Swaraj Syntex Private Limited , Tantithaiya V. D.C.I.T.,CC-2(2), Kolkata

ITSSA 82/KOL/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 3781 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 26-06-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 10-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Search and seizure; Document seized; Principle of natural justice; Corroborative evidences; Retraction; Documents seized
• Section: 68; 263; 132; 143(3); 133A; 153A; 143(1); 250; 143(2); 64; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH KOLKATA Before Shri Sanjay Garg, Judicial Member and Shri Girish Agrawal, Accountant Member I.T(SS). No.82/Kol/2019 Assessment Year: 2012-13 Swaraj Syntex Pvt. Ltd.................. .........................................................Appellant Plot No.107, Sivanand Industrial Estate, Kadodara- Bardoli Road, Village: Tantithaiya, Taluka-Palsana, Surat, Gujarat-394327 [PAN:AADCS3539A] vs. DCIT, CC-2(2), Kolkata....................................................................Respondent Appearances by: Shri A.K. Tibrewal, FCA, appeared on behalf of the appellant. Shri Amol Kamat, CIT-DR, appeared on behalf of the Respondent. Date of concluding the hearing : March 29, 2022 Date of pronouncing the order : June 27, 2022 ORDER Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the assessee against the order dated 11.09.2019 of the Commissioner of Income Tax(Appeals)-20, Kolkata [hereinafter referred to as ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’). The assessee in this appeal has taken the following grounds of appeal: “1. That, on the facts and in the circumstances of the case, the Assessment Order dated 31 March, 2016 passed by Deputy Commissioner of Income Tax, Central Circle-2(2), Kolkata under section 153A/143(3) of the Income Tax Act, 1961 and sustained by the Ld. Commissioner of Income Tax (Appeals)-20, Kolkata is without jurisdiction, legal, invalid, bad-in-law, perverse and/or unreasonable being contrary to facts on record and settled principles of law and natural justice. 2. That the Ld. Commissioner of Income Tax (appeals) erred in upholding the impugned assessment order dated 31s March 2016 passed under section 153A/143(3) of the Act when no proceedings were pending for the AY 2012-13 on the date of initiation of search and therefore the assessment for the said year did not abate within the meaning of second Proviso to section 132(1) of the Act and therefore erred in disturbing the originally assessed income in absence of any incriminating document found in course of search. I.T.A. No.82/Kol/2019 Assessment Year: 2012-13 SwarajSyntex Pvt. Ltd 2 3 That, on the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs. 2,60,00,00 made by the Assessing Officer as unexplained cash credit under section 68 of the Income Tax Act 1961 which sum represented amounts received by the Appellant Company towards share capital and share premium raised during the financial year ending 31st March, 2012 corresponding to Assessment Year 2012-13. 4. That the Ld. Commissioner of Income Tax (Appeals) erred in confirming the aforesaid additions which were made by the AO solely relying on the disclosure petition Submitted in consequence to the search operations at "Vikram Group" ignoring the all the evidences furnished by it to discharge the initial onus cast upon it under section 68 of the Act. 5. That the Ld. Commissioner erred in not accepting the fact that the said statements made by the directors at the time of search were subsequently retracted and that the assessee did not include the disclosed amount in the return of income filed by it under section 153A of the Act which itself constitutes retraction of the statement made under section 132(4) of the Act. 6 That the Learned Commissioner of Income Tax (Appeals) erred in confirming the aforesaid addition of Rs.2,60,00,000 without properly appreciating the pleadings before him and written submissions of the Appellant Company and various judgments referred to and relied on by it in support of its grounds of Appeal before him. 7 That the impugned order passed by Learned Commissioner of Income Tax (Appeals) confirming the addition of Rs.2,60,00,000 is perverse based on irrelevant grounds without considering the relevant materials and evidences on record. 8 That the Learned Commissioner of Income Tax (Appeals) erred in confirming the aforesaid addition of Rs.2,60,00,000 relying on the judgment of Hon'ble Calcutta High Court in the case of Rajmandir Estates Pvt. Ltd v. Pr. CIT which judgment considered the jurisdiction of Commissioner of Income Tax under section 263 of the Act and not on the merits of addition of share capital and share premium under section 68. 