THE DCIT, 3(1), Bhopal V. M/s. MADHYA BHARAT PHOSPHATE PVT. LTD.., Bhopal

ITSSA 214/IND/2014

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 1178 (ITAT-INDORE)
• Duration Of Justice: 10 year(s) 1 month(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 03-07-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 14-05-2024
• Assessment Year: 2008-2009
• Appeal Filed On: 03-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM KUMAR YADAV
• Keywords: Bogus Share capital; Search and seizure; Reasonable cause; Block assessment; Onus to prove
• Section: 132; 153A; 113; 153; 153C

Judgement Text

आयकर अपील य अ धकरण, इंदौर यायपीठ, इंदौर IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER IT(SS)A No.196/Ind/2014 (Assessment Year: 2008-09) M/s Madhya Bharat Phosphate Pvt. Ltd. E-7/80, Arera Colony Bhopal Vs. ACIT -3(1) Bhopal (Appellant / Assessee) (Respondent/ Revenue) PAN: AADCM7646D IT(SS)A No.214/Ind/2014 (Assessment Year: 2008-09) ACIT -3(1) Bhopal Vs. M/s Madhya Bharat Phosphate Pvt. Ltd. E-7/80, Arera Colony Bhopal (Revenue) (Respondent) PAN: AADCM7646D Assessee by Shri Sumit Nema, Sr. Adv. Shri Gagan Tiwari, Adv. Revenue by Shri Ram Kumar Yadav, CIT- DR Date of Hearing 15.05.2024 Date of Pronouncement 04.07.2024 O R D E R Per Bench : IT(SS)ANo.196 & 214/Ind/2014 Madhya Bharat Phosphate Pvt. ltd. Page 2 of 12 These cross appeals are directed against the order dated 06.03.2014 of the Commissioner of Income Tax (Appeal)-II, Bhopal for A.Y.2008-09. The assesse as well as the department has raised following grounds of the appeal in their respective appeals: The assesse has raised following grounds of appeal in IT(SS)A No.196/Ind/2014: “01. On the facts and in the circumstances of the case, the Id. CIT(A) was not justified in confirming the disallowance to the extent of 10% under the various heads of expenses like repairs & maintenance, freight and salary to labour & staff. 02.On the facts and in the circumstances of the case, the Id. CIT(A) was not justified in confirming the addition of Rs. 6,00,000/- towards the unsecured loans of e-Gateway India (P) Ltd as made by the assessing officer..” The revenue has raised following grounds of appeal in IT(SS)A No.214/Ind/2014: "On the facts and in the circumstances of the case, the Commissioner of Income Tax (Appeal) has erred in:- 1. Deleting the addition of Rs.2,17,30,000/- made on account of unexplained share capital contributed by Shri Pawan Agrawal, M/s Vision Reality & M/s Orcle Ventures during the A.Υ. 2008- 09. 2. Deleting the addition of Rs. 21,03,913/- made on account of unexplained unsecured loan received from Shri Pawan Agarwal (HUF) & Smt Gunjan Agarwal.” 2. The assesse has also raised an additional ground vide application filed under Rule 11 of ITAT, Rules 1963. The additional grounds raised by the assesse reads as under: IT(SS)ANo.196 & 214/Ind/2014 Madhya Bharat Phosphate Pvt. ltd. Page 3 of 12 “1.That there was no justification for the Ld. CIT (A) to confirm the impugned disallowance to the extent of 10% under various heads & addition of Rs 6,00,000/- on account of unsecured loan since the addition/disallowance is made by the AO merely on the basis of profit and loss and balance sheet of the assessee without there been any incriminating evidence found in search since the assessment for A.Y 2008-09 stood completed on the date of Search i.e. 04/02/2010. 2. That without prejudice to the relief granted by the CIT(A), even in respect of addition of Rs 2,17,30,123 on account of share capital & addition of Rs 21,03,913 on account of unsecured loan, there was no justification for the Assessing officer to make the said additions merely on the basis of balance sheet of the assessee without there been any incriminating evidence found in search since the assessment for A.Y 2008-09 stood completed on the date of search i.e. 04/02/2010” 3. Ld. Sr. counsel has submitted that the additional grounds raised by the assesse are purely legal in nature and the issue goes to the root of the matter. He has further submitted that the additional grounds can be adjudicated on the basis of the facts and material already available on record and no new fact or record is required to be verified or to be considered for adjudication of the additional ground. Therefore, the Ld. Sr. counsel has submitted that the additional grounds raised by the assesse be admitted for adjudication in view of the judgment of Hon’ble Supreme Court in case of NTPC vs. CIT 229 ITR 383 (SC). 