M/s. Mount Everest Trading & Investment Ltd., New Delhi V. DCIT, New Delhi

ITA 4134/DEL/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5258 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2008-2009
• Appeal Filed On: 26-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEEPIKA MITTAL
• Assessee Lawyers: V K JAIN CA SHRI VIKAS SINGH
• Keywords: Search and seizure; Principle of natural justice; Earning of tax free income; Rule 8D
• Section: 153A; 14A; 132; 2; 15

Judgement Text

ITA NO. 4134/D/2016 ASSESSMENT YEAR 2008-09 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO.4134/DEL/2016 ASSESSMENT YEAR: 2008- 09 MOUNT EVEREST TRADING & INVESTMENT LTD. (NOW MERGED WITH MONNET ISPAT & ENERGY LTD.,), 11, MASJID MOTH, GREATER KAILASH-II, NEW DELHI. (PAN: AAACM0501D) VS DY.COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-8, NEW DELHI. APPELLANT RESPONDENT ASSESSEE BY : SHRI V.K. JAIN, CA SHRI VIKAS SINGH, CA DEPARTMENT BY: MS DEEPIKA MITTAL, CIT DR DATE OF HEARING: 27.02.2019 DATE OF PRONOUNCEMENT: O R D E R PER SUDHANSHU SRIVASTAVA, JM : THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGA INST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) 2 {CIT (A)}, NEW DELHI VIDE ORDER DATED 31.3.2016 FOR ASSE SSMENT YEAR 2008-09 AND THE SOLE ISSUE UNDER CHALLENGE BEFORE US IS THE CONFIRMATION OF DISALLOWANCE OF RS. 18,78,416/- MAD E U/S 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED 'THE A CT') READ WITH ITA NO. 4134/D/2016 ASSESSMENT YEAR 2008-09 2 RULE 8D OF THE INCOME TAX RULES, 1962( HEREINAFTER CALLED THE RULES ). 2.0 BRIEF FACTS OF THE CASE ARE THAT A SEARCH AND SEIZURE ACTION U/S 132 OF THE ACT WAS CONDUCTED IN MONNET G ROUP OF CASES ON 19.11.2010. IN THIS SEARCH AND SEIZURE OP ERATION, CERTAIN DOCUMENTS BELONGING TO THE ASSESSEE COMPANY WERE ALSO FOUND AND SEIZED. SUBSEQUENTLY, A STATUTORY NOTICE U/S 153C OF THE ACT WAS ISSUED TO THE ASSESSEE FOR ASSESSMENT Y EARS 2005-06 TO 2010-11. THE ASSESSEE OBJECTED TO INVOCATION OF SECTION 153C WHICH WAS REJECTED BY THE ASSESSING OFFICER (AO). DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED B Y THE AO THAT THE ASSESSEE HAD CLAIMED DIVIDEND INCOME OF RS. 45, 72,740/- AS EXEMPT INCOME. THE ASSESSEE WAS ISSUED SHOW CAUSE NOTICE AND WAS REQUIRED TO EXPLAIN AS TO WHY A DISALLOWANCE U/ S 14A OF THE ACT R/W RULE 8D OF THE RULES NOT BE MADE IN RESPECT OF INTEREST INCOME. SUBSEQUENTLY, A TOTAL DISALLOWANCE WAS COM PUTED AT RS. 23,08,347/- AND AFTER GIVING DEDUCTION OF RS. 4,29, 931/-, WHICH HAD BEEN DISALLOWED BY THE ASSESSEE ITSELF, THE BAL ANCE AMOUNT OF RS. 18,78,416/- WAS ADDED BACK TO THE INCOME OF THE ASSESSEE. 2.1 AGGRIEVED, THE ASSESSEE APPROACHED THE LEARNED FIRST APPELLATE AUTHORITY AND CHALLENGED THE INVOCATION O F PROVISIONS OF ITA NO. 4134/D/2016 ASSESSMENT YEAR 2008-09 3 SECTION 153C OF THE ACT CONTENDING THAT NO UNDISCLO SED INCOME FOR THE YEAR UNDER CONSIDERATION WAS DETECTED ON TH E BASIS OF SEIZED MATERIAL FOUND DURING THE COURSE OF SEARCH A ND, FURTHER, THAT THE DISALLOWANCE U/S 14A DID NOT HAVE ANY NEXU S WITH THE SEIZED MATERIAL. HOWEVER, THE ASSESSEES CONTENTIO NS DID NOT FIND FAVOUR WITH THE LD. COMMISSIONER OF INCOME TAX (A) WHO OBSERVED THAT SINCE PAPERS AND DOCUMENTS RELATING T O THE ASSESSEE WERE FOUND DURING THE COURSE OF SEARCH IN THE MONNET GROUP OF CASES, THE ASSESSEES CASE WAS COVERED UND ER THE PROVISIONS OF SECTION 153C OF THE ACT. ON MERITS A LSO, THE LD. COMMISSIONER OF INCOME TAX (A) UPHELD THE DISALLOWA NCE. 2.2 NOW, THE ASSESSEE IS BEFORE THIS TRIBUNAL AND HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THAT ON THE FACT AND IN THE CIRCUMSTANCES OF TH E CASE THE ORDER PASSED BY THE LD. CIT (A) IS BAD IN LAW, VIOLATIVE OF PRINCIPLES OF NATURAL JUSTICE AND VOID -AB- INITIO. 2(A) THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING TH E ACTION OF THE LD. AO IN INVOKING THE PROVISIONS OF SECTION 153C OF THE INCOME TAX ACT PARTICULARLY WHE N THE SATISFACTION NOTE IS ABSOLUTELY DEVOID OF ANY CATEGORIZATION / SPECIFICATION OF UNDISCLOSED INCOM E WITH REFERENCE TO THE DOCUMENTS MENTIONED THEREIN WHICH IS A LEGAL PRE-REQUISITE FOR INVOKING PROVISI ONS OF SECTION 153C OF THE INCOME TAX ACT. B) THAT ON THE FACT AND IN THE CIRCUMSTANCE OF THE CASE THE LD. CIT (A) HAS FAILED TO APPRECIATE THAT IN THE ITA NO. 4134/D/2016 ASSESSMENT YEAR 2008-09 4 IMPUGNED ASSESSMENT ORDER FRAMED U/S 153C OF THE ACT THE ISSUES ON WHICH DISALLOWANCE HAS BEEN MADE HAS NO NEXUS WITH THE ALLEGED MATERIAL UNEARTHED DURING THE COURSE OF SEARCH OPERATIONS AND THEREBY MAKING A DENOVO ASSESSMENT WHICH NEEDS TO BE DELETED. 3(A) THAT THE CIT(A) HAS ERRED IN LAW IN CONFIRMING DISALLOWANCE OF RS.18,78,416/- U/S 14A R.W.R. 8D OF THE INCOME TAX ACT. (B) THE LD. CIT (A) HAD NOT APPRECIATED THE FAC T THAT A DISALLOWANCE OF RS.4,29,931/- HAS BEEN DULY MADE ON A SCIENTIFIC AND SYSTEMATIC BASIS BY APPLYING THE R ATIO OF EXEMPTED TURNOVER TO TOTAL TURNOVER ON TOTAL EXP ENSE CLAIMED IN THE COMPUTATION OF INCOME AND FURTHER DISALLOWANCE HAS BEEN MADE WITHOUT REJECTING THE BASIS ADOPTED BY THE COMPANY. 3.0 THE LD. AUTHORISED REPRESENTATIVE (AR) SUBMITT ED THAT A PERUSAL OF THE ASSESSMENT ORDER PASSED U/S 153C O F THE ACT WOULD SHOW THAT THE DISALLOWANCE MADE U/S 14A OF TH E ACT DOES NOT RELATE TO ANY MATERIAL WHICH WAS FOUND AND SEIZ ED DURING THE COURSE OF SEARCH AND, THEREFORE, RELYING ON THE JUD GMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF PR. C.I.T. VS. KABUL CHAWLA REPORTED IN 380 ITR 573 (DEL.), THE DISALLOW ANCE COULD NOT BE SUSTAINED. THE LD. AR EMPHASISED THAT IF DU RING THE COURSE OF SEARCH, NO INCRIMINATING MATERIAL IS FOUN D, THEN NO ADDITION U/S 153A/153C OF THE ACT COULD BE MADE. T HE LD. AR ALSO DREW OUR ATTENTION TO THE WORKING OF DISALLOWA NCE AMOUNTING TO RS. 4,29,931/- WHICH HAD SUO MOTO BEEN MADE BY THE ASSESSEE ITA NO. 4134/D/2016 ASSESSMENT YEAR 2008-09 5 U/S 14A OF THE ACT AND SUBMITTED THAT EVEN ON MERIT S, THE DISALLOWANCE SUO MOTO MADE BY THE ASSESSEE WAS CORRECT AND NO FURTHER INTERFERENCE/DISALLOWANCE WAS CALLED FOR. 4.0 IN RESPONSE, THE LD. C.I.T. DEPARTMENTAL REPRESENTATIVE (CIT DR) VEHEMENTLY ARGUED THAT ONCE MATERIAL PERTAINING TO THE ASSESSEE HAD BEEN SEIZED, THE ASS ESSING OFFICER WAS WITHIN HIS POWERS TO ASSUME JURISDICTION U/S 15 3C OF THE ACT. THE LD. C.I.T. DR ALSO SUBMITTED THAT IT IS N OT NECESSARY THAT THE DISALLOWANCE SHOULD RELATE TO ANY INCRIMIN ATING MATERIAL FOUND AND SEIZED DURING THE COURSE OF SEARCH. THE LD. C.I.T. DR ALSO PLACED RELIANCE ON THE FINDINGS OF THE LD. C.I .T. (A) IN UPHOLDING THE DISALLOWANCE ON MERITS AND SUBMITTED THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS RIGH TLY UPHELD BECAUSE THE ASSESSEE HAD NOT BEEN ABLE TO FURNISH E VIDENCE TO DEMONSTRATE THAT THE ENTIRE INVESTMENT IN THE SHARE S WAS OUT OF INTEREST FREE /OWN FUNDS OF THE ASSESSEE. 5.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. THE ONLY QUESTION REQ UIRING CONSIDERATION IS WHETHER THE AO COULD HAVE MADE ANY ADDITION DE HORS THE MATERIAL FOUND DURING THE COURSE OF THE SEARCH IN AN ASSESSMENT YEAR WHICH HAVE NOT ABATED. IN THE PRESE NT CASE, IT IS ITA NO. 4134/D/2016 ASSESSMENT YEAR 2008-09 6 AN ADMITTED FACT THAT ON THE DATE OF THE SEARCH I.E . ON 19 TH NOVEMBER, 2010 THE ASSESSMENT FOR THE YEAR UNDER CO NSIDERATION WAS NOT PENDING. IT IS ALSO AN ADMITTED FACT THAT N OTHING INCRIMINATING WAS FOUND DURING THE COURSE OF THE SE ARCH WHICH COULD BE RELATED TO THE DISALLOWANCE MADE BY THE AO U/S 14A OF THE ACT. THE ASSESSMENT ORDER DOES NOT MAKE ANY REF ERENCE TO ANY INCRIMINATING MATERIAL FOUND AND SEIZED DURING THE COURSE OF SEARCH WHICH COULD ESTABLISH SOME KIND OF NEXUS WIT H THE 14A DISALLOWANCE. AT THIS JUNCTURE, REFERENCE MAY BE MA DE TO THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF KABUL CHAWLA (SUPRA). IN PARA 37 OF THIS JUDGEMENT, THE H ONBLE DELHI HIGH COURT HAVE SUMMARIZED THE LEGAL POSITION AS UN DER: 37. ON A CONSPECTUS OF SECTION 153A(1) OF THE ACT, READ WITH THE PROVISOS THERETO, AND IN THE LIGHT OF THE LAW E XPLAINED IN THE AFOREMENTIONED DECISIONS, THE LEGAL POSITION T HAT EMERGES IS AS UNDER: I. ONCE A SEARCH TAKES PLACE UNDER SECTION 132 OF T HE ACT, NOTICE UNDER SECTION 153 A (1) WILL HAVE TO BE MAND ATORILY ISSUED TO THE PERSON SEARCHED REQUIRING HIM TO FILE RETURNS FOR SIX AYS IMMEDIATELY PRECEDING THE PREVIOUS YEAR REL EVANT TO THE AY IN WHICH THE SEARCH TAKES PLACE. ITA NO. 4134/D/2016 ASSESSMENT YEAR 2008-09 7 II. ASSESSMENTS AND REASSESSMENTS PENDING ON THE DA TE OF THE SEARCH SHALL ABATE. THE TOTAL INCOME FOR SUCH A YS WILL HAVE TO BE COMPUTED BY THE AOS AS A FRESH EXERCISE. III. THE AO WILL EXERCISE NORMAL ASSESSMENT POWERS IN RESPECT OF THE SIX YEARS PREVIOUS TO THE RELEVANT AY IN WHI CH THE SEARCH TAKES PLACE. THE AO HAS THE POWER TO ASSESS AND REASSESS THE 'TOTAL INCOME' OF THE AFOREMENTIONED S IX YEARS IN SEPARATE ASSESSMENT ORDERS FOR EACH OF THE SIX YEAR S. IN OTHER WORDS THERE WILL BE ONLY ONE ASSESSMENT ORDER IN RE SPECT OF EACH OF THE SIX AYS IN WHICH BOTH THE DISCLOSED AN D THE UNDISCLOSED INCOME WOULD BE BROUGHT TO TAX. IV. ALTHOUGH SECTION 153 A DOES NOT SAY THAT ADDITI ONS SHOULD BE STRICTLY MADE ON THE BASIS OF EVIDENCE FOUND IN THE COURSE OF THE SEARCH, OR OTHER POST-SEARCH MATERIAL OR INF ORMATION AVAILABLE WITH THE AO WHICH CAN BE RELATED TO THE E VIDENCE FOUND, IT DOES NOT MEAN THAT THE ASSESSMENT CAN BE ARBITRARY OR MADE WITHOUT ANY RELEVANCE OR NEXUS WI TH THE SEIZED MATERIAL. OBVIOUSLY AN ASSESSMENT HAS TO BE MADE UNDER THIS SECTION ONLY ON THE BASIS OF SEIZED MATE RIAL. V. IN ABSENCE OF ANY INCRIMINATING MATERIAL, THE CO MPLETED ASSESSMENT CAN BE REITERATED AND THE ABATED ASSESSM ENT OR REASSESSMENT CAN BE MADE. THE WORD 'ASSESS' IN SECT ION 153 A IS RELATABLE TO ABATED PROCEEDINGS (I.E. THOSE PE NDING ON THE DATE OF SEARCH) AND THE WORD 'REASSESS' TO COMPLETE D ASSESSMENT PROCEEDINGS. ITA NO. 4134/D/2016 ASSESSMENT YEAR 2008-09 8 VI. INSOFAR AS PENDING ASSESSMENTS ARE CONCERNED, T HE JURISDICTION TO MAKE THE ORIGINAL ASSESSMENT AND TH E 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 M ATERIAL EXISTING OR BROUGHT ON THE RECORD OF THE AO. VII. COMPLETED ASSESSMENTS CAN BE INTERFERED WITH B Y THE AO WHILE MAKING THE ASSESSMENT UNDER SECTION 153 A ONL Y ON THE BASIS OF SOME INCRIMINATING MATERIAL UNEARTHED DURING THE COURSE OF SEARCH OR REQUISITION OF DOCUMENTS OR UND ISCLOSED INCOME OR PROPERTY DISCOVERED IN THE COURSE OF SEAR CH WHICH WERE NOT PRODUCED OR NOT ALREADY DISCLOSED OR MADE KNOWN IN THE COURSE OF ORIGINAL ASSESSMENT. 5.1 AS PER PARA (IV) ABOVE IT HAS BEEN HELD THAT TH OUGH SECTION 153A DOES NOT SAY THAT ADDITION SHOULD BE STRICTLY MADE ON THE BASIS OF THE EVIDENCE FOUND IN THE COURSE OF THE SE ARCH, OR OTHER POST SEARCH MATERIAL OR INFORMATION AVAILABLE WITH THE AO WHICH CAN BE RELATED TO THE EVIDENCE FOUND, IT DOES NOT M EAN THAT THE ASSESSMENT CAN BE MADE WITHOUT ANY REFERENCE OR EST ABLISHING ANY NEXUS WITH THE SEIZED MATERIAL. THUS, AS PER TH IS JUDGMENT, THE EXISTENCE OF THE SEIZED MATERIAL FOUND DURING S EARCH IS A MUST FOR MAKING ADDITION IN THOSE ASSESSMENT YEARS WHICH HAVE NOT ABATED. ALTHOUGH THE JUDGMENT OF THE HONBLE DE LHI HIGH COURT WAS RENDERED IN A CASE FALLING UNDER SECTION 153A, BUT ITA NO. 4134/D/2016 ASSESSMENT YEAR 2008-09 9 ESSENTIALLY THE PROVISIONS OF SECTIONS 153A AND 153 C ARE IDENTICAL AND PARI MATERIA AND THE RATIO OF THE JUDGMENT OF THE HONBLE DELHI HIGH COURT WILL APPLY EQUALLY TO A CASE UNDER SECTION 153C OF THE ACT ALSO. 5.2 THE IMPORTANCE OF THE SEIZED MATERIAL BEING FOU ND DURING THE COURSE OF THE SEARCH HAS ALSO BEEN EXPLAINED IN THE SUBSEQUENT JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF PR. COMMISSIONER OF INCOME TAX. VS. MEETA GUTGUT IA REPORTED IN 395 ITR 526 (DELHI). 5.3 IN THE PRESENT CASE, AS STATED HEREINABOVE, THE RE IS NO REFERENCE TO ANY INCRIMINATING MATERIAL, WHATSOEVER , WHICH WAS FOUND DURING THE COURSE OF THE SEARCH AND WHICH COU LD BE RELATED TO THE DISALLOWANCE U/S 14A OF THE ACT. THEREFORE, IN ABSENCE OF ANY INCRIMINATING MATERIAL BEING FOUND DURING THE C OURSE OF THE SEARCH, AS HELD BY THE JURISDICTIONAL DELHI HIGH CO URT, THE AO WILL BE WITHOUT JURISDICTION IN MAKING SUCH AN ADDITION. IT IS THE INCRIMINATING MATERIAL FOUND DURING SEARCH WHICH GI VES JURISDICTION TO THE AO TO MAKE ADDITIONS IN THE ASS ESSMENT PROCEEDINGS IN RESPECT OF ASSESSMENTS WHICH HAVE NO T ABATED. IN THE ABSENCE OF INCRIMINATING MATERIAL IN SUCH CASES , AS HELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF KABUL C HAWLA IN PARA ITA NO. 4134/D/2016 ASSESSMENT YEAR 2008-09 10 37 (V) QUOTED HEREINABOVE, THE COMPLETED ASSESSMENT IS NOT TO BE DISTURBED. 5.4 IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE LD. CIT (A) WAS NOT JUSTIFIED IN REJECTING THE CONTENTIONS OF THE ASSESSEE COMPANY ON THIS ISSUE AND WE HOLD THAT THE ADDITION MADE IN THE ASSESSMENT YEAR UNDER CONSIDERATION WAS BEYOND JURISDICTION AND ACCORDINGLY DIRECT THE AO TO DELET E THE SAME. 5.5 SINCE WE HAVE DECIDED THE ISSUE IN FAVOUR OF TH E ASSESSEE ON THE LEGAL GROUND, THE OTHER GROUNDS RAISED BY THE A SSESSEE COMPANY BECOME ACADEMIC IN NATURE AND HENCE ARE NOT BEING ADJUDICATED UPON. 6. IN THE FINAL RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17.05.2019. SD/- SD/- (G.D. AGRAWAL) (SUDHANSHU SRIVASTA VA) VICE PRESIDENT JUDICIAL MEMBER DATED: 17 TH MAY, 2019 GS ITA NO. 4134/D/2016 ASSESSMENT YEAR 2008-09 11 COPY FORWARDED TO: - 1) APPELLANT 2) RESPONDENT 3) CIT(A) 4) CIT 5) DR BY ORDER ASSTT. REGISTRAR DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P S/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER