,857/-. This assessment was rectified u/s. 154 of the Act determining the income at Rs. 7,50,21,860/-. Thus, assessment was completed and the assessment was not pending on the date of search. Since the addition made by the Assessing Officer is not based on any incriminating material found during the course of search and addition has been made on the basis of post-search enquiry and on the basis of statements recorded u/s. 132(4) of the I.T. Act, therefore, the same cannot constitute incriminating material so as to enable the Assessing Officer to assume jurisdiction u/s. 153A of the I.T. Act. 45.1 So far as the finding given by the ld. CIT(A) that share certificates and counterfoils thereof were found which, according to him, is incriminating in nature, it is the submission of the ld. Counsel that in a corporate office the company is require....
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.... Act determining the income at Rs. 7,50,21,860/-. Thus, the assessment was completed and was not pending on the date of search. A perusal of the assessment order shows that the addition is not based on any incriminating material, but, based on post-search enquiries or statements recorded u/s. 132(4) of the Act. The share certificates and counterfoils thereof found during the search, in our opinion, cannot be construed as incriminating in nature. Even the document appearing at page 59 of Annexure A-10 found and seized from the corporate office of M/s. Hindustan Aqua Limited at 1010, Vijaya Building, Barakhamba Road, New Delhi, showing the details of advance for purchase of shares or refund of share application money in our opinion cannot be construed as incriminating since the entries are duly recorded in the books of account. The AO nowhere has disputed or challenged the above submission of the assessee before him as appears at page 43 of the assessment order. Therefore, once the entries are recorded in the books of account, the same in our opinion cannot be construed as incriminating in nature. So far as statements u/s. 132(4) is concerned, the same are also not incriminating in n....
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.... account and offered all the necessary and relevant proof thereof as such. Since the assessment proceedings were pending at the time of search and was abated, the legal ground objected as such by the appellant was not valid as such the same is bound to be rejected." 37. We further find from the order of the ld. CIT(A) that there was no surrender of income for the impugned assessment year and the surrender was only for the assessment year 2008-09 which too was retracted within two months. He has also observed that the statement was non descriptive and vague and subject to cross checking of fact to be explained after access to books of accounts. We, therefore, find merit in the submissions of the ld. counsel for the assessee that the addition made by the Assessing Officer u/s. 68 of the I.T. Act is not based on any incriminating material and is based on statements recorded during search u/s. 132(4) and post-search enquiries. 38. The Hon'ble Delhi High Court in the case of CIT vs. Best Infrastructure (India) (P) Ltd. reported in 397 ITR 82 has held that statements recorded u/s. 132(4) of the I.T. Act do not by themselves constitute incriminating material. The rel....
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....nd that in the case of best infrastructure (India) private limited (supra), despite the admission of accommodation entry in statements under section 132(4) of the Act, the court held that the statement do not constitute as incriminating material. In the instant case, neither is there any statement of any accommodation entry operator claiming that any entry was not provided nor any director has admitted that assessee obtained accommodation entry. Thus, the case of the assessee is on better footing then the case of Best Infrastructure (I) P. Ltd. (supra). In such facts and circumstances, respectfully following the decision of the Hon'ble Delhi High Court in the case of best infrastructure (India) private limited (supra), we do not have any hesitation to hold that the statement under section 132(4) of Sh. Sampat Sharma cannot be treated as incriminating material found during the course of search. In the result, we hold that addition of share capital in the year under consideration has been made without relying on any incriminating material found during the course of search." 41. In the light of the above decisions, statements recorded u/s. 132(4) of the I.T. Act, 1961 can....
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....000/- was made on the basis of statements recorded u/s. 132(4) and post-search enquiry and no incriminating material was found/seized during the course of search, therefore, following the decisions cited (supra), we hold that no addition could have been made u/s. 153A since the assessment was not abated in the instant case. In view of the above, we hold that the ld. CIT(A) was not justified in upholding the action of the Assessing Officer in assuming jurisdiction u/s. 153A of the IT. Act. Accordingly, the addition made by the Assessing Officer and upheld by the ld. CIT(A) in the 153A assessment proceedings being void ab-initio are deleted. 46. Since the assessee succeeds on this legal ground, arguments made by the ld. counsel for the assessee on merit are not adjudicated being academic in nature." 48. We find, the Hon'ble Delhi High Court in the case of PCIT vs. SMC Power Generation Ltd., ITA 406/2019, order dated 23rd July, 2019, copy of which is placed at pages 429 to 432 of the paper book, has observed as under:- "3. The question sought to be raised by the Revenue is whether the ITAT was justified in quashing the assessment order framed under Secti....
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....evenue submitted that the observations of the ITAT in the impugned order that there was no incriminating material "in respect of the share capital" and therefore the addition was unjustified, was not warranted. According to her this was beyond the judgment of this Court in Kabul Chawla (supra). 9. The fact remains that the Revenue itself is not disputing that in respect of the share capital no incriminating documents were found in the search proceedings. The Court's attention has been drawn to the decision of the Supreme Court in CIT v. Singhad Technical Education Society (2017) 397 ITR 344 (SC) where in the context of Section 153C of the Act it was held that the incriminating material which was seized had to pertain to the AY in question. It is further held that documents seized had to establish a co- relation documents wise with the assessment years for which the addition was sought to be made. 10. The requirement that the incriminating material to have the co-relation to the particular addition sought to be made is a logic that will hold good not only for Section 153C of the Act but in relation to Section 153A of the Act as well. Consequently, this Court do....
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....d post search enquiry and no incriminating material was found/seized during the course of search. While doing so, the Tribunal has relied on the decisions of the Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla reported in 380 ITR 573 (Del), CIT vs. Meeta Gutgutia reported in 395 ITR 526, CIT vs. Harjeev Aggarwal reported in 290 CTR 263, CIT vs. Best Infrastructure (India) (P) Ltd. reported in 397 ITR 82 and various other decisions. The relevant observations of the Tribunal from para 35 onwards read as under:- "35. Before deciding the issue on merit, we would first like to decide the legal ground raised by the assessee challenging the validity of the assumption of jurisdiction u/s. 153A in absence of any incriminating material found during the course of search when the assessment was not pending as per ground of appeal no. 1 to 1.2. It is an admitted fact that the original return of income was filed on 12.09.2013 which was accepted u/s. 143(1) vide intimation dated 18.04.2014. The period for issue of notice u/s. 143(2) expires on 30.09.2014 i.e. the notice u/s. 143(2) could not have been served on the assessee after the expiry of six months from the end of ....
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.... Court reads as under:- "38. Fifthly, statements recorded under Section 132 (4) of the Act of the Act do not by themselves constitute incriminating material as has been explained by this Court in Commissioner of Income Tax v. Harjeev Aggarwal (supra). Lastly, as already pointed out hereinbefore, the facts in the present case are different from the facts in Smt. Dayawanti Gupta v. CIT (supra) where the admission by the Assessees themselves on critical aspects, of failure to maintain accounts and admission that the seized documents reflected transactions of unaccounted sales and purchases, is nonexistent in the present case. In the said case, there was a factual finding to the effect that the Assessees were habitual offenders, indulging in clandestine operations whereas there is nothing in the present case, whatsoever, to suggest that any statement made by Mr. Anu Aggarwal or Mr. Harjeet Singh contained any such admission. 39. For all the aforementioned reasons, the Court is of the view that the ITAT was fully justified in concluding that the assumption of jurisdiction under Section 153A of the Act qua the Assessees herein was not justified in law." 39. We ....
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.... 42. As mentioned earlier, the addition of Rs. 11,85,00,000/- was not made on the basis of any incriminating material but is based on statements recorded during the search u/s. 132(4) and post-search enquiries. It has been held in various decisions that completed assessments cannot be disturbed u/s. 153A in absence of any incriminating material. 43. The Hon'ble Delhi High Court in the case of Kabul Chawla reported in 380 ITR 573 has held that the completed assessment can be interfered with by the Assessing Officer while making the assessment u/s. 153A only on the basis of some incriminating material found on or 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 not known in the course of original assessment. Following the above decision, the Hon'ble Jurisdictional High Court in the case of CIT vs. Meeta Gutgutia reported in 395 ITR 526 has taken a similar view and has held that once the assessment has attained finality for a particular year i.e. it is not pending then the same cannot be subject to tax in proceedings u/s. 153A of the....
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....deleting the addition on legal ground is upheld, therefore, the grounds raised by the Revenue on merit become infructuous being merely academic in nature. The appeal filed by the Revenue is accordingly dismissed." 49.1 We find, the coordinate Bench of the Tribunal in the case of M/s. Metbrass Plassim India Ltd. vs. ACIT, ITA No. 7532/Del/2017, order dated 17th September, 2018 (one of the group concerns and one of the assessees here) for A.Y. 2013-14, has observed as under:- "36. We have considered the rival arguments made by both the sides in the light of the orders of the authorities below. We have also considered the case law that is brought to our notice. Ld. Assessing Officer made addition of Rs. 39 lacs in the hands of the assessee u/s. 68 of the Act basing on various enquiries conducted and statements recorded of various persons u/s. 132(4) and 131, stating that the assessee failed to substantiate to his satisfaction the identity and creditworthiness of the investor and the genuineness of the transaction with cogent evidence. According to the Assessing Officer, since the assessee could not produce the investor company and since its returned income is meager ....
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....essee after the expiry of six months from the end of the financial year in which the return is furnished. Therefore, in absence of issue of any notice u/s. 143(2) and since no other proceedings are pending, therefore, it had attained the finality much prior to the date of search on 28.03.2015. Under these circumstances, the finding of the ld. CIT(A) that the assessment proceedings were pending at the time of search and was abated is factually incorrect. 40. Para 5 page 11 of the impugned order reads that,- "The basis of addition as taken by the A.O. was statement recorded of Shri Sanjeev Agarwal during the course of search wherein he has surrendered an amount of Rs. 88.52 crore out of which a sum of Rs. 30.78 crores were referred to for the assessment year 2008-09 and rest of amount was non descriptive and vague and was surrendered subject to cross checking of the facts and to explain after access to the books of accounts. The said statement was retracted by said Shri Sanjeev Agarwal on 18.05.2015 within two months from the date of original statement. Though the appellant has stated to have recorded all the transactions under appeal in its books of account and off....
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....h, the statement recorded under Section 132(4) of the Act can form a basis for a block assessment only if such statement relates to any incriminating evidence of undisclosed income unearthed during search and cannot be the sole basis for making a block assessment." 43. The Co-ordinate Bench of the Tribunal in the case of Brahmaputra Finlease (P) Ltd. vide ITA No. 3332/Del/2017 order dated 29.12.2017, following the above decision of the Hon'ble Delhi High Court, has observed as under:- "4.19 We find that in the case of best infrastructure (India) private limited (supra), despite the admission of accommodation entry in statements under section 132(4) of the Act, the court held that the statement do not constitute as incriminating material. In the instant case, neither is there any statement of any accommodation entry operator claiming that any entry was not provided nor any director has admitted that assessee obtained accommodation entry. Thus, the case of the assessee is on better footing then the case of Best Infrastructure (I) P. Ltd. (supra). In such facts and circumstances, respectfully following the decision of the Hon'ble Delhi High Court in the case ....
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....ar year i.e. it is not pending then the same cannot be subject to tax in proceedings u/s. 153A of the Act. This, of course, would not apply if incriminating materials are gathered in the course of search or during the proceedings u/s. 153A which are contrary to and/or nor disclosed during the regular assessment proceedings. 48. Again in the case of Pr. CIT vs. Lata Jain reported in 384 ITR 543 the Hon'ble Delhi High Court has held that in absence of any incriminating material found as a result of search, assumption of jurisdiction u/s. 153A was not in accordance with law. The various other decisions relied on by the ld. counsel for the assessee also supports his case. 49. In the case of CIT vs. Sinhgad Technical Education Society reported in 397 ITR 344 Hon'ble Supreme Court upheld the decision of Hon'ble Bombay High Court wherein the Hon'ble High Court had upheld the decision of the Tribunal holding that the incriminating material which was seized has to pertain to the assessment years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four assessment years. ....
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....parent that on the date of initiation of search on 10/2/2009 the assessment proceedings u/s. /143(3) of the income tax act was completed on 18/12/2007. Therefore on the date of search no assessment proceedings were pending for the impugned assessment year. Therefore if any addition is required to be made by the learned assessing officer should have been made on the basis of the seized material found during the course of search. We have perused the various additions/disallowances made by the learned assessing officer and found that there is no discretion of any seized material found during the course of search based on which these disallowances/additions have been made. The learned departmental representative also could not show us any seized material based on which the said additions have been made. Therefore, respectfully following the decision of the honourable Delhi High Court in CIT vs Kabul Chawla (supra) the above additions deserve to be deleted. Accordingly we direct the learned assessing officer to delete the disallowance of payment in contravention is of provisions of section 40A (3) of the income tax act, disallowance of expenses on account of non-deduction and short dedu....