4. On the other hand, ld. DR has objected to the admission of the additional grounds and submitted that the assesse has not explained the reasonable cause for not raising the issue before the authorities below. IT(SS)ANo.196 & 214/Ind/2014 Madhya Bharat Phosphate Pvt. ltd. Page 4 of 12 5. We have considered the rival submissions as well as relevant material on record. There is no dispute that the additional ground raised by the assesse is purely legal in nature and also goes to the root of the matter. We further note that for adjudication of the additional ground no new facts or record is required to be verified or investigated but it can be decided by considering facts and material already on record of the AO. Therefore, in view of the judgment of Hon’ble Supreme Court in case of NTPC vs. CIT(supra) the additional ground raised by the assesse admitted for adjudication. Adjudication of Additional ground 6. Ld. Sr. counsel has submitted that there was a search and seizure action u/s 132 of the Act on 04.02.2010 pursuant to which the AO initiated the proceedings u/s 153A and made various additions for A.Y.2008-09 on account of unsecured loan, share capital contributed by Shri Pawan Agrawal Ishan Joshi, vision Reality Pvt. Ltd. and Oracle Ventures and adhoc disallowance of expenses which was restricted by the CIT(A) at 20%. Ld. Sr. Counsel has further submitted that the assessment for A.Y.2008-09 was not pending as on the date of search and seizure operation and therefore, it has not got abated by virtue of search and seizure action. He has referred to para 6 to 6.3 of the assessment order and submitted while making these additions the AO has not made any reference to any incriminating material found or seized during the course of search and seizure action but the additions were made on IT(SS)ANo.196 & 214/Ind/2014 Madhya Bharat Phosphate Pvt. ltd. Page 5 of 12 the basis of the entries in the books of account of the assesse. Thus, the Ld. Sr. counsel has submitted that the additions made by the AO are not sustainable in law and liable to be deleted in absence of any incriminating material. He has relied upon judgment of Hon’ble Supreme Court in case of Pr. CIT vs. Abhisar Buildwell Pvt. Ltd. 454 ITR 212. 7. On the other hand, Ld. DR has submitted that the assesse has failed to discharge its onus to prove the identity, creditworthiness of the creditors and genuineness of the transactions so far as the unsecured loans and share application money are concerned. Further the assesse also failed to produce the evidence to substantiate the claim of expenditure and consequently the AO has disallowed the claim of assesse on account of share capital, unsecured loan as well as expenses. Ld. DR has relied upon the order of the AO. 8. We have considered the rival submissions as well as relevant material on record. The assessment was framed by the AO u/s 153A and the details of the filing of return of income by the assesse u/s 139 as well as in response to notice u/s 153A are given by the AO in para 3 of the assessment order as under: A.Y. Date of filing of original return Returned income (loss) Date of filing return u/s 153A Returned income u/s 153A Income surrendered 2004-05 26.10.2004 (918348) 03.06.2011 (918350) NIL IT(SS)ANo.196 & 214/Ind/2014 Madhya Bharat Phosphate Pvt. ltd. Page 6 of 12 2005-06 27.10.2005 (16366640 03.06.2011 (1515087) NIL 2006-07 17.11.2006 71346 03.06.2011 NIL NIL 2007-08 07.11.2007 NIL 03.06.2011 NIL NIL 2008-09 28.09.2008 ? 03.06.2011 65200 NIL 2009-10 25.09.2009 6036380 03.06.2011 6113155 NIL 8.1 Therefore, the assessment for A.Y.2008-09 was not pending as on the date of search i.e 04.02.2010 and hence, the AO cannot disturb non-abated assessment except incriminating material found and seized during the course of search and seizure action in the case of the assessee. The AO has given reference of two searches one at the residential premises of Shri Pawan Agrawal and another at the factory-cum-office premises of the assessee however, the documents referred by the AO have not disclosed any new fact or transactions which is not recorded in the books of account of the assesse. All the transactions in respect of unsecured loan and contribution of share application are part of books of account reflected in the balance sheet of the assesse and therefore, the additions made by the AO were not based on any incriminating material found during the course of search and seizure action. It is pertinent to note that any material found in the course of search IT(SS)ANo.196 & 214/Ind/2014 Madhya Bharat Phosphate Pvt. ltd. Page 7 of 12 and seizure of person other than assessee the same cannot be used in the proceedings u/s 153A but the AO is required to initiate the proceedings u/s 153C on the basis of the material so found in the search of another person and transmitted to the AO. Accordingly so far as the proceedings u/s 153A are concerned the AO cannot make any addition for the completed assessment in the absence of any incriminating material found and seized during the course of search and seizure action u/s 132 or requisition u/s 132A of the Act. This issue is now covered by the judgment of Hon’ble Supreme Court in case of Pr. CIT vs. Abhisar Buildwell Pvt. Ltd.(supra) wherein the Hon’ble Apex Court has held in para 9 to 14 as under: “9. While considering the issue involved, one has to consider the object and purpose of insertion of Section 153A in the Act, 1961 and when there shall be a block assessment under Section 153A of the Act, 1961. 9.1 That prior to insertion of Section 153A in the statute, the relevant provision for block assessment was under Section 158BA of the Act, 1961. The erstwhile scheme of block assessment under Section 158BA envisaged assessment of ‘undisclosed income’ for two reasons, firstly that there were two parallel assessments envisaged under the erstwhile regime, i.e., (i) block assessment under section 158BA to assess the ‘undisclosed income’ and (ii) regular assessment in accordance with the provisions of the Act to make assessment qua income other than undisclosed income. Secondly, that the ‘undisclosed income’ was chargeable to tax at a special rate of 60% under section 113 whereas income other than ‘undisclosed income’ was required to be assessed under regular assessment procedure and was taxable at normal rate. Therefore, section 153A came to be inserted and brought on the statute. Under Section 153A regime, the intention of the legislation was to do away with the scheme of two parallel assessments and tax the ‘undisclosed’ income too at the normal rate of tax as against any special rate. Thus, after introduction of Section 153A and in case of search, there shall be block assessment for six years. Search assessments/block assessments under Section 153A are triggered by conducting of a valid search under Section 132 of the Act, 1961. The very purpose of search, which is a prerequisite/trigger for invoking the provisions of sections 153A/153C is detection of undisclosed income by undertaking extraordinary power of IT(SS)ANo.196 & 214/Ind/2014 Madhya Bharat Phosphate Pvt. ltd. Page 8 of 12 search and seizure, i.e., the income which cannot be detected in ordinary course of regular assessment. Thus, the foundation for making search assessments under Sections 153A/153C can be said to be the existence of incriminating material showing undisclosed income detected as a result of search. 10. On a plain reading of Section 153A of the Act, 1961, it is evident that once search or requisition is made, a mandate is cast upon the AO to issue notice under Section 153 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 previous year in which such search is conducted or requisition is made and assess or reassess the same. Section 153A of the Act reads as under: “153A. Assessment in case of search or requisition - (1) Notwithstanding anything contained in Section 139, Section 147, Section 148, Section 149, Section 151 and Section 153, in the case of a person where a search is initiated under Section 132 or books of account, other documents or any assets are requisitioned under Section 132-A after the 31st day of May, 2003, the Assessing Officer shall— (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made: Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub-section pending on the date of initiation of the search under Section 132 or making of requisition under Section 132-A, as the case may be, shall abate. (2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or Section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub- section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner: Provided that such revival shall cease to have effect, if such order of annulment is set aside Explanation.—For the removal of doubts, it is hereby declared that,— (i) save as otherwise provided in this section, Section 153- B and Section 153-C, all other provisions of this Act shall apply to the assessment made IT(SS)ANo.196 & 214/Ind/2014 Madhya Bharat Phosphate Pvt. ltd. Page 9 of 12 under this section; (ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year.” 11. As per the provisions of Section 153A, in case of a search under Section 132 or requisition under Section 132A, the AO gets the jurisdiction to assess or reassess the ‘total income’ in respect of each assessment year falling within six assessment years. However, it is required to be noted that as per the second proviso to Section 153A, the assessment or re- assessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under Section 132 or making of requisition under Section 132A, as the case may be, shall abate. As per sub-section (2) of Section 153A, if any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to subsection (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner. Therefore, the intention of the legislation seems to be that in case of search only the pending assessment/reassessment proceedings shall abate and the AO would assume the jurisdiction to assess or reassess the ‘total income’ for the entire six years period/block assessment period. The intention does not seem to be to re-open the completed/unabated assessments, unless any incriminating material is found with respect to concerned