9 That the Learned Commissioner of Income Tax (Appeals) erred in confirming the aforesaid addition of Rs.2,60,00,000 ignoring various court decisions which inter alia included the binding judgments of Jurisdictional High Court and Jurisdictional Tribunal relied on by the Appellant Assessee Company in its oral and written submissions made before him during the course of hearing of the Appeal case. 10 That the Ld. Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.1,30,000 being alleged commission expenditure on the alleged ground that the appellant company incurred such expenditure for arranging share capital of Rs.2,60,00,000 although no such expenses were incurred by the appellant company. 11 That the appellant company craves leave to adduce additional grounds and/or amend or withdraw any of the aforesaid grounds before, or at the time of hearing of appeal.” I.T.A. No.82/Kol/2019 Assessment Year: 2012-13 SwarajSyntex Pvt. Ltd 3 4. The Ld. Counsel for the assessee has submitted that since grounds No.2 & 5 are legal grounds, the same should be adjudicated first. The Ld. DR has not objected to the same. Hence, we have heard on the legal issue raised vide grounds No.2& 5 of the appeal. 5. The brief facts of the case are that the assessee is a company engaged in the business of manufacturing of yarn and fabric.The assessee company filed the return of income for the assessment year under consideration declaring loss of Rs. 4823091. The return was processed under section 143(1) of the Act. Later on a search and seizure operation u/s 132 and survey operation u/s 133A of the Income Tax Act, 1961 was conducted on 07/11/2013 at the residence, offices, factories and other business concerns of the Vikram Group and at the lockers maintained in the name of individual assessees with various banks. Search operation was also conducted at the office premises of assessee M/S SwarajSyntex Pvt. Ltd. No proceedings were pending in respect of relevant assessment year 2012-13 on the date of search. The last date for initiation of scrutiny assessment by issue of notice u/s 143(2) was 30.09.2013 which stood expired on the date of search. During the search, no incriminating document or asset, whatsoever, was found in the case of the assessee. However, the promoters and directors of the assessee company in a joint declaration of income declared I.T.A. No.82/Kol/2019 Assessment Year: 2012-13 SwarajSyntex Pvt. Ltd 4 income of Rs.25,08,22,057/- in the hands of four group companies. The said disclosed amount, inter alia, included a sum of Rs.26000000/- disclosed in the case of the assessee company on account of share capital received by the company from seven corporate share applicants. However, while filing the return of income for the A.Y. 2012-13, the assessee company did not disclose any such declared income in respect of the aforesaid share capital amounting to Rs.2.60 crore. During the assessment proceedings carried out u/s 153A read with 143(3) of the Act the Assessing Officer called for explanation in this respect from the assessee. The assessee in this respect explained that the sum of Rs.2,60,00,000 was declared as undisclosed income of the assessee company for the assessment year 2012-13 under a mistaken belief that the assessee company would be required to prove the source of source of the share capital issued by the company at premium. That the said disclosure was made since the assessee felt that the amendment brought by Finance Act, 2012 with effect from 01.04.2013 i.e. for the assessment year 2013-14 in sec. 68 would have a retrospective effect and the company may not be able to prove the source of the source of the share applicants. However, later on the assessee has been advised that the said amendment could not be made effective from the assessment year 2013- 14 and would not apply retrospectively. I.T.A. No.82/Kol/2019 Assessment Year: 2012-13 SwarajSyntex Pvt. Ltd 5 It was further submitted that the assesseewasat this stage was in a position to disclose all required details regarding the source of the source of share applicants. Since, all details were available at assessment stage (during assessment proceedings) which were not available at the short time period within which the disclosure petition had to be submitted and owing to continuous pressure and undue coercion to provide details regarding source of the source, identity, genuineness and creditworthiness of such parties, the share capital amount taken from such parties were offered for taxation. It was further explained that all the entries of share application money received by the Company have been recorded in the regular books of account maintained by it and the source of the share application money received from the share applicants could be explained. That the assessee company has in its possession all the materials and evidences of the names, addresses and PAN of the share applicants and also in possession of the HR acknowledgments, audited Balance Sheet and Profit & Loss account. Bank accounts etc. in support of the claim of receipt of share application moneys. The share application moneys were received by the Company through banking channels and the share applicants are all assessed to tax. It was further explained that the assessee company was having substantial business operations and was engaged in the business of job I.T.A. No.82/Kol/2019 Assessment Year: 2012-13 SwarajSyntex Pvt. Ltd 6 working of dyeing & printing of fabrics and embroidery work on job work basis. The business of the company was increasing and the hence the company was in need of funds to acquire assets/bridge the gap in working capital. It was submitted that the assessee company had sufficient asset base to justify the issue of share at premium of Rs.240/- per share.That the share applicants have accepted to have given share capital including premium to the assessee company. It was also contended that even no incriminating material was found during the search action and that merely on the statement of the promoters, in the absence of other corroborative evidences, no adverse inference could draw against the assessee. The assessee also enclosed all the evidences in respect of share capital such as the Confirmation Letters, the ITR of the share applicants, the copy of their bank accounts from where they have given share capital including premium to us, copy of their Balance Sheet and Profit & Loss account in support of the proof of identity, creditworthiness and the genuineness of the transactions. However,the Ld. Assessing Officer took note of the fact that during the search action, the promoters of the assessee company themselves had surrendered the amount in respect of the share capital received by the assessee.That there was no pressure or coercion on the date of recording of statement during the search, for admission of undisclosed income. I.T.A. No.82/Kol/2019 Assessment Year: 2012-13 SwarajSyntex Pvt. Ltd 7 The Assessing Officer, therefore, held that the assessee was bound by the said statement / confession He, accordingly, made the additions in the assessment carried out u/s 153A of the Act. 6. Beingaggrieved by the above order of the Assessing Officer, the assessee preferred appeal before the Ld. CIT(A) and pleaded that since no incriminating material was found during the search action, hence, no addition could have been made by the Assessing Officer to the income of the assessee in the already concluded assessment. However, the Ld. CIT(A) did not agree with the above contention of the assessee and dismissed the appeal of the assessee by confirming the additions so made by the Assessing Officer. 7. Being aggrieved by the order of the CIT(A), the assessee has comeinappeal before us. 8. We have heard the rival contentions of the Ld. Authorized Representatives of both the parties and have also gone through the record.After going through the impugned order of the Assessing Officer andof the CIT(A),we find that no incriminating material was found during the course of search action at the premises of the assessee. The information relating to the receipt of share capital was already furnished by the assessee in the original return of income, which was processed u/s 143(1) of the Act. The time period for issuing notice u/s I.T.A. No.82/Kol/2019 Assessment Year: 2012-13 SwarajSyntex Pvt. Ltd 8 143(2) had already expired and the return filed by the assessee had attained finality or to saythat assessment for the year under consideration had already been concluded and not abated as on the date of search. The Ld. Assessing Officer has solely relied upon the surrender statement of the promoters of the assessee company. However, no incriminating documents directly reflecting the entries of the bogus share application money were either found during searchaction or otherwise during the post search assessment proceedings. The assessee in this case has relied upon the various judicial decisions including the decision of the Hon'ble Bombay High Court in the case of ‘CIT Vs. Murli Agro Products Pvt Ltd’, (2014) 49 taxman.com 172 (Bom.), ITA No.36 of 2009 and in the case of ‘CIT Vs. Continental Warehousing Corporation’ ITA No. 523 of 2013 reported in (2015) 279 CTR 0389 (Bombay) and of the Hon'ble Delhi High Court in the case of ‘CIT Vs. Kabul Chawla’ 234 Taxman 300 (Delhi) and subsequent decision of the Delhi High Court in the case of ‘Principal CIT Vs. MeetaGutgutia Prop M/s Ferns ‘N’ Petals”, ITA 306/2017 and others decided vide order dated 25.5.2017and even of the Jurisdictional High of Calcutta in the cases of ‘CIT vsVeerprabhu Marketing Ltd.’ [2016]73 taxmann.com149(Calcutta) and ‘PCIT vs M/s. Salasar Stock Broking Ltd.’ ITA No.264 of 2016 vide order dated 24.08.2016 , wherein, the Hon'ble High Courts have been unanimous to hold that if no I.T.A. No.82/Kol/2019 Assessment Year: 2012-13 SwarajSyntex Pvt. Ltd 9 incriminating material is found during the search action, the addition in the case of already concluded assessment cannot be made while framing assessment u/s 153A of the Act. 9. So far as the reliance of the Assessing Officer on the statement made by the promoters of the assessee companyduring the search action u/s 132(4) of the Act is concerned, it has been held time and again by various Courts of law that such a statement recorded u/s 132(4) of the Act on a stand-alone basis without reference to any other incriminating material found during search operation will not have an evidentiary value and the same cannot be made the sole basis for making the addition in to the income of the assessee. The Hon'ble Delhi High Court in the case of ‘Pr. CIT vs Best Infrastructure (India) Pvt. Ltd’ has observed that the statement recorded u/s 132(4) of the Act do not themselvesconstitute incriminating material. The Hon'ble Delhi High Court in this respect had also distinguished the decision of the Delhi High Court in the case of ‘Smt. Dayawanti Guptavs CIT’ [2016] 390 ITR 496. The relevant part of the observationsmade are reproduced 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. HarjeevAggarwal(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 I.T.A. No.82/Kol/2019 Assessment Year: 2012-13 SwarajSyntex Pvt. Ltd 10 critical aspects, of failure to maintain accounts and admission that the seized documents reflected transactions of unaccounted sales and purchases, is non-existent 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. AnuAggarwal 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.” Further, The Hon’ble A.P. High Court in the case of “Naresh Kumar Agarwal” (2015) 53 taxmann.com 306 (Andhra Pradesh) has observed that where, in the absence of any incriminating material etc. found from the premises of the assessee during the course of search, statement of assessee recorded under section 132(4) would not have any evidentiary value. Similar view has been adopted by the Jaipur bench of the Tribunal in the case of “Shree Chand Soni vs. DCIT” (2006) 101 TTJ 1028 (Jodhpur). The Hon’ble Delhi High Court in the case of “CIT vs. HarjeevAgarwal” in ITA No.8/2004 vide order dated 10.03.16 has observed that a statement made under section 132(4) of the Act on a stand-alone basis, without reference to any other material discovered during search and seizure operation, would not empower the AO to make I.T.A. No.82/Kol/2019 Assessment Year: 2012-13 SwarajSyntex Pvt. Ltd 11 a block assessment merely because any admission was made by the assessee during search operation. In the case of “Commissioner of Income Tax vs. Sunil Agarwal” (2015) 64 taxman.com 107 (Delhi-HC), the assessee therein, during the course of search, made a categorical admission under section 132(4) of the Act that the cash amount seized belonged to him and it represented undisclosed income not recorded in the books of accounts. The assessee did not immediately retract from the above admission but only during the assessment proceedings at a belated stage. In his retraction, the assessee stated that the surrender was made under a mistaken belief and without looking into books of account and without understanding law and that he had been compelled and perturbed by events of search and that the pressure of search was built so much that he had to make the surrender without having actual possession of the assets or unexplained investments or expenses incurred and that there was no such income as undisclosed. The Hon’ble Delhi High Court, after considering the fact and circumstances of the case, while dismissing the appeal of the revenue, observed that though the fact that the assessee may have retracted his statement belatedly, yet, it did not relieve the AO from examining the explanation offered by the assessee with reference to the books of account produced before him. Although, a statement under section 132(4) of the Act carries much greater weight than the statement I.T.A. No.82/Kol/2019 Assessment Year: 2012-13 SwarajSyntex Pvt. Ltd 12 made under section 133A of the Act, but a retracted statement even under section 132(4) of the Act would require some corroborative material for the AO to proceed to make additions on the basis of such statement. In the case of “BasantBansal vs. ACIT” reported in (2015)63 taxmann.com 199 (Jaipur Trib.), having somewhat similar facts, the assessee therein, during the search and seizure action u/s 132 of the Act, offered a summary discloser of income as undisclosed and the department accepted the summary surrender of income and thereafter advance tax for the said surrendered of income was also deposited, but thereafter it was contended by the assessee that the surrender was made under threat or coercion and that no incriminating material was found during the search action. The stand of the department was that the admission was voluntary and was not under a mistaken belief of fact or law and that the assistance had enough time to go through the facts of their case, law applicable in their case and take advice from their counsels and advisors before filing the letter of surrender of undisclosed/unaccounted income and that the admission by them was final and binding on them; The co-ordinate Jaipur Bench of the Tribunal, after overall appreciation of the fact and evidences before it, observed that the assessee’s surrender was not based on any incriminating material and that the discloser being not voluntary and I.T.A. No.82/Kol/2019 Assessment Year: 2012-13 SwarajSyntex Pvt. Ltd 13 extracted by the department in creating a coercive situation cannot be relied solely to be basis of addition as undisclosed income. The co- ordinate bench of the Tribunal while relying upon various case laws of the higher authorities observed that it is well settled legal position that merely on the basis of a statement which is not supported by the department with cogent corroborative material cannot be a valid basis for sustaining such ad-hoc addition. The co-ordinate Jaipur Bench of the Tribunal (supra) further observed that the issue of existence of pressure, threat, coercion during search proceedings is to be judged by reference to the existing facts and circumstances, human conduct and preponderance of possibilities. During the search proceedings, record relating thereto being in exclusive custody of the searching officers, it is their wish and will which prevails during the fateful period. That it is almost impossible for the assessee to adduce demonstrative evidence of exerting such pressure. The co-ordinate bench of the Tribunal (supra) while holding so, apart from relying upon various decisions of the higher courts has also relied upon the decision of the Tribunal in the case of “Dy. CIT vs. Pramukh Builders” (2008) 112 ITD 179 (Ahd.) wherein it has been held that even in the absence of proof of coercion or pressure, the statement by itself cannot be taken as conclusive. Therefore, merely in the absence of proof of pressure, threat, coercion I.T.A. No.82/Kol/2019 Assessment Year: 2012-13 SwarajSyntex Pvt. Ltd 14 or inducement the statement cannot be held as conclusive and additions cannot be made by solely relying on a statement or a letter. 12. Even the CBDT Letter No.286/2/2003-IT(Inv.) dated Oct 3, 2003 in this respect read as under: “To The Chief Commissioners of Income Tax, (Cadre Contra)&All Directors General of Income Tax Inv. Sir, Subject: Confession of additional Income during the course of search & seizure and survey operation – regarding Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, on confessions during the course of search & seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income Tax Departments. Similarly, while recording statement during the course of search it seizures and survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely. Further, in respect of pending assessment proceedings also, assessing officers should rely upon the evidences/materials gathered during the I.T.A. No.82/Kol/2019 Assessment Year: 2012-13 SwarajSyntex Pvt. Ltd 15 course of search/survey operations or thereafter while framing the relevant assessment orders Yours faithfully,” 13. A perusal of the above circular also shows that it is in the notice of the statutory controlling body of the Income Tax Authorities that the revenue officials are used to take confessional statements from the person searched under force, pressure or threat and that is why they have made it mandatory that additions solely on the basis on such statements should not be made and that corroborative evidences should be collected or obtained before making such additions. The circular of the CBDT is binding on the revenue officials. In the facts and circumstances of this case, when seen in the light of above case laws and CBDT circular, additions in this case cannot be said to be justifiably made. The Jurisdictional Calcutta High Court in the case of PCIT vsShri Kant Prasad Kedia IA NO.GA/2/2018 vide order dated 15.02.2022 has taken the note of the above circular issued by the CBDT and has decided the issue in favour of the assessee. In the light of the legal position as noted above,the addition made by the lower authorities is not sustainable and the same is ordered to be deleted. The appeal of the assessee is hereby allowed.If the assessee has I.T.A. No.82/Kol/2019 Assessment Year: 2012-13 SwarajSyntex Pvt. Ltd 16 already paid any taxes in respect of the impugned addition, the same be refunded to the assessee. Kolkata, the 27 th June, 2022. Sd/- Sd/- [Girish Agrawal] [Sanjay Garg] Accountant Member Judicial Member Dated: 27.06.2022. RS Copy of the order forwarded to: 1.Swaraj Syntex Pvt. Ltd 2. DCIT, CC-2(2), Kolkata 3. CIT(A)- 4. CIT- , 5. CIT(DR), //True copy// By order Assistant Registrar, Kolkata Benches