assessment year falling within last six years preceding the search. Therefore, on true interpretation of Section 153A of the Act, 1961, in case of a search under Section 132 or requisition under Section 132A and during the search any incriminating material is found, even in case of unabated/completed assessment, the AO would have the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material collected during the search and other material which would include income declared in the returns, if any, furnished by the assessee as well as the undisclosed income. However, in case during the search no incriminating material is found, in case of completed/unabated assessment, the only remedy available to the Revenue would be to initiate the reassessment proceedings under sections 147/48 of the Act, subject to fulfilment of the conditions mentioned in sections 147/148, as in such a situation, the Revenue cannot be left with no remedy. Therefore, even in case of block assessment under section 153A and in case of unabated/completed assessment and in case no incriminating material is found during the search, the power of the Revenue to have the reassessment under sections 147/148 of the Act has to be saved, otherwise the Revenue would be left without remedy. IT(SS)ANo.196 & 214/Ind/2014 Madhya Bharat Phosphate Pvt. ltd. Page 10 of 12 12. If the submission on behalf of the Revenue that in case of search even where no incriminating material is found during the course of search, even in case of unabated/completed assessment, the AO can assess or reassess the income/total income taking into consideration the other material is accepted, in that case, there will be two assessment orders, which shall not be permissible under the law. At the cost of repetition, it is observed that the assessment under Section 153A of the Act is linked with the search and requisition under Sections 132 and 132A of the Act. The object of Section 153A is to bring under tax the undisclosed income which is found during the course of search or pursuant to search or requisition. Therefore, only in a case where the undisclosed income is found on the basis of incriminating material, the AO would assume the jurisdiction to assess or reassess the total income for the entire six years block assessment period even in case of completed/unabated assessment. As per the second proviso to Section 153A, only pending assessment/reassessment shall stand abated and the AO would assume the jurisdiction with respect to such abated assessments. It does not provide that all completed/unabated assessments shall abate. If the submission on behalf of the Revenue is accepted, in that case, second proviso to section 153A and subsection (2) of Section 153A would be redundant and/or rewriting the said provisions, which is not permissible under the law. 13. For the reasons stated hereinabove, we are in complete agreement with the view taken by the Delhi High Court in the case of Kabul Chawla (supra) and the Gujarat High Court in the case of Saumya Construction (supra) and the decisions of the other High Courts taking the view that no addition can be made in respect of the completed assessments in absence of any incriminating material. 14. In view of the above and for the reasons stated above, it is concluded as under: i) that in case of search under Section 132 or requisition under Section 132A, the AO assumes the jurisdiction for block assessment under section 153A; ii) all pending assessments/reassessments shall stand abated; iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. However, the completed/unabated assessments can be IT(SS)ANo.196 & 214/Ind/2014 Madhya Bharat Phosphate Pvt. ltd. Page 11 of 12 re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved. The question involved in the present set of appeals and review petition is answered accordingly in terms of the above and the appeals and review petition preferred by the Revenue are hereby dismissed. No costs.” 9. Accordingly by following the judgment of Hon’ble Supreme Court we hold that the addition made by the AO on account of unsecured loan, share capital and adhoc disallowance of expenditure in absence of any incriminating material for A.Y.2008- 09 not pending on the date of search are not sustainable in law and liable to be deleted. We order accordingly. 10. Since the additions made by the AO are not sustainable on legal point therefore, we do not propose to go into merits of the issues raised by the assesse as well as department in the cross appeals. 11. In the result, appeal of the assesse is allowed & appeal of the revenue is dismissed. Order pronounced in the open court on 04 .07.2024. Sd/- Sd/- (B.M. BIYANI) (VIJAY PAL RAO) Accountant Member Judicial Member Indore,_ 04 .07.2024 Patel/Sr. PS IT(SS)ANo.196 & 214/Ind/2014 Madhya Bharat Phosphate Pvt. ltd. Page 12 of 12 